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PROSPECTUS
January 11, 2001
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 TrustSM
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
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Table of Contents
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<TABLE>
<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..................................... 12
The Variable Account...................................................... 12
The Portfolios............................................................ 13
Your Right to Vote Portfolio Shares....................................... 14
The Policy.................................................................. 15
Purchasing a Policy....................................................... 15
When Insurance Coverage Takes Effect...................................... 15
Extending the Maturity Date............................................... 15
Ownership Rights.......................................................... 16
Changing the Owner...................................................... 16
Selecting and Changing the Beneficiary.................................. 16
Assigning the Policy.................................................... 16
Canceling a Policy........................................................ 17
Premiums.................................................................... 17
Premium Payments.......................................................... 17
Allocating Premiums....................................................... 19
Policy Values............................................................... 20
Cash Value................................................................ 20
Growth Accelerator........................................................ 20
Cash Surrender Value...................................................... 20
Subaccount Value.......................................................... 20
Unit Value................................................................ 21
Fixed Account Value....................................................... 21
Charges and Deductions...................................................... 22
Premium Expense Charge.................................................... 22
Monthly Deduction......................................................... 22
Cost of Insurance....................................................... 23
Monthly Policy Charge................................................... 23
Daily Charge.............................................................. 23
Surrender Charge.......................................................... 24
Partial Surrender Charge.................................................. 24
</TABLE>
<TABLE>
<S> <C>
Transfer Charge........................................................... 24
Portfolio Expenses........................................................ 24
Death Benefit............................................................... 25
Death Benefit............................................................. 25
Accelerated Death Benefit Rider........................................... 25
Payment Options........................................................... 26
Full and Partial Surrenders................................................. 26
Full Surrenders........................................................... 26
Partial Surrenders........................................................ 27
Transfers................................................................... 27
Dollar Cost Averaging..................................................... 28
Asset Rebalancing Program................................................. 29
Loans....................................................................... 30
Collateral................................................................ 30
Interest Rate............................................................. 31
Policy Lapse and Reinstatement.............................................. 31
Lapse..................................................................... 31
Reinstatement............................................................. 32
Federal Tax Considerations.................................................. 32
Other Policy Information.................................................... 35
Our Right to Contest the Policy........................................... 35
Suicide Exclusion......................................................... 35
Misstatement of Age or Sex................................................ 35
Modifying the Policy...................................................... 35
Payments We Make.......................................................... 36
Reports to Owners......................................................... 36
Records................................................................... 36
Policy Termination........................................................ 36
Performance Data............................................................ 37
Additional Information...................................................... 45
Sale of Policies.......................................................... 45
Associate Policies........................................................ 45
Legal Matters............................................................. 45
Legal Proceedings......................................................... 45
Experts................................................................... 45
Financial Statements...................................................... 46
Additional Information about PFL Life Insurance Company................... 46
PFL's Executive Officers and Directors.................................... 47
Illustrations............................................................... 48
</TABLE>
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Glossary
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Cash Value
The sum of your Policy's value in the subaccounts and the fixed account
(including amounts held in the fixed account to secure any loans).
Cash Surrender Value
The amount we pay when you surrender your Policy. It is equal to: (1) the Cash
Value as of the date of surrender; minus (2) any surrender charge; minus (3)
any outstanding Policy loan; minus (4) any loan interest you owe.
Death benefit proceeds
The amount we will pay to the beneficiary when we receive proof of the
insured's death. We will reduce the proceeds by the amount of any outstanding
loans (including any interest you owe), and any due and unpaid monthly
deductions.
Initial premium
The amount you must pay before insurance coverage begins under this Policy.
Your Policy's schedule page shows the initial premium. It must be at least
$10,000.
Insured
The person whose life is insured by this Policy.
Lapse
If the Policy has an outstanding loan and 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 Accelerated Death Benefit Rider
Premium and the premium expense charge.
Office
Our administrative and service office is Financial Markets Division, P.O. Box
3183, Cedar Rapids, Iowa 52406-3183; or 4333 Edgewood Road NE, Cedar Rapids,
Iowa 52499-0001. The telephone number is 1-800-732-7754.
Owner (you, your) The person entitled to exercise all rights as owner under the
Policy.
Policy Date
The date when we complete our underwriting process, full life insurance
coverage goes into effect, we issue the Policy, and we begin to deduct the
Monthly Deductions. Your Policy's schedule page shows the Policy Date. The free
look period begins on the Policy Date. We measure Policy months, years, and
anniversaries from the Policy Date.
Premiums
All payments you make under the Policy other than loan repayments.
Reallocation Date
The date shown on the Policy schedule page when we reallocate any premium (plus
interest) held in the fixed account to the subaccounts and fixed account as you
directed in your application. The Reallocation Date varies by state according
to a state's free look
1
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requirement. In states that require a full refund of premium upon exercise of
the free look right, the Reallocation Date is 5 days after the end of the free
look period. In other states, the Reallocation Date is the Policy Date.
Subaccount
A subdivision of the Legacy Builder Variable Life Separate Account. We invest
each subaccount's assets exclusively in shares of one investment portfolio.
Surrender
To cancel the Policy by signed request from the owner.
Valuation Date
Each day that both the New York Stock Exchange and PFL Life Insurance Company
are open for business, except for any days when a subaccount's corresponding
investment portfolio does not value its shares. As of the date of this
prospectus, there are no days when both the New York Stock Exchange and PFL are
open for business and an investment portfolio does not value its shares.
Valuation Period
The period beginning at the close of business of the New York Stock Exchange on
one Valuation Date and continuing to the close of business on the next
Valuation Date.
Variable Account
Legacy Builder Variable Life Separate Account. It is a separate investment
account that is divided into subaccounts, each of which invests in a
corresponding portfolio of a designated mutual fund.
Written notice
The written notice you must sign and send us to request or exercise your rights
as owner under the Policy. To be complete, it must: (1) be in a form we accept,
(2) contain the information and documentation that we determine in our sole
discretion is necessary for us to take the action you request or for you to
exercise the right specified, and (3) be received at our Office.
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Policy Summary
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This summary describes important features of the Policy and corresponds to
sections in this prospectus which discuss the topics in more detail. All
capitalized words and phrases, and a number of others, are defined or explained
in the Glossary.
Premiums
. You can select a premium payment plan but you are not required to pay
premiums according to the plan. You can vary the frequency and amount, and
can skip premium payments. We will not accept any premiums after the insured
reaches age 100.
. 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 the Accelerated Death Benefit Rider premium and
any premium expense charge) in the fixed account until the Reallocation
Date.
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Investment Options
You may allocate your money among the variable account investment options, and
the fixed account options.
Variable Account:
. You may allocate the money in your Policy to any of the subaccounts of the
variable account. We do not guarantee any money you place in the
subaccounts. The value of each subaccount will increase or decrease,
depending on the investment performance of the corresponding portfolio. You
could lose some or all of your money.
. Each subaccount invests exclusively in one of the following investment
portfolios:
. Advantus Series Fund, Inc. . Warburg Pincus Trust
Advantus Series Capital Warburg Pincus Emerging Growth
Appreciation Portfolio Portfolio
Advantus Series Mortgage Warburg Pincus Emerging Markets
Securities Portfolio Portfolio
Advantus Series Real Estate Warburg Pincus Global-Post Venture
Securities Portfolio Capital Portfolio
Warburg Pincus International
Equity Portfolio
. Dreyfus Stock Index Fund
. Dreyfus Variable Investment Fund Warburg Pincus Small Company
Dreyfus VIF--Money Market Growth Portfolio
Portfolio
Warburg Pincus Value Portfolio
. MFS(R) Variable Insurance TrustSM
MFS Emerging Growth Series . WRL Series Fund, Inc.
MFS Research Series WRL Janus Growth
MFS Total Return Series WRL VKAM Emerging Growth
MFS Utilities Series
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.
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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 net 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. Unless the state where
we issued your Policy requires otherwise, we will charge an additional
premium which is equal to 3% of the life insurance premium paid for your
Policy if you purchase the optional Accelerated Death Benefit Rider.
$ 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) 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 net
premium. A separate surrender charge applies to each net 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
net 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 net 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.
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Portfolio Expense Table
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The following table shows the fees and expenses charged by the portfolios. The
purpose of the table is to assist you in understanding the various costs and
expenses that you will bear directly and indirectly. The table reflects charges
and expenses of the portfolios for the fiscal year ended December 31, 1999.
Expenses of the portfolios may be higher or lower in the future. For more
information on the management fees described in this table, see the portfolios'
prospectuses.
Annual Portfolio Operating Expenses(1) (as a percentage of average net assets
and after fee waivers and expense reimbursements)
<TABLE>
<CAPTION>
Total
Management Other Rule 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 previously waived 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 was voluntary and was terminated on June 25, 2000.
(4) Actual Management Fees, Other Expenses, and Total Annual Expenses for the
fiscal year ending December 31, 1999, 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.
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Surrenders
. Full surrender: At any time while the Policy is in force, you may make a
written request to surrender your Policy and receive the Cash Surrender
Value (that is, the Cash Value minus any surrender charge, and minus any
outstanding loan amount including any accrued interest). Surrendering the
Policy may have tax consequences. (See "Federal Tax Considerations.")
. Partial surrenders: You may make a written request to withdraw part of the
Cash Value, subject to the following rules:
. You must request at least $500;
. At least $5,000 of Cash Surrender Value must remain in the Policy after
the partial surrender;
. During the first Policy year, any amount you surrender is subject to a
surrender charge; and After the first Policy year, you may surrender
amounts up to your Policy's gain (Cash Value minus net 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 the 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.
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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.
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Risk Summary
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Investment If you invest your Cash Value in one or more subaccounts, then
Risk you Risk will be subject to the risk that investment
performance will be unfavorable and that the Cash Value will
decrease. You could lose everything you invest. If you select
the fixed account, then we credit your Cash Value with a
declared rate of interest, but you assume the risk that the
rate may decrease, although it will never be lower than a
guaranteed minimum annual effective rate of 3%.
Because we deduct charges from Cash Value every month, if
investment results are negative or not sufficiently favorable,
then your Cash Surrender Value may fall to zero. If your Cash
Surrender Value is zero and you have an outstanding loan, then
your Policy will enter a 61-day grace period. Unless you make
a sufficient payment during the grace period, the Policy will
lapse without value and insurance coverage will no longer be
in effect. However, if investment experience is sufficiently
favorable and you have kept the Policy in force for a
substantial time, then you may be able to draw upon Cash
Value, through partial surrenders and loans.
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Risk of If you do not have an outstanding loan, we guarantee that your
Lapse Policy will never lapse (terminate without value), regardless
of investment performance.
If you have an outstanding loan and your Cash Surrender Value
becomes zero, then the Policy will enter a 61-day grace
period.
Whenever your Policy enters the grace period, if you do not
make a sufficient payment before the grace period ends, your
Policy will lapse, insurance coverage will no longer be in
effect, and you will receive no benefits. The payment must be
sufficient enough to cause the Cash Surrender Value to exceed
zero, after deducting all due and unpaid monthly deductions
and outstanding loans. You might not be able to reinstate a
policy that has lapsed (depending on applicable state law).
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Tax Risks We anticipate that the Policy should be deemed a life
insurance contract under Federal tax law. However, there is
some uncertainty in this regard. The Policy generally will be
treated as a modified endowment contract ("MEC") under Federal
tax laws (except, in some cases for a Policy issued in
exchange for another life issuance policy that was not a MEC).
If a Policy is treated as a MEC, then surrenders, partial
surrenders, and loans under a Policy will be taxable as
ordinary income to the extent there are earnings in the
Policy. In addition, a 10% penalty tax may be imposed on
surrenders, partial surrenders, and loans taken before you
reach age 59 1/2. You should consult a qualified tax advisor
for assistance in all tax matters involving your Policy.
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Surrender The 7% surrender charge under this Policy applies for 6 years
Charge after each net premium payment. You should purchase this
Policy only if you have the financial ability to keep it in
force for a substantial period of time.
Even if you do not ask to surrender your Policy, surrender
charges may play a role in determining whether your Policy
will lapse. Cash Surrender Value (that is, Cash Value minus
any surrender charges and outstanding loans) is one measure we
use to determine whether your Policy will enter a grace
period, and possibly lapse.
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9
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Partial
Surrender You may request partial surrenders of a portion of the Cash
Limits Surrender Value. We impose a 7% surrender charge on all
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 net premium paid within the 6 years prior to
the surrender.
A partial surrender reduces the Cash Surrender Value, so it
will increase the risk that the Policy will lapse. A partial
surrender will reduce the death benefit and also may have tax
consequences.
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Loan Risks A Policy loan affects the death benefit because a loan reduces
the death benefit proceeds and Cash Surrender Value by the
amount of the outstanding loan, plus any interest you owe on
Policy loans.
While a loan is outstanding, the "no-lapse guarantee" does not
apply. See Policy Lapse and Reinstatement.
A Policy loan could make it more likely that a Policy would
terminate. There is a risk that if the loan reduces your Cash
Surrender Value to too low an amount and investment results
are unfavorable, then the Policy will lapse, resulting in loss
of insurance and possibly adverse tax consequences. A loan
will likely be taxed as a partial surrender and a 10% penalty
tax may apply.
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Comparison Like fixed benefit life insurance, the Policy offers a death
with Other benefit and provides a Cash Value, loan privileges and a value
Insurance on surrender. However, the Policy differs from a fixed benefit
Policies policy because it allows you to place your premiums in
investment subaccounts. The amount and duration of life
insurance protection will vary with the investment performance
of the amounts you place in the subaccounts. In addition, the
Cash Surrender Value will always vary with the investment
results of your selected subaccounts.
As you consider purchasing this Policy, keep in mind that it
may not be to your advantage to replace existing insurance
with the Policy.
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Illustrations The hypothetical illustrations in this prospectus or used in
connection with the purchase of a Policy are based on
hypothetical rates of return. These rates are not guaranteed,
and are provided only to illustrate how the Policy charges and
hypothetical rates of return affect death benefit levels, Cash
Value and Cash Surrender Value of the Policy. We may also
illustrate Policy values based on the adjusted historical
performance of the portfolios since the portfolios' inception,
reduced by Policy and subaccount charges. The hypothetical and
adjusted historic portfolio rates illustrated should not be
considered to represent past or future performance. Actual
rates of return undoubtedly will be higher or lower than those
illustrated, so the values under your Policy will be different
from those illustrated.
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The Company and the Fixed Account
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PFL Life Insurance Company
PFL Life Insurance Company ("PFL," "Company," "we," "us" or "our") is the
insurance company issuing the Policy. PFL was incorporated under Iowa law on
April 19, 1961. PFL established the separate account to support the investment
options under this Policy and under other variable life insurance policies we
may issue. Our general account supports the fixed account options under the
Policy.
IMSA. PFL is a member of the Insurance Marketplace Standards Association
(IMSA). IMSA is an independent voluntary organization of life insurance
companies. It promotes high ethical standards in the sales and advertising of
individual life insurance and annuity products. Companies must undergo a
rigorous self- and independent assessment of their practices to become a member
of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to
these standards.
The Fixed Account
The basic fixed account is part of PFL's general account. We use general
account assets to support our insurance and annuity obligations other than
those funded by separate accounts. Subject to applicable law, PFL has sole
discretion over investment of the fixed account's assets. PFL bears the full
investment risk for all amounts contributed to the fixed account. PFL
guarantees that the amounts allocated to the fixed account will be credited
interest daily at a net effective interest rate of at least 3%. We will
determine any interest rate credited in excess of the guaranteed rate at our
sole discretion. 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.
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<PAGE>
The Variable Account and the Portfolios
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The Variable Account
PFL established the variable account as a separate investment account under
Iowa law on November 20, 1998. PFL owns the assets in the variable account and
is obligated to pay all benefits under the Policies. PFL may use the variable
account to support other variable life insurance policies PFL issues. The
variable account is registered with the Securities and Exchange Commission as
an unit investment trust under the Investment Company Act of 1940 and qualifies
as a "separate account" within the meaning of the Federal securities laws.
The variable account is divided into subaccounts, each of which invests in
shares of a specific portfolio of one of the following mutual funds:
. Advantus Series Fund, Inc. . MFS(R) Variable Insurance
(managed by Advantus Capital Trust(SM) (managed by
Management, Inc.) Massachusetts Financial
Services Company)
. Dreyfus Variable Investment
Fund (managed by The Dreyfus . Warburg Pincus Trust (managed
Corporation) by Credit Suisse Asset
Management, LLC)
. Dreyfus Stock Index Fund
(managed by The Dreyfus . WRL Series Fund, Inc. (managed
Corporation) by WRL Investment Management,
Inc.)
The subaccounts buy and sell portfolio shares at net asset value. Any dividends
and distributions from a portfolio are reinvested at net asset value in shares
of that portfolio.
Income, gains, and losses credited to, or charged against, a subaccount of the
variable account reflect the subaccount's own investment experience and not the
investment experience of our other assets. The variable account's assets may
not be used to pay any of PFL's liabilities other than those arising from the
Policies. If the variable account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The variable account may include other subaccounts that are not available under
the Policies and are not discussed in this prospectus. Where permitted by
applicable law, PFL reserves the right to:
1. Create new separate accounts;
2. Combine separate accounts, including the variable account;
3. Remove, combine or add subaccounts and make the new subaccounts
available to you at our discretion;
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;
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<PAGE>
7. Operate the variable account as a management investment company under
the Investment Company Act of 1940 or as any other form permitted by
law; and
8. Make any changes required by the Investment Company Act of 1940 or any
other law.
We will not make any such changes without receiving any necessary approval of
the Securities and Exchange Commission and applicable state insurance
departments. We will notify you of any changes.
The Portfolios
The variable account invests in shares of certain portfolios of the Funds. Each
of the Funds is registered with the Securities and Exchange Commission as an
open-end management investment company. Such registration does not involve
supervision of the management or investment practices or policies of the Funds
by the Securities and Exchange Commission.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio operates as
a separate investment fund, and the income or losses of one portfolio generally
have no effect on the investment performance of any other portfolio. Pending
any prior approval by a state insurance regulatory authority, certain
subaccounts and corresponding portfolios may not be available to residents of
some states.
There is no assurance that any of the portfolios will achieve its stated
objective(s). You can find more detailed information about the portfolios,
including an explanation of the portfolios' investment objectives and a
description of the risks, in the current prospectuses for the underlying fund
portfolios, which are attached to this prospectus. You should read the Funds'
prospectuses carefully.
In addition to the variable account, the portfolios may sell shares to other
separate investment accounts established by other insurance companies to
support variable annuity contracts and variable life insurance policies or
qualified retirement plans. It is possible that, in the future, it may become
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the portfolios simultaneously. Although
neither PFL nor the portfolios currently foresee any such disadvantages, either
to variable life insurance policy owners or to variable annuity contract
owners, each fund's Board of Directors (or Trustees) will monitor events in
order to identify any material conflicts between the interests of such variable
life insurance policy owners and variable annuity contract owners, and will
determine what action, if any, it should take. Such action could include the
sale of fund shares by one or more of the separate accounts, which could have
adverse consequences. Material conflicts could result from, for example, (1)
changes in state insurance laws, (2) changes in Federal income tax laws, or (3)
differences in voting instructions between those given by variable life
insurance policy owners and those given by variable annuity contract owners.
If a fund's Board of Directors (Trustees) were to conclude that separate funds
should be established for variable life insurance and variable annuity separate
accounts, then variable life insurance policy owners and variable annuity
contract owners would no longer have the economies of scale resulting from a
larger combined fund.
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
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<PAGE>
such other (publicly available) portfolios. There can be no assurance, and we
make no representation, that the investment results of any of the portfolios
available under the Policy will be comparable to the investment results of any
other portfolio, even if the other portfolio has the same investment adviser or
manager, the same investment objectives and policies, and a very similar name.
Please read the attached portfolio prospectuses to obtain more complete
information regarding the portfolios. Keep these prospectuses for future
reference.
Your Right to Vote Portfolio Shares
Even though we are the legal owner of the portfolio shares held in the
subaccounts, and have the right to vote on all matters submitted to
shareholders of the portfolios, we will vote our shares only as Policy owners
instruct, so long as such action is required by law.
Before a vote of a portfolio's shareholders occurs, you will receive voting
materials. We will ask you to instruct us on how to vote and to return your
proxy to us in a timely manner. You will have the right to instruct us on the
number of portfolio shares that corresponds to the amount of Cash Value you
have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some owners, we will vote
those shares in the same proportion as the timely voting instructions we
receive. Should Federal securities laws, regulations and interpretations
change, we may elect to vote portfolio shares in our own right. If required by
state insurance officials, or if permitted under Federal regulation, we may
disregard certain owner voting instructions. If we ever disregard voting
instructions, we will send you a summary in the next annual report to Policy
owners advising you of the action and the reasons we took such action.
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<PAGE>
The Policy
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Purchasing a Policy
To purchase a Policy, you must submit a completed application and an initial
premium to us at our Office. You may also send the application and initial
premium to us through any licensed life insurance agent who is also a
registered representative of a broker-dealer having a selling agreement with
AFSG Securities Corporation, the principal underwriter for the Policy.
We determine the basic death benefit for a Policy based on the age of the
insured when we issue the Policy, the initial premium paid, and other
characteristics of the proposed insured(s) such as 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.
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Ownership Rights
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. The owner is
the insured unless the application specifies a different person as the insured.
If the owner dies before the insured and no contingent owner is named, then
ownership of the Policy will pass to the owner's estate. The owner may exercise
certain rights described below.
Changing the Owner
. You may change the owner by providing a written request to us at any
time while the insured is alive.
. The change takes effect on the date that the written request is signed.
. We are not liable for any actions we take before we receive the written
request.
. Changing the owner does not automatically change the beneficiary or the
insured.
. Changing the owner may have tax consequences.
Selecting and Changing the Beneficiary
. You designate the beneficiary (the person to receive the death benefit
when the insured dies) in the application.
. If you designate more than one beneficiary, then each beneficiary shares
equally in any death benefit proceeds unless the beneficiary designation
states otherwise.
. If the beneficiary dies before the insured, then any contingent
beneficiary becomes the beneficiary.
. If both the beneficiary and contingent beneficiary die before the
insured, then we will pay the death benefit to the owner or the owner's
estate once the insured dies.
. You can change the beneficiary by providing us with a written request
while the insured is living.
. The change in beneficiary is effective as of the date you sign the
written request.
. We are not liable for any actions we take before we receive the written
request.
Assigning the Policy
. You may assign Policy rights while the insured is alive.
. The owner retains any ownership rights that are not assigned.
. Assignee may not change the owner or the beneficiary, and may not elect
or change an optional method of payment. We will pay any amount payable
to the assignee in a lump sum.
. Claims under any assignment are subject to proof of interest and the
extent of the assignment.
. If you assign your Policy as collateral for a loan, you should consider
that loans secured by this Policy are treated as distributions and could
be subject to income tax and a 10% penalty if you are under age 59 1/2.
. We are not:
. bound by any assignment unless we receive a written notice of the
assignment;
. responsible for the validity of any assignment; or
. liable for any actions we take before we receive written notice of
the assignment.
. Assigning the Policy may have tax consequences.
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Canceling a Policy
You may cancel a Policy during the free-look period by returning it to PFL at
4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499, or to the agent who sold
it. The free-look period generally expires 10 days after you receive the
Policy, but this period will be longer if required by state law. If you decide
to cancel the Policy during the free-look period, we will treat the Policy as
if we never issued it. Within seven calendar days after we receive the returned
Policy, we will refund either (a) an amount equal to the Cash Value plus any
charges we deducted, or (b) where required by state law, we will refund all
premiums paid for the Policy.
Premiums
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Premium Payments
Before we issue a Policy, you must pay an initial premium equal to at least
$10,000. Thereafter, you may pay premiums at any time and in any amount of
$5,000 or more. However, because most additional premium payments will increase
the death benefit, we will require additional underwriting for most additional
premium payments.
We have the right to limit or refund any premium, if the premium would
disqualify the Policy as a life insurance contract under the Internal Revenue
Code. Your Policy's schedule page will show the maximum additional premium you
can pay during the first two Policy Years without additional underwriting. As
indicated below, it is the Company's policy to use simplified issue
underwriting for these Policies. However, the Company reserves the right to
impose full underwriting on future premium payments. If we return a portion of
your premium based on the maximum premium amount, we will not allow you to make
additional premium payments until they are allowed by the maximum premium
limitations. We reserve the right to modify our premium limitations at any
time. You make all premium payments to our Office or to one of our authorized
agents.
You can stop paying premiums at any time and your Policy will continue in force
until the earlier of the maturity date (when the insured reaches age 100), or
the date when either (1) the insured dies, or (2) the grace period ends without
a sufficient payment, or (3) we receive your signed request to surrender the
Policy.
The type of underwriting you qualify for depends upon the amount of premium
paid at issue. Listed below are the two types of underwriting you may qualify
for. See "Policy Summary-Premiums" for more information.
Simplified Issue Guidelines.
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.
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In the third and subsequent Policy years you would have one or two options
depending on the premium paid in the previous Policy year.
1. IF you paid a premium in the previous Policy year, you may pay
additional premium on a simplified issue basis up to the simplified
issue limit (attained Age times 1,500). You may pay more than simplified
issue limit on a fully underwritten basis. (Note that the minimum
additional premium that we will accept is $5,000.)
2. IF you did not pay premium in the previous Policy year, additional
premium payments can be made subject to underwriting at our discretion,
including full underwriting.
Fully Underwritten Guidelines.
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.
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.
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Allocating Premiums
When you apply for a Policy, you must instruct us to allocate your net premium
to one or more subaccounts of the variable account and to the fixed account
according to the following rules:
. You must put at least 1% of each net premium in any subaccount or the
fixed account you select (you can, of course, put nothing in some
subaccounts or the fixed account).
. Allocation percentages must be in whole numbers and the sum of the
percentages must equal 100.
. You can change the allocation instructions for additional premiums
without charge at any time by providing us with written notification (or
any other notification we deem satisfactory).
. Any allocation change will be effective on the date we record the
change. We record the allocation change on the same day that we receive
the request for the change.
. We reserve the right to limit the number of premium allocation changes;
and to limit the number of subaccount allocations in effect at any one
time.
We will credit interest on your initial net premium from the date we receive
payment and the necessary documents to the Reallocation Date. Interest will be
credited at the current fixed account rate. Interest is guaranteed to equal at
least 3% annually.
Investment returns from amounts allocated to the subaccounts will vary with the
investment experience of these subaccounts and will be reduced by Policy
charges. You bear the entire investment risk for amounts you allocate to the
subaccounts.
On the Policy Date, we will allocate your Cash Value to the fixed account. We
also allocate any net premiums we receive from the Policy Date to the
Reallocation Date to the fixed account. On the Reallocation Date, we will
reallocate the Cash Value in the fixed account to the subaccounts or retain it
in the fixed account in accordance with the allocation percentages provided in
the application. We invest all net premiums paid after the Reallocation Date on
the Valuation Date we receive them. We credit these net premiums to the
subaccounts (as appropriate) at the unit value next determined after we receive
your payment. (Please refer to the Glossary for an explanation of the
Reallocation Date.)
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Policy Values
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. serves as the starting point for calculating values under a
Cash Value 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 net premiums paid; and
Cash Value exceeds $50,000.
We will allocate the additional interest to the variable account and the fixed
account on a pro-rata basis. We guarantee to credit the monthly interest
(0.04167% multiplied by the Cash Value at the end of each month); however, the
Policy needs to be requalified to meet the specified requirements on a year-to-
year basis. There is no charge for this benefit.
Cash Surrender Value
The Cash Surrender Value is the amount we pay to you when you surrender your
Policy. We determine the Cash Surrender Value at the end of the Valuation
Period when we receive your written surrender request.
Cash . the Cash Value as of such date; minus
Surrender . any surrender charge as of such date; minus
Value on any . any outstanding Policy loans; minus
Valuation . any interest you owe on the Policy loans.
Date equals:
Subaccount Value
Each subaccount's value is the Cash Value in that subaccount. At the end of any
Valuation Period, the subaccount's value is equal to the number of units that
the Policy has in the subaccount, multiplied by the unit value of that
subaccount.
The number of . the initial units purchased at the unit value on the Policy
units in any Date; plus
subaccount on . units purchased with additional net premiums; plus units
any Valuation purchased via transfers from another subaccount or the
Date equals: fixed account; plus
. units purchased via growth accelerator, if any; minus
. units redeemed to pay for monthly deductions; minus
. units redeemed to pay for partial surrenders; minus
. units redeemed as part of a transfer to another subaccount
or the fixed account.
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Every time you allocate or transfer money to or from a subaccount, we convert
that dollar amount into units. We determine the number of units we credit to,
or subtract from, your Policy by dividing the dollar amount by the unit value
for that subaccount at the end of the Valuation Period.
Unit Value
We determine a unit value for each subaccount to reflect how investment results
affect the Policy values. Unit values will vary among subaccounts. The unit
value of each subaccount was originally established at $10 per unit. The unit
value may increase or decrease from one Valuation Period to the next.
The unit . the total value of the assets held in the subaccount,
value of any determined by multiplying the number of shares of the
subaccount at designated portfolio owned by the subaccount times the
the end of a portfolio's net asset value per share; minus
Valuation . a deduction for the mortality and expense risk charge;
Period is minus
calculated . the accrued amount of reserve for any taxes or other
as: economic burden resulting from applying tax laws that we
determine to be properly attributable to the subaccount;
and the result divided by
. the number of outstanding units in the subaccount.
Fixed Account Value
On the Policy Date, the fixed account value is equal to the net premiums
allocated to the fixed account, less the portion of the first monthly deduction
taken from the fixed account.
The fixed . the net premium(s) allocated to the fixed account; plus
account value . any amounts transferred to the fixed account; plus
at the end of . interest credited to the fixed account; plus
any Valuation . amount credited via growth accelerator, if any; minus
Period is . amounts charged to pay for monthly deductions; minus
equal to: . amounts withdrawn from the fixed account; minus
. amounts transferred from the fixed account to a subaccount.
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Charges and Deductions
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This section describes the charges and deductions that we make under the Policy
to compensate for: (1) the services and benefits we provide; (2) the costs and
expenses we incur; and (3) the risks we assume.
Services and . the death benefit, cash and loan benefits under the Policy
benefits we . investment options, including premium allocations
provide: . administration of elective options and the distribution of
reports to owners
---------------------------------------------------------------
Costs and . costs associated with processing and underwriting
expenses we applications, issuing and administering the Policy
incur: . overhead and other expenses for providing services and
benefits
. sales and marketing expenses
. other costs of doing business, such as collecting premiums,
maintaining records, processing claims, effecting
transactions, and paying Federal, state and local premium
and other taxes and fees
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Risks we . that the cost of insurance charges we may deduct are
assume: insufficient to meet our actual claims because insureds die
sooner than we estimate
. that the costs of providing the services and benefits under
the Policies exceed the charges we deduct
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Premium Expense Charge
When you make a premium payment (excluding the Accelerated Death Benefit
premium), we deduct a premium expense charge equal to the premium tax imposed
by the state where we issue your Policy. State premium taxes currently range
from 0.00% to 3.50% of each premium payment. After we deduct any premium
expense charge, we apply the remaining amount (the net premium) to the
subaccounts and the fixed account according to your allocation instructions.
The premium expense charge compensates us for state premium taxes.
Monthly Deduction
We deduct a monthly deduction from the Cash Value on the Policy Date and on
each Monthly Date. We will make deductions from each subaccount and the fixed
account on a pro rata basis (i.e., in the same proportion that the value in
each subaccount and the fixed account bears to the total Cash Value on the
Monthly Date). If the value of any subaccount or the fixed account is
insufficient to pay that subaccount or fixed account's portion of the monthly
deduction, we will take the monthly deduction on a pro-rata basis from all
accounts. Because portions of the monthly deduction (such as the cost of
insurance) can vary from month-to-month, the monthly deduction will also vary.
The monthly deduction has two components:
1. The cost of insurance charge for the Policy; plus
2. The monthly Policy charge, if applicable.
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Cost of Insurance. We assess a monthly cost of insurance charge to compensate
us for underwriting the death benefit (i.e., the anticipated cost of paying the
amount of the death benefit that exceeds your Cash Surrender Value upon the
insured's death). The charge depends on a number of variables (age, gender,
risk class) that would cause it to vary from Policy to Policy and from Monthly
Date to Monthly Date.
Cost of The cost of insurance charge is equal to:
Insurance
Charge
. the cost of insurance rates; multiplied by
. the net amount at risk for your Policy on the Monthly
Date.
The net amount at risk is equal to:
. the death benefit at the beginning of the month;
divided by
. a "risk rate divisor" (a factor that reduces the net
amount at risk, for purposes of computing the cost of
insurance, by taking into account assumed monthly
earnings at an annual rate of 3%); minus
. the Cash Value at the beginning of the month.
We base the cost of insurance rates on the insured's age, gender, and risk
class. The actual monthly cost of insurance rates are based on our expectations
as to future mortality experience. The rates will never be greater than the
guaranteed amount stated in your Policy. These guaranteed rates are based on
the 1980 Commissioner's Standard Ordinary (C.S.O.) Mortality Tables
(smoker/non-smoker) and the insured's age and rate class. For standard rate
classes, these guaranteed rates will never be greater than the rates in the
C.S.O. tables. 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:
.the assets in each subaccount, multiplied by
.the daily pro rata portion of the annual charge rate of 0.75%.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our
surplus. We expect to profit from this charge. We may use any profits for any
lawful purpose including covering distribution costs.
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Surrender Charge
If you fully surrender your Policy during the first 6 years following any
premium payment (excluding the Accelerated Death Benefit Rider premium), 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 net premium) free of charge.
We deduct a 7% surrender charge on the portion of any partial surrender that
exceeds the gain and is attributable to a premium paid within 6 years prior to
the partial surrender. For this purpose, we deem any gain to be withdrawn
first, and then the oldest premiums in the order they were paid (i.e., first-
in-first-out, or "FIFO").
Transfer Charge
. We guarantee that you can make 12 transfers each year free from charge.
We currently allow an unlimited number of free transfers.
. We reserve the right to charge $10 for each transfer in excess of 12
during a Policy Year. We will not increase this charge.
. For purposes of assessing the transfer charge, each written or telephone
request is considered to be one transfer, regardless of the number of
subaccounts (or fixed account) affected by the transfer.
. We deduct the transfer charge from the amount being transferred.
. Transfers we effect on the Reallocation Date, and transfers due to
dollar cost averaging, asset rebalancing, and loans, do not count as
transfers for the purpose of assessing this charge.
Portfolio Expenses
The value of the net assets of each subaccount reflects the investment advisory
fees and other expenses incurred by the corresponding portfolio in which the
subaccount invests. See the Portfolio Expenses Table in this prospectus, and
the portfolios' prospectuses for further information on these fees and
expenses.
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Death Benefit
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Death Benefit
While the Policy is in force 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.
. 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. If you have an outstanding
Policy Loan, the Guaranteed Minimum Death Benefit will terminate. If you
have an outstanding Policy Loan when the Insured dies, the Death Benefit
Proceeds will be based on the Basic Death Benefit. However if you repay
the Policy Loan before the Insured Dies, we will reinstate the
Guaranteed Minimum Death Benefit.
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.
. the death benefit (described above); minus
Death Benefit . any past due monthly deductions; minus
Proceeds . any outstanding Policy loan on the date of death; minus
equal: . 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.
The Specified Amount shown in the hypothetical illustrations in this prospectus
and on the policy schedule page of your Policy is the Basic Death benefit on
the Policy Date.
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<PAGE>
. 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. Unless the state where we issued your Policy requires
otherwise, we will charge an additional premium which is equal to 3% of the
life insurance premium paid for your Policy if you purchase the optional
Accelerated Death Benefit Rider.
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 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
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Full Surrenders
You may make a written request to surrender your Policy for its Cash Surrender
Value as calculated at the end of the Valuation Date when we receive your
request.
. The insured must be alive and the Policy must be in force
Full when you make your written request. A surrender is
surrender effective as of the date when we receive your written
Conditions: request. We may require that you return the Policy.
. You will incur a surrender charge of 7% of any net 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.
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Partial Surrenders
You may request a partial surrender of a portion of your Cash Value subject to
certain conditions.
. You must make your partial surrender request to us in writing.
. You must request at least $500.
. You may withdraw up to the Policy's gain (Cash Value minus premiums)
free of charge after the first Policy year.
. At least $5,000 of Cash Surrender Value must remain in the Policy after
the partial surrender.
. We assess a surrender charge equal to 7% of the whole amount surrendered
in the first Policy year.
. We assess a surrender charge equal to 7% of the portion of any partial
surrender after the first Policy year that exceeds the gain and is
attributable to a premium payment made within 6 years before the partial
surrender. See Charges and Deductions--Partial Surrenders.
. We deduct the surrender charge from the remaining Cash Value.
. You can specify the subaccount(s) and fixed account from which to make
the partial surrender; otherwise we will deduct the amount (including
any partial surrender charge) from the subaccounts and the fixed account
on a pro-rata basis (that is, according to the percentage of Cash Value
contained in each subaccount and the fixed account).
. We will process the partial surrender at the unit values next determined
after we receive your request.
. We generally will pay a partial surrender request within seven days
after the Valuation Date when we receive the request.
Partial surrenders may have adverse tax consequences. See Federal Tax
Considerations--Tax Treatment of Policy Benefits.
Transfers
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You may make transfers from (i.e., out of) the subaccounts or from the fixed
account. We determine the amount you have available for transfers at the end of
the Valuation Period when we receive your transfer request. We may modify or
revoke the transfer privilege at any time. The following features apply to
transfers under the Policy:
. You may make an unlimited number of transfers in a Policy Year.
. You may request transfers in writing (in a form we accept), or by
telephone.
. For transfers out of the fixed account, you may not transfer more than
25% of the value in the fixed account (not including amounts securing
Policy loans), or $1,000 (whichever is greater). If the balance after
the transfer is less than $1,000, we will transfer the entire amount in
the fixed account. We only allow one transfer out of the fixed account
every 12 months.
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. We may deduct a $10 charge from the amount transferred for the 13th and
each additional transfer in a Policy Year. Transfers we effect on the
Reallocation Date, and transfers resulting from loans, dollar cost
averaging and asset rebalancing are not treated as transfers for the
purpose of the transfer charge.
. We consider each written or telephone request to be a single transfer,
regardless of the number of subaccounts (or fixed account) involved.
. We process transfers based on the unit values next determined after we
receive your request (which is at the end of the Valuation Date during
which we receive your request).
Your Policy, as applied for and issued, will automatically receive telephone
transfer privileges unless you provide other instructions. The telephone
transfer privileges allow you to give authority to the registered
representative or agent of record for your Policy to make telephone transfers
and to change the allocation of future payments among the subaccounts and the
fixed account on your behalf according to your instructions. To make a
telephone transfer, you may call 1-800-732-7754.
Please note the following regarding telephone transfers:
. We are not liable for any loss, damage, cost or expense from complying
with telephone instructions we reasonably believe to be authentic. You
bear the risk of any such loss.
. We will employ reasonable procedures to confirm that telephone
instructions are genuine.
. Such procedures may include requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of transactions to you, and/or tape recording telephone
instructions received from you.
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
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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 . the value in the DCA Fixed Account is depleted;
will . you elect to participate in the asset rebalancing program;
Terminate if: 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 . you must complete an asset rebalancing request form and
participate submit it to us before the maturity date
in the asset . you must have a minimum Cash Value of $10,000.
Rebalancing
program:
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 . you elect to participate in the DCA Fixed Account;
rebalancing . we receive your request to discontinue participation; you
Will cease make a transfer to or from any subaccount other than under
if: a scheduled rebalancing; or
. you elect to participate in any asset allocation services
provided by a third party
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Loans
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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 automatically 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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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 rates 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 date on which the maximum rate 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
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Lapse
If you have no outstanding Policy loans, then we guarantee that your Policy
will not lapse, regardless of investment performance. If you do have an
outstanding loan, then certain circumstances will cause your Policy to enter a
grace period during which you must make a sufficient payment to keep your
Policy in force:
. If you have an outstanding Policy loan and your Policy's Cash Surrender
Value becomes zero (or negative), then the Policy will enter a 61-day
grace period.
If your Policy enters into a grace period, we will mail a notice to your last
known address and to any assignee of record. The 61-day grace period begins on
the date of the notice. The notice will specify the minimum payment required
and the final date by which we must receive the payment to keep the Policy from
lapsing. If we do not receive the specified minimum payment by the end of the
grace period, all coverage under the Policy will terminate and you will receive
no benefits. The payment must be sufficient enough to cause the Cash Surrender
Value to exceed zero, after deducting all due and unpaid monthly deductions and
outstanding loans.
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Reinstatement
You may not reinstate your Policy if it lapses unless we issued your Policy in
a state which requires that the Policy include a reinstatement provision. If
your Policy was issued in a state which requires that the Policy include a
reinstatement provision, then you may request a reinstatement of a lapsed
Policy within five years of the date of lapse (and prior to the Maturity Date).
To reinstate a Policy, you must:
. submit a written application for reinstatement;
. provide evidence of insurability satisfactory to us; and
. make a premium payment that is large enough to cover the sum of:
.the monthly deductions not previously paid during the grace period,
plus
.$10,000.
We will not reinstate any outstanding loans (including interest you owe). The
amount in the loan account on the reinstatement date will be zero. Your Cash
Surrender Value on the reinstatement date will equal the premium you pay at
reinstatement minus the sum of:
(1) monthly deductions to cover the grace period;
(2) one additional monthly deduction; and
(3) any surrender charge.
The reinstatement date for your Policy will be the monthly date on or following
the day we approve your application for reinstatement. We may decline a request
for reinstatement.
Federal Tax Considerations
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The following summarizes some of the basic Federal income tax considerations
associated with a Policy and does not purport to be complete or to cover all
situations. This discussion is not intended as tax advice. Please consult
counsel or other qualified tax advisors for more complete information. We base
this discussion on our understanding of the present Federal income tax laws as
they are currently interpreted by the Internal Revenue Service (the "IRS").
Federal income tax laws and the current interpretations by the IRS may change.
Tax Status of the Policy. A Policy must satisfy certain requirements set forth
in the Internal Revenue Code ("Code") in order to qualify as a life insurance
contract for Federal income tax purposes and to receive the tax treatment
normally accorded life insurance contracts. The guidance as to how these
requirements are to be generally applied is limited and the manner in which
such requirements should be applied to certain features of the Policy is not
directly addressed by the available legal authorities. Nevertheless, we believe
that a Policy should satisfy the applicable Code requirements. Because of the
absence of pertinent interpretations of the Code requirements, there is,
however, some uncertainty about the application of such requirements to the
Policy. If it is subsequently determined that a Policy does not satisfy the
applicable requirements, we may take appropriate steps to bring the Policy into
compliance with such requirements and we reserve the right to restrict Policy
transactions in order to do so.
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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."
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.
33
<PAGE>
. 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.
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.
34
<PAGE>
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.
35
<PAGE>
Payments We Make
We usually pay the amounts of any surrender, partial surrender, death benefit
proceeds, or settlement options within seven business days after we receive all
applicable written notices and/or due proofs of death. However, we can postpone
such payments if:
. the NYSE is closed, other than customary weekend and holiday closing, or
trading on the NYSE is restricted as determined by the Securities and
Exchange Commission (SEC); or
. the SEC permits, by an order or less formal interpretation (e.g., no-
action letter), the postponement of any payment for the protection of
Owners; or
. the SEC determines that an emergency exists that would make the disposal
of securities held in the variable account or the determination of their
value not reasonably practicable.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, partial surrenders, death benefit proceeds, or payments
under a payment option until such check or draft has been honored.
Reports to Owners
Once each calendar quarter, we plan to mail to Owners at their last known
address a report showing the following information as of the end of the report
period:
X the current Cash Value
X the current Cash Surrender Value
X the current death benefit
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 . the end of the grace period
100) without a sufficient payment
. the date the insured dies . the date you surrender the Policy
36
<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.
37
<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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1987 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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1987 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
38
<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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1998 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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/30/1989 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1989 111,568 111,505 49,731 49,694 46,231 46,194 N/A
12/31/1990 102,340 102,046 46,968 46,824 43,468 43,324 -4.21%
12/31/1991 126,382 125,688 59,699 59,357 56,199 55,857 28.90%
12/31/1992 128,820 127,734 62,601 62,056 59,101 58,556 6.31%
12/31/1993 131,436 129,896 65,680 64,891 62,180 61,391 6.38%
12/31/1994 128,806 126,827 66,157 65,119 62,657 61,619 2.14%
12/31/1995 167,988 164,789 88,556 86,838 88,556 86,838 35.78%
12/31/1996 197,903 194,135 106,527 104,460 106,527 104,460 21.63%
12/31/1997 253,495 248,668 139,243 136,540 139,243 136,540 31.99%
12/31/1998 314,628 308,637 176,241 172,821 176,241 172,821 27.27%
12/31/1999 368,054 361,046 210,501 206,415 210,501 206,415 19.72%
</TABLE>
Note: Assuming the policy was purchased on 9/30/1989
39
<PAGE>
DREYFUS VIF--MONEY MARKET PORTFOLIO
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
8/31/1990 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1990 111,685 111,601 49,783 49,737 46,283 46,237 N/A
12/31/1991 112,530 112,183 51,648 51,478 48,148 47,978 5.19%
12/31/1992 111,488 110,850 52,663 52,349 49,163 48,849 3.37%
12/31/1993 109,585 108,632 53,253 52,776 49,753 49,276 2.52%
12/31/1994 108,883 107,576 54,410 53,741 50,910 50,241 3.60%
12/31/1995 109,558 107,839 56,271 55,369 52,771 51,869 4.87%
12/31/1996 109,693 107,525 57,674 56,451 57,674 56,451 4.32%
12/31/1997 109,973 107,305 58,524 56,749 58,524 56,749 4.41%
12/31/1998 110,198 106,978 59,301 56,899 59,301 56,899 4.31%
12/31/1999 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
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
7/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 126,885 126,766 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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
7/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 120,385 120,272 53,661 53,601 50,161 50,101 N/A
12/31/1996 140,028 139,567 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
40
<PAGE>
MFS TOTAL RETURN SERIES
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 136,430 136,150 60,813 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
MFS UTILITIES SERIES
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 140,841 140,552 62,780 62,639 59,280 59,139 N/A
12/31/1996 158,735 158,010 72,855 72,507 69,355 69,007 17.64%
12/31/1997 198,895 197,424 93,952 93,235 90,452 89,735 30.74%
12/31/1998 223,462 221,103 108,593 107,417 105,093 103,917 17.19%
12/31/1999 279,562 275,626 139,764 137,755 136,264 134,255 29.85%
</TABLE>
Note: Assuming the policy was purchased on 1/31/1995
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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/30/1999 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
41
<PAGE>
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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/1997 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
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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/30/1996 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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
42
<PAGE>
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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/31/1997 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
43
<PAGE>
WRL JANUS GROWTH
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
-------------------- ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
--------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/31/1986 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1987 114,236 113,929 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>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
3/31/1993 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1993 127,872 127,658 56,999 56,893 53,499 53,393 N/A
12/31/1994 112,638 112,172 51,698 51,473 48,198 47,973 -8.05%
12/31/1995 157,326 156,238 74,316 73,784 70,816 70,284 45.73%
12/31/1996 177,988 176,204 86,494 85,604 82,994 82,104 18.00%
12/31/1997 205,796 203,021 102,839 101,421 99,339 97,921 20.56%
12/31/1998 270,151 265,470 138,817 136,366 135,317 132,866 36.33%
12/31/1999 531,236 519,775 280,304 274,156 280,304 274,156 103.70%
</TABLE>
Note: Assuming the policy was purchased on 3/31/1993
44
<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
45
<PAGE>
elsewhere herein. The statutory-basis financial statements and schedules
referred to above are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Richard R.
Greer as stated in the opinion filed as an exhibit to the registration
statement.
Financial Statements
This prospectus does not include financial statements of the variable account
because, as of the date of this prospectus, the variable account had not yet
commenced operations, had no assets, and had incurred no liabilities. PFL's
statutory-basis financial statements and unaudited consolidated financial
statements for the nine months ended September 30, 2000 appear in Appendix A.
PFL's statutory-basis financial statements and schedules should be
distinguished from the variable account's financial statements and schedules
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.
46
<PAGE>
PFL's Executive Officers and Directors
PFL is governed by a board of directors. The following table sets forth the
name and principal occupation during the past five years of each of PFL's
directors and senior officers. Each person is located at PFL Life Insurance
Company, 4333 Edgewood Road, NE, Cedar Rapids, IA 52449.
Board of Directors and Senior Officers
<TABLE>
<CAPTION>
Principal Occupation During
Name Position with PFL Past 5 years
---- ----------------- ---------------------------
<C> <C> <S>
Bart Herbert, Jr. Director, Chairman of the Director, Chairman of the
Board, And Executive Vice Board, and Executive Vice
President President
Larry N. Norman Director, President Director, President
Patrick S. Baird Director, Senior Vice Executive Vice President
President, And Chief (1995-present), Chief
Operating Officer Operating Officer (1996-
present), Chief Financial
Officer (1992-1995), Vice
President and Chief Tax
Officer (1984-1995) of AEGON
USA.
Douglas C. Kolsrud Director, Senior Vice Director, Senior Vice
President, Chief Investment President, Chief Investment
Officer and Corporate Officer and Corporate Actuary
Actuary
Craig D. Vermie Director, Vice President, Director, Vice President,
Secretary And General Secretary and General Counsel
Counsel
Robert J. Kontz Vice President and Corporate Vice President and Corporate
Controller Controller
Brenda K. Clancy Vice President, Treasurer Vice President, Treasurer and
and Chief Financial Officer Chief 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 $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).
47
<PAGE>
Illustrations
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following illustrations show how certain values under a sample Policy would
change with different rates of fictional investment performance over an
extended period of time. In particular, the illustrations show how the death
benefit, Cash Value, and Cash Surrender Value under a Policy covering a male
insured of age 55 on the Policy Date, would change over time if the planned
premiums were paid and the return on the assets in the subaccounts were a
uniform gross annual rate (before any expenses) of 0%, 6% or 12%. The tables
also show how the Policy would operate if premiums accumulated at 5% interest.
The tables illustrate Policy values that would result based on assumptions that
you pay the premiums indicated, you do not increase your principal sum, and you
do not make any partial surrenders or Policy loans. The values under the Policy
will be different from those shown even if the returns averaged 0%, 6% or 12%,
but fluctuated over and under those averages throughout the years shown.
The hypothetical investment returns are provided only to illustrate the
mechanics of a hypothetical Policy and do not represent past or future
investment rates of return. Actual rates of return for a particular Policy may
be more or less than the hypothetical investment rates of return. The actual
return on your Cash Value will depend on factors such as the amounts you
allocate to particular portfolios, the amounts deducted for the Policy's
monthly charges, the portfolios' expense ratios, your Policy loan and partial
surrender history, and rates of inflation.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of 0.94% 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 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.
48
<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
0%
Gross 0% 6% 12% 0% -- 6% 12% -- 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.
49
<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.
50
<PAGE>
APPENDIX A
PFL Life Insurance Company
Balance Sheet--Statutory Basis
as of September 30, 2000
(unaudited)
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Balance Sheet -- Statutory Basis
As of September 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<S> <C>
Admitted Assets Cash and invested assets:
Cash and short-term investments.................................. $ 116,068
Bonds............................................................ 5,478,172
Preferred stock.................................................. 18,455
Common stock, at market.......................................... 78,035
Mortgage loans on real estate.................................... 1,496,749
Home office properties, at cost less accumulated depreciation.... 7,658
Real estate acquired in satisfaction of debt, at cost less
accumulated depreciation........................................ 15,742
Investment real estate........................................... 31,383
Receivable from affiliate........................................ 550,900
Policy loans..................................................... 57,559
Other invested assets............................................ 200,701
-----------
Total cash and invested assets..................................... 8,051,422
Premiums deferred and uncollected.................................. 14,674
Accrued investment income.......................................... 81,344
Transfers from separate accounts due or accrued.................... 113,191
Federal income tax benefit......................................... 8,937
Other assets....................................................... 17,073
Separate account assets............................................ 5,091,673
-----------
Total admitted assets.............................................. $13,378,314
===========
</TABLE>
F-1
<PAGE>
PFL Life Insurance Company
Balance Sheet -- Statutory Basis
As of September 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<S> <C>
Liabilities and capital and surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life........................................................... $ 2,038,001
Annuity........................................................ 4,435,856
Accident and health............................................ 291,344
Policy and contract claim reserves:
Life........................................................... 9,007
Accident and health............................................ 34,711
Other policyholders' funds....................................... 176,856
Remittances and items not allocated.............................. 186,882
Guaranteed interest contracts.................................... 465,559
Asset valuation reserve.......................................... 99,049
Interest maintenance reserve..................................... 15,736
Payable to affiliate............................................. 23,406
Payable for securities........................................... 59,321
Other liabilities................................................ 95,924
Separate account liabilities..................................... 5,085,435
-----------
Total liabilities.................................................. 13,017,087
Capital and surplus:
Common stock, $10.00 par value, 500 shares authorized, 266 issued
and outstanding................................................. 2,660
Paid-in surplus.................................................. 154,282
Unassigned surplus............................................... 204,285
-----------
Total capital and surplus.......................................... 361,227
-----------
Total liabilities and capital and surplus.......................... $13,378,314
===========
</TABLE>
F-2
<PAGE>
PFL Life Insurance Company
Statement of Operations -- Statutory Basis
for the Nine Months Ended September 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<S> <C>
Revenues:
Premiums and other considerations, net of reinsurance
Life.......................................................... $ 713,625
Annuity....................................................... 2,003,112
Accident and health........................................... 114,653
Net investment income........................................... 373,267
Amortization of interest maintenance reserve.................... 1,785
Commissions and expense allowances on reinsurance ceded......... 15,199
Income from fees associated with investment management,
administration and contract guarantees for separate accounts... 46,113
Other income.................................................... 34,951
----------
3,302,705
Benefits and expenses:
Benefits paid or provided for:
Life.......................................................... 33,311
Surrender benefits............................................ 1,008,096
Other benefits................................................ 206,095
Increase (decrease) in aggregate reserves for policies and
contracts:
Life........................................................ 485,220
Annuity..................................................... 399,853
Accident and health......................................... 36,773
Other....................................................... 470,072
----------
2,639,420
Insurance expenses:
Commissions..................................................... 149,966
General insurance expenses...................................... 53,019
Taxes, licenses and fees........................................ 19,659
Transfer to separate accounts................................... 379,752
Other........................................................... 576
----------
602,972
----------
3,242,392
----------
Gain from operations before federal income tax expense and net
realized capital losses on investments........................... 60,313
Federal income tax expense........................................ 31,350
----------
Gain from operations before net realized capital losses on
investments...................................................... 28,963
Net realized capital losses on investments (net of related federal
income taxes and amounts transferred to interest maintenance
reserve)......................................................... (7,300)
----------
Net income........................................................ 21,663
==========
</TABLE>
F-3
<PAGE>
PFL Life Insurance Company
Statement of Changes in Capital and Surplus -- Statutory Basis
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
Total
Common Paid-in Unassigned Capital
Stock Surplus Surplus and Surplus
------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 2000.............. $2,660 $154,282 $197,713 $354,655
Net gain.............................. 0 0 21,663 21,663
Net unrealized losses................. 0 0 (20,302) (20,302)
Change in non-admitted assets......... 0 0 243 243
Change in asset valuation reserve..... 0 0 4,144 4,144
Change in surplus in separate
accounts............................. 0 0 (140) (140)
Other adjustments..................... 0 0 964 964
------ -------- -------- --------
Balance at September 30, 2000........... 2,660 154,282 204,285 361,227
====== ======== ======== ========
</TABLE>
F-4
<PAGE>
PFL Life Insurance Company
Statement of Cash Flow -- Statutory Basis
for the Nine Months Ended September 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<S> <C>
Operating Activities
Premiums and other considerations, net of reinsurance.............. $ 2,927,502
Net investment income.............................................. 358,795
Life and accident and health claims................................ (86,866)
Surrender benefits to policyholders................................ (1,008,096)
Other benefits to policyholders.................................... (154,695)
Commissions, other expenses and other taxes........................ (211,806)
Federal income taxes, excluding tax on capital gains............... (38,140)
Other, net......................................................... (428)
Net transfers to separate accounts................................. (400,634)
-----------
Net cash provided by operating activities........................ 1,385,632
Investing Activities
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks....................................... 3,424,045
Common stocks.................................................... 43,595
Mortgage loans on real estate.................................... 82,724
Other............................................................ 13,482
-----------
3,563,846
Cost of investments acquired:
Bonds and preferred stocks....................................... 4,069,274
Common stocks.................................................... 37,270
Real estate...................................................... 238,056
Policy loans..................................................... (2,312)
Other............................................................ 84,163
-----------
4,426,451
-----------
Net cash used in investing activities............................ (862,605)
-----------
Financing Activities
Borrowed money..................................................... (144,500)
Other.............................................................. (316,154)
-----------
Net cash used in financing activities............................ (460,654)
Increase in cash and short-term investments........................ 62,373
Cash and short-term investments at beginning of year............... 53,695
-----------
Cash and short-term investments at end of year..................... $ 116,068
===========
</TABLE>
F-5
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements -- Statutory Basis
for the Nine Months Ended September 30, 2000
(In Thousands) (Unaudited)
1. Basis of Presentation
The accompanying unaudited statutory basis financial statements have been
prepared in accordance with statutory accounting principles for interim
financial information and the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the accompanying statutory
basis financial statements and notes thereto for the year ended December 31,
1999.
F-6
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
accompanying statutory-basis financial statement schedules required by Article
7 of Regulation S-X. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States also are described in Note
1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of PFL Life Insurance Company at December 31, 1999 and
1998, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1999.
1
<PAGE>
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic statutory-basis financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $2,660 $154,129 $261,558 $418,347
Capital contribution.................... -- 153 -- 153
Net income.............................. -- -- 85,991 85,991
Change in net unrealized capital gains.. -- -- 3,592 3,592
Change in non-admitted assets........... -- -- (481) (481)
Change in asset valuation reserve....... -- -- (14,974) (14,974)
Dividend to stockholder................. -- -- (62,000) (62,000)
Surplus effect of sale of a division.... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division............................... -- -- 5 5
Amendment of reinsurance agreement...... -- -- 389 389
Surplus effect of reinsurance
agreement.............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................. -- -- (1,901) (1,901)
------ -------- -------- --------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income.............................. -- -- 65,498 65,498
Change in net unrealized capital gains.. -- -- 4,504 4,504
Change in non-admitted assets........... -- -- (260) (260)
Change in asset valuation reserve....... -- -- (21,763) (21,763)
Dividend to stockholder................. -- -- (120,000) (120,000)
Increase in liability for reinsurance in
unauthorized companies................. -- -- 2,036 2,036
Tax benefit on stock options exercised.. -- -- 2,476 2,476
Change in surplus in separate accounts.. -- -- 675 675
------ -------- -------- --------
Balance at December 31, 1998 2,660 154,282 205,586 362,528
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
Nature of Business
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium annuity
products. In addition, the Company offers group life, universal life, and
individual and specialty health coverages. The Company is licensed in 49 states
and the District of Columbia and Guam. Sales of the Company's products are
primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and assumptions
utilized which could have a material impact on the financial statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a) bonds
are generally reported at amortized cost rather than segregating the portfolio
into held-to-maturity (reported at amortized cost), available-for-sale
(reported at fair value), and trading (reported at fair value) classifications;
(b) acquisition costs of acquiring new business are charged to current
operations as incurred rather than deferred and amortized over the life of the
policies; (c) policy reserves on traditional life products
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
are based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (f)
deferred income taxes are not provided for the difference between the financial
statement and income tax bases of assets and liabilities; (g) net realized
gains or losses attributed to changes in the level of interest rates in the
market are deferred and amortized over the remaining life of the bond or
mortgage loan, rather than recognized as gains or losses in the statement of
operations when the sale is completed; (h) potential declines in the estimated
realizable value of investments are provided for through the establishment of a
formula-determined statutory investment reserve (reported as a liability),
changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated
as "non-admitted assets" have been charged to surplus rather than being
reported as assets; (j) revenues for universal life and investment products
consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as amounts
are paid; (l) stock options settled in cash are recorded as expense of the
Company's indirect parent rather than charged to current operations; (m)
adjustments to federal income taxes of prior years are charged or credited
directly to unassigned surplus, rather than reported as a component of expense
in the statement of operations; (n) gains or losses on dispositions of business
are charged or credited directly to unassigned surplus rather than being
reported in the statement of operations; and (o) a liability is established for
"unauthorized reinsurers" and changes in this liability are charged or credited
directly to unassigned surplus. The effects of these variances have not been
determined by the Company but are presumed to be material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification") effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices that
the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for the
Company, the State of Iowa must adopt Codification as the prescribed basis of
accounting on which domestic insurers must report their statutory-basis results
to the Insurance Department. At this time, it is anticipated that the State of
Iowa will adopt Codification. However, based on current guidance, management
believes that the impact of Codification will not be material to the Company's
statutory-basis financial statements.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased
to be short-term investments.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in
preferred stocks not in good standing are reported at the lower of cost or
market. Common stocks of unaffiliated and affiliated companies, which includes
shares of mutual funds and real estate investment trusts, are carried at market
value. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as
required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for
potential losses in the event of default by issuers of certain invested assets.
These amounts are determined using a formula prescribed by the NAIC and are
reported as a liability. The formula for the AVR provides for a corresponding
adjustment for realized gains and losses. Under a formula prescribed by the
NAIC, the Company defers, in the Interest Maintenance Reserve ("IMR"), the
portion of realized gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining period
to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreement is
included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience Mortality Tables. The reserves are calculated using
interest rates ranging from 2.00 to 6.00 percent and are computed principally
on the Net Level Premium Valuation and the Commissioners' Reserve Valuation
Methods. Reserves for universal life policies are based on account balances
adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the contract owners and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner at the market value of the underlying assets
less the current surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities, including affiliated mutual funds and real estate investment
trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- -------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- -------- ----------
$4,837,196 $132,213 $ 54,155 $4,915,254
========== ======== ======== ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging from
6.42% to 8.67%. The maximum percentage of any one mortgage loan to the value of
the underlying real estate at origination was 84%. Mortgage loans with a
carrying value of $248 were non-income producing for the previous twelve
months. Accrued interest of $95 related to these mortgage loans was excluded
from investment income. The Company requires all mortgaged properties to carry
fire insurance equal to the value of the underlying property.
At December 31, 1999 and 1998, the Company held a mortgage loan loss reserve in
the asset valuation reserve of $15,173 and $16,104, respectively. The mortgage
loan portfolio is diversified by geographic region and specific collateral
property type as follows:
Geographic Distribution
Property Type Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of its
investment portfolio attributable to changes in general interest rate levels
and to manage duration mismatch of assets and liabilities. These instruments
include interest rate swaps and caps. All involve elements of credit and market
risks in excess of the amounts recognized in the accompanying financial
statements at a given point in time. The contract or notional amounts of those
instruments reflect the extent of involvement in the various types of financial
instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract) that
would result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date). Credit loss exposure resulting from nonperformance
by a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
At December 31, 1999 and 1998, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
Notional Amount
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 60,000
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. Reinsurance
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and ceded
amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138, $173,297
and $183,638 during 1999, 1998 and 1997, respectively. At December 31, 1999 and
1998, estimated amounts recoverable from reinsurers that have been deducted
from policy and contract claim reserves totaled $35,511 and $47,956,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1999 and 1998 of
$1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates. The
Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. Income Taxes
For federal income tax purposes, the Company joins in a consolidated tax return
filing with certain affiliated companies. Under the terms of a tax-sharing
agreement between the Company and its affiliates, the Company computes federal
income tax expense as if it were filing a separate income tax return, except
that tax credits and net operating loss carryforwards are determined on the
basis of the consolidated group. Additionally, the alternative minimum tax is
computed for the consolidated group and the resulting tax, if any, is allocated
back to the separate companies on the basis of the separate companies'
alternative minimum taxable income.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal income
tax expense and net realized capital gains (losses) on investments for the
following reasons:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($20,387 at December 31, 1999). To the extent dividends are paid from
the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $7,135.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on a
variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1999 and 1998, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, respectively, in which the gross premiums are less than
the net premiums required by the standard valuation standards established by
the Insurance Division, Department of Commerce, of the State of Iowa. The
Company established policy reserves of $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
7. Dividend Restrictions
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, respectively.
8. Retirement and Compensation Plans
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
SFAS No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, respectively. The plan is subject
to the reporting and disclosure requirements of the Employee Retirement and
Income Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to
contribute up to fifteen percent of their salary to the plan. The Company will
match an amount up to three percent of the participant's salary. Participants
may direct all of their contributions and plan balances to be invested in a
variety of investment options. The plan is subject to the reporting and
disclosure requirements of the Employee Retirement and Income Security Act of
1974. Expense related to this plan was $267, $233 and $226 for the years ended
December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
or funded as deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits
to employees meeting certain eligibility requirements. Portions of the medical
and dental plans are contributory. The expenses of the postretirement plans are
charged to affiliates in accordance with an intercompany cost sharing
arrangement. The Company expensed $28, $62 and $62 for the years ended December
31, 1999, 1998 and 1997, respectively.
9. Related Party Transactions
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively, for
these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate of
5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes accrues
at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to 5.52% at
December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
During 1998, the Company issued life insurance policies to certain affiliated
companies, covering the lives of certain employees of those affiliates.
Premiums of $174,000 related to these policies were recognized during the year,
and aggregate reserves for policies and contracts are $190,299 and $181,720 at
December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The Company
guarantees benefit responsiveness in the event that plan benefit requests and
other contractual commitments exceed plan cash flows. The plan sponsor agrees
to reimburse the Company for such benefit payments with interest, either at a
fixed or floating rate, from future plan and asset cash flows. In return for
this guarantee, the Company receives a premium which varies based on such
elements as benefit responsive exposure and contract size. The Company
underwrites the plans for the possibility of having to make benefit payments
and also must agree to the investment guidelines to ensure appropriate credit
quality and cash flow matching. The assets relating to such contracts are not
recognized in the Company's statutory-basis financial statements.
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. Potential future obligations for unknown insolvencies
are not determinable by the Company. The future obligation has been based on
the most recent information available from the National Organization of Life
and Health Insurance Guaranty Associations. The Company has established a
reserve of $19,662 and $17,901 and an offsetting premium tax benefit of $7,429
and $7,631 at December 31, 1999 and 1998, respectively, for its estimated share
of future guaranty fund assessments related to several major insurer
insolvencies. The guaranty fund expense (benefit) was $1,994, $1,985 and $(975)
for the years ended December 31, 1999, 1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- --------- ---------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States Government and government
agencies and authorities............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</TABLE>
--------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
30
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
Year ended December 31,
1998
Life insurance in
force.................. $6,384,095 $ 438,590 $ 39,116 $5,984,621 .6%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health..... 76,438 7,475 -- 68,963 --
Group life and
health............... 255,848 144,301 -- 111,547 --
Annuity............... 686,372 18,096 -- 668,276 --
---------- --------- -------- ---------- ---
$1,533,822 $ 173,564 $ 2,366 $1,362,624 .2%
========== ========= ======== ========== ===
Year ended December 31,
1997
Life insurance in
force.................. $5,025,027 $ 420,519 $ 35,486 $4,639,994 .8%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health..... 73,593 10,045 -- 63,548 --
Group life and
health............... 339,269 192,575 -- 146,694 --
Annuity............... 697,893 40,198 -- 657,695 --
---------- --------- -------- ---------- ---
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
========== ========= ======== ========== ===
</TABLE>
31
