As Filed with the Securities and Exchange Commission on December 23, 1999
Registration No. 333-87023
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Pre-Effective Amendment No. 1 to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
PFL VARIABLE LIFE ACCOUNT A
(EXACT NAME OF TRUST)
PFL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
(NAME AND COMPLETE ADDRESS
OF AGENT FOR SERVICE) COPY TO:
John D. Cleavenger, Esq. Stephen E. Roth, Esq.
PFL Life Insurance Company Sutherland Asbill & Brennan LLP
4333 Edgewood Road NE 1275 Pennsylvania Avenue, N.W.
Cedar Rapids, Iowa 52499 Washington, DC 20004-2415
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement
SECURITIES BEING OFFERED: Flexible Premium Variable Life Insurance Policy
The Registrant hereby amends this Registration Statement on such dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PART I
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
issued by
PROSPECTUS
PFL VARIABLE LIFE ACCOUNT A January __, 2000
and
PFL LIFE INSURANCE COMPANY
4333 EDGEWOOD ROAD NE
CEDAR RAPIDS, IOWA 52499
(319) 398-8511
PFL Life Insurance Company (the "Company") is offering the flexible premium
variable life insurance policy ("Policy") described in this prospectus. The
Policy is designed as a long-term investment that attempts to provide
significant life insurance benefits for the Insured. 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 Policy's values to:
o PFL Variable Life Account A (the "Separate Account"), which invests in
the portfolios listed on this page; or
o a Fixed Account, which credits a specified
rate of interest.
A prospectus for each of the portfolios available through the Separate 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:
o ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
o ARE NOT FEDERALLY INSURED;
o ARE NOT ENDORSED BY ANY BANK OR
GOVERNMENT AGENCY; AND
o ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE
AMOUNT INVESTED.
The following portfolios are available:
o JANUS ASPEN SERIES
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Capital Appreciation Portfolio
Janus Aspen Aggressive Growth Portfolio
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
o OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Main Street Growth & Income
Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Bond Fund/VA
Oppenheimer Strategic Bond Fund/VA
Oppenheimer High Income Fund/VA
o FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
Fidelity VIP II Index 500 Portfolio
Fidelity VIP Money Market Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP II Contrafund(R) Portfolio
Fidelity VIP III Growth & Income Portfolio
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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.
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TABLE OF CONTENTS
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GLOSSARY.....................................................................1
POLICY SUMMARY...............................................................3
RISK SUMMARY.................................................................8
THE COMPANY AND THE FIXED ACCOUNT............................................10
PFL Life Insurance Company..............................................10
The Fixed Account.......................................................10
THE SEPARATE ACCOUNT AND THE PORTFOLIOS......................................10
The Separate Account....................................................10
The Portfolios..........................................................12
Voting Portfolio Shares.................................................15
THE POLICY...................................................................15
Purchasing a Policy.....................................................15
When Insurance Coverage Takes Effect....................................16
Canceling a Policy (Free-Look Right)....................................17
Ownership Rights........................................................17
Selecting and Changing the
Beneficiary..................................................17
Changing the Owner..................................................18
Assigning the Policy................................................18
PREMIUMS.....................................................................18
Premium Flexibility.....................................................19
Allocating Premiums.....................................................19
POLICY VALUES................................................................20
Policy Value............................................................20
Cash Surrender Value....................................................20
Subaccount Value........................................................21
Unit Value..............................................................22
Fixed Account Value.....................................................22
CHARGES AND DEDUCTIONS.......................................................23
Expense Charge..........................................................23
Monthly Deduction.......................................................24
Cost of Insurance...................................................24
Monthly Administrative Charge.......................................24
Charges for Riders..................................................25
Charges for a Substandard Premium
Class Rating.................................................25
Mortality and Expense Risk Charge.......................................25
Surrender and Withdrawal Charges........................................25
Transfer Charge.........................................................26
Portfolio Expenses......................................................27
DEATH BENEFIT................................................................27
Death Benefit Proceeds..................................................27
Death Benefit Options...................................................27
Changing Death Benefit Options..........................................28
Effects of Withdrawals on the
Death Benefit................................................29
Changing the Specified Amount...........................................29
Payment Options.........................................................30
SURRENDERS AND PARTIAL WITHDRAWALS...........................................30
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Surrenders..............................................................30
Withdrawals.............................................................31
TRANSFERS....................................................................32
Exchange Privilege......................................................33
Dollar Cost Averaging...................................................33
Asset Rebalancing Program...............................................33
LOANS........................................................................34
Loan conditions.........................................................34
Effect of Policy Loans..................................................35
POLICY LAPSE AND REINSTATEMENT...............................................36
Lapse...................................................................36
Reinstatement...........................................................36
FEDERAL TAX CONSIDERATIONS...................................................37
OTHER POLICY INFORMATION.....................................................39
Our Right to Contest the Policy.........................................39
Suicide Exclusion.......................................................40
Misstatement of Age or Sex..............................................40
Modifying the Policy....................................................40
Payments We Make........................................................41
Reports to Owners.......................................................41
Records.................................................................41
Policy Termination......................................................41
Supplemental Benefits and Riders........................................42
PERFORMANCE DATA.............................................................43
ADDITIONAL INFORMATION.......................................................54
Sale of the Policies....................................................54
Legal Matters...........................................................54
Legal Proceedings.......................................................54
Year 2000 Matters.......................................................54
Financial Statements....................................................55
Additional Information about the Company................................55
PFL's Executive Officers and Directors..................................55
ILLUSTRATIONS................................................................56
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GLOSSARY
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AGE
The Insured's age on the Insured's last birthday.
BENEFICIARY
The person(s) you select to receive the death benefit from this Policy.
CASH SURRENDER VALUE
The amount we pay when you surrender your Policy. It is equal to: (1) the Policy
Value as of the date of surrender; MINUS (2) any surrender charge; MINUS (3) any
Indebtedness.
COMPANY (WE, US, OUR, PFL, HOME OFFICE) PFL Life Insurance Company, 4333
Edgewood Road NE, Cedar Rapids, Iowa 52499, telephone: 319-398-8511.
CUMULATIVE MINIMUM MONTHLY PREMIUM
The sum of all Minimum Monthly Premiums beginning on the Policy Date.
DEATH BENEFIT PROCEEDS
The amount we pay to the beneficiary when we receive due proof of the Insured's
death. We deduct any Indebtedness or unpaid Monthly Deductions before making any
payment.
FIXED ACCOUNT
Part of our general account. Amounts allocated to the Fixed Account earn at
least 3% annual interest (4% for Policies issued in Florida).
FREE LOOK PERIOD
The period shown on your Policy's cover page during which you may examine and
return the Policy and receive a refund. The length of the free look period
varies by state.
GRACE PERIOD
A 61-day period after which a Policy will lapse if you do not make a sufficient
payment.
INDEBTEDNESS
The total amount of all outstanding Policy loans, including both principal and
interest due.
INSURED
The person whose life is Insured by this Policy.
INVESTMENT START DATE
The later of the Policy Date or the date when we receive the first premium at
our Home Office.
LAPSE
A Policy that terminates without value after a grace period. You may reinstate a
lapsed Policy.
MATURITY DATE
The first Policy anniversary after the Insured's 100th birthday. You may elect
to continue the Policy beyond Insured's age 100 under the extended Maturity Date
option.
MINIMUM MONTHLY PREMIUM
This is the amount necessary to guarantee coverage for a No-Lapse Period. It is
shown on your Policy's specification page.
MONTHLY DATE
This is the same day as the Policy Date in each successive month. If there is no
day in a calendar month that coincides with the Policy Date, or if that day
falls on a day that is not a Valuation Date, then the Monthly Date is the next
Valuation Date. On each Monthly Date, we determine Policy charges and deduct
them from the Policy Value.
MONTHLY DEDUCTION
This is the monthly amount we deduct from the Policy Value. The Monthly
Deduction includes the cost of insurance charge, the administrative charge, a
charge for any riders, and any charges for a substandard premium class rating.
NO-LAPSE PERIOD
A period you choose on the Policy application (20 Policy Years, 30 Policy Years,
or to Insured's age 100) during which the Policy will not enter a grace period
if on a Monthly Date the sum of premiums paid, less any withdrawals and
Indebtedness, equals or exceeds the Cumulative Minimum Monthly Premium.
OWNER (YOU, YOUR)
The person entitled to exercise all rights as Owner under the Policy.
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POLICY DATE
The Policy Date is the date when coverage becomes effective. The Policy date is
the latest of: (a) the date of the application; (b) the date all required
medical examinations or diagnostic tests are completed; (c) the date of issue
requested in the application unless underwriting is not yet completed; or (d)
the date of underwriting approval. The Policy Date is shown on the Policy's
specifications page, and we use it to measure Policy months, years, and
anniversaries. We begin to deduct the Monthly Deductions on the Policy Date.
POLICY 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).
PREMIUMS
All payments you make under the Policy other than repayments of Indebtedness.
PREMIUM SUSPENSE ACCOUNT
A temporary holding account where we place all premiums we receive prior to the
Investment Start Date. The Premium Suspense Account does not credit any interest
or investment return.
SEPARATE ACCOUNT
PFL Variable Life Account A. It is a separate investment account that is divided
into Subaccounts, each of which invests in a corresponding portfolio.
SEPARATE ACCOUNT VALUE
The total value of your Policy allocated to the Subaccounts of the Separate
Account.
SPECIFIED AMOUNT
The dollar amount of insurance selected by the Owner. The Specified Amount may
be increased or decreased after issue. The Specified Amount is a factor in
determining the Policy's death benefit and surrender charge.
SUBACCOUNT
A subdivision of PFL Variable Life Account A. 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 the 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: the
Company is open whenever the New York Stock Exchange is open; and there is no
day when both the New York Stock Exchange and the Company are open for business
but 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.
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, each Written Notice 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 Home Office.
YOU (YOUR, OWNER)
The person entitled to exercise all rights as Owner under the Policy.
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POLICY SUMMARY
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This summary describes the Policy's important features and corresponds to
prospectus sections that discuss the topics in more detail. The Glossary defines
certain words and phrases used in this prospectus.
PREMIUMS
o You can select a premium payment plan (monthly, quarterly, semi-annually,
or annually) but you are not required to pay premiums according to the
plan. The initial premium is due on or before the Policy Date. Thereafter,
you may make subsequent premium payments, in any frequency or amount, at
any time before the Maturity Date. We will not accept any premiums after
the Maturity Date.
o In your application, you must select one of three No-Lapse Periods we
offer: 20 Policy Years; 30 Policy Years; or to Insured's age 100. We will
establish a Minimum Monthly Premium amount for your Policy based on the
Insured's age, sex, premium class, Specified Amount, riders, and the
selected No-Lapse Period. The Minimum Monthly Premium under your Policy is
the amount necessary to guarantee insurance coverage for the No-Lapse
Period you select. Longer No-Lapse Periods require higher Minimum Monthly
Premiums. You can change your Policy's No-Lapse Period at any time, but,
you must pay any additional premiums required.
o We will notify you if your Policy enters a 61-day grace period. Your
Policy will lapse if you do not make a sufficient payment before the end
of the grace period.
If your Policy is in the No-Lapse Period you have selected,, then the
Policy will enter a grace period only if on a Monthly Date the Cash
Surrender Value is not enough to pay the next Monthly Deduction due, AND
the sum of premiums paid minus withdrawals and Indebtedness is less than
the Cumulative Minimum Monthly Premium.
If your Policy is not in the No-Lapse Period you have selected, then your
Policy will enter a grace period only if the Cash Surrender Value on any
Monthly Date is not enough to pay the next Monthly Deduction due.
o When you receive your Policy, the 10-day FREE LOOK PERIOD begins (the free
look period may be longer in some states). You may return the Policy
during the free look period and receive a refund of all payments you made
(less any withdrawals and Indebtedness).
o We multiply each premium you pay by the expense charge, deduct that
charge, and credit the resulting amount (the net premium) to the Policy
Value.
INVESTMENT OPTIONS
FIXED ACCOUNT:
o You may place money in the Fixed Account where it earns at least 3% annual
interest (4% for Policies issued in Florida). We may declare higher rates
of interest, but are not obligated to do so.
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SEPARATE ACCOUNT:
o You may direct the money in your Policy to any of the Subaccounts of the
Separate 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.
o Each Subaccount invests exclusively in one of the following investment
portfolios:
<TABLE>
<S> <C>
O JANUS ASPEN SERIES O OPPENHEIMER VARIABLE ACCOUNT FUNDS
Janus Aspen Growth Portfolio Oppenheimer Main Street Growth & Income
Janus Aspen Worldwide Growth Portfolio Fund/VA
Janus Aspen Balanced Portfolio Oppenheimer Multiple Strategies Fund/VA
Janus Aspen Capital Appreciation Portfolio Oppenheimer Bond Fund/VA
Janus Aspen Aggressive Growth Portfolio Oppenheimer Strategic Bond Fund/VA
Oppenheimer High Income Fund/VA
O AIM VARIABLE INSURANCE FUNDS, INC. O FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
AIM V.I. Capital Appreciation Fund Fidelity VIP II Index 500 Portfolio
AIM V.I. Government Securities Fund Fidelity VIP Money Market Portfolio
AIM V.I. Growth Fund Fidelity VIP Growth Portfolio
AIM V.I. International Equity Fund Fidelity VIP II Contrafund(R) Portfolio
AIM V.I. Value Fund Fidelity VIP III Growth & Income Portfolio
</TABLE>
See "The Company and the Fixed Account," and "The Separate Account and the
Portfolios."
POLICY VALUE
o Policy Value is the sum of your amounts in the Subaccounts and the Fixed
Account. Policy Value is the starting point for calculating important
values under the Policy, such as the Cash Surrender Value and the death
benefit.
o Policy Value varies from day to day, depending on the investment experience
of the Subaccounts you choose, interest we credit to the Fixed Account,
charges we deduct, and any other transactions (E.G., transfers,
withdrawals, and loans). WE DO NOT GUARANTEE A MINIMUM POLICY VALUE.
o Prior to the Investment Start Date, we allocate the net premiums to the
Premium Suspense Account. On the first Valuation Date on or following the
Investment Start Date, we will transfer the amounts in the Premium Suspense
Account to the Subaccounts and the Fixed Account according to your
allocation percentages.
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CHARGES AND DEDUCTIONS
$ EXPENSE CHARGE: We multiply each premium by an expense charge, deduct that
charge, and credit the remaining amount (the net premium) to your Policy
Value according to your allocation instructions.
The expense charge varies by Policy Year as follows:
Premiums paid DURING the first 10 Policy Years: expense charge = 5%
Premiums paid AFTER the first 10 Policy Years: expense charge =
currently 2.5% (maximum 5%).
$ MONTHLY DEDUCTION. On the Policy Date and on each Monthly Date thereafter,
we deduct:
-> a cost of insurance charge for the Policy
-> a $10 monthly administrative charge
-> charges for any riders
-> any charges for a substandard premium class rating
$ SURRENDER AND WITHDRAWAL CHARGES:
-> Surrender: During the first 19 Policy Years, we deduct a surrender
charge that varies based on your age, gender, premium class, and initial
Specified Amount. A separate surrender charge applies for 19 years after
any Specified Amount increase. See "Charges and Deductions -- Surrenders
and Withdrawal Charges" for a table showing surrender charges for sample
Insureds and premium classes.
-> Withdrawals: For each withdrawal, we deduct a fee equal to the lesser
of $25 or 2% of the amount withdrawn.
$ MORTALITY AND EXPENSE RISK CHARGE: We deduct a daily charge equal to 0.75%
(at an annual rate) of the average net assets of the Separate Account.
$ TRANSFER CHARGE: We assess a $25 fee for the 13th and each additional
transfer among the Subaccounts or the Fixed Account in a Policy Year.
$ PORTFOLIO EXPENSES: The portfolios deduct investment advisory fees and
other expenses from the amounts the Subaccounts invest in the portfolios.
These fees and expenses (shown in the following table)vary by portfolio and
currently range from 0.28% to 0.92% per year of the average portfolio
assets.
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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, 1998.
Expenses of the portfolios may be higher or lower in the future. Please refer to
the portfolios' prospectuses for more information.
ANNUAL PORTFOLIO OPERATING EXPENSES (As a percentage of average portfolio assets
AFTER fee waivers and expense reimbursements)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- --------
<S> <C> <C> <C>
Janus Aspen Growth Portfolio (1) .......................... 0.65% 0.03% 0.68%
Janus Aspen Worldwide Growth Portfolio (1) ................ 0.65% 0.07% 0.72%
Janus Aspen Balanced Portfolio ............................ 0.72% 0.02% 0.74%
Janus Aspen Capital Appreciation Portfolio (1) ............ 0.70% 0.22% 0.92%
Janus Aspen Aggressive Growth Portfolio ................... 0.72% 0.03% 0.75%
AIM V.I. Capital Appreciation Fund ........................ 0.62% 0.05% 0.67%
AIM V.I. Government Securities Fund ....................... 0.50% 0.26% 0.76%
AIM V.I. Growth Fund ...................................... 0.64% 0.08% 0.72%
AIM V.I. International Equity Fund ........................ 0.75% 0.16% 0.91%
AIM V.I. Value Fund ....................................... 0.61% 0.05% 0.66%
Oppenheimer Main Street Growth & Income Fund/VA............ 0.74% 0.05% 0.79%
Oppenheimer Multiple Strategies Fund/VA ................... 0.72% 0.04% 0.76%
Oppenheimer Bond Fund/VA .................................. 0.72% 0.02% 0.74%
Oppenheimer Strategic Bond Fund/VA ........................ 0.74% 0.06% 0.80%
Oppenheimer High Income Fund/VA ........................... 0.74% 0.04% 0.78%
Fidelity VIP II Index 500 Portfolio(2)(Initial Class)...... 0.24% 0.04% 0.28%
Fidelity VIP Money Market Portfolio(Initial or
Service Class) .......................................... 0.20% 0.10% 0.30%
Fidelity VIP Growth Portfolio (3)(Initial or
Service Class) .......................................... 0.59% 0.16% 0.75%
Fidelity VIP II Contrafund(R) Portfolio (3)(Initial or
Service Class) .......................................... 0.59% 0.16% 0.75%
Fidelity VIP III Growth & Income Portfolio (3)
(Initial or Service Class) .............................. 0.49% 0.21% 0.70%
</TABLE>
(1) Fee reductions by the investment adviser reduce the Management Fee.
Without such reductions, the Management Fee would have been the
following: 0.72% for Growth; 0.67% for Worldwide Growth; and 0.75% for
Capital Appreciation. The investment adviser has agreed to continue the
waivers and fee reductions until at least the next annual renewal of the
advisory agreement.
(2) The investment adviser has voluntarily agreed to reimburse the portfolio
to the extent that total operating expenses exceed 0.28% of its average
net assets during this period. Without this reimbursement, the total
annual expenses would have been 0.35%.
(3) The investment adviser or the portfolio has entered into varying
arrangements with third parties whereby credits realized as a result of
uninvested cash balances were used to reduce these expenses. Without
these reductions, total annual expenses would have been the following:
0.80% for Growth; 0.80% for Contrafund(R); and 0.71% for Growth &
Income.
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SURRENDERS AND WITHDRAWALS
o 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
(I.E., the Policy Value minus any surrender charge, and minus any
Indebtedness).
o WITHDRAWALS: After the 1st Policy Year, you may make a written request to
withdraw part of the Policy Value, subject to the following rules.
Withdrawals may have tax consequences.
/check/ You may make one withdrawal in a Policy Year.
/check/ You must request at least $500;
/check/ If you request a withdrawal that will leave a Cash Surrender Value
of less than $500, we will treat it as a surrender request; and
/check/ For each withdrawal, we deduct a fee equal to the lesser of $25 or
2% of the amount withdrawn.
DEATH BENEFITS
o You must choose between two death benefit options under the Policy. After
the first Policy Year, you may change death benefit options once each
12-month period. We calculate the amount under each death option
as of the Insured's date of death. See "Death Benefit Options."
-> LEVEL DEATH BENEFIT is equal to the greater of:
o the Specified Amount (which if the amount of insurance the
owner selects); OR
o the Policy Value multiplied by the applicable Death Benefit
Ratio.
-> INCREASING DEATH BENEFIT is equal to the greater of :
o the Specified Amount PLUS the Policy Value; OR
o the Policy Value multiplied by the applicable Death Benefit
Ratio.
TRANSFERS
o You may make an unlimited number of transfers among the Subaccounts and the
Fixed Account.
o The minimum amount you may transfer from a Subaccount or the Fixed Account
is the lesser of $100, or the total value in the Subaccount or Fixed
Account.
o We charge $25 for the 13th and each additional transfer during a Policy
Year.
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LOANS
o You may take a loan (minimum $250) from your Policy at any time. The
maximum loan amount you may take is 90% (100% in certain states) of the
Cash Surrender Value, minus 6 months of Monthly Deductions. Loans may have
tax consequences.
o As collateral for the loan, we transfer an amount equal to the loan plus
interest in advance until the next Policy Anniversary from the Separate
Account and Fixed Account to the loan reserve (part of our Fixed Account).
We credit interest on amounts in the loan reserve and we guarantee that the
annual rate will not be lower than 3% (4% in Florida).
o We charge you a maximum annual interest rate of 5.66% in advance on your
loan. Interest is due and payable at the beginning of each Policy Year.
Unpaid interest becomes part of the outstanding loan and accrues interest
if it is not paid before the beginning of the next Policy Year.
o After the 10th Policy Year, we consider certain portions of the loan amount
to be preferred loans. The sum of preferred loans cannot exceed 25% of the
Policy Value. We charge an annual interest rate of 3.85% in advance on
preferred loan amounts.
o You may repay all or part of your Indebtedness at any time. Loan repayments
must be at least $25, and must be clearly marked as "loan repayments" or we
will credit them as premiums.
o We deduct any unpaid Indebtedness from the proceeds payable on the
Insured's death.
RISK SUMMARY
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The following are some of the risks associated with the Policy.
INVESTMENT If you invest your Policy Value in one or more Subaccounts,
RISK then you will be subject to the risk that investment
performance will be unfavorable and that the Policy Value
will decrease. You COULD lose everything you invest. If you
allocate net premiums to the Fixed Account, then we credit
your Policy Value (in the Fixed Account) 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%.
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RISK OF If your Policy fails to meet certain conditions, we will
LAPSE notify you that the Policy has entered a 61-day grace period
and will lapse unless you make a sufficient payment during
the grace period. You may reinstate a lapsed Policy.
If your Policy is in the selected No-Lapse Period, then the
Policy will enter a grace period only if on any Monthly Date
the Cash Surrender Value is not enough to pay the next
Monthly Deduction due, AND the sum of premiums paid minus
withdrawals and Indebtedness is less than the Cumulative
Minimum Monthly Premium.
If your Policy is not in the selected No-Lapse Period, then
your Policy will enter a grace period only if the Cash
Surrender Value on any Monthly Date is not enough to pay the
next Monthly Deduction due.
Your Policy also may lapse (whether or not you are in the
selected No-lapse Period) if your Indebtedness reduces the
Cash Surrender Value to zero.
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TAX RISKS We anticipate that the Policy will generally be deemed a life
insurance contract under Federal tax law, so that the death
benefit paid to the beneficiary will not be subject to
Federal income tax. However, there is more uncertainty with
respect to Policies issued on a substandard premium class
basis and Policies with a Level One-Year Term Insurance Rider
attached. Depending on the total amount of premiums you pay,
the Policy may be treated as a modified endowment contract
("MEC") under Federal tax laws. If a Policy is treated as a
MEC, then surrenders, partial withdrawals, 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 withdrawals, and loans
taken before you reach age 59 1/2. You should consult a
qualified tax advisor for assistance in all Policy-related
tax matters.
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SURRENDER The surrender charge under this Policy applies for
19 Policy RISKS Years after the Policy Date. An additional
surrender charge will be applicable for 19 years from the
date of any increase in the Specified Amount. It is possible
that you will receive no Cash Surrender Value if you
surrender your Policy in the first few Policy Years. 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, because surrender charges affect the Cash
Surrender Value which is a measure we use to determine
whether your Policy will enter a grace period (and possibly
lapse). See "Risk of Lapse," above.
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LOAN RISKS A Policy loan, whether or not repaid, will affect Policy
Value over time because we subtract the amount of the loan
from the Subaccounts and Fixed Account as collateral, and the
loan collateral does not participate in the investment
results of the Subaccounts or receive any higher current
interest rate credited to the Fixed Account.
We reduce the amount we pay on the Insured's death by the
amount of any Indebtedness. Your Policy may lapse if your
Indebtedness reduces the Cash Surrender Value to zero.
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9
<PAGE>
THE COMPANY AND THE FIXED ACCOUNT
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PFL LIFE INSURANCE COMPANY
PFL Life Insurance Company is the insurance company issuing the Policy. PFL was
incorporated under Iowa law on April 19, 1961, and is a wholly owned indirect
subsidiary of AEGON USA, Inc. 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 members subscribe to a set of ethical standards involving the
sales and service of individually sold life insurance and annuities. As a member
of IMSA, PFL may use the IMSA logo and language in advertisements.
THE FIXED ACCOUNT
The Fixed Account is part of our general account. We own the assets in the
general account and we use these assets to support our insurance and annuity
obligations other than those funded by our separate investment accounts. Subject
to applicable law, the Company has sole discretion over investment of the Fixed
Account's assets. The Company bears the full investment risk for all amounts
allocated or transferred to the Fixed Account. We guarantee that the amounts
allocated to the Fixed Account will be credited interest daily at a net
effective annual interest rate of at least 3% (4% for Policies issued in
Florida). We will determine any interest rate credited in excess of the
guaranteed rate at our sole discretion.
THE FIXED ACCOUNT IS NOT REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE
DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
We established PFL Variable Life Account A as a separate investment account
under Iowa law on July 1, 1999. We own the assets in the Separate Account and we
are obligated to pay all benefits under the Policies. We may use the Separate
Account to support other variable life insurance policies we issue. The Separate
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.
10
<PAGE>
We have divided the Separate Account into Subaccounts, each of which invests in
shares of one portfolio among the following mutual funds:
X Janus Aspen Series (managed by Janus Capital Corporation)
X AIM Variable Insurance Funds, Inc. (managed by A I M Advisors, Inc.)
X Oppenheimer Variable Account Funds (managed by OppenheimerFunds,
Inc.)
X Fidelity Variable Insurance Products Funds (managed by Fidelity
Management & Research Company)
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
Separate Account reflect the Subaccount's own investment experience and not the
investment experience of our other assets. We may not use the Separate Account's
assets to pay any of our liabilities other than those arising from the Policies.
If the Separate Account's assets exceed the required reserves and other
liabilities, we may transfer the excess to our general account.
The Separate Account may include other Subaccounts that are not available under
the Policies and are not discussed in this prospectus. Where permitted by
applicable law, we reserve the right to:
1. Create new separate accounts;
2. Combine the Separate Account with other separate accounts;
3. Remove, combine or add Subaccounts and make the new
Subaccounts available to you at our discretion;
4. Make new portfolios available under the Separate Account or
remove existing portfolios;
5. Substitute new portfolios for any existing portfolios if
shares of a portfolio are no longer available for investment
or if we determine that investment in a portfolio is no longer
appropriate in light of the Separate Account's purposes;
6. Deregister the Separate Account under the Investment Company
Act of 1940 if such registration is no longer required;
7. Operate the Separate Account as a management investment
company under the Investment Company Act of 1940, or as any
other form permitted by law;
8. Manage the Separate Account under the direction of a committee
at any time;
9. Fund additional classes of variable life insurance contracts
through the Separate Account; and
10. Make any changes required by the Investment Company Act of
1940 or any other law.
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<PAGE>
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 Separate Account invests in shares of certain portfolios. Each portfolio is
part of a mutual fund that 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 portfolios 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.
The following table summarizes each portfolio's investment objective(s) and
policies. 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 a description of risks, in the prospectuses for the
portfolios.
You should read these prospectuses carefully.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
--------- --------------------
<S> <C>
JANUS ASPEN GROWTH o Seeks long-term growth of capital in a manner consistent with the
preservation of capital. Invests primarily in common stocks of issuers
of any size.
JANUS ASPEN WORLDWIDE o Seeks long-term growth of capital in a manner consistent with the
GROWTH preservation of capital. Invests primarily in common stocks of foreign
and domestic issuers of any size.
JANUS ASPEN BALANCED o Seeks long-term capital growth, consistent with preservation of capital and
balanced by current income.
JANUS ASPEN CAPITAL o Seeks long-term growth of capital. Invests in common stocks of issuers
APPRECIATION of any size.
JANUS ASPEN AGGRESSIVE o Seeks long-term growth of capital. Normally invests at least 50% of its
GROWTH equity assets in securities issued by medium-sized companies.
AIM V.I. CAPITAL o Seeks to provide growth of capital through investment in common
APPRECIATION FUND stocks, with emphasis on medium and small-sized growth
companies.
AIM V.I. GOVERNMENT o Seeks to achieve a high level of current income consistent with
SECURITIES FUND reasonable concern for safety of principal by investing in debt securities
issued, guaranteed or otherwise backed by the United States
Government.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
--------- --------------------
<S> <C>
AIM V.I. GROWTH FUND o Seeks to provide growth of capital primarily by investing in seasoned
and better capitalized companies considered to have strong earnings
momentum.
AIM V.I. INTERNATIONAL o Seeks to provide long-term growth of capital by investing in a
EQUITY FUND diversified portfolio of international equity securities whose issuers are
considered to have strong earnings momentum.
AIM V.I. VALUE FUND o Seeks to achieve long-term growth of capital by investing primarily in
equity securities judged by the fund's investment adviser to be undervalued
relative to the investment adviser's appraisal of the current or projected
earnings of the companies issuing the securities, or relative to current market
values or assets owned by the companies issuing the securities, or relative to the
equity market generally. Income is a secondary objective.
OPPENHEIMER MAIN o Seeks a high total return (which includes growth in the value of its
STREET GROWTH & shares as well as current income) from equity and debt securities.
INCOME/VA
OPPENHEIMER MULTIPLE o Seeks a high total investment return, which includes current income and
STRATEGIES/VA capital appreciation in the value of its shares.
OPPENHEIMER BOND/VA o Seeks a high level of current income as its primary objective. As a
secondary objective, seeks capital appreciation when consistent with its
primary objective.
OPPENHEIMER STRATEGIC o Seeks a high level of current income principally derived from interest on
BOND/VA debt securities and seeks to enhance such income by writing covered
call options on debt securities.
OPPENHEIMER HIGH o Seeks a high level of current income from investment in high-yield,
INCOME/VA fixed-income securities. Investments include unrated securities or high-
risk securities in the lower rating categories, commonly known as "junk bonds,"
which are subject to a greater risk of loss of principal and nonpayment of interest
than higher-rated securities.
FIDELITY INDEX 500 o Seeks to provide investment results that correspond to the total return of
a broad range of common stocks publicly traded in the United States, as
represented by the Standard & Poor's(R)Composite Index of 500
Stocks.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
--------- --------------------
<S> <C>
FIDELITY MONEY MARKET o Seeks to earn a high level of current income while maintaining a stable $1.00
share price by investing in high-quality, short-term securities.
FIDELITY GROWTH o Seeks capital appreciation by investing primarily in common stocks.
FIDELITY CONTRAFUND(R) o Seeks capital appreciation by investing in securities of companies whose value the
adviser believes is not fully recognized by the public.
FIDELITY GROWTH & o Seeks high total return through a combination of current income and
INCOME capital appreciation.
</TABLE>
In addition to the Separate 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 the Company nor the portfolios currently foresee any such disadvantages,
either to variable life insurance policy owners or to variable annuity contract
owners, each portfolio's Board of Directors (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 portfolio shares by one or more of the separate accounts, which could
have adverse consequences. Material conflicts could result from, for example,
(1) changes in state insurance laws, (2) changes in Federal income tax laws, or
(3) differences in voting instructions between those given by variable life
insurance policy owners and those given by variable annuity contract owners.
If a portfolio's Board of Directors (Trustees) were to conclude that separate
portfolios should be established for variable life insurance and variable
annuity separate accounts, we will bear the attendant expenses, but variable
life insurance policy owners and variable annuity contract owners would no
longer have the economies of scale resulting from a larger combined portfolio.
THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL PUBLIC,
AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR OR NEARLY
IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the investment
objectives and policies of certain portfolios available under the Policy are
very similar to the investment objectives and policies of other portfolios that
are or may be managed by the same investment adviser or manager. Nevertheless,
the investment performance and results of the portfolios available under the
Policy may be lower or higher than the investment results of such other
(publicly available) portfolios. THERE CAN BE NO ASSURANCE, AND WE MAKE NO
REPRESENTATION, THAT THE INVESTMENT RESULTS OF ANY OF THE PORTFOLIOS AVAILABLE
UNDER THE POLICY WILL BE COMPARABLE TO THE INVESTMENT RESULTS OF ANY OTHER
PORTFOLIO, EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER OR
MANAGER, THE SAME INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR NAME.
PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE.
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<PAGE>
VOTING 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 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 Policy 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 Owners advising you of the
action and the reasons we took such action.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an initial
premium to us at our Home 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 minimum Specified Amount benefit for a Policy based on the
Insured's age when we issue the Policy. The minimum Specified Amount is $100,000
for issue ages 0-49, and $50,000 for issue ages 50-85.
Generally, the Policy is available for Insureds between issue ages 0-85 for
preferred risk classes, and between issue ages 18-85 for tobacco risk classes.
Starting at Specified Amounts of $250,000, we add a better risk class
(super-preferred) for non-tobacco users only. Super-preferred rates are
available for issue ages 18-75. We can provide you with details as to these
underwriting standards when you apply for a Policy. We reserve the right to
modify our underwriting requirements at any time. We must receive evidence of
insurability that satisfies our underwriting standards before we will issue a
Policy. We reserve the right to reject an application for any reason permitted
by law.
WHEN INSURANCE COVERAGE TAKES EFFECT
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.
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<PAGE>
CONDITIONAL INSURANCE COVERAGE. Before full insurance coverage takes effect, you
may receive conditional insurance converge subject to certain requirements. This
coverage shall not exceed (1) the amount of insurance applied for; or (2)
$500,000, whichever is smaller, less all other sums we pay upon the death of a
proposed Insured under any other pending application or policy. If a proposed
Insured is less than 15 days old or more than 60 years old, no insurance shall
take effect until the Policy is delivered. If we do not approve your
application, we will make a full refund of the initial premium paid with the
application.
If all of the following conditions of coverage have been met, then conditional
insurance coverage will go into effect on the Policy Date subject to the
liability limits shown above and subject to the conditions of the Policy as
applied for. The conditions of such coverage are that:
1. the full first premium on the premium mode selected for the Policy
benefits applied for, including any additional premium required for
restrictions or benefits, is paid when the application is signed; and
2. each proposed Insured has completed any required medical examinations,
diagnostic tests, and interviews, or has supplied us with any additional
information we require; and
3. each proposed Insured is, on the Policy Date, insurable and acceptable
to us under our rules, limits and underwriting standards for the plan
and for the amount applied for without modification and at the rate of
premium paid.
If insurance does not take effect under these conditions, then no insurance
shall take effect unless a Policy is delivered to and accepted by the applicant,
and the full first premium is paid before any change in the insurability of any
proposed Insured since the date of application.
Conditional life insurance coverage is void if the application contains any
material misrepresentation. Benefits will also be denied if any proposed Insured
commits suicide.
Conditional life insurance coverage terminates automatically, and without
notice, on the earliest of:
o the date we notify you that the application is declined and we
return the initial premium; or
o the date we determine the Insured has satisfied our
underwriting requirements; or
o 10 days following any counteroffer we make to offer insurance
to any proposed Insured under a different policy, or at an
increased premium, or under a different underwriting class; or
o 60 days from the beginning of conditional insurance coverage.
FULL INSURANCE COVERAGE. Once we determine that the Insured meets our
underwriting requirements, full insurance coverage begins, we issue the Policy,
and we begin to deduct monthly charges from your Policy Value. This date is the
Policy Date. Prior to the Investment Start Date, we will place your premium
(less charges) in the Premium Suspense Account. On the first Valuation Date on
or following the Investment Start Date, we
16
<PAGE>
will transfer the amount in the Premium Suspense Account to the Subaccounts
and/or the Fixed Account as you directed on your application. See "Allocating
Premiums."
CANCELING A POLICY (FREE-LOOK RIGHT)
You may cancel a Policy during the free-look period by returning it to the
Company, 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 all payments you made under the
Policy (less any withdrawals and Indebtedness).
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.
SELECTING AND o You designate the beneficiary (the person to receive the
CHANGING THE death benefit when the Insured dies) in the application.
BENEFICIARY o If you designate more than one beneficiary, then each
beneficiary shares equally in any death benefit unless the
beneficiary designation states otherwise.
o If the beneficiary dies before the Insured, then any
contingent beneficiary becomes the beneficiary.
o 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.
o You can change the beneficiary by providing us with a
written request while the Insured is living.
o The change in beneficiary is effective as of the date you
sign the written request.
o We are not liable for any actions we take before we
received the written request.
CHANGING THE o You may change the Owner by providing a written request to
OWNER us at any time while the Insured is alive.
o The change takes effect on the date you sign the written
request.
o We are not liable for any actions we take before we
received the written request.
o Changing the Owner does not automatically change the
beneficiary and does not change the Insured.
o Changing the Owner may have tax consequences. You should
consult a tax advisor before changing the Owner.
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<PAGE>
ASSIGNING THE o You may assign Policy rights while the Insured is alive by
POLICY submitting a written request to our Home Office.
o The Owner retains any Ownership rights that are not
assigned.
o Assignee may not change the Owner or the beneficiary, and
may not elect or change an optional method of payment. We
will pay any amount payable to the assignee in a lump sum.
o Claims under any assignment are subject to proof of
interest and the extent of the assignment.
o We are not:
-> bound by any assignment unless we receive a Written
Notice of the assignment;
-> responsible for the validity of any assignment; or
-> liable for any payment we make before we received
Written Notice of the assignment.
o Assigning the Policy may have tax consequenses. See "Tax
Treatment of Policy Benefits."
PREMIUMS
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PREMIUM FLEXIBILITY
When you apply for a Policy, you may indicate your intention to pay premiums on
a monthly, quarterly, semi-annual, or annual basis (planned premiums). However,
you do not have to pay premiums according to any schedule. You have flexibility
to determine the frequency and the amount of the premiums you pay. You must send
all premium payments to our Home Office. You may not pay any premiums after the
Policy's Maturity Date. You may not pay premiums less than $25.
We have the right to limit or refund any premium if (1) the premium would
disqualify the Policy as a life insurance contract under the Internal Revenue
Code; or (2) the amount you pay is less than $25; or (3) payment of a greater
amount would increase the death benefit by application of the death benefit
ratio (unless you provide us with satisfactory evidence of insurability).
You can stop paying premiums at any time and your Policy will continue in force
until the earlier of the Maturity Date, or the date when either (1) the Insured
dies, or (2) the grace period ends without a sufficient payment (see "Lapse,"
below), or (3) we receive your Written Notice requesting a surrender of the
Policy.
MINIMUM MONTHLY PREMIUM. On your application, you must select one of the three
No-Lapse Periods we offer under the Policy: 20 Policy Years; 30 Policy Years; or
to Insured's age 100. Certain states may require No-Lapse Periods that differ
from those we offer. Your Policy's specification page will show a Minimum
Monthly Premium amount for your Policy, which is based on the Insured's age,
sex, premium class, Specified Amount, riders, and the selected No-Lapse Period.
The Minimum Monthly Premium is the amount necessary to guarantee insurance
coverage for the No-Lapse Period. (For two Policies covering Insured's with the
same age, sex, premium class, Specified Amount and riders, the Minimum Monthly
Premium is higher for the Policy with the longer No-Lapse Period.) You can
change the No-
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<PAGE>
Lapse Period for your Policy at any time, but you must make a lump sum payment
of any additional premiums we require. Thereafter, you must pay the premiums
required for the newly-selected No-Lapse Period. Beginning on the Policy Date
until the end of the No-Lapse Period, your Policy will not enter a grace period
if on each Monthly Date during the No-Lapse Period, your Cash Surrender Value is
enough to pay the next Monthly Deduction due, AND the sum of premiums paid less
any withdrawals and Indebtedness, equals or exceeds the Cumulative Minimum
Monthly Premium. See "Policy Lapse and Reinstatement." During the No-Lapse
Period, we allow you to make premium payments necessary to cover any deficiency
in the Cumulative Minimum Monthly Premium.
The Minimum Monthly Premium will increase if you increase the Specified Amount
or add supplemental benefits to your Policy. The Minimum Monthly Premium will
decrease for any supplemental benefit you decrease or discontinue. The Minimum
Monthly Premium will not decrease if you decrease the Specified Amount. See
"Changing the Specified Amount."
LAPSE. Under certain conditions, your Policy will enter into a 61-day grace
period and possibly lapse:
o If your Policy is in the No-Lapse Period, then the Policy will enter a
grace period if on any Monthly Date the Cash Surrender Value is not
enough to pay the next Monthly Deduction due, AND the sum of premiums
paid minus withdrawals and Indebtedness is less than the Cumulative
Minimum Monthly Premium.
o If your Policy is not in the No-Lapse Period, then your Policy will
enter a 61-day grace period if the Cash Surrender Value on any Monthly
Date is not enough to pay the next Monthly Deduction due.
We will notify you when your Policy is in a grace period. If you do not make a
sufficient payment before the end of the grace period, then your Policy will
lapse. You may reinstate a lapsed Policy if you meet certain requirements. See
"Policy Lapse and Reinstatement."
TAX-FREE EXCHANGES (1035 EXCHANGES). We may accept as part of your initial
premium, money from another life insurance 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. If you contemplate such an
exchange, you should consult a tax advisor to discuss the potential tax effects
of such a transaction.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us to allocate your net premium
to one or more Subaccounts of the Separate Account and to the Fixed Account
according to the following rules:
o You must allocate at least 5% of each net premium to any
Subaccount or the Fixed Account you select.
o Allocation percentages must be in whole numbers and the sum of
the percentages must equal 100%.
o No more than 10 accounts (Subaccounts and Fixed Account) may
be concurrently active (have net premiums allocated to it).
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<PAGE>
o Up to 4 times each Policy Year, you can change the allocation
instructions for additional net premiums without charge by
providing us with written notification (or any other
notification we deem satisfactory). Any change in allocation
instructions will be effective on the date we record the
change.
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.
Prior to the Investment Start Date, we will place your premium (less charges) in
the Premium Suspense Account. We do not credit any interest or investment
returns to amounts in the Premium Suspense Account. On the first Valuation Date
on or following the Investment Start Date, we will transfer the amount in the
Premium Suspense Account to the Subaccounts and/or the Fixed Account in
accordance with the allocation percentages provided in your application. Amounts
allocated from the Premium Suspense Account will be invested at the unit value
next determined on the first Valuation Date on or following the Investment Start
Date. We invest all net premiums paid thereafter at the unit value next
determined after we receive the premium at our Home Office.
POLICY VALUES
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POLICY VALUE o serves as the starting point for calculating values
under a Policy;
o equals the sum of all values in the Fixed Account and
in each Subaccount;
o is determined on the Policy Date and on each Valuation
Date; and
o has no guaranteed minimum amount and may be more or
less than premiums paid.
CASH SURRENDER VALUE
The Cash Surrender Value is the amount we pay to you when you surrender your
Policy. We determine the Cash Surrender Value at the end of the Valuation Period
when we receive your written surrender request.
CASH SURRENDER o the Policy Value as of such date; MINUS
VALUE ON ANY o any surrender charge as of such date; MINUS
VALUATION DATE o any outstanding Indebtedness.
EQUALS:
SUBACCOUNT VALUE
Each Subaccount's value is the Policy 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.
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<PAGE>
THE NUMBER OF o the initial units purchased at the unit value on
UNITS IN ANY the Investment Start Date; PLUS
SUBACCOUNT ON o units purchased with additional net premiums; PLUS
ANY VALUATION o units purchased via transfers from another
DATE EQUALS: Subaccount, the Fixed Account, or the loan reserve;
MINUS
o units redeemed to pay for Monthly Deductions; MINUS
o units redeemed to pay for partial withdrawals;
MINUS
o units redeemed as part of a transfer to another
Subaccount, the Fixed Account, or to the loan
reserve.
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 of the transaction 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 VALUE OF o the total value of the assets held in the Subaccount,
ANY SUBACCOUNT determined by multiplying the number of shares of the
AT THE END OF A designated portfolio owned by the Subaccount times the
VALUATION PERIOD portfolio's net asset value per share; MINUS
IS CALCULATED AS: o a deduction for the mortality and expense risk
charge; MINUS
o the accrued amount of reserve for any taxes or other
economic burden resulting from applying tax laws that
we determine to be properly attributable to the
Subaccount;
AND THE RESULT DIVIDED BY
o the number of outstanding units in the Subaccount.
FIXED ACCOUNT VALUE
On the Investment Start Date, the Fixed Account value is equal to the net
premiums allocated to the Fixed Account, less the portion of the first Monthly
Deduction taken from the Fixed Account.
THE FIXED ACCOUNT o the net premium(s) allocated to the Fixed Account;
VALUE AT THE END OF PLUS
ANY VALUATION o any amounts transferred to the Fixed Account
PERIOD IS EQUAL TO: (including amounts transferred from the loan
reserve); PLUS
o interest credited to the Fixed Account; MINUS
o amounts charged to pay for Monthly Deductions; MINUS
o amounts withdrawn from the Fixed Account; MINUS
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o amounts transferred from the Fixed Account to a
Subaccount or to the loan reserve).
CHARGES AND DEDUCTIONS
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- --------------------------------------------------------------------------------
We make certain charges and deductions under the Policy. These charges and
deductions compensate us for: (1) services and benefits we provide; (2) costs
and expenses we incur; and (3) risks we assume.
SERVICES AND o the death benefit, cash and loan benefits under
BENEFITS WE the Policy
PROVIDE: o investment options, including premium allocations
o administration of elective options
o the distribution of reports to Owners
COSTS AND o costs associated with processing and underwriting
EXPENSES WE administering the Policy (including any riders)
INCUR: applications, issuing and
o overhead and other expenses for providing services
and benefits
o sales and marketing expenses
o other costs of doing business, such as collecting
premiums, maintaining records, processing claims,
effecting transactions, and paying Federal, state
and local premium and other taxes and fees
RISKS WE ASSUME: o that the cost of insurance charges we may deduct
are insufficient to meet our actual claims because
Insureds die sooner than we estimate
o that the costs of providing the services and
benefits under the Policies exceed the charges we
deduct
EXPENSE CHARGE
We deduct an expense charge from each premium payment to compensate us for
distribution expenses and state and local premium taxes. We credit the remaining
amount (the net premium) to your Policy Value according to your allocation
instructions. The expense charge currently varies by Policy Year and is
guaranteed not to exceed 5% of each premium in any Policy Year:
Premiums paid DURING first 10 Policy Years: expense charge = 5%
Premiums paid AFTER first 10 Policy Years: expense charge = 2.5%
While we may change the expense charge, we guarantee that the expense charge
will not exceed 5% of premiums paid in any Policy Year.
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<PAGE>
MONTHLY DEDUCTION
We deduct a Monthly Deduction from the Policy 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 Policy Value on the Monthly
Date). 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 four components:
-> a cost of insurance charge for the Policy;
-> a $10 monthly administrative charge;
-> charges for any riders; and
-> any charges for a substandard premium class rating.
COST OF INSURANCE. We assess a monthly cost of insurance charge to compensate us
for underwriting the death benefit. The charge depends on a number of variables
(age, sex, premium class, and Specified Amount) that would cause it to vary from
Policy to Policy and from Monthly Date to Monthly Date.
We calculate the cost of insurance charge separately for the initial Specified
Amount and for any increase in Specified Amount. If we approve an increase in
your Policy's Specified Amount, then a different premium class (and a different
cost of insurance charge) may apply to the increase, based on the Insured's
circumstances at the time of the increase.
COST OF The COST OF INSURANCE CHARGE is equal to:
INSURANCE
CHARGE -> the monthly cost of insurance rate; 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
-> 1.0024663 (1.0032737 for Policies issued in
Florida) which is 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 3.0% (4.0% for Policies issued in Florida));
MINUS
-> the Policy Value at the beginning of the month.
We base the cost of insurance rates on the Insured's age, gender, premium class
and Specified Amount. 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
and the Insured's age and premium class. For standard premium classes, these
guaranteed rates will never be greater than the rates in the 1980 C.S.O. tables.
MONTHLY ADMINISTRATIVE CHARGE. Each month we deduct a $10 monthly administrative
charge to compensate us for expenses such as record keeping, processing death
benefit claims and Policy changes, and overhead costs. This charge will not
exceed $10 per month.
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<PAGE>
CHARGES FOR RIDERS. The Monthly Deduction includes charges for any supplemental
insurance benefits you add to your Policy by rider. See "Supplemental Benefits
and Riders."
CHARGES FOR A SUBSTANDARD PREMIUM CLASS RATING. The Monthly Deduction includes a
charge we apply if our underwriting places the Insured in a substandard premium
class rating.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from each Subaccount (not the Fixed Account) 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. This charge is equal to:
o the assets in each Subaccount, MULTIPLIED BY
o 0.00002047, which is the daily portion of the annual mortality
and expense risk charge rate of 0.75% during all Policy Years.
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 and may use such profits for any lawful
purpose including covering distribution expenses.
SURRENDER AND WITHDRAWAL CHARGES
SURRENDER CHARGE. If you fully surrender your Policy during the first 19 Policy
Years, we deduct a surrender charge from your Policy Value and pay the remaining
amount (less any outstanding Indebtedness) to you. The payment you receive is
called the Cash Surrender Value. The surrender charge varies based on your age,
sex, premium class, and initial Specified Amount. The highest surrender charge
on any Policy occurs in the first Policy Year or the first year following an
increase in the Specified Amount. An increase in the Specified Amount will
increase the surrender charge, but a decrease in the Specified Amount will not
result in a decrease in the surrender charge. The maximum surrender charge for
any Insured is $58 per $1,000 of Specified Amount.
The table below provides the maximum applicable surrender charges for the
initial Specified Amount for selected sample Insureds. Your Policy's
specifications page indicates the surrender charges applicable to your Policy. A
separate surrender charge that lasts for 19 years applies to each Specified
Amount increase. No surrender charges apply to withdrawals or Specified Amount
decreases.
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<PAGE>
SURRENDER CHARGE PER $1,000 OF SPECIFIED AMOUNT; INSURED AGE 35
<TABLE>
<CAPTION>
MALE MALE FEMALE FEMALE
POLICY YEAR NON-TOBACCO TOBACCO NON-TOBACCO TOBACCO
- -------------------- -------------------- ---------------- -------------------- -------------------
<S> <C> <C> <C> <C>
1 $24.00 $28.00 $22.00 $24.00
2 $22.80 $26.60 $20.90 $22.80
3 $21.60 $25.20 $19.80 $21.60
4 $20.40 $23.80 $18.70 $20.40
5 $19.20 $22.40 $17.60 $19.20
6 $18.00 $21.00 $16.50 $18.00
7 $16.80 $19.60 $15.40 $16.80
8 $15.60 $18.20 $14.30 $15.60
9 $14.40 $16.80 $13.20 $14.40
10 $13.20 $15.40 $12.10 $13.20
11 $12.00 $14.00 $11.00 $12.00
12 $10.80 $12.60 $ 9.90 $10.80
13 $ 9.60 $11.20 $ 8.80 $ 9.60
14 $ 8.40 $ 9.80 $ 7.70 $ 8.40
15 $ 7.20 $ 8.40 $ 6.60 $ 7.20
16 $ 6.00 $ 7.00 $ 5.50 $ 6.00
17 $ 4.80 $ 5.60 $ 4.40 $ 4.80
18 $ 3.60 $ 4.20 $ 3.30 $ 3.60
19 $ 2.40 $ 2.80 $ 2.20 $ 2.40
20 $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
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.
WITHDRAWAL CHARGE. After the first Policy Year, you may request a partial
withdrawal from your Policy Value. For each withdrawal, we will deduct from your
Policy Value a fee equal to the lesser of $25 or 2% of the amount withdrawn.
TRANSFER CHARGE
o We currently allow you to make 12 transfers each Policy Year
free of charge.
o We charge $25 for the 13th and each additional transfer among
the Subaccounts and Fixed Account during a Policy Year. We
will not increase this charge.
o 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.
o We deduct the transfer charge from the amount being
transferred.
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o Transfers we effect to reallocate amounts on the Investment
Start Date, and transfers due to dollar cost averaging, asset
rebalancing, or 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. For further information, see the portfolios' prospectuses
and Annual Portfolio Operating Expenses table included in the summary of this
prospectus.
DEATH BENEFIT
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DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds to the
primary beneficiary or a contingent beneficiary once we receive satisfactory
proof of the Insured's death. We may require you to return the Policy. If the
beneficiary dies before the Insured and there is no contingent beneficiary, we
will pay the death benefit proceeds to the Owner or the Owner's estate. We will
pay the death benefit proceeds in a lump sum or under a payment option. See
"Payment Options."
DEATH BENEFIT o the death benefit (described below); PLUS
PROCEEDS EQUAL: o any additional insurance provided by rider; MINUS
o any past due Monthly Deductions; MINUS
o any outstanding Indebtedness on the date of
death.
If all or part of the death benefit proceeds are paid in one sum, we will pay
interest on this sum as required by applicable state law from the date we
receive due proof of the Insured's death to the date we make payment.
An increase in the Specified Amount will increase the death benefit and a
decrease in the Specified Amount will decrease the death benefit.
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."
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options: Increasing Option (varying death
benefit), and Level Option (level death benefit). We calculate the amount
available under each death benefit option as of the date of the Insured's death.
After the first Policy Year, you may change death benefit options once each
12-month period.
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The death benefit under o the Specified Amount PLUS the Policy Value
the INCREASING OPTION on the Insured's date of death; OR
is the greater of: o the Policy Value on the Insured's date of
death multiplied by the applicable death
benefit ratio.
Under the Increasing Option, the death benefit always varies as the Policy Value
varies.
The death benefit under o the Specified Amount on the Insured's date
the LEVEL OPTION is the of death; or
greater of: o the Policy Value on the Insured's date of
death multiplied by the applicable death
benefit ratio.
Under the Level Option, your death benefit does not change unless the death
benefit ratio multiplied by the Policy Value is greater than the Specified
Amount. Then the death benefit will vary as the Policy Value varies. The death
benefit will also vary if you change the Specified Amount or Death Benefit
Option.
The DEATH BENEFIT RATIO is a ratio set forth in the Federal tax code based on
the Insured's age at the beginning of each Policy Year. The following table
indicates the applicable death benefit ratio for different ages:
AGE DEATH BENEFIT RATIO
- -------------------------- -----------------------------------------------------
40 and under 2.50
41 to 45 2.50 minus 0.07 for each age over age 40
46 to 50 2.15 minus 0.06 for each age over age 45
51 to 55 1.85 minus 0.07 for each age over age 50
56 to 60 1.50 minus 0.04 for each age over age 55
61 to 65 1.30 minus 0.02 for each age over age 60
66 to 70 1.20 minus 0.01 for each age over age 65
71 to 74 1.15 minus 0.02 for each age over age 70
75 to 90 1.05
91 to 94 1.05 minus 0.01 for each age over age 90
95 and above 1.00
If the Federal tax code requires us to determine the death benefit by reference
to these death benefit ratios, the Policy is described as "in the corridor." An
increase in the Policy Value will increase our risk, and we will increase the
cost of insurance we deduct from the Policy Value.
CHANGING DEATH BENEFIT OPTIONS
After the first Policy Year, you may change death benefit options once each
12-month period. Changing the death benefit option may have tax consequences.
You should consult a tax advisor before changing death benefit options. Please
note the following when changing death benefit options:
o You must make your request in writing.
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o The effective date of the change will be the Monthly Date on or
following the date when we approve your request for a change.
o We will send you a Policy endorsement with the change to attach to your
Policy.
If you change FROM INCREASING OPTION TO LEVEL OPTION:
/check/ We may require that you provide satisfactory evidence
of insurability.
/check/ The Specified Amount will change. The new Level
Option Specified Amount will equal the Increasing
Option Specified Amount plus the Policy Value on the
effective date of the change.
If you change FROM LEVEL OPTION TO INCREASING OPTION:
-> We may require that you provide satisfactory evidence
of insurability.
-> The Specified Amount will change. The new Increasing
Option Specified Amount will equal the Level Option
Specified Amount less the Policy Value immediately
before the change, but the new Specified Amount may
not be less than the minimum Specified Amount shown
on your Policy's specifications page.
EFFECTS OF WITHDRAWALS ON THE DEATH BENEFIT
If the Level Option is in effect, a withdrawal will reduce the Specified Amount
by the amount of the withdrawal (not including the withdrawal fee), and will
reduce the Policy Value by the amount of the withdrawal (including the
withdrawal fee). The reduction in Specified Amount will be subject to the terms
of the Changing the Specified Amount section below.
If the Increasing Option is in effect, a withdrawal will not affect the
Specified Amount.
CHANGING THE SPECIFIED AMOUNT
You select the Specified Amount when you apply for the Policy. After the first
Policy Year, you may change the Specified Amount once each 12-month period
subject to the conditions described below. We will not permit any change that
would result in your Policy being disqualified as a life insurance contract
under Section 7702 of the Internal Revenue Code. However, changing the Specified
Amount may have tax consequences and you should consult a tax advisor before
doing so.
INCREASING THE SPECIFIED AMOUNT
o You may increase the Specified Amount by submitting a
written request and providing evidence of
insurability satisfactory to us. The increase will be
effective on the next Monthly Date after we approve
the increase request.
o The minimum increase is $10,000.
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<PAGE>
o Increasing the Specified Amount will increase your
Minimum Monthly Premium and cause the No-Lapse Period
to begin again.
o Increasing the Specified Amount will result in an
additional surrender charge that lasts for 19 years.
o A different cost of insurance charge may apply to the
increase in Specified Amount, based on the Insured's
circumstances at the time of the increase.
DECREASING THE SPECIFIED AMOUNT
o You must submit a written request to decrease the
Specified Amount, but you may not decrease the
Specified Amount below the minimum amount shown on
your Policy specifications page.
o Any decrease will be effective on the next Monthly
Date after we process your written request.
o For purposes of determining the cost of insurance
charge, any decrease will first be used to reduce the
most recent increase, then the next most recent
increases in succession, and then the initial
Specified Amount.
o A decrease in Specified Amount may require that a
portion of Policy Value be distributed as a
withdrawal in order to maintain Federal tax
compliance.
o Decreasing the Specified Amount will not affect the
Minimum Monthly Premium or the surrender charges.
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. None of these
options vary with the investment performance of a Separate Account. More
detailed information concerning these settlement options is available on request
to our Home Office.
SURRENDERS AND PARTIAL WITHDRAWALS
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- --------------------------------------------------------------------------------
SURRENDERS
o 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. A surrender may
have tax consequences. See "Tax Treatment of Policy Benefits."
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<PAGE>
o The Insured must be alive and the Policy must be in force when
you make your written request. A surrender is effective as of
the date when we receive your written request.
We may require that you return the Policy.
o If you surrender your Policy during the first 19 Policy Years
(or during the first 19 years after an increase in the
Specified Amount), you will incur a surrender charge that
varies based on the Insured's age, gender, premium class and
Specified Amount. See "Charges and Deductions -- Surrender and
Withdrawal Charges."
o Once you surrender your Policy, all coverage and other
benefits under it cease and cannot be reinstated.
o We will pay you the Cash Surrender Value in a lump sum within
seven days unless you request other arrangements.
WITHDRAWALS
After the 1st Policy Year, you may request to withdraw a portion of your Policy
Value subject to certain conditions.
-> You may make only one withdrawal per Policy Year.
-> You must: (1) make your request in writing, and (2) request at
least $500.
-> If you request a withdrawal that would leave a Cash Surrender
Value of less than $500, then we will treat it as a request to
surrender your Policy.
-> For each withdrawal, we deduct (from the remaining Policy
Value) a fee equal to the lesser of $25 or 2% of the amount
withdrawn. See "Charges and Deductions -- Surrender and
Withdrawal Charges."
-> You can specify the Subaccount(s) and Fixed Account from which
to make the withdrawal; otherwise we will deduct the amount
(including any fee) from the Subaccounts and the Fixed Account
on a pro-rata basis (that is, according to the percentage of
Policy Value contained in each Subaccount and the Fixed
Account).
-> We will process the withdrawal at the unit values next
determined after we receive your request.
-> We generally will pay a withdrawal request within seven days
after the Valuation Date when we receive the request.
-> Withdrawals may have tax consequences. See "Tax Treatment of
Policy Benefits."
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<PAGE>
TRANSFERS
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- --------------------------------------------------------------------------------
You may make transfers from 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. The following features
apply to transfers under the Policy:
o You may make an unlimited number of transfers in a Policy
Year.
o You may request transfers in writing (in a form we accept), or
by telephone.
o You must transfer at least $100, or, if less, the total value
in the Subaccount or Fixed Account.
o We deduct a $25 charge from the amount transferred for the
13th and each additional transfer in a Policy Year. Transfers
we effect from the Premium Suspense Account, and transfers
resulting from loans, dollar cost averaging, asset
rebalancing, and the exchange privilege are NOT treated as
transfers for purposes of the transfer charge.
o We consider each written or telephone request to be a single
transfer, regardless of the number of Subaccounts (or Fixed
Account) involved.
o We process transfers based on unit values determined at the
end of the Valuation Date when we receive your transfer
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 1-800-625-4213.
Please note the following regarding telephone transfers:
-> We are not liable for any loss, damage, cost or expense from
complying with telephone instructions we reasonably believe to
be authentic. You bear the risk of any such loss.
-> We will employ reasonable procedures to confirm that telephone
instructions are genuine.
-> Such procedures may include requiring forms of personal
identification prior to acting upon telephone instructions,
providing written confirmation of transactions to you, and/or
tape recording telephone instructions received from you.
-> If we do not employ reasonable confirmation procedures, we may
be liable for losses due to unauthorized or fraudulent
instructions.
The corresponding portfolio of any Subaccount determines its net asset value per
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
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<PAGE>
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.
EXCHANGE PRIVILEGE
At any one time, you may exercise the Exchange Privilege under your Policy which
results in the transfer of the entire amount in the Separate Account to the
Fixed Account, and the allocation of all future net premiums to the Fixed
Account. This serves as an exchange of the Policy for the equivalent of a
flexible premium fixed benefit life insurance policy. We will not assess any
transfer or other charges in connection with the Exchange Privilege.
DOLLAR COST AVERAGING
You may elect to participate in a dollar cost averaging program. 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 or Fixed Account 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. We do not assure the success of this
strategy and the success 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.
To participate in dollar cost averaging, you must place at least $5,000 in a
"source account" (either the Fixed Account, AIM V.I. Government Securities Fund
Subaccount, Oppenheimer Bond Fund/VA Subaccount, or the Fidelity VIP Money
Market Portfolio Subaccount). There can be only one source account. Each month,
we will automatically transfer equal amounts (minimum $100) from the source
account to your designated "target accounts." You may have multiple target
accounts.
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 AVERAGING -> we receive your written request to cancel your
WILL END IF: participation;
-> the value in the source account is exhausted;
-> you elect to participate in the asset
rebalancing program.
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 semi-annually to maintain a particular percentage allocation
among the Subaccounts. Policy Value allocated to each Subaccount will grow or
decline in value at different rates. The asset rebalancing program automatically
reallocates the Policy Value in the Subaccounts at the end of each semi-annual
period to match your Policy's currently effective premium allocation schedule.
The asset rebalancing program will transfer Policy Value from those Subaccounts
that have increased in value to those Subaccounts that
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<PAGE>
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. Policy Value in the Fixed Account is not available for this program.
TO PARTICIPATE IN THE -> you must complete an asset rebalancing
ASSET REBALANCING request form and submit it to us before the
PROGRAM: Maturity Date
-> you must have a minimum Policy Value of
$5,000.
If you elect asset rebalancing, it will occur on each semi-annual anniversary of
the Policy Date. You may modify your allocations up to 4 times in a Policy Year.
Once we receive the asset rebalancing request form, we will effect the initial
rebalancing semi-annually, in accordance with the Policy's current premium
allocation schedule. We will credit the amounts transferred at the unit value
next determined on the dates the transfers are made. If a day on which
rebalancing would ordinarily occur falls on a day on which the NYSE is closed,
rebalancing will occur on the next day the NYSE is open. 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.
ASSET REBALANCING -> you elect to participate in the dollar cost
WILL END IF: averaging program;
-> we receive your request to discontinue
participation; OR
-> you make a transfer to or from any Subaccount
other than under a scheduled rebalancing (not
including transfers in connection with loans).
We may modify, suspend, or discontinue the asset rebalancing program at any
time.
LOANS
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- --------------------------------------------------------------------------------
While the Policy is in force, you may borrow money from us using the Policy as
the only collateral for the loan. A loan that is taken from, or secured by, a
Policy may have tax consequences.
LOAN CONDITIONS:
o The MINIMUM LOAN you may take is $250.
o The MAXIMUM LOAN you may take is 90% (100% in certain states)
of the Cash Surrender Value, minus 6 months of Monthly
Deductions.
o To secure the loan, we transfer an amount equal to the loan
(plus loan interest in advance) from the Separate Account and
Fixed Account to the loan reserve, which is a part of the
Fixed Account. Unless you specify otherwise, we will transfer
the loan from the Subaccounts and the Fixed Account on a
pro-rata basis.
o Amounts in the loan reserve earn interest at an annual rate
guaranteed not to be lower than 3.0% (4.0% for Policies issued
in Florida). We may credit the loan reserve with an
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interest rate different than the rate credited to net premiums
allocated to the Fixed Account.
o We normally pay the amount of the loan within seven days after
we receive a proper loan request. We may postpone payment of
loans under certain conditions. See "Payments We Make."
o We charge you a maximum interest rate of 5.66% per year on
your loan. Interest is due and payable at the beginning of
each Policy Year. Unpaid interest becomes part of the
outstanding loan and accrues interest if it is not paid before
the beginning of the next Policy Year.
o After the 10th Policy Year, we consider certain portions of
the loan amount to be preferred loans. The sum of preferred
loans cannot exceed 25% of the Policy Value. We charge a
maximum annual interest rate of 3.85% in advance on preferred
loan amounts.
o We cannot change the interest rate on a loan once you take the
loan.
o You may repay all or part of your Indebtedness at any time.
Loan repayments must be at least $25, and must be clearly
marked as "loan repayments" or they will be credited as
premiums if they meet minimum premium requirements.
o Upon each loan repayment, we will transfer an amount equal to
the loan repayment from the loan reserve to the Fixed and/or
Separate Account according to your current premium allocation
schedule.
o We deduct any Indebtedness from the Policy Value upon
surrender, and from the death benefit proceeds payable on the
Insured's death.
o If your Indebtedness equals or exceeds the Policy Value less
any applicable surrender charge, then your Policy will enter a
grace period. See "Policy Lapse and Reinstatement."
EFFECT OF POLICY LOANS
A loan affects the Policy, because the death benefit proceeds and Cash Surrender
Value include reductions for the amount of any Indebtedness. Repaying a loan
causes the death benefit and Cash Surrender Value to increase by the amount of
the repayment. As long as a loan is outstanding, we hold an amount equal to the
loan in the loan reserve. This amount is not affected by the Subaccounts'
investment performance and may not be credited with the interest rates accruing
on the Fixed Account. Amounts transferred from the Separate Account to the loan
reserve will affect the Policy Value, even if the loan is repaid, because we
credit such amounts with an interest rate we declare rather than a rate of
return reflecting the investment results of the Separate Account.
There are risks involved in taking a loan, including the potential for a Policy
to lapse if projected earnings, taking into account outstanding loans, are not
achieved. If the Policy is a "modified endowment contract" (see "Federal Tax
Considerations"), then a loan will be treated as a withdrawal for
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Federal income tax purposes. A loan may also have possible adverse tax
consequences that could occur if a Policy lapses with loans outstanding.
We will notify you (and any assignee of record) if the sum of your Indebtedness
is more than the Policy Value less any applicable surrender charge. If you do
not submit a sufficient payment within 61 days from the date of the notice, your
Policy may lapse. See "Policy Lapse and Reinstatement."
POLICY LAPSE AND REINSTATEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAPSE
Under certain conditions, your Policy may enter a 61-day grace period, and
possibly lapse (terminate without value):
o If your Policy is in the No-Lapse Period you have selected, then the
Policy will enter a grace period only if on any Monthly Date the Cash
Surrender Value is not enough to pay the next Monthly Deduction due, AND
the sum of premiums paid minus withdrawals and Indebtedness is less than
the Cumulative Minimum Monthly Premium.
o If your Policy is not in the No-Lapse Period you have selected, then
your Policy will enter a grace period if the Cash Surrender Value on any
Monthly Date is not enough to pay the next Monthly Deduction due.
If you have taken a loan, then your Policy also will enter a grace period (and
possibly lapse) whenever your Indebtedness reduces the Cash Surrender Value to
zero.
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.
REINSTATEMENT
Unless you have surrendered your Policy for its Cash Surrender Value, you may
reinstate a lapsed Policy at any time within 5 years after the end of the grace
period (and prior to the Maturity Date) by submitting all of the following items
to us at our Home Office:
1. a Written Notice requesting reinstatement;
2. the Insured's written consent to reinstatement;
3. evidence of insurability we deem satisfactory;
4. payment or reinstatement of any Indebtedness; and
5. payment of enough premium to keep the Policy in force
for at least 3 months.
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<PAGE>
The effective date of reinstatement will be the first Monthly Date on or next
following the date we approve your application for reinstatement. We reserve the
right to decline a reinstatement request.
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 manner in which these
requirements are to be applied to certain innovative features of the Policy are
not directly addressed by the Code, and/or there is limited guidance as to how
these requirements are to be applied. Nevertheless, we believe that a Policy
should generally 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. There is more uncertainty with respect to Policies issued on a
substandard premium class basis and Policies with a Level One-Year Term
Insurance Rider attached. If it is subsequently determined that a Policy does
not satisfy the applicable requirements, we may take appropriate steps to bring
the Policy into compliance with such requirements and we reserve the right to
restrict Policy transactions in order to do so.
In certain circumstances, Owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the Owners of the assets of the
Separate Account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the contract
Owners have been currently taxed on income and gains attributable to the
Separate Account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility to allocate premiums and
Policy Values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over Separate
Account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the Owner of the Separate Account assets
supporting the Policy.
In addition, the Code requires that the investments of the Separate Account be
"adequately diversified" in order to treat the Policy as a life insurance
contract for Federal income tax purposes. We intend that the Separate Account,
through the Portfolios, will satisfy these diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
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<PAGE>
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy 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 Policy
Value until there is a distribution. In addition, if you elect the Terminal
Illness Accelerated Death Benefit, the tax consequences associated with
continuing the Policy after a distribution is made are unclear. Please consult a
tax advisor on these consequences. 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." Moreover, if a loan from a Policy that is not a MEC is
outstanding when the Policy is canceled or lapses, the amount of the outstanding
Indebtedness will be added to the amount distributed and will be taxed
accordingly.
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 rules are too
complex to be summarized here, but generally depend on the amount of premiums
paid during the first seven Policy years. Certain changes in a Policy after
it is issued could also cause it to be classified as a MEC. Due to the Policy's
flexibility, each Policy's circumstances will determine whether the Policy is
classified as a MEC. If you do not want your Policy to be classified as a MEC,
you should consult a tax advisor to determine the circumstances, if any, under
which your Policy would or would not be classified as a MEC.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as MECs
are subject to the following tax rules:
o All distributions other than death benefits from a MEC,
including distributions upon surrender and withdrawals, will
be treated as ordinary income subject to tax up to an amount
equal to the excess (if any) of the unloaned Policy Value
immediately before the distribution plus prior distributions
over the Owner's total investment in the Policy at that
time. They will be treated as tax-free recovery of the Owner's
investment in the Policy only after all such excess has been
distributed. "Total investment in the Policy" means the
aggregate amount of any premiums or other considerations paid
for a Policy, plus any previously taxed distributions.
o Loans taken from such a Policy (or secured by such a Policy,
E.G., by assignment) are treated as distributions and taxed
accordingly.
o A 10% additional income tax penalty is imposed on the amount
included in income except where the distribution or loan is
made when you have attained age 59 1/2 or are disabled, or
where the distribution is part of a series of substantially
equal periodic payments for your life (or life expectancy) or
the joint lives (or joint life expectancies) of you the
beneficiary.
o If a Policy becomes a MEC, distributions that occur during
the Policy year will be taxed as distributions from a MEC.
In addition, distributions from a Policy within two years
before it becomes a MEC will be taxed in this manner. This
means that a
37
<PAGE>
distribution from a Policy that is not a MEC at the time
when the distribution is made could later become taxable as a
distribution from a MEC.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Policy that is not a MEC are generally treated first as a
recovery of your investment 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, there is some uncertainty as to the tax treatment of a
Preferred Loan under a Policy that is not a MEC and you should consult a tax
advisor on this point.
Finally, neither distributions from nor loans from (or secured by) a Policy that
is not a MEC are subject to the 10% additional tax.
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.
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.
POSSIBLE TAX LAW CHANGES. While the likelihood of legislative or other changes
is uncertain, there is always a possibility that the tax treatment of the Policy
could change by legislation or otherwise. It is even possible that any
legislative change could be retroactive (effective prior to the date of the
change). Consult a tax advisor with respect to legislative developments and
their effect on the Policy.
OTHER POLICY INFORMATION
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- --------------------------------------------------------------------------------
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.
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<PAGE>
In the absence of fraud or non-payment of Monthly Deduction, 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 after:
(a) the Policy Date;
(b) the effective date of any increase in the Specified
Amount (and then only for the increased amount); or
(c) the effective date of any 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 Indebtedness, and less any withdrawals
previously paid.
If the Insured commits suicide, while sane or insane, within two years from the
effective date of any increase in the Specified Amount, the Policy will
terminate and our liability for the amount of increase will be limited to the
cost of insurance for the increase.
Certain states may require suicide exclusion provisions that differ from those
stated here.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex was stated incorrectly in the application, we will
adjust the death benefit proceeds to the amount that would have been payable at
the correct age and sex based on the most recent deduction for cost of
insurance.
MODIFYING THE POLICY
Any modification or waiver of our rights or requirements under this Policy must
be in writing and signed by our president, a vice president, our secretary, or
one of our officers. No agent may bind us by making any promise not contained in
this Policy.
Upon notice to you, we may modify the Policy:
-> to conform the Policy, our operations, or the Separate
Account's operations to the requirements of any law (or
regulation issued by a government agency) to which the Policy,
our Company or the Separate 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 Separate Account's operation.
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<PAGE>
If we modify the Policy, we will make appropriate endorsements to the Policy. If
any provision of the Policy conflicts with the laws of a jurisdiction that
govern the Policy, we reserve the right to amend the provision to conform with
such laws.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, withdrawal, death benefit, or
settlement options within seven business days after we receive all applicable
Written Notices and/or due proofs of death. However, we can postpone such
payments if:
o the NYSE is closed, other than customary weekend and holiday
closing, or trading on the NYSE is restricted as determined by
the Securities and Exchange Commission (SEC); OR
o 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
o the SEC determines that an emergency exists that would make
the disposal of securities held in the Separate Account or the
determination of their value is not reasonably practicable.
We have the right to defer payment of amounts from the Fixed Account for up to 6
months.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, withdrawals, death benefit proceeds, or payments under a
payment option until such check or draft has been honored.
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
Owners at their last known address a report showing the following information as
of the end of the report period:
/check/ the current Policy Value
/check/ the current Cash Surrender Value
/check/ the current death benefit
/check/ any activity since the last report (E.G., premiums paid,
withdrawals, deductions, loans or loan repayments, and other
transactions)
/check/ any other information required by law
RECORDS
We will maintain all records relating to the Separate Account and the Fixed
Account at our Home Office.
POLICY TERMINATION
Your Policy will terminate on the earliest of:
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<PAGE>
o the Maturity Date;
o the end of the grace period without a sufficient
payment;
o the date the Insured dies; or
o the date you surrender the Policy.
SUPPLEMENTAL BENEFITS AND RIDERS
The following supplemental benefits and riders are available under the Policy.
We deduct any monthly charges for these benefits and riders from Policy Value as
part of the Monthly Deduction. The benefits and riders available (which are
summarized below) provide fixed benefits that do not vary with the investment
experience of the Separate Account. For each Policy, we automatically provide
the supplemental benefits listed below. You may elect to add one or more of the
riders listed below at any time, subject to certain limitations. We may require
underwriting for certain riders. Your agent can help you determine whether
certain of the riders are suitable for you. Please contact us for further
details on these supplemental benefits and riders.
SUPPLEMENTAL BENEFITS
/check/ EXTENDED MATURITY DATE: Extends the Maturity Date past the
original Maturity Date. You must make a written request for
this benefit (and we must receive it) within 30 days prior to
the original Maturity Date.
/check/ TERMINAL ILLNESS ACCELERATED BENEFIT: You may elect to receive
a portion of the death benefit proceeds in a "single sum
benefit" if the Insured has incurred a terminal condition
while the Policy is in force. Payment of any amounts under
this benefit will result in reductions in your Policy Value,
Specified Amount, and certain Policy benefits.
RIDERS
o WAIVER OF PREMIUM BENEFIT: Waives the initial planned premium
if the Insured becomes totally and permanently disabled for at
least six consecutive months prior to the Policy anniversary
following the Insured's 60th birthday.
o WAIVER OF MONTHLY DEDUCTION: Waives the Monthly Deduction if
the Insured becomes totally and permanently disabled for at
least six consecutive months prior to the Policy
anniversary following the Insured's 60th birthday.
o LEVEL ONE-YEAR TERM INSURANCE: Provides one-year renewable
term insurance on the Insured.
o ADDITIONAL INSURED'S LEVEL ONE-YEAR TERM INSURANCE: Provides
one-year renewable term insurance on an additional Insured.
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<PAGE>
o ACCIDENTAL DEATH BENEFIT: Provides for payment of an
additional benefit if the Insured dies due to and within 90
days of an accidental injury that occurred on or before the
Policy anniversary when the Insured is age 65.
o GUARANTEED INSURABILITY BENEFIT: Provides options to purchase
additional insurance without evidence of insurability.
o INCOME REPLACEMENT BENEFIT: Provides a monthly benefit to the
beneficiary for a period of 20 years upon the Insured's death.
In addition, a lump sum benefit of 100 times the monthly
benefit is paid 20 years after the Insured's death.
o MONTHLY BENEFIT: Provides a monthly benefit to the
beneficiary upon the Insured's death.
o DISABILITY INCOME/WAIVER OF PREMIUM BENEFIT: Provides a
disability income benefit and waiver of premium benefit in the
event of the Insured's total and permanent disability for at
least six consecutive months prior to the Policy anniversary
following the Insured's 60th birthday.
o CHILDREN'S BENEFIT: Provides level term insurance on each of
the Insured's dependent children, until their 25th birthday.
PERFORMANCE DATA
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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, Policy 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 AND ARE NOT
INDICATIVE OF FUTURE PERFORMANCE.
The values we illustrate for death benefit, Policy Value and Cash Surrender
Value take into account all applicable charges and deductions from the Policy
(current and guaranteed), the Separate Account and the portfolios. We have not
deducted premium taxes or charges for any riders. These charges would lower the
performance figures significantly if reflected.
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<PAGE>
The following example shows how the hypothetical net return of the Janus Aspen
Growth Portfolio would have affected benefits for a Policy dated January 1,
1994. This example assumes that the net premiums and related Policy Values were
in the Subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
JANUS ASPEN GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $655 $653 $0 $0
1996* $1,706 $1,702 $0 $0
1997* $2,747 $2,739 $227 $219
1998* $4,095 $4,085 $1,715 $1,705
1999* $6,338 $6,322 $4,098 $4,082
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the Janus
Aspen Worldwide Growth Portfolio would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the net premium and related Policy
Values were in the Subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $645 $643 $0 $0
1996* $1,653 $1,648 $0 $0
1997* $2,943 $2,935 $423 $415
1998* $4,312 $4,302 $1,932 $1,922
1999* $6,289 $6,274 $4,049 $4,034
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
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<PAGE>
The following example shows how the hypothetical net return of the Janus Aspen
Balanced Portfolio would have affected benefits for a Policy dated January 1,
1994. This example assumes that the net premium and related Policy Values were
in the Subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
JANUS ASPEN BALANCED PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $640 $638 $0 $0
1996* $1,608 $1,603 $0 $0
1997* $2,577 $2,569 $57 $49
1998* $3,865 $3,856 $1,485 $1,476
1999* $5,963 $5,948 $3,723 $3,708
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the Janus Aspen
Capital Appreciation Portfolio would have affected benefits for a Policy dated
January 1, 1998. This example assumes that the net premium and related Policy
Values were in the Subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1999 $1,113 $1,110 $0 $0
</TABLE>
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<PAGE>
The following example shows how the hypothetical net return of the Janus Aspen
Aggressive Growth Portfolio would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the net premium and related Policy
Values were in the Subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $766 $764 $0 $0
1996* $1,808 $1,803 $0 $0
1997* $2,594 $2,587 $74 $67
1998* $3,568 $3,560 $1,188 $1,180
1999* $5,565 $5,551 $3,325 $3,311
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the AIM V.I.
Value Fund would have affected benefits for a Policy dated January 1, 1994. This
example assumes that the net premium and related Policy Values were in the
Subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
AIM V.I. VALUE FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $666 $664 $0 $0
1996* $1,810 $1,805 $0 $0
1997* $2,780 $2,772 $260 $252
1998* $4,169 $4,159 $1,789 $1,779
1999* $6,277 $6,262 $4,037 $4,022
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
45
<PAGE>
The following example shows how the hypothetical net return of the AIM V.I.
Capital Appreciation Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the net premium and related Policy
Values were in the Subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
AIM V.I. CAPITAL APPRECIATION FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $653 $651 $0 $0
1996* $1,785 $1,780 $0 $0
1997* $2,817 $2,809 $297 $289
1998* $3,849 $3,840 $1,469 $1,460
1999* $5,251 $5,238 $3,011 $2,998
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the AIM V.I.
Growth Fund would have affected benefits for a Policy dated January 1, 1994.
This example assumes that the net premium and related Policy Values were in the
Subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
AIM V.I. GROWTH FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $613 $611 $0 $0
1996* $1,717 $1,712 $0 $0
1997* $2,751 $2,743 $231 $223
1998* $4,245 $4,235 $1,865 $1,855
1999* $6,463 $6,447 $4,223 $4,207
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
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<PAGE>
The following example shows how the hypothetical net return of the AIM V.I.
International Equity Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the net premium and related Policy
Values were in the Subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
AIM V.I. INTERNATIONAL EQUITY FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $620 $618 $0 $0
1996* $1,476 $1,471 $0 $0
1997* $2,511 $2,504 $0 $0
1998* $3,287 $3,279 $907 $899
1999* $4,430 $4,418 $2,190 $2,178
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the AIM V.I.
Government Securities Fund would have affected benefits for a Policy dated
January 1, 1994. This example premium and related Policy Values were in the
Subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
AIM V.I. GOVERNMENT SECURITIES FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $603 $601 $0 $0
1996* $1,432 $1,427 $0 $0
1997* $2,065 $2,058 $0 $0
1998* $2,846 $2,839 $466 $459
1999* $3,643 $3,633 $1,403 $1,393
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
47
<PAGE>
The following example shows how the hypothetical net return of the Oppenheimer
Main Street Growth & Income Fund/VA would have affected benefits for a Policy
dated January 1, 1996. This example assumes that the net premium and related
Policy Values were in the Subaccount for the entire period and that the values
were determined on the first Valuation Date following January 1st of each year.
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1996 $899 $897 $0 $0
1998* $2,062 $2,057 $0 $0
1999* $2,776 $2,768 $256 $248
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the Oppenheimer
Multiple Strategies Fund/VA would have affected benefits for a Policy dated
January 1, 1989. This example assumes that the net premium and related Policy
Values were in the Subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
OPPENHEIMER MULTIPLE STRATEGIES FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1990 $761 $759 $0 $0
1991* $1,342 $1,337 $0 $0
1992* $2,296 $2,289 $0 $0
1993* $3,121 $3,114 $741 $734
1994* $4,256 $4,246 $2,016 $2,006
1995* $4,782 $4,625 $2,682 $2,525
1996* $6,567 $6,203 $4,607 $4,243
1997* $8,260 $7,662 $6,440 $5,842
1998* $10,323 $9,440 $8,643 $7,760
1999* $11,530 $10,404 $9,990 $8,864
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
48
<PAGE>
The following example shows how the hypothetical net return of the Oppenheimer
Bond Fund/VA would have affected benefits for a Policy dated January 1, 1989.
This example assumes that the net premium and related Policy Values were in the
Subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
OPPENHEIMER BOND FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1990 $741 $739 $0 $0
1991* $1,473 $1,469 $0 $0
1992* $2,454 $2,447 $0 $0
1993* $3,212 $3,204 $832 $824
1994* $4,246 $4,235 $2,006 $1,995
1995* $4,772 $4,616 $2,672 $2,516
1996* $6,313 $5,958 $4,353 $3,998
1997* $7,210 $6,670 $5,390 $4,850
1998* $8,464 $7,695 $6,784 $6,015
1999* $9,567 $8,557 $8,027 $7,017
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the Oppenheimer
Strategic Bond Fund/VA would have affected benefits for a Policy dated January
1, 1994. This example assumes that the net premium and related Policy Values
were in the Subaccount for the entire period and that the values were determined
on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
OPPENHEIMER STRATEGIC BOND FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1995 $602 $600 $0 $0
1996* $1,428 $1,424 $0 $0
1997* $2,278 $2,271 $0 $0
1998* $3,092 $3,085 $712 $705
1999* $3,721 $3,712 $1,481 $1,472
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
49
<PAGE>
The following example shows how the hypothetical net return of the Oppenheimer
High Income Fund/VA would have affected benefits for a Policy dated January 1,
1989. This example assumes that the net premium and related Policy Values were
in the Subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
OPPENHEIMER HIGH INCOME FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1990 $672 $670 $0 $0
1991* $1,351 $1,347 $0 $0
1992* $2,660 $2,652 $140 $132
1993* $3,822 $3,813 $1,442 $1,433
1994* $5,542 $5,528 $3,302 $3,288
1995* $5,959 $5,802 $3,859 $3,702
1996* $7,922 $7,562 $5,962 $5,602
1997* $9,796 $9,207 $7,976 $7,387
1998* $11,590 $10,754 $9,910 $9,074
1999* $12,096 $11,081 $10,556 $9,541
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the Fidelity VIP
II Index 500 Portfolio would have affected benefits for a Policy dated January
1, 1993. This example assumes that the net premium and related Policy Values
were in the Subaccount for the entire period and that the values were determined
on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
FIDELITY VIP II INDEX 500 PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1994 $712 $710 $0 $0
1995* $1,338 $1,334 $0 $0
1996* $2,713 $2,705 $193 $185
1997* $4,051 $4,042 $1,671 $1,662
1998* $6,143 $6,127 $3,903 $3,887
1999* $8,722 $8,538 $6,622 $6,438
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
50
<PAGE>
The following example shows how the hypothetical net return of the Fidelity VIP
Money Market Portfolio would have affected benefits for a Policy dated January
1, 1989. This example assumes that the net premium and related Policy Values
were in the Subaccount for the entire period and that the values were determined
on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
FIDELITY VIP MONEY MARKET PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1990 $707 $705 $0 $0
1991* $1,438 $1,434 $0 $0
1992* $2,156 $2,149 $0 $0
1993* $2,820 $2,813 $440 $433
1994* $3,454 $3,445 $1,214 $1,205
1995* $4,263 $4,101 $2,163 $2,001
1996* $5,157 $4,823 $3,197 $2,863
1997* $6,040 $5,516 $4,220 $3,696
1998* $6,936 $6,205 $5,256 $4,525
1999* $7,838 $6,877 $6,298 $5,337
</TABLE>
*For each year shown, benefits and values reflect only premiums paid during
previous Policy Years.
The following example shows how the hypothetical net return of the Fidelity VIP
Growth Portfolio would have affected benefits for a Policy dated January 1,
1998. This example assumes that the net premium and related Policy Values were
in the Subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
FIDELITY VIP GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1999 $956 $954 $0 $0
</TABLE>
51
<PAGE>
The following example shows how the hypothetical net return of the Fidelity VIP
II Contrafund Portfolio would have affected benefits for a Policy dated January
1, 1998. This example assumes that the net Premiums and related Policy Values
were in the Subaccount for the entire period and that the values were determined
on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
FIDELITY VIP II CONTRAFUND PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1999 $878 $876 $0 $0
</TABLE>
The following example shows how the hypothetical net return of the Fidelity VIP
III Growth & Income Portfolio would have affected benefits for a Policy dated
January 1, 1998. This example assumes that the net premium and related Policy
Values were in the Subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
<TABLE>
<CAPTION>
FIDELITY VIP III GROWTH & INCOME PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
POLICY VALUE CASH SURRENDER VALUE
---------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
1999 $873 $870 $0 $0
</TABLE>
52
<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, IA 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 our agents or other registered representatives will be approximately
90% of all premiums paid during the first Policy Year, and 2.5% of all premiums
paid during Policy Years 2 through 10. In addition, certain production,
persistency and managerial bonuses may be paid.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to the Policy under the Federal securities laws.
John D. Cleavenger, Esq., Vice President and General Counsel (Individual
Division) of the 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. In some class
action and other 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
Separate Account.
YEAR 2000 MATTERS
We have in place a Year 2000 Project Plan (the "Plan") to review and analyze
existing hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compliant. As of the date of this
prospectus, all of our mission-critical systems are Year 2000 compliant and
ready. The Plan is continuing as scheduled, as we continue with the validation
of our mission-critical and non-mission-critical systems, including revalidation
testing in 1999. In addition, PFL has undertaken aggressive initiatives to test
all systems that interface with any third parties and other business partners.
All of these steps are aimed at allowing current operations to remain unaffected
by the Year 2000 date change.
53
<PAGE>
As of the date of this prospectus, we have identified and made available what we
believe are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
Our actions under the Plan are intended to significantly reduce PFL's risk of a
material business interruption based on the Year 2000 issues. Resolving the Year
2000 computer problem is complex and multifaceted. We cannot know conclusively
whether a response plan is successful until the Year 2000 arrives (or an earlier
date if the systems or equipment address Year 2000 data prior to the Year 2000).
In spite of its efforts or results, PFL's ability to function unaffected to and
through the Year 2000 may be adversely affected by actions, or failure to act,
of third parties beyond our knowledge or control. See the portfolios'
prospectuses for information on their preparation for Year 2000.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. Section 1
(1998).
FINANCIAL STATEMENTS
This prospectus does not include financial statements of the Separate Account
because, as of the date of this prospectus, the Separate Account had not yet
commenced operations, had no assets, and had incurred no liabilities. The
Company's financial statements appear at the end of this prospectus. The
statutory-basis balance sheets of PFL Life Insurance Company as of December 31,
1998 and 1997, and the related statutory-basis statements of operations, changes
in capital and surplus, and cash flows for each of the three years in the period
ended December 31, 1998, have been audited by Ernst & Young LLP, independent
accountants, whose reports thereon are set forth elsewhere herein. Such
financial statements and schedules are included in this prospectus in reliance
upon such reports given upon the authority of Ernst & young LLP as experts in
accounting and auditing. You should distinguish the Company's financial
statements from the Separate Account's financial statements and you should
consider our financial statements only as bearing upon our ability to meet our
obligations under the Policies.
ADDITIONAL INFORMATION ABOUT THE 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 NV, a Netherlands corporation that is a publicly traded international
insurance group. PFL's Home Office is located at 4333 Edgewood Road NE, Cedar
Rapids, Iowa 52499.
PFL was incorporated in 1961 under Iowa law and is subject to regulation by the
Iowa Commissioner of Insurance. PFL is engaged in the business of issuing life
insurance policies and annuity contracts, and is licensed to do business in the
District of Columbia, Guam and all states except New York. PFL submits annual
statements on its operations and finances to insurance officials in all states
and jurisdictions in which it does business. PFL has filed the Policy described
in this prospectus with insurance officials in those jurisdictions in which the
Policy is sold.
PFL intends to reinsure a portion of the risks assumed under the Policies.
PFL'S EXECUTIVE OFFICERS AND DIRECTORS
PFL is governed by a board of directors. The following tables set forth the
name, address and principal occupation during the past five years of each of
PFL's executive officers and directors. Each person is located at PFL Life
Insurance Company, 4333 Edgewood Road, NE, Cedar Rapids, IA 52449.
54
<PAGE>
<TABLE>
<CAPTION>
BOARD OF DIRECTORS AND SENIOR OFFICERS
--------------------------------------
NAME POSITION WITH PFL PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ----------------- ------------------------ ---------------------------------------------------------
<S> <C> <C>
William L. Busler Director, Chairman of the Director, Chairman of the Board, and President
Board, and President
Larry N. Norman Director, Executive Vice Director, Executive Vice President
President
Patrick S. Baird Director, Senior Vice Executive Vice President (1995-present), Chief
President, and Chief Operating Officer (1996-present), Chief Financial Officer
Operating 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 Officer
President, Chief Investment and Corporate Actuary
Officer and Corporate
Actuary
Craig D. Vermie Director, Vice President, Director, Vice President, Secretary and General Counsel
Secretary and General
Counsel
Robert J. Kontz Vice President and Vice President and Corporate Controller
Corporate Controller
Brenda K. Clancy Vice President, Treasurer Vice President, Treasurer and Chief Financial Officer
and Chief Financial Officer
</TABLE>
PFL holds the Separate Account's assets 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.
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,
Policy Value, and Cash Surrender Value under a Policy covering a male or female
Insured of age 35 on the Policy Date in a tobacco or non-tobacco class, 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 Specified Amount, and you do not make any withdrawals or Policy
loans. The values under the Policy will be different from those shown even if
the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages
throughout the years shown.
55
<PAGE>
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 Policy 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, and your Policy loan and withdrawal
history.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of 0.71% of the average daily net assets. This annual
expense ratio is based on the average of the expense ratios of each of the
portfolios for the last fiscal year and takes into account current expense
reimbursement arrangements. For information on portfolio expenses, see the
Annual Portfolio Operating Expenses table in the "Policy Summary--Charges and
Deductions" section of this prospectus, and see the portfolios' prospectuses .
Separate illustrations on each of the following pages reflect our current
expense charge and cost of insurance charge and the higher guaranteed maximum
expense charge and cost of insurance charge that we have the contractual right
to charge. The illustrations assume no charges for Federal or state taxes or
charges for supplemental benefits.
After deducting portfolio expenses and mortality and expense risk charges, the
illustrated gross annual investment rates of return of 0%, 6% and 12% would
correspond to approximate net annual rates for the Separate Account of -1.45%,
4.51% and 10.46%, respectively.
The illustrations are based on our sex distinct rates for tobacco and
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 shown in the following
illustrations.
56
<PAGE>
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $100,000 Tobacco Class
Annual Premium $1,080 Level Death Benefit
Using Current Cost Assumptions
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C>
1 $1,134 $100,000 $100,000 $100,000
2 $2,325 $100,000 $100,000 $100,000
3 $3,575 $100,000 $100,000 $100,000
4 $4,888 $100,000 $100,000 $100,000
5 $6,266 $100,000 $100,000 $100,000
6 $7,713 $100,000 $100,000 $100,000
7 $9,233 $100,000 $100,000 $100,000
8 $10,829 $100,000 $100,000 $100,000
9 $12,504 $100,000 $100,000 $100,000
10 $14,263 $100,000 $100,000 $100,000
15 $24,470 $100,000 $100,000 $100,000
20 $37,497 $100,000 $100,000 $100,000
30 (AGE 65) $75,342 $100,000 $100,000 $147,195
40 (AGE 75) $136,987 $100,000* $100,000 $354,281
50 (AGE 85) $237,401 $100,000* $100,000 $930,254
60 (AGE 95) $400,964 $100,000* $100,000* $2,319,901
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net) -1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $627 $676 $725 $0 $0 $0
2 $1,227 $1,364 $1,507 $0 $0 $0
3 $1,796 $2,060 $2,348 $0 $0 $0
4 $2,330 $2,760 $3,249 $0 $380 $869
5 $2,829 $3,465 $4,217 $589 $1,225 $1,977
6 $3,434 $4,319 $5,408 $1,334 $2,219 $3,308
7 $4,006 $5,186 $6,699 $2,046 $3,226 $4,739
8 $4,540 $6,064 $8,098 $2,720 $4,244 $6,278
9 $5,030 $6,946 $9,609 $3,350 $5,266 $7,929
10 $5,480 $7,835 $11,249 $3,940 $6,295 $9,709
15 $7,630 $12,997 $22,623 $6,790 $12,157 $21,783
20 $8,716 $18,547 $40,752 $8,716 $18,547 $40,752
30 (AGE 65) $6,346 $30,457 $120,652 $6,346 $30,457 $120,652
40 (AGE 75) $0* $37,713 $331,104 $0* $37,713 $331,104
50 (AGE 85) $0* $20,128 $885,956 $0* $20,128 $885,956
60 (AGE 95) $0* $0* $2,296,932 $0* $0* $2,296,932
</TABLE>
*Even though the Cash Surrender Value and Policy Value are 0, the Policy would
not Lapse IF the premiums paid, less withdrawals and any indebtedness, equalled
or exceeded the Cumulative Minimum Monthly Premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value, and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of years,
but also flucutated above or below those averages for individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
57
<PAGE>
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $100,000 Tobacco Class
Annual Premium $1,080 Level Death Benefit
Using Guaranteed Cost Assumptions
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C>
1 $1,134 $100,000 $100,000 $100,000
2 $2,325 $100,000 $100,000 $100,000
3 $3,575 $100,000 $100,000 $100,000
4 $4,888 $100,000 $100,000 $100,000
5 $6,266 $100,000 $100,000 $100,000
6 $7,713 $100,000 $100,000 $100,000
7 $9,233 $100,000 $100,000 $100,000
8 $10,829 $100,000 $100,000 $100,000
9 $12,504 $100,000 $100,000 $100,000
10 $14,263 $100,000 $100,000 $100,000
15 $24,470 $100,000 $100,000 $100,000
20 $37,497 $100,000 $100,000 $100,000
30 (AGE 65) $75,342 $100,000* $100,000 $100,127
40 (AGE 75) $136,987 $100,000* $100,000* $237,194
50 (AGE 85) $237,401 $100,000* $100,000* $610,110
60 (AGE 95) $400,964 $100,000* $100,000* $1,475,849
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net) -1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $625 $674 $723 $0 $0 $0
2 $1,223 $1,360 $1,502 $0 $0 $0
3 $1,790 $2,054 $2,341 $0 $0 $0
4 $2,324 $2,754 $3,241 $0 $374 $861
5 $2,821 $3,456 $4,206 $581 $1,216 $1,966
6 $3,277 $4,156 $5,240 $1,177 $2,056 $3,140
7 $3,690 $4,852 $6,347 $1,730 $2,892 $4,387
8 $4,058 $5,541 $7,532 $2,238 $3,721 $5,712
9 $4,377 $6,218 $8,801 $2,697 $4,538 $7,121
10 $4,642 $6,879 $10,161 $3,102 $5,339 $8,621
15 $5,094 $9,825 $18,657 $4,254 $8,985 $17,817
20 $3,525 $11,494 $31,094 $3,525 $11,494 $31,094
30 (AGE 65) $0* $3,045 $82,072 $0* $3,045 $82,072
40 (AGE 75) $0* $0* $221,677 $0* $0* $221,677
50 (AGE 85) $0* $0* $581,057 $0* $0* $581,057
60 (AGE 95) $0* $0* $1,461,236 $0* $0* $1,461,236
</TABLE>
*Even though the Cash Surrender Value and Policy Value are 0, the Policy would
not Lapse IF the premiums paid, less withdrawals and any indebtedness, equalled
or exceeded the Cumulative Minimum Monthly Premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value, and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of years,
but also flucutated above or below those averages for individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
58
<PAGE>
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $100,000 Preferred Class
Annual Premium $1,080 Level Death Benefit
Using Current Cost Assumptions
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C>
1 $1,134 $100,000 $100,000 $100,000
2 $2,325 $100,000 $100,000 $100,000
3 $3,575 $100,000 $100,000 $100,000
4 $4,888 $100,000 $100,000 $100,000
5 $6,266 $100,000 $100,000 $100,000
6 $7,713 $100,000 $100,000 $100,000
7 $9,233 $100,000 $100,000 $100,000
8 $10,829 $100,000 $100,000 $100,000
9 $12,504 $100,000 $100,000 $100,000
10 $14,263 $100,000 $100,000 $100,000
15 $24,470 $100,000 $100,000 $100,000
20 $37,497 $100,000 $100,000 $100,000
30 (AGE 65) $75,342 $100,000 $100,000 $182,533
40 (AGE 75) $136,987 $100,000 $100,000 $442,127
50 (AGE 85) $237,401 $100,000* $126,625 $1,171,023
60 (AGE 95) $400,964 $100,000* $196,423 $2,985,961
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net) -1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $722 $774 $826 $0 $0 $0
2 $1,427 $1,576 $1,731 $0 $0 $0
3 $2,111 $2,403 $2,720 $0 $243 $560
4 $2,774 $3,256 $3,802 $734 $1,216 $1,762
5 $3,415 $4,136 $4,985 $1,495 $2,216 $3,065
6 $4,151 $5,163 $6,402 $2,351 $3,363 $4,602
7 $4,866 $6,226 $7,958 $3,186 $4,546 $6,278
8 $5,558 $7,324 $9,664 $3,998 $5,764 $8,104
9 $6,225 $8,457 $11,535 $4,785 $7,017 $10,095
10 $6,868 $9,628 $13,590 $5,548 $8,308 $12,270
15 $9,836 $16,248 $27,576 $9,116 $15,528 $26,856
20 $12,137 $24,083 $50,378 $12,137 $24,083 $50,378
30 (AGE 65) $13,754 $44,097 $149,617 $13,754 $44,097 $149,617
40 (AGE 75) $7,538 $72,898 $413,203 $7,538 $72,898 $413,203
50 (AGE 85) $0* $120,595 $1,115,260 $0* $120,595 $1,115,260
60 (AGE 95) $0* $194,479 $2,956,397 $0* $194,479 $2,956,397
</TABLE>
*Even though the Cash Surrender Value and Policy Value are 0, the Policy would
not Lapse IF the premiums paid, less withdrawals and any indebtedness, equalled
or exceeded the Cumulative Minimum Monthly Premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value, and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of years,
but also flucutated above or below those averages for individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
59
<PAGE>
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $100,000 Preferred Class
Annual Premium $1,080 Level Death Benefit
Using Guaranteed Cost Assumptions
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C>
1 $1,134 $100,000 $100,000 $100,000
2 $2,325 $100,000 $100,000 $100,000
3 $3,575 $100,000 $100,000 $100,000
4 $4,888 $100,000 $100,000 $100,000
5 $6,266 $100,000 $100,000 $100,000
6 $7,713 $100,000 $100,000 $100,000
7 $9,233 $100,000 $100,000 $100,000
8 $10,829 $100,000 $100,000 $100,000
9 $12,504 $100,000 $100,000 $100,000
10 $14,263 $100,000 $100,000 $100,000
15 $24,470 $100,000 $100,000 $100,000
20 $37,497 $100,000 $100,000 $100,000
30 (AGE 65) $75,342 $100,000 $100,000 $159,892
40 (AGE 75) $136,987 $100,000* $100,000 $378,744
50 (AGE 85) $237,401 $100,000* $100,000* $976,667
60 (AGE 95) $400,964 $100,000* $100,000* $2,366,588
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net) -1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $722 $774 $826 $0 $0 $0
2 $1,427 $1,576 $1,731 $0 $0 $0
3 $2,110 $2,403 $2,720 $0 $243 $560
4 $2,773 $3,256 $3,801 $733 $1,216 $1,761
5 $3,414 $4,136 $4,984 $1,494 $2,216 $3,064
6 $4,031 $5,041 $6,277 $2,231 $3,241 $4,477
7 $4,624 $5,971 $7,691 $2,944 $4,291 $6,011
8 $5,192 $6,928 $9,239 $3,632 $5,368 $7,679
9 $5,733 $7,911 $10,933 $4,293 $6,471 $9,493
10 $6,247 $8,921 $12,789 $4,927 $7,601 $11,469
15 $8,342 $14,336 $25,132 $7,622 $13,616 $24,412
20 $9,378 $20,236 $44,947 $9,378 $20,236 $44,947
30 (AGE 65) $5,069 $31,412 $131,059 $5,069 $31,412 $131,059
40 (AGE 75) $0* $31,361 $353,967 $0* $31,361 $353,967
50 (AGE 85) $0* $0* $930,160 $0* $0* $930,160
60 (AGE 95) $0* $0* $2,343,156 $0* $0* $2,343,156
</TABLE>
*Even though the Cash Surrender Value and Policy Value are 0, the Policy would
not Lapse IF the premiums paid, less withdrawals and any indebtedness, equalled
or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value, and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of years,
but also flucutated above or below those averages for individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
60
<PAGE>
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
Specified Amount $100,000 Tobacco Class
Annual Premium $1,080 Level Death Benefit
Using Current Cost Assumptions
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C>
1 $1,134 $100,000 $100,000 $100,000
2 $2,325 $100,000 $100,000 $100,000
3 $3,575 $100,000 $100,000 $100,000
4 $4,888 $100,000 $100,000 $100,000
5 $6,266 $100,000 $100,000 $100,000
6 $7,713 $100,000 $100,000 $100,000
7 $9,233 $100,000 $100,000 $100,000
8 $10,829 $100,000 $100,000 $100,000
9 $12,504 $100,000 $100,000 $100,000
10 $14,263 $100,000 $100,000 $100,000
15 $24,470 $100,000 $100,000 $100,000
20 $37,497 $100,000 $100,000 $100,000
30 (AGE 65) $75,342 $100,000 $100,000 $170,503
40 (AGE 75) $136,987 $100,000 $100,000 $413,479
50 (AGE 85) $237,401 $100,000* $108,118 $1,094,144
60 (AGE 95) $400,964 $100,000* $167,908 $2,764,668
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net) -1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $696 $747 $798 $0 $0 $0
2 $1,366 $1,511 $1,663 $0 $0 $0
3 $2,008 $2,291 $2,599 $0 $131 $439
4 $2,621 $3,087 $3,614 $581 $1,047 $1,574
5 $3,202 $3,895 $4,712 $1,282 $1,975 $2,792
6 $3,890 $4,858 $6,047 $2,090 $3,058 $4,247
7 $4,546 $5,843 $7,500 $2,866 $4,163 $5,820
8 $5,172 $6,852 $9,086 $3,612 $5,292 $7,526
9 $5,769 $7,888 $10,820 $4,329 $6,448 $9,380
10 $6,339 $8,952 $12,720 $5,019 $7,632 $11,400
15 $9,012 $15,033 $25,737 $8,292 $14,313 $25,017
20 $11,151 $22,324 $47,097 $11,151 $22,324 $47,097
30 (AGE 65) $11,250 $39,573 $139,756 $11,250 $39,573 $139,756
40 (AGE 75) $4,288 $63,844 $386,429 $4,288 $63,844 $386,429
50 (AGE 85) $0* $102,969 $1,042,042 $0* $102,969 $1,042,042
60 (AGE 95) $0* $166,245 $2,737,295 $0* $166,245 $2,737,295
</TABLE>
*Even though the Cash Surrender Value and Policy Value are 0, the Policy would
not Lapse IF the premiums paid, less withdrawals and any indebtedness, equalled
or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an
Owner and the actual investment experience of the Portfolios. The Policy Value,
Cash Surrender Value, and Death Benefit for a Policy would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%,
and 12.00% over a period of years, but also flucutated above or below
those averages for individual Policy Years. No representations can be made that
these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
61
<PAGE>
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
Specified Amount $100,000 Tobacco Class
Annual Premium $1,080 Level Death Benefit
Using Guaranteed Cost Assumptions
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C>
1 $1,134 $100,000 $100,000 $100,000
2 $2,325 $100,000 $100,000 $100,000
3 $3,575 $100,000 $100,000 $100,000
4 $4,888 $100,000 $100,000 $100,000
5 $6,266 $100,000 $100,000 $100,000
6 $7,713 $100,000 $100,000 $100,000
7 $9,233 $100,000 $100,000 $100,000
8 $10,829 $100,000 $100,000 $100,000
9 $12,504 $100,000 $100,000 $100,000
10 $14,263 $100,000 $100,000 $100,000
15 $24,470 $100,000 $100,000 $100,000
20 $37,497 $100,000 $100,000 $100,000
30 (AGE 65) $75,342 $100,000 $100,000 $141,870
40 (AGE 75) $136,987 $100,000* $100,000 $340,749
50 (AGE 85) $237,401 $100,000* $100,000* $887,600
60 (AGE 95) $400,964 $100,000* $100,000* $2,170,224
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net) -1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $695 $746 $797 $0 $0 $0
2 $1,364 $1,510 $1,661 $0 $0 $0
3 $2,006 $2,290 $2,598 $0 $130 $438
4 $2,619 $3,084 $3,611 $579 $1,044 $1,571
5 $3,199 $3,892 $4,709 $1,279 $1,972 $2,789
6 $3,745 $4,710 $5,895 $1,945 $2,910 $4,095
7 $4,254 $5,536 $7,177 $2,574 $3,856 $5,497
8 $4,727 $6,371 $8,568 $3,167 $4,811 $7,008
9 $5,166 $7,218 $10,080 $3,726 $5,778 $8,640
10 $5,569 $8,076 $11,727 $4,249 $6,756 $10,407
15 $7,038 $12,529 $22,560 $6,318 $11,809 $21,840
20 $7,383 $17,114 $39,822 $7,383 $17,114 $39,822
30 (AGE 65) $3,227 $25,762 $116,287 $3,227 $25,762 $116,287
40 (AGE 75) $0* $25,598 $318,457 $0* $25,598 $318,457
50 (AGE 85) $0* $0* $845,333 $0* $0* $845,333
60 (AGE 95) $0* $0* $2,148,737 $0* $0* $2,148,737
</TABLE>
*Even though the Cash Surrender Value and Policy Value are 0, the Policy would
not Lapse IF the premiums paid, less withdrawals and any indebtedness, equalled
or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value, and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of years,
but also flucutated above or below those averages for individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
62
<PAGE>
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
Specified Amount $100,000 Preferred Class
Annual Premium $1,080 Level Death Benefit
Using Current Cost Assumptions
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C>
1 $1,134 $100,000 $100,000 $100,000
2 $2,325 $100,000 $100,000 $100,000
3 $3,575 $100,000 $100,000 $100,000
4 $4,888 $100,000 $100,000 $100,000
5 $6,266 $100,000 $100,000 $100,000
6 $7,713 $100,000 $100,000 $100,000
7 $9,233 $100,000 $100,000 $100,000
8 $10,829 $100,000 $100,000 $100,000
9 $12,504 $100,000 $100,000 $100,000
10 $14,263 $100,000 $100,000 $100,000
15 $24,470 $100,000 $100,000 $100,000
20 $37,497 $100,000 $100,000 $100,000
30 (AGE 65) $75,342 $100,000 $100,000 $191,632
40 (AGE 75) $136,987 $100,000 $100,000 $466,867
50 (AGE 85) $237,401 $100,000 $145,133 $1,243,001
60 (AGE 95) $400,964 $100,000* $224,579 $3,185,840
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net) -1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $757 $810 $863 $0 $0 $0
2 $1,494 $1,647 $1,807 $0 $0 $0
3 $2,212 $2,513 $2,841 $232 $533 $861
4 $2,911 $3,410 $3,975 $1,041 $1,540 $2,105
5 $3,591 $4,339 $5,219 $1,831 $2,579 $3,459
6 $4,351 $5,402 $6,688 $2,701 $3,752 $5,038
7 $5,088 $6,501 $8,299 $3,548 $4,961 $6,759
8 $5,804 $7,640 $10,070 $4,374 $6,210 $8,640
9 $6,500 $8,820 $12,017 $5,180 $7,500 $10,697
10 $7,176 $10,045 $14,160 $5,966 $8,835 $12,950
15 $10,382 $17,049 $28,808 $9,722 $16,389 $28,148
20 $13,043 $25,499 $52,790 $13,043 $25,499 $52,790
30 (AGE 65) $16,060 $47,877 $157,075 $16,060 $47,877 $157,075
40 (AGE 75) $15,245 $82,420 $436,324 $15,245 $82,420 $436,324
50 (AGE 85) $1,890 $138,222 $1,183,811 $1,890 $138,222 $1,183,811
60 (AGE 95) $0* $222,355 $3,154,297 $0* $222,355 $3,154,297
</TABLE>
*Even though the Cash Surrender Value and Policy Value are 0, the Policy would
not Lapse IF the premiums paid, less withdrawals and any indebtedness, equalled
or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value, and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of years,
but also flucutated above or below those averages for individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
63
<PAGE>
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
Specified Amount $100,000 Preferred Class
Annual Premium $1,080 Level Death Benefit
Using Guaranteed Cost Assumptions
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C>
1 $1,134 $100,000 $100,000 $100,000
2 $2,325 $100,000 $100,000 $100,000
3 $3,575 $100,000 $100,000 $100,000
4 $4,888 $100,000 $100,000 $100,000
5 $6,266 $100,000 $100,000 $100,000
6 $7,713 $100,000 $100,000 $100,000
7 $9,233 $100,000 $100,000 $100,000
8 $10,829 $100,000 $100,000 $100,000
9 $12,504 $100,000 $100,000 $100,000
10 $14,263 $100,000 $100,000 $100,000
15 $24,470 $100,000 $100,000 $100,000
20 $37,497 $100,000 $100,000 $100,000
30 (AGE 65) $75,342 $100,000 $100,000 $168,884
40 (AGE 75) $136,987 $100,000* $100,000 $406,187
50 (AGE 85) $237,401 $100,000* $100,000 $1,060,232
60 (AGE 95) $400,964 $100,000* $100,000 $2,596,489
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.45% (Net) 4.51% (Net) 10.46% (Net) -1.45% (Net) 4.51% (Net) 10.46% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $744 $797 $849 $0 $0 $0
2 $1,469 $1,620 $1,778 $0 $0 $0
3 $2,172 $2,470 $2,794 $192 $490 $814
4 $2,854 $3,347 $3,904 $984 $1,477 $2,034
5 $3,514 $4,252 $5,119 $1,754 $2,492 $3,359
6 $4,150 $5,183 $6,447 $2,500 $3,533 $4,797
7 $4,761 $6,140 $7,900 $3,221 $4,600 $6,360
8 $5,348 $7,127 $9,491 $3,918 $5,697 $8,061
9 $5,911 $8,143 $11,237 $4,591 $6,823 $9,917
10 $6,451 $9,191 $13,153 $5,241 $7,981 $11,943
15 $8,763 $14,928 $26,003 $8,103 $14,268 $25,343
20 $10,279 $21,510 $46,883 $10,279 $21,510 $46,883
30 (AGE 65) $9,768 $37,436 $138,429 $9,768 $37,436 $138,429
40 (AGE 75) $0* $55,515 $379,614 $0* $55,515 $379,614
50 (AGE 85) $0* $68,243 $1,009,745 $0* $68,243 $1,009,745
60 (AGE 95) $0* $11,987 $2,570,781 $0* $11,987 $2,570,781
</TABLE>
*Even though the Cash Surrender Value and Policy Value are 0, the Policy would
not Lapse IF the premiums paid, less withdrawals and any indebtedness, equalled
or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value, and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of years,
but also flucutated above or below those averages for individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
64
<PAGE>
FINANCIAL STATEMENTS - STATUTORY BASIS
PFL LIFE INSURANCE COMPANY
NINE MONTHS ENDED SEPTEMBER 31, 1999
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEET - STATUTORY BASIS
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS) (UNAUDITED)
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 54,945
Bonds 4,815,223
Preferred stock 19,377
Common stock, at market 67,202
Mortgage loans on real estate 1,283,005
Home office properties, at cost less accumulated
depreciation 7,885
Real estate acquired in satisfaction of debt,
at cost less accumulated depreciation 16,194
Investment real estate 32,813
Policy loans 58,539
Other invested assets 107,813
-----------
Total cash and invested assets 6,462,996
Premiums deferred and uncollected 15,407
Accrued investment income 67,334
Transfers from separate accounts 85,260
Receivable from affiliate 52,323
Federal income tax recoverable 4,951
Other assets 24,713
Separate account assets 3,823,394
-----------
Total admitted assets $10,536,378
===========
1
<PAGE>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 1,470,127
Annuity 3,919,084
Accident and health 247,373
Policy and contract claim reserves:
Life 9,382
Accident and health 38,110
Other policyholders' funds 171,112
Remittances and items not allocated 109,745
Asset valuation reserve 102,369
Interest maintenance reserve 46,354
Short-term notes payable to affiliate 65,100
Payable for securities 91,918
Other liabilities 69,988
Separate acount liabilities 3,817,519
-----------
Total liabilities 10,158,181
Capital and surplus:
Common stock, $2.48 par value, 1,164 shares
authorized, 1,008 issued and outstanding 2,660
Paid-in surplus 154,282
Unassigned surplus 221,255
-----------
Total capital and surplus 378,197
-----------
Total liabilities and capital and surplus $10,536,378
===========
2
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS - STATUTORY BASIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS) (UNAUDITED)
Revenues:
Premiums and other considerations, net of reinsurance:
Life $ 139,481
Annuity 887,357
Accident and health 121,758
Net investment income 322,055
Amortization of interest maintenance reserve 5,798
Commissions and expense allowances on
reinsurance ceded 14,798
Other income 71,318
-----------
1,562,565
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits 34,877
Surrender benefits 718,275
Other benefits 181,278
Increase (decrease) in aggregate reserves for
policies and contracts:
Life 112,952
Annuity (6,278)
Accident and health 41,637
Other 8,896
-----------
1,091,637
Insurance expenses:
Commissions 120,464
General insurance expenses 38,903
Taxes, licenses and fees 8,850
Transfer to separate accounts 246,200
Other (479)
-----------
413,938
-----------
1,505,575
-----------
Gain from operations before federal income
tax expense and net realized capital gains on
investments 56,990
Federal income tax expense 15,046
-----------
Gain from operations before net realized
capital gains on investments 41,944
Net realized capital gains on investments
(net of related federal income tax expense and
amounts transferred to interest maintenance
reserve) 4,483
-----------
Net income $ 46,427
===========
3
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CAPITAL
COMMON PAID-IN UNASSIGNED AND
STOCK SURPLUS SURPLUS SURPLUS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 $ 2,660 $ 154,282 $ 205,586 $ 362,528
Net income 0 0 46,427 46,427
Change in net unrealized gains 0 0 (6,248) (6,248)
Change in non-admitted assets 0 0 (400) (400)
Change in asset valuation reserve 0 0 (10,781) (10,781)
Dividend to stockholder 0 0 (15,000) (15,000)
Other adjustments 0 0 1,671 1,671
--------- --------- --------- ---------
Balance at September 30, 1999 $ 2,660 $ 154,282 $ 221,255 $ 378,197
========= ========= ========= =========
</TABLE>
4
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOW - STATUTORY BASIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS) (UNAUDITED)
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance $ 1,236,423
Net investment income 324,126
Life and accident and health claims (94,787)
Surrender benefits to policyholders and other fund withdrawals (718,275)
Other benefits to policyholders (128,912)
Commissions, other expenses and other taxes (169,455)
Dividends to stockholder (15,000)
Federal income taxes, excluding tax on capital gains (19,153)
Other, net 73,170
Net transfers to separate accounts (260,593)
-----------
Net cash provided by operating activities 227,544
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks 2,657,068
Common stocks 66,432
Mortgage loans on real estate 132,507
Other 6,014
-----------
2,862,021
Cost of investments acquired:
Bonds and preferred stocks 2,667,692
Common stocks 75,853
Mortgage loans 398,401
Other 31,642
-----------
3,173,588
-----------
Net cash used in investing activities (311,567)
-----------
FINANCING ACTIVITIES
Borrowed money 55,679
-----------
Net cash provided by financing activities 55,679
Decrease in cash and short-term investments (28,344)
Cash and short-term investments at beginning of year 83,289
-----------
Cash and short-term investments at end of year $ 54,945
===========
5
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS) (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited statutory basis financial statements have been
prepared in accordance with statutory accounting principles for interim
financial information and the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the accompanying statutory
basis financial statements and notes thereto for the year ended December 31,
1998.
6
<PAGE>
FINANCIAL STATEMENTS - STATUTORY BASIS
PFL LIFE INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
PFL Life Insurance Company
Financial Statements - Statutory Basis
Years ended December 31, 1998, 1997 and 1996
CONTENTS
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............................................................32
Supplementary Insurance Information...........................................33
Reinsurance...................................................................35
<PAGE>
[ERNST & YOUNG LETTERHEAD]
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 as of December 31, 1998 and 1997, and the related
statutory-basis statements of operations, changes in capital and surplus, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the accompanying statutory-basis financial statement
schedules required by Article 7 of Regulation S-X. These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting principles
also are described in Note 1. The effects on the financial statements of these
variances are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of PFL Life Insurance Company at December 31, 1998 and 1997, or the results of
its operations or its cash flows for each of the three years in the period ended
December 31, 1998.
1
<PAGE>
[ERNST & YOUNG LOGO]
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with accounting practices prescribed or permitted by the Insurance
Division, Department of Commerce, of the State of Iowa. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basic statutory-basis financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
February 19, 1999
2
<PAGE>
PFL Life Insurance Company
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
Admitted assets Cash and invested assets:
Cash and short-term investments $ 83,289 $ 23,939
Bonds 4,822,442 4,913,144
Stocks:
Preferred 14,754 2,750
Common (cost: 1998 - $34,731; 1997 - $33,058) 49,448 42,345
Affiliated entities (cost: 1998 - $8,060; 1997 -
$10,798) 5,613 8,031
Mortgage loans on real estate 1,012,433 935,207
Real estate, at cost less accumulated depreciation
($9,500 in 1998; $8,655 in 1997):
Home office properties 8,056 8,283
Properties acquired in satisfaction of debt 11,778 11,814
Investment properties 44,325 36,416
Policy loans 60,058 57,136
Other invested assets 76,482 29,864
------------ ------------
Total cash and invested assets 6,188,678 6,068,929
Premiums deferred and uncollected 15,318 16,101
Accrued investment income 65,308 69,662
Receivable from affiliate 643 -
Federal income taxes recoverable 639 -
Transfers from separate accounts 70,866 60,193
Other assets 29,511 37,624
Separate account assets 3,348,611 2,517,365
------------ ------------
Total admitted assets $ 9,719,574 $ 8,769,874
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $1,357,175 $ 884,018
Annuity 3,925,293 4,204,125
Accident and health 205,736 169,328
Policy and contract claim reserves:
Life 9,101 8,635
Accident and health 48,906 57,713
Other policyholders' funds 162,266 143,831
Remittances and items not allocated 19,690 153,745
Asset valuation reserve 91,588 69,825
Interest maintenance reserve 50,575 30,287
Federal income taxes payable -- 1,889
Short-term notes payable to affiliates 9,421 16,400
Other liabilities 76,766 75,070
Payable for securities 57,645 --
Payable to affiliates -- 13,240
Separate account liabilities 3,342,884 2,512,406
---------- ----------
Total liabilities 9,357,046 8,340,512
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized,
266 issued and outstanding 2,660 2,660
Paid-in surplus 154,282 154,282
Unassigned surplus 205,586 272,420
---------- ----------
Total capital and surplus 362,528 429,362
---------- ----------
Total liabilities and capital and surplus $9,719,574 $8,769,874
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life $ 516,111 $ 202,435 $ 204,872
Annuity 667,920 657,695 725,966
Accident and health 178,593 207,982 227,862
Net investment income 446,984 446,424 428,337
Amortization of interest maintenance reserve 8,656 3,645 2,434
Commissions and expense allowances on reinsurance ceded 32,781 49,859 73,931
----------- ----------- -----------
1,851,045 1,568,040 1,663,402
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits 135,184 146,583 147,024
Surrender benefits 732,796 658,071 512,810
Other benefits 152,209 126,495 101,288
Increase (decrease) in aggregate reserves for
policies and contracts:
Life 473,158 149,575 140,126
Annuity (278,665) (203,139) 188,002
Accident and health 36,407 30,059 26,790
Other 17,550 16,998 19,969
----------- ----------- -----------
1,268,639 924,642 1,136,009
Insurance expenses:
Commissions 136,569 157,300 177,466
General insurance expenses 48,018 57,571 57,282
Taxes, licenses and fees 19,166 8,715 13,889
Net transfers to separate accounts 265,702 297,480 171,785
Other expenses 1,016 119 526
----------- ----------- -----------
470,471 521,185 420,948
----------- ----------- -----------
1,739,110 1,445,827 1,556,957
----------- ----------- -----------
Gain from operations before federal income tax expense
and net realized capital gains (losses) on investments 111,935 122,213 106,445
Federal income tax expense 49,835 43,381 41,177
----------- ----------- -----------
Gain from operations before net realized capital gains
(losses) on investments 62,100 78,832 65,268
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred to
interest maintenance reserve) 3,398 7,159 (3,503)
----------- ----------- -----------
Net income $ 65,498 $ 85,991 $ 61,765
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 2,660 $ 154,129 $ 220,739 $ 377,528
Net income -- -- 61,765 61,765
Change in net unrealized capital gains -- -- 2,351 2,351
Change in non-admitted assets -- -- (148) (148)
Change in asset valuation reserve -- -- (10,930) (10,930)
Dividend to stockholder -- -- (20,000) (20,000)
Prior period adjustment -- -- 5,025 5,025
Surplus effect of sales of divisions -- -- (384) (384)
Surplus effect of ceding commissions associated with the
sale of a division -- -- 29 29
Amendment of reinsurance agreement -- -- 421 421
Change in liability for reinsurance in unauthorized
companies -- -- 2,690 2,690
--------- --------- --------- ---------
Balance at January 1, 1996 2,660 154,129 261,558 418,347
Capital contribution -- 153 -- 153
Net income -- -- 85,991 85,991
Change in net unrealized capital gains -- -- 3,592 3,592
Change in non-admitted assets -- -- (481) (481)
Change in asset valuation reserve -- -- (14,974) (14,974)
Dividend to stockholder -- -- (62,000) (62,000)
Surplus effect of sale of a division -- -- (161) (161)
Surplus effect of ceding commissions associated with the
sale of a division -- -- 5 5
Amendment of reinsurance agreement -- -- 389 389
Surplus effect of reinsurance agreement -- -- 402 402
Change in liability for reinsurance in unauthorized
companies -- -- (1,901) (1,901)
--------- --------- --------- ---------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income -- -- 65,498 65,498
Change in net unrealized capital gains -- -- 4,504 4,504
Change in non-admitted assets -- -- (260) (260)
Change in asset valuation reserve -- -- (21,763) (21,763)
Dividend to stockholder -- -- (120,000) (120,000)
Increase in liability for reinsurance in unauthorized
companies -- -- 2,036 2,036
Tax benefit on stock options exercised -- -- 2,476 2,476
Change in surplus in separate accounts -- -- 675 675
========= ========= ========= =========
Balance at December 31, 1998 $ 2,660 $ 154,282 $ 205,586 $ 362,528
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance $ 1,396,428 $ 1,119,936 $ 1,240,748
Net investment income 469,246 452,091 431,456
Life and accident and health claims (138,249) (154,383) (147,556)
Surrender benefits and other fund withdrawals (732,796) (658,071) (512,810)
Other benefits to policyholders (152,167) (126,462) (101,254)
Commissions, other expenses and other taxes (197,135) (225,042) (248,321)
Net transfers to separate accounts (276,375) (319,146) (210,312)
Federal income taxes (72,176) (47,909) (35,551)
Cash paid in conjunction with an amendment of a
reinsurance agreement -- (4,826) (5,812)
Cash received in connection with a reinsurance
agreement -- 1,477 --
Other, net (93,095) 89,693 (41,677)
----------- ----------- -----------
Net cash provided by operating activities 203,681 127,358 368,911
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks 3,347,174 3,284,095 2,112,831
Common stocks 34,564 34,004 27,214
Mortgage loans on real estate 192,210 138,162 74,351
Real estate 5,624 6,897 18,077
Cash received from ceding commissions associated with
the sale of a division -- 8 45
Other 7,210 57,683 22,568
----------- ----------- -----------
3,586,782 3,520,849 2,255,086
Cost of investments acquired:
Bonds and preferred stocks (3,251,822) (3,411,442) (2,270,105)
Common stocks (36,379) (37,339) (29,799)
Mortgage loans on real estate (257,039) (159,577) (324,381)
Real estate (11,458) (2,013) (222)
Policy loans (2,922) (2,922) (1,539)
Cash paid in association with the sale of a division -- (591) (662)
Other (44,514) (15,674) (6,404)
----------- ----------- -----------
(3,604,134) (3,629,558) (2,633,112)
----------- ----------- -----------
Net cash used in investing activities (17,352) (108,709) (378,026)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows - Statutory Basis (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Issuance (repayment) of short-term intercompany
notes payable $ (6,979) $ 16,400 $ --
Capital contribution -- 153 --
Dividends to stockholder (120,000) (62,000) (20,000)
--------- --------- ---------
Net cash used in financing activities (126,979) (45,447) (20,000)
--------- --------- ---------
Increase (decrease) in cash and short-term investments 59,350 (26,798) (29,115)
Cash and short-term investments at beginning of year 23,939 50,737 79,852
--------- --------- ---------
Cash and short-term investments at end of year $ 83,289 $ 23,939 $ 50,737
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis
(Dollars in thousands)
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
PFL Life Insurance Company ("the Company") is a stock life insurance company and
is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a holding
company organized under the laws of The Netherlands.
In connection with the sale of certain affiliated business units, the Company
has assumed various blocks of business from these former affiliates through
mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
o During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale,
during 1996 the Company transferred $123 in assets, substantially all of
which was cash, and $70 of liabilities. The difference between the assets
and liabilities of $(53) plus a tax credit of $19 was charged directly to
unassigned surplus. During 1997, the Company transferred $591 in assets,
substantially all of which was cash and $343 of liabilities. The difference
between the assets and liabilities of $(248) net of a tax credit of $87 was
charged directly to unassigned surplus.
o On January 1, 1994, the Company entered into an agreement with a
non-affiliate reinsurer to annually increase reinsurance ceded (primarily
group health business) by 2-1/2% through 1997. As a result, during 1996,
the Company transferred $5,991 in assets, including $5,812 of cash and
short-term investments and liabilities of $6,146. The difference between
the assets and liabilities of $155, plus a tax credit of $266 was credited
directly to unassigned surplus. During 1997, the Company transferred $5,045
in assets, including $4,826 of cash and short-term investments, and
liabilities of $5,164. The difference between the assets and liabilities of
$119 plus a tax credit of $270 was credited directly to unassigned surplus.
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)
o During 1993, the Company sold the Oakbrook Division (primarily group health
business). The initial transfer of risk occurred through an indemnity
reinsurance agreement. The policies will then be assumed by the reinsurer
by novation as state regulatory and policyholder approvals are received.
During 1996, the Company paid $539 in association with this sale; the
payment, net of a tax credit of $189, was charged directly to unassigned
surplus. In addition, the Company received from the third party
administrator a ceding commission of one percent of the premiums collected
between January 1, 1994 and December 31, 1996. As a result of the sale, in
1996, the Company received $45 for ceding commissions; the commissions net
of the related tax effect of $(16) were charged directly to unassigned
surplus. Also, during 1996, the Company paid $539 in association with this
sale; this payment, net of a tax credit of $189, was charged directly to
unassigned surplus. In 1997, the Company received $8 for ceding
commissions; the commissions net of the related tax effect of $3 were
credited directly to unassigned surplus.
o During 1997, the Company entered into a reinsurance agreement with a
non-affiliate. As a result of the agreement, the Company received $1,480 of
assets, including $1,477 of cash and short-term securities, and $861 of
liabilities. The difference between the assets and liabilities of $619, net
of a tax effect of $217 was credited directly to unassigned surplus.
NATURE OF BUSINESS
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium annuity
products. In addition, the Company offers group life, universal life, and
individual and specialty health coverages. The Company is licensed in 49 states
and the District of Columbia. Sales of the Company's products are primarily
through the Company's agents and financial institutions.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals 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.
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)
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting principles.
The more significant of these differences are as follows: (a) bonds are
generally reported at amortized cost rather than segregating the portfolio into
held-to-maturity (reported at amortized cost), available-for-sale (reported at
fair value), and trading (reported at fair value) classifications; (b)
acquisition costs of acquiring new business are charged to current operations as
incurred rather than deferred and amortized over the life of the policies; (c)
policy reserves on traditional life products are based on statutory mortality
rates and interest which may differ from reserves based on reasonable
assumptions of expected mortality, interest, and withdrawals which include a
provision for possible unfavorable deviation from such assumptions; (d) policy
reserves on certain investment products use discounting methodologies based on
statutory interest rates rather than full account values; (e) reinsurance
amounts are netted against the corresponding asset or liability rather than
shown as gross amounts on the balance sheet; (f) deferred income taxes are not
provided for the difference between the financial statement and income tax bases
of assets and liabilities; (g) net realized gains or losses attributed to
changes in the level of interest rates in the market are deferred and amortized
over the remaining life of the bond or mortgage loan, rather than recognized as
gains or losses in the statement of operations when the sale is completed; (h)
potential declines in the estimated realizable value of investments are provided
for through the establishment of a formula-determined statutory investment
reserve (reported as a liability), changes to which are charged directly to
surplus, rather than through recognition in the statement of operations for
declines in value, when such declines are judged to be other than temporary; (i)
certain assets designated as "non-admitted assets" have been charged to surplus
rather than being reported as assets; (j) revenues for universal life and
investment products consist of premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; (k) pension expense is recorded
as amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned surplus
rather than being reported in the statement of operations; and (n) a liability
is established for "unauthorized reinsurers" and changes in this liability are
charged or credited directly to unassigned surplus. The effects of these
variances have not been determined by the Company but are presumed to be
material.
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)
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification"). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. Codification will require adoption by
the various states before it becomes the prescribed statutory basis of
accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the State of
Iowa must adopt Codification as the prescribed basis of accounting on which
domestic insurers must report their statutory-basis results to the Insurance
Department. At this time, it is unclear whether the State of Iowa will adopt
Codification. However, based on current guidance, management believes that the
impact of Codification will not be material to the Company's statutory-basis
financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased to
be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in preferred
stocks not in good standing are reported at the lower of cost or market. Common
stocks of unaffiliated and affiliated companies, which includes shares of mutual
funds and real estate investment trusts, are carried at market value. Real
estate is reported at cost less allowances for depreciation. Depreciation is
computed principally by the straight-line method. Policy loans are reported at
unpaid principal. Other invested assets consist principally of investments in
various joint ventures and are recorded at equity in underlying net assets.
Other "admitted assets" are valued, principally at cost, as required or
permitted by Iowa Insurance Laws.
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)
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. At December 31, 1998, 1997 and 1996, the
Company excluded investment income due and accrued of $102, $177 and $1,541,
respectively, with respect to such practices.
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest income
from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreements is
included in other invested assets.
AGGREGATE POLICY RESERVES
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide, in
the aggregate, reserves that are greater than or equal to the minimum required
by law.
13
<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 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.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. These estimates are subject to the effects of
trends in claim severity and frequency. The estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at market.
Income and gains and losses with respect to the assets in the separate accounts
accrue to the benefit of the policyholders and, accordingly, the operations of
the separate accounts are not included in the accompanying financial statements.
The separate accounts do not have any minimum guarantees and the investment
risks associated with market value changes are borne entirely by the
policyholders. The Company received variable contract premiums of $345,319,
$281,095 and $227,864 in 1998, 1997 and 1996, respectively. All variable account
contracts are subject to discretionary withdrawal by the policyholder at the
market value of the underlying assets less the current surrender charge.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1997 and 1996 financial
statements to conform to the 1998 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard ("SFAS") No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 and No. 119 exclude certain financial instruments and
all nonfinancial instruments from their disclosure requirements and allow
companies to forego the disclosures when those estimates can only be made at
excessive cost. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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
value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
INTEREST RATE CAP AND INTEREST RATE SWAPS: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential for
similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of SFAS No. 107
and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------------- --------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments $ 83,289 $ 83,289 $ 23,939 $ 23,939
Bonds 4,822,442 4,900,516 4,913,144 5,046,527
Preferred stocks 14,754 14,738 2,750 8,029
Common stocks 49,448 49,448 42,345 42,345
Affiliated common stock 5,613 5,613 8,031 8,031
Mortgage loans on real estate 1,012,433 1,089,315 935,207 983,720
Policy loans 60,058 60,058 57,136 57,136
Interest rate cap 4,445 725 5,618 1,513
Interest rate swaps 1,916 6,667 -- 2,546
Separate account assets 3,348,611 3,348,611 2,517,365 2,517,365
LIABILITIES
Investment contract liabilities 4,084,683 4,017,509 4,345,181 4,283,461
Separate account liabilities 3,271,005 3,213,251 2,452,205 2,452,205
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other government 62,948 918 1,651 62,215
Public utilities 139,732 5,053 2,555 142,230
Industrial and miscellaneous 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed securities
2,401,591 45,185 15,044 2,431,732
---------- ---------- ---------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks 14,754 75 91 14,738
---------- ---------- ---------- ----------
$4,837,196 $ 132,213 $ 54,155 $4,915,254
========== ========== ========== ==========
</TABLE>
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States Government and agencies $ 188,241 $ 2,562 $ 21 $ 190,782
State, municipal and other government 61,532 2,584 1,774 62,342
Public utilities 121,582 5,384 2,952 124,014
Industrial and miscellaneous 1,955,587 85,233 7,752 2,033,068
Mortgage and other asset-backed securities
2,586,202 55,382 5,263 2,636,321
---------- ---------- ---------- ----------
4,913,144 151,145 17,762 5,046,527
Preferred stocks 2,750 5,279 -- 8,029
---------- ---------- ---------- ----------
$4,915,894 $ 156,424 $ 17,762 $5,054,556
========== ========== ========== ==========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1998, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
CARRYING ESTIMATED
VALUE FAIR VALUE
---------- ----------
Due in one year or less $ 151,747 $ 148,410
Due after one year through five years 1,211,064 1,232,329
Due after five years through ten years 753,543 761,787
Due after ten years 304,497 326,258
---------- ----------
2,420,851 2,468,784
Mortgage and other asset-backed securities 2,401,591 2,431,732
---------- ----------
$4,822,442 $4,900,516
========== ==========
18
<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:
YEAR ENDED DECEMBER 31
1998 1997 1996
-------- -------- --------
Interest on bonds and notes $374,478 $373,496 $364,356
Dividends on equity investments 1,357 1,460 1,436
Interest on mortgage loans 77,960 80,266 69,418
Rental income on real estate 6,553 7,501 9,526
Interest on policy loans 4,080 3,400 3,273
Other investment income 2,576 613 1,799
-------- -------- --------
Gross investment income 467,004 466,736 449,808
Investment expenses 20,020 20,312 21,471
-------- -------- --------
Net investment income $446,984 $446,424 $428,337
======== ======== ========
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
YEAR ENDED DECEMBER 31
1998 1997 1996
----------- ----------- -----------
Proceeds $ 3,347,174 $ 3,284,095 $ 2,112,831
=========== =========== ===========
Gross realized gains $ 48,760 $ 30,094 $ 19,876
Gross realized losses (8,072) (17,265) (19,634)
----------- ----------- -----------
Net realized gains $ 40,688 $ 12,829 $ 242
=========== =========== ===========
At December 31, 1998, investments with an aggregate carrying value of $5,935,160
were on deposit with regulatory authorities or were restrictively held in bank
custodial accounts for the benefit of such regulatory authorities as required by
statute.
19
<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
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Debt securities $ 40,688 $ 12,829 $ 242
Short-term investments 1,533 (19) (197)
Equity securities (879) 6,972 1,798
Mortgage loans on real estate 12,637 2,252 (5,530)
Real estate 3,176 4,252 1,210
Other invested assets (2,523) 1,632 12
-------- -------- --------
54,632 27,918 (2,465)
Tax effect (22,290) (10,572) (1,235)
Transfer to interest maintenance reserve (28,944) (10,187) 197
-------- -------- --------
Net realized gains (losses) $ 3,398 $ 7,159 $ (3,503)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
---------------------------------------
YEAR ENDED DECEMBER 31
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Debt securities $ (60,604) $ 40,289 $(115,867)
Equity securities 5,750 5,653 2,929
--------- --------- ---------
Change in unrealized appreciation
(depreciation) $ (54,854) $ 45,942 $(112,938)
========= ========= =========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains $ 15,980 $ 10,356 $ 9,590
Unrealized losses (3,710) (3,836) (8,723)
-------- -------- --------
Net unrealized gains $ 12,270 $ 6,520 $ 867
======== ======== ========
</TABLE>
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 1998, the Company issued mortgage loans with interest rates ranging from
5.88% to 7.86%. The maximum percentage of any one mortgage loan to the value of
the underlying real estate at origination was 90% for commercial loans and 95%
for residential loans. Mortgage loans with a carrying value of $245 were
non-income producing for the previous twelve months. Accrued interest of $89
related to these mortgage loans was excluded from investment income. The Company
requires all mortgaged properties to carry fire insurance equal to the value of
the underlying property.
At December 31, 1998 and 1997, the Company held a mortgage loan loss reserve in
the asset valuation reserve of $16,104 and $11,985, respectively. The mortgage
loan portfolio is diversified by geographic region and specific collateral
property type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION PROPERTY TYPE DISTRIBUTION
----------------------------------------------------- -----------------------------------------------
DECEMBER 31 DECEMBER 31
1998 1997 1998 1997
------------------ -------------------
<S> <C> <C> <C> <C> <C>
South Atlantic 32% 29% Retail 35% 35%
E. North Central 16 12 Office 30 31
Pacific 15 15 Industrial 21 6
Mountain 10 10 Apartment 12 14
Middle Atlantic 10 7 Other 2 14
W. South Central 6 9
W. North Central 5 6
E. South Central 3 8
New England 3 4
</TABLE>
At December 31, 1998, the Company had no investments (excluding U. S. Government
guaranteed or insured issues) which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
21
<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 exchange agreements (swaps and caps), options, and commitments to
extend credit and all involve elements of credit and market risks in excess of
the amounts recognized in the accompanying financial statements at a given point
in time. The contract or notional amounts of those instruments reflect the
extent of involvement in the various types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract) that
would result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date). Credit loss exposure resulting from nonperformance by
a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
At December 31, 1998 and 1997, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
1998 1997
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed - pay floating $100,000 $100,000
Receive floating (uncapped) - pay floating (capped) 53,011 67,229
Receive floating (LIBOR) - pay floating (S&P) 60,000 --
Interest rate cap agreements 500,000 500,000
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to meet
its obligation under the reinsurance treaty.
22
<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:
1998 1997 1996
----------- ----------- -----------
Direct premiums $ 1,533,822 $ 1,312,446 $ 1,457,450
Reinsurance assumed 2,366 2,038 1,796
Reinsurance ceded (173,564) (246,372) (300,546)
----------- ----------- -----------
Net premiums earned $ 1,362,624 $ 1,068,112 $ 1,158,700
=========== =========== ===========
The Company received reinsurance recoveries in the amount of $173,297, $183,638
and $168,155 during 1998, 1997 and 1996, respectively. At December 31, 1998 and
1997, estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $47,956 and $60,437, respectively.
The aggregate reserves for policies and contracts were reduced for reserve
credits for reinsurance ceded at December 31, 1998 and 1997 of $2,163,905 and
$2,434,130, respectively.
At December 31, 1998, amounts recoverable from unauthorized reinsurers of
$55,379 (1997 - $73,080) and reserve credits for reinsurance ceded of $49,835
(1997 - $78,838) were associated with a single reinsurer and its affiliates. The
Company holds collateral under these reinsurance agreements in the form of trust
agreements totaling $106,226 at December 31, 1998 that can be drawn on for
amounts that remain unpaid for more than 120 days.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax return
filing with certain affiliated companies. Under the terms of a tax-sharing
agreement between the Company and its affiliates, the Company computes federal
income tax expense as if it were filing a separate income tax return, except
that tax credits and net operating loss carryforwards are determined on the
basis of the consolidated group. Additionally, the alternative minimum tax is
computed for the consolidated group and the resulting tax, if any, is allocated
back to the separate companies on the basis of the separate companies'
alternative minimum taxable income.
23
<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
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%) $ 39,177 $ 42,775 $ 37,256
Tax reserve adjustment 607 2,004 2,211
Excess tax depreciation (223) (392) (384)
Deferred acquisition costs - tax basis 11,827 4,308 5,583
Prior year under (over) accrual 1,750 (1,016) (499)
Dividend received deduction (1,053) (941) (454)
Charitable contribution -- (848) --
Other items - net (2,250) (2,509) (2,536)
-------- -------- --------
Federal income tax expense $ 49,835 $ 43,381 $ 41,177
======== ======== ========
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($20,387 at December 31, 1998). To the extent dividends are paid from
the amount accumulated in the policyholders' surplus account, net earnings would
be reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual. This
included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984 through 1986 and related
interest of $1,686, net of a tax effect of $590. An examination is underway for
years 1993 through 1995.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relates to liabilities established on a
variety of the Company's products that are not subject to significant mortality
or morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of reserves on
these products, by withdrawal characteristics, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------------- ----------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
--------------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 82,048 1% $ 8,912 0%
Subject to discretionary withdrawal at
book value less surrender charge 515,778 5 755,300 8
Subject to discretionary withdrawal at
market value 3,211,896 34 2,454,845 27
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 5,519,265 58 5,821,049 63
Not subject to discretionary withdrawal
provision 228,030 2 203,522 2
------------- ------- ------------- -------
9,557,017 100% 9,243,628 100%
Less reinsurance ceded 2,124,769 2,372,495
------------- -------------
Total policy reserves on annuities and
deposit fund liabilities $7,432,248 $6,871,133
============= =============
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of operations of the
separate accounts statement:
Transfers to separate accounts $345,319 $281,095 $227,864
Transfers from separate accounts 79,808 9,819 75,172
-------- -------- --------
Net transfers to separate accounts 265,511 271,276 152,692
Reconciling adjustments - charges for investment
management, administration fees and contract guarantees 191 26,204 19,093
-------- -------- --------
Transfers as reported in the summary of operations of the
life, accident and health annual statement $265,702 $297,480 $171,785
======== ======== ========
</TABLE>
25
<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, 1998 and 1997, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
-------- -------- --------
<S> <C> <C> <C>
DECEMBER 31, 1998 Life and annuity:
Ordinary direct first year business $ 3,346 $ 2,500 $ 846
Ordinary direct renewal business 21,435 6,365 15,070
Group life direct business 1,171 536 635
Reinsurance ceded (1,367) (44) (1,323)
-------- -------- --------
24,585 9,357 15,228
Accident and health:
Direct 108 -- 108
Reinsurance ceded (18) -- (18)
-------- -------- --------
Total accident and health 90 -- 90
-------- -------- --------
$ 24,675 $ 9,357 $ 15,318
======== ======== ========
DECEMBER 31, 1997 Life and annuity:
Ordinary direct first year business $ 2,316 $ 1,698 $ 618
Ordinary direct renewal business 22,724 6,834 15,890
Group life direct business 1,523 646 877
Reinsurance ceded (1,464) (81) (1,383)
-------- -------- --------
25,099 9,097 16,002
Accident and health:
Direct 148 -- 148
Reinsurance ceded (49) -- (49)
-------- -------- --------
Total accident and health 99 -- 99
-------- -------- --------
$ 25,198 $ 9,097 $ 16,101
======== ======== ========
</TABLE>
At December 31, 1998 and 1997, the Company had insurance in force aggregating
$44,233 and $69,271, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Division, Department of Commerce, of the State of Iowa. The Company
established policy reserves of $998 and $1,128 to cover these deficiencies at
December 31, 1998 and 1997, respectively.
26
<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 for the
preceding year. Subject to the availability of unassigned surplus at the time of
such dividend, the maximum payment which may be made in 1999, without the prior
approval of insurance regulatory authorities, is $62,100.
The Company paid dividends to its parent of $120,000, $62,000 and $20,000 in
1998, 1997 and 1996, respectively.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the FASB
No. 87 expense as a percent of salaries. The benefits are based on years of
service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $380, $422 and $1,056 for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan is subject
to the reporting and disclosure requirements of the Employee Retirement and
Income Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974. Expense
related to this plan was $233, $226 and $297 for the years ended December 31,
1998, 1997 and 1996, respectively.
27
<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
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $62, $62 and
$184 for the years ended December 31, 1998, 1997 and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998, 1997
and 1996, the Company paid $18,706, $18,705 and $17,028, respectively, for these
services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate of
4.95% at December 31, 1998. During 1998, 1997 and 1996, the Company paid net
interest of $1,491, $1,188 and $174, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1998 and 1997, the Company has short-term notes payable to an
affiliate of $9,421 and $16,400, respectively. Interest on these notes accrues
at rates ranging from 5.13% to 5.52% at December 31, 1998 and at 5.60% at
December 31, 1997.
28
<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 $181,720 at December 31, 1998.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages, in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. Potential future obligations for unknown insolvencies
are not determinable by the Company. The future obligation has been based on the
most recent information available from the National Organization of Life and
Health Insurance Guaranty Associations. The Company has established a reserve of
$17,901 and $17,700 and an offsetting premium tax benefit of $7,631 and $7,984
at December 31, 1998 and 1997, respectively, for its estimated share of future
guaranty fund assessments related to several major insurer insolvencies. The
guaranty fund expense (benefit) was $1,985, $(975) and $2,617 for December 31,
1998, 1997 and 1996, respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 issue generally refers to the improper processing of dates
and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations and
decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
The Company has developed a Year 2000 Project Plan (the Plan) to address the
Year 2000 issue as it affects the Company's internal IT ("Information
Technology") and non-IT systems, and to assess Year 2000 issues relating to
third parties with whom the Company has critical relationships.
29
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
11. YEAR 2000 (UNAUDITED) (CONTINUED)
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected systems and equipment; remediation
of identified systems and equipment; internal testing and certification that
each internal system is Year 2000 compliant; and a review of existing and
revised business resumption and contingency plans to address potential Year 2000
issues. The Company has remediated and tested substantially all of its
mission-critical internal IT systems as of December 31, 1998. The Company
continues to remediate and test certain non-critical internal IT systems,
internal non-IT systems and will continue with a revalidation testing program
throughout 1999.
The Company's Year 2000 issues are more complex because a number of its systems
interface with other systems not under the Company's control. The Company's most
significant interfaces and uses of third-party vendor systems are in the bank,
financial services and trust areas. The Company utilizes various banks to handle
numerous types of financial and sales transactions. Several of these banks also
provide trustee and custodial services for the Company's investment holdings and
transactions. These services are critical to a financial services company such
as the Company as its business centers around cash receipts and disbursements to
policyholders and the investment of policyholder funds. The Company has received
written confirmation from its vendor banks regarding their status on Year 2000.
The banks indicate their dedication to resolving any Year 2000 issues related to
their systems and services prior to December 31, 1999. The Company anticipates
that a considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party business
partners and expects to continue working with its business partners on any
interfacing of systems. However, the timing of external system compliance cannot
currently be predicted with accuracy because the implementation of Year 2000
readiness will vary from one company to another.
The Company does have some exposure to date-sensitive embedded technology such
as micro-controllers, but the Company views this exposure as minimal. Unlike
other industries that may be equipment intensive, like manufacturing, the
Company is a life insurance, and financial services organization providing
insurance annuities and pension products to its customers. As such, the primary
equipment and electronic devices in use are computers and telephone-related
equipment. This type of hardware can have date-sensitive embedded technology
which could have Year 2000 problems. Because of this exposure, the Company has
reviewed its computer hardware and telephone systems, with assistance from the
applicable vendors, and has upgraded, or replaced, or is in the process of
replacing any equipment that will not properly process date-sensitive data in
the Year 2000 or beyond.
30
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
11. YEAR 2000 (UNAUDITED) (CONTINUED)
For the Company, a reasonably likely worst case scenario might include one or
more of the Company's significant policyholder systems being non-compliant. Such
an event could result in a material disruption of the Company's operations.
Specifically, a number of the Company's operations could experience an
interruption in the ability to collect and process premiums or deposits, process
claim payments, accurately maintain policyholder information, accurately
maintain accounting records, and/or perform adequate customer service. Should
the worst case scenario occur, it could, dependent upon its duration, have a
material impact on the Company's business and financial condition. Simple
failures can be repaired and returned to production within a matter of hours
with no material impact. Unanticipated failures with a longer service disruption
period could have a more serious impact. For this reason, the Company is placing
significant emphasis on risk management and Year 2000 business resumption
contingency planning in 1999 by modifying its existing business resumption and
disaster recovery plans to address potential Year 2000 issues.
The actions taken by management under the Year 2000 Project Plans are intended
to significantly reduce the Company's risk of a material business interruption
based on the Year 2000 issues. It should be noted that the Year 2000 computer
problem, and its resolution, is complex and multifaceted, and any company's
success cannot be conclusively known until the Year 2000 is reached. In spite of
its efforts or results, the Company's ability to function unaffected to and
through the Year 2000 may be adversely affected by actions (or failure to act)
of third parties beyond our knowledge or control. It is anticipated that there
may be problems that will have to be resolved in the ordinary course of business
on and after the Year 2000. However, the Company does not believe that the
problems will have a material adverse affect on the Company's operations or
financial condition.
31
<PAGE>
PFL Life Insurance Company
Summary of Investments - Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 1998
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities $ 926,370 $ 943,313 $ 926,370
States, municipalities and political
subdivisions 107,975 114,146 107,975
Foreign governments 54,670 53,950 54,670
Public utilities 139,732 142,230 139,732
All other corporate bonds 3,593,695 3,646,877 3,593,695
Redeemable preferred stock 14,754 14,738 14,754
---------------------------------------------------
Total fixed maturities 4,837,196 4,915,254 4,837,196
EQUITY SECURITIES
Common stocks:
Affiliated entities 8,060 5,613 5,613
Banks, trust and insurance 5,935 7,193 7,193
Industrial, miscellaneous and all other 28,796 42,255 42,255
---------------------------------------------------
Total equity securities 42,791 55,061 55,061
Mortgage loans on real estate 1,012,433 1,012,433
Real estate 52,381 52,381
Real estate acquired in satisfaction of debt 11,778 11,778
Policy loans 60,058 60,058
Other long-term investments 76,482 76,482
Cash and short-term investments 83,289 83,289
----------- -----------
Total investments $6,176,408 $6,188,678
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
32
<PAGE>
<TABLE>
<CAPTION>
NET BENEFITS, CLAIMS OTHER
PREMIUM INVESTMENT LOSSES AND OPERATING PREMIUMS
REVENUE INCOME* SETTLEMENT EXPENSES EXPENSES* WRITTEN
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 514,194 $ 85,258 $ 545,720 $ 87,455 $ -
68,963 8,004 48,144 30,442 68,745
111,547 11,426 82,690 54,352 108,769
667,920 342,296 592,085 298,222 -
- ------------------------------------------------------------------------------------------------------
$1,362,624 $446,984 $1,268,639 $470,471
======================================================================================================
$ 200,175 $ 75,914 $ 211,921 $ 36,185 $ -
63,548 5,934 37,706 29,216 63,383
146,694 11,888 103,581 91,568 143,580
657,695 352,688 571,434 364,216 -
- ------------------------------------------------------------------------------------------------------
$1,068,112 $446,424 $ 924,642 $521,185
======================================================================================================
$ 202,082 $ 66,538 $ 197,526 $ 38,067 -
55,871 5,263 32,903 29,511 $ 55,678
174,781 12,877 105,459 122,953 171,320
725,966 343,659 800,121 230,417
- ------------------------------------------------------------------------------------------------------
$1,158,700 $428,337 $1,136,009 $420,948
======================================================================================================
</TABLE>
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
33
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
-----------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Individual life $1,355,283 $ -- $ 8,976
Individual health 94,294 9,631 12,123
Group life and health 93,405 10,298 36,908
Annuity 3,925,293 -- --
-----------------------------------------------------
$5,468,275 $19,929 $58,007
=====================================================
YEAR ENDED DECEMBER 31, 1997
Individual life $ 882,003 $ -- $ 8,550
Individual health 62,033 9,207 12,821
Group life and health 88,211 11,892 44,977
Annuity 4,204,125 -- --
-----------------------------------------------------
$5,236,372 $21,099 $66,348
=====================================================
YEAR ENDED DECEMBER 31, 1996
Individual life $ 734,350 $ -- $ 7,240
Individual health 39,219 8,680 13,631
Group life and health 78,418 14,702 53,486
Annuity 4,408,419 -- --
-----------------------------------------------------
$5,260,406 $23,382 $74,357
=====================================================
</TABLE>
34
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Life insurance in force $6,384,095 $438,590 $39,116 $5,984,621 .6%
==================================================================================
Premiums:
Individual life $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health 76,438 7,475 -- 68,963 --
Group life and health 255,848 144,301 -- 111,547 --
Annuity 686,372 18,096 -- 668,276 --
----------------------------------------------------------------------------------
$1,533,822 $173,564 $ 2,366 $1,362,624 .2%
==================================================================================
YEAR ENDED DECEMBER 31, 1997
Life insurance in force $5,025,027 $420,519 $35,486 $4,639,994 .8%
==================================================================================
Premiums:
Individual life $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health 73,593 10,045 -- 63,548 --
Group life and health 339,269 192,575 -- 146,694 --
Annuity 697,893 40,198 -- 657,695 --
----------------------------------------------------------------------------------
$1,312,446 $246,372 $ 2,038 $1,068,112 .2%
==================================================================================
YEAR ENDED DECEMBER 31, 1996
Life insurance in force $4,863,416 $477,112 $30,685 $4,416,989 .7%
==================================================================================
Premiums:
Individual life $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health 68,699 12,828 -- 55,871 --
Group life and health 390,296 215,515 -- 174,781 --
Annuity 794,311 68,345 -- 725,966 --
----------------------------------------------------------------------------------
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
==================================================================================
</TABLE>
35
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
PFL Life Insurance Company ("PFL LIFE") hereby represents that the fees
and charges deducted under the Policies, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of __ pages
The undertaking to file reports
Representation pursuant to Section 26(e)(2)(A)
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Roger Hallquist, Actuary
(b) John D. Cleavenger, Esq.
(c) Sutherland Asbill & Brennan LLP
(d) Ernst & Young LLP
II-1
<PAGE>
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of PFL Life
establishing PFL Variable Life Account A (the
"Separate Account") @
(2) Not Applicable (Custody Agreement)
(3) Distribution of Policies
(a) Form of Principal Underwriting Agreement (1)
(b) Form of Broker-Dealer Supervision and Sales
Agreement (1)
(4) Not Applicable (Agreements between PFL Life, the
principal underwriter, or custodian other than those
set forth above in A. (1), (2), and (3))
(5) Specimen Flexible Premium Variable Life Insurance
Policy @
(a) Waiver of Premium Benefit @
(b) Waiver of Monthly Deduction @
(c) Level One-Year Term Insurance @
(d) Additional Insured's Level One-Year Term
Insurance @
(e) Accidental Death Benefit @
(f) Guaranteed Insurability Benefit @
(g) Income Replacement Benefit @
(h) Monthly Benefit @
(i) Disability Income/Waiver of Premium Benefit
Rider @
(j) Children's Benefit Rider @
(6) (a) Certificate of Incorporation of PFL Life (2)
(b) By-Laws of PFL Life (2)
(7) Not Applicable (Any insurance policy under a contract
between the Separate Account and PFL Life)
(8) (a) Form of Participation Agreement regarding
Janus Aspen Series (1)
(b) Form of Participation Agreement regarding
AIM Variable Insurance Funds, Inc. (1)
(c) Form of Participation Agreement regarding
Oppenheimer Variable Account Funds (1)
(d) Form of Participation Agreement regarding
Fidelity Variable Insurance Products
Funds (1)
(9) Not Applicable (All other material contracts
concerning the Separate Account)
(10) Application for Flexible Premium Variable Life
Insurance Policy @
(11) Memorandum describing issuance, transfer and
redemption procedures (1)
II-2
<PAGE>
2. Opinion of Counsel as to the legality of the securities being
registered (1)
3. Not Applicable (Financial statements omitted from the prospectus
pursuant to Instruction 1(b) or (c) of Part I
4. Not Applicable
5. Opinion and consent of Roger Hallquist as to actuarial matters
pertaining to the securities being registered (1)
6. Consent of Sutherland Asbill & Brennan LLP (1)
7. Consent of Ernst & Young LLP (1)
8. Powers of Attorney @
- -------------------------------------------
@ Incorporated herein by reference to the initial registration statement
on Form S-6 (File No. 333-87023) filed with the Securities and Exchange
Commission on September 13, 1999.
(1) Filed herewith.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-3 (File No. 333-36297) filed with
the Securities and Exchange Commission on February 27, 1998.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, PFL
Variable Life Account A, has duly caused this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of Cedar Rapids and State
of Iowa on the 22th day of December, 1999.
(Seal) PFL VARIABLE LIFE ACCOUNT A
- ------ ---------------------------
(Registrant)
PFL LIFE INSURANCE COMPANY
--------------------------
(Depositor)
/s/ JOHN D. CLEAVENGER* /s/ JOHN D. CLEAVENGER*
- ------------------------ ----------------------------------
Craig D. Vermie William L. Busler
Vice President, Secretary President, Chairman of the Board
General Counsel and Director and Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
Signature and Title Date
/s/ JOHN D. CLEAVENGER*
- -------------------------------
William L. Busler
President, Chairman of the Board,
Chief Executive Officer and President
/s/ JOHN D. CLEAVENGER*
- -------------------------------
Patrick S. Baird
Senior Vice President and Director
/s/ JOHN D. CLEAVENGER*
- -------------------------------
Craig D. Vermie
Vice President, Secretary,
General Counsel and Director
/s/ JOHN D. CLEAVENGER*
- -------------------------------
Larry N. Norman
Executive Vice President and Director
/s/ JOHN D. CLEAVENGER*
- -------------------------------
Douglas C. Kolsrud
Senior Vice President, Chief
Investment Officer, Corporate
Actuary and Director
/s/ JOHN D. CLEAVENGER*
- -------------------------------
Robert J. Kontz
Vice President and Corporate Controller
/s/ JOHN D. CLEAVENGER*
- -------------------------------
Brenda K. Clancy*
Vice President, Treasurer and
Financial Officer (Principal
Financial Officer)
* Signed by /s/ JOHN D. CLEAVENGER
----------------------
as Attorney-in-Fact
December 22, 1999
<PAGE>
EXHIBIT INDEX
1.A.
(3) Distribution of Policies
(a) Form of Principal Underwriting Agreement
(b) Form of Broker-Dealer Supervision and Sales
Agreement
(8) (a) Form of Participation Agreement regarding
Janus Aspen Series
(b) Form of Participation Agreement regarding
AIM Variable Insurance Funds, Inc.
(c) Form of Participation Agreement regarding
Oppenheimer Variable Account Funds
(d) Form of Participation Agreement regarding
Fidelity Variable Insurance Products
Funds
(11) Memorandum describing issuance, transfer and
redemption procedures
2. Opinion of Counsel as to the legality of the securities being
registered
5. Opinion and consent of Roger Hallquist as to actuarial matters
pertaining to the securities being registered
6. Consent of Sutherland Asbill & Brennan LLP
7. Consent of Ernst & Young LLP
EXHIBIT 1.A.3(a)
PRINCIPAL UNDERWRITING AGREEMENT
THIS PRINCIPAL UNDERWRITING AGREEMENT made and effective as of the 30th
day of April, 1998, by and between AFSG SECURITIES CORPORATION ("AFSG"), a
Pennsylvania corporation, and PFL LIFE INSURANCE COMPANY ("PFL"), an Iowa
corporation, on its own behalf and on behalf the separate investment accounts of
PFL set forth in EXHIBIT A attached hereto and made a part hereof (collectively,
the "Account").
WITNESSETH:
WHEREAS, the Account was established or acquired by PFL under the laws
of the State of Iowa, pursuant to a resolution of PFL's Board of Directors in
order to set aside the investment assets attributable to certain flexible
premium, multi-funded annuity contracts ("Contracts") issued by PFL;
WHEREAS, PFL has registered or will register the Account with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act");
WHEREAS, PFL has registered or will register the Contracts under the
Securities Act of 1933 (the "1933 Act");
WHEREAS, AFSG is and will continue to be registered as a broker-dealer
with the SEC under the Securities Exchange Act of 1934 (the "1934 Act"), and a
member of the National Association of Securities Dealers, Inc. (the "NASD")
prior to the offer and sale of the Contracts; and
WHEREAS, PFL proposes to have the Contracts sold and distributed
through AFSG, and AFSG is willing to sell and distribute such Contracts under
the terms stated herein;
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree as follows:
<PAGE>
1. APPOINTMENT AS DISTRIBUTOR/PRINCIPAL UNDERWRITER. PFL grants to AFSG
the exclusive right to be, and AFSG agrees to serve as, distributor and
principal underwriter of the Contracts during the term of this Agreement. AFSG
agrees to use its best efforts to solicit applications for the Contracts and
otherwise perform all duties and functions, which are necessary and proper for
the distribution of the Contracts.
2. PROSPECTUS. AFSG agrees to offer the Contracts for sale in
accordance with the registration statements and prospectus therefor then in
effect. AFSG is not authorized to give any information or to make any
representations concerning the Contracts other than those contained in the
current prospectus therefor filed with the SEC or in such sales literature as
may be authorized by PFL.
3. CONSIDERATIONS. All premiums, purchase payments or other moneys
payable under the Contracts shall be remitted promptly in full together with
such application, forms and any other required documentation to PFL or its
designated servicing agent and shall become the exclusive property of PFL.
Checks or money orders in payment under the Contracts shall be drawn to the
order of "PFL Life Insurance Company" and funds may be remitted by wire if prior
written approval is obtained from PFL.
4. COPIES OF INFORMATION. On behalf of the Account, PFL shall furnish
AFSG with copies of all prospectuses, financial statements and other documents
which AFSG reasonably requests for use in connection with the distribution of
the Contracts.
5. REPRESENTATIONS. AFSG represents that it is (a) duly registered as a
broker-dealer under the 1934 Act, (b) a member in good standing of the NASD and
(c) to the extent necessary to offer the Contracts, duly registered or otherwise
qualified under the securities laws of any state or other jurisdiction. AFSG
shall be responsible for carrying out its sales and underwriting obligations
hereunder in continued compliance with the NASD Rules and federal and state
securities and insurance laws and regulations. Further, AFSG represents and
warrants that it will
2
<PAGE>
adopt, abide by and enforce the principles set forth in the Principles and Code
of Ethical Market Conduct of the Insurance Marketplace Standards Association as
adopted by the Company.
6. OTHER BROKER-DEALER AGREEMENTS. AFSG is hereby authorized to enter
into written sales agreements with other independent broker-dealers for the sale
of the Contracts. All such sales agreements entered into by AFSG shall provide
that each independent broker-dealer will assume full responsibility for
continued compliance by itself and by its associated persons with the NASD Rules
and applicable federal and state securities and insurance laws, shall provide
that each independent broker-dealer will adopt, abide by and enforce the
principles set forth in the Principles and Code of Ethical Market Conduct of the
Insurance Marketplace Standards Association as adopted by the Company, and shall
be in such form and contain such other provisions as PFL may from time to time
require. All associated persons of such independent broker-dealers soliciting
applications for the Contracts shall be duly and appropriately registered by the
NASD and licensed and appointed by PFL for the sale of Contracts under the
insurance laws of the applicable states or jurisdictions in which such Contracts
may be lawfully sold. All applications for Contracts solicited by such
broker-dealers through their representatives, together with any other required
documentation and premiums, purchase payments and other moneys, shall be handled
as set forth in paragraph 3 above.
7. INSURANCE LICENSING AND APPOINTMENTS. PFL shall apply for the proper
insurance licenses and appointments in appropriate states or jurisdictions for
the designated persons associated with AFSG or with other independent
broker-dealers that have entered into sales agreements with AFSG for the sale of
Contracts, provided that PFL reserves the right to refuse to appoint any
proposed registered representative as an agent or broker, and to terminate an
agent or broker once appointed.
8. RECORDKEEPING. PFL and AFSG shall cause to be maintained and
preserved for the periods prescribed such accounts, books, and other documents
as are required of them by the
3
<PAGE>
1940 Act, and 1934 Act, and any other applicable laws and regulations. The
books, accounts and records of PFL, of the Account, and of AFSG as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions. PFL (or such other entity
engaged by PFL for this purpose), on behalf of and as agent for AFSG, shall
maintain AFSG's books and records pertaining to the sale of Contracts to the
extent as mutually agreed upon from time to time by PFL and AFSG; provided that
such books and records shall be the property of AFSG, and shall at all times be
subject to such reasonable periodic, special or other audit or examination by
the SEC, NASD, any state insurance commissioner and/or all other regulatory
bodies having jurisdiction. PFL shall be responsible for sending on behalf of
and as agent for AFSG all required confirmations on customer transactions in
compliance with applicable regulations, as modified by an exemption or other
relief obtained by PFL. AFSG shall cause PFL to be furnished with such reports
as PFL may reasonably request for the purpose of meeting its reporting and
record-keeping requirements under the insurance laws of the State of Iowa and
any other applicable states or jurisdictions. PFL agrees that its records
relating to the sale of Contracts shall be subject to such reasonable periodic,
special or other audit or examination by the SEC, NASD, and any state insurance
commissioner and/or all other regulatory bodies having jurisdiction.
9. COMMISSIONS. PFL shall have the responsibility for paying on behalf
of AFSG (a) any compensation to other independent broker-dealers and their
associated persons due under the terms of any sales agreements entered into
pursuant to paragraph 6 above, between AFSG and such broker-dealers as agreed to
by PFL and (b) all commissions or other fees to associated persons of AFSG which
are due for the sale of the Contracts in the amounts and on such terms and
conditions as PFL and AFSG determine. Notwithstanding the preceding sentence, no
broker-dealer, associated person or other individual or entity shall have an
interest in any deductions or other fees payable to AFSG as set forth herein.
4
<PAGE>
10. EXPENSE REIMBURSEMENT. PFL shall reimburse AFSG for all costs and
expenses incurred by AFSG in furnishing the services, materials, and supplies
required by the terms of this Agreement.
11. INDEMNIFICATION. PFL agrees to indemnify AFSG for any losses
incurred as a result of any action taken or omitted by AFSG, or any of its
officers, agents or employees, in performing their responsibilities under this
Agreement in good faith and without willful misfeasance, gross negligence, or
reckless disregard of such obligations.
12. REGULATORY INVESTIGATIONS. AFSG and PFL agree to cooperate fully in
any insurance or judicial regulatory investigation or proceeding arising in
connection with Contracts distributed under this Agreement. AFSG and PFL further
agree to cooperate fully in any securities regulatory inspection, inquiry,
investigation or proceeding or any judicial proceeding with respect to PFL,
AFSG, their affiliates and their representatives to the extent that such
inspection, inquiry, investigation or proceeding or judicial proceeding is in
connection with Contracts distributed under this Agreement. Without limiting the
foregoing:
(a) AFSG will be notified promptly of any customer complaint or notice
of any regulatory inspection, inquiry investigation or proceeding or judicial
proceeding received by PFL with respect to AFSG or any representative or which
may affect PFL's issuance of any Contracts marketed under this Agreement; and
(b) AFSG will promptly notify PFL of any customer complaint or notice
of any regulatory inspection, inquiry, investigation or judicial proceeding
received by AFSG or any representative with respect to PFL or its affiliates in
connection with any Contracts distributed under this Agreement.
In the case of a customer complaint, AFSG and PFL will cooperate in
investigating such complaint and shall arrive at a mutually satisfactory
response.
5
<PAGE>
13. TERMINATION.
(a) This Agreement may be terminated by either party hereto upon 60
days' prior written notice to the other party.
(b) This Agreement may be terminated upon written notice of one party
to the other party hereto in the event of bankruptcy or insolvency of such party
to which notice is given.
(c) This Agreement may be terminated at any time upon the mutual
written consent of the parties hereto.
(d) AFSG shall not assign or delegate its responsibilities under this
Agreement without the written consent of PFL.
(e) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the obligations to settle accounts hereunder,
including payments or premiums or contributions subsequently received for
Contracts in effect at the time of termination or issued pursuant to
applications received by PFL prior to termination.
14. REGULATORY IMPACT. This Agreement shall be subject to, among other
laws, the provisions of the 1940 Act and the 1934 Act and the rules,
regulations, and rulings thereunder and of the NASD, from time to time in
effect, including such exemptions from the 1940 Act as the SEC may grant, and
the terms hereof shall be interpreted and construed in accordance therewith.
AFSG shall submit to all regulatory and administrative bodies having
jurisdiction over the operations of the Account, present or future; and will
provide any information, reports or other material which any such body by reason
of this Agreement may request or require pursuant to applicable laws or
regulations.
15. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
6
<PAGE>
16. CHOICE OF LAW. This Agreement shall be construed, enforced and
governed by the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officials as of the day and year
first above written.
AFSG SECURITIES CORPORATION PFL LIFE INSURANCE COMPANY
By: /s/ LORRI E. MEHAFFEY By: /s/ WILLIAM L. BUSLER
--------------------- ---------------------
Lorrie E. Mehaffey William L. Busler
Title: President Title: President
---------- ---------
7
<PAGE>
EXHIBIT A
1. PFL Life Variable Annuity Account A
2. PFL Endeavor VA Separate Account
3. PFL Wright Variable Annuity Account
4. PFL Retirement Builder Variable Annuity Account
5. PFL Endeavaor Target Account
8
<PAGE>
AMENDMENT TO
PRINCIPAL UNDERWRITING AGREEMENT
This Amendment to Principal Underwriting Agreement is made and
effective as of the 1st day of October, 1999, by and between AFSG SECURITIES
CORPORATION ("AFSG"), a Pennsylvania corporation, and PFL LIFE INSURANCE COMPANY
("PFL"), an Iowa corporation, on its own behalf and on behalf the separate
investment accounts of PFL set forth in EXHIBIT A attached hereto and made a
part hereof (collectively, the "Account").
WITNESSETH:
WHEREAS, AFSG and PFL entered into an Underwriting Agreement on the
30th day of April, 1998 (the "Agreement") and desire to adjust certain
provisions of the Underwriting Agreement;
WHEREAS, the Account was established or acquired by PFL under the laws
of the State of Iowa, pursuant to a resolution of PFL's Board of Directors in
order to set aside the investment assets attributable to certain flexible
premium variable life insurance policies and certain flexible premium,
multi-funded life annuity contracts ("Contracts") issued by PFL;
WHEREAS, PFL has registered or will register the Account with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act") or will not register the Account
in proper reliance upon an exclusion from registration under the 1940 Act; and
WHEREAS, PFL has registered or will register the Contracts under the
Securities Act of 1933 (the "1933 Act") or that the Contracts are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act;
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree to amend the Underwriting Agreement as follows:
<PAGE>
1. Exhibit A attached hereto and by this reference made a part hereof
replaces and supersedes Exhibit A of the Agreement.
2. All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect. In the event of a conflict between the
Agreement and this Amendment, it is understood and agreed that the provisions of
this Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Principal Underwriting Agreement to be signed by their respective duly
authorized representative as of the day and year first above written.
AFSG SECURITIES CORPORATION PFL LIFE INSURANCE COMPANY
By: /s/ LISA A. WACHENDORF By: /s/ WILLIAM L. BUSLER
---------------------- ---------------------
Lisa A. Wachendorf William L. Busler
Title: VICE PRESIDENT Title: PRESIDENT
-------------- ---------
2
<PAGE>
EXHIBIT A
1. PFL Life Variable Annuity Account A
2. PFL Endeavor VA Separate Account
3. PFL Wright Variable Annuity Account
4. PFL Retirement Builder Variable Annuity Account
5. PFL Endeavor Target Account
6. PFL Variable Life Account A
3
EXHIBIT 1.A.3(b)
AMENDMENT TO
SELECTED BROKER AGREEMENT
THIS Amendment to Selected Broker Agreement, dated December___, 1999,
is entered into by and between AFSG SECURITIES CORPORATION ("Distributor"), a
Pennsylvania corporation, PFL LIFE INSURANCE COMPANY ("Company"), an Iowa
corporation, and INTERSECURITIES, INC. ("Broker"), a Delaware corporation.
WITNESSETH:
WHEREAS the Distributor, the Company and the Broker have previously
entered into a Selected Broker Agreement ("the Agreement") dated January 1, 1998
and desire to adjust certain provisions of the Agreement;
NOW, THEREFORE, the parties do hereby agree to amend the Agreement as
follows:
1. The Schedule A attached hereto and by this reference made a part
hereof shall be attached to the Agreement in addition to and not as a
replacement of any existing portion of Schedule A attached to the Agreement.
2. All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect. In the event of a conflict between the
Agreement and this Amendment to Selected Broker Agreement, it is understood and
agreed that the provisions of this Amendment to Selected Broker Agreement shall
control.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Selected Broker Agreement to be signed by their respective duly authorized
representative as of the day and year first above written.
AFSG SECURITIES CORPORATION INTERSECURITIES, INC.
(Distributor) (Broker)
By:________________________________ By:_________________________________
Title:_____________________________ Title:______________________________
PFL LIFE INSURANCE COMPANY
(Company)
By:________________________________
Title:_____________________________
<PAGE>
SELECTED BROKER AGREEMENT
SCHEDULE A
APPLICABLE LIFE INSURANCE CONTRACTS
PFL Life Insurance Company ("Company") and AFSG Securities Corporation
("Distributor") authorize InterSecurities, Inc. ("Broker") to offer and solicit
for sale the following securities product through persons who are registered
with the NASD and in accordance with the appropriate state insurance licensing
requirements. Such persons, where required, have authorized Broker to receive
such commissions.
Commissions Payable up to Target Premium
Year 1:
90.0% of premiums received in the first policy year up to the
Policy's Target Premium.
2.50% of premiums received in the first policy year in excess
of the Policy's Target Premium.
Years 2 to 10:
2.50% of premiums received in policy years 2 to 10.
Years 11+:
0.00% of premiums received in policy year 11 and all
subsequent policy years.
TRAIL COMMISSIONS
While the agreement remains in force, and subject to its other conditions, trail
commissions will be paid beginning on the 6th policy anniversary and on each
policy anniversary thereafter on policies then in force having a Policy Value of
$5,000 or more (excluding policy loans). The amount payable will equal the trail
commission percentage shown below multiplied by the Policy Value (excluding
policy loans) on the then current policy anniversary.
0.25% of Policy Value (excluding policy loans)
CHARGEBACKS
In the event of a Free Look surrender, the Company will charge back the
commission account with an amount equal to the total commission paid out.
OTHER ADJUSTMENTS
No commissions of any kind are payable on an above policy which replaces,
exchanges or terminates another life policy of the Company or any other
subsidiary of AEGON USA, Inc. unless such replacement is accomplished in
accordance with the Company's rules in force at that time. Producers acknowledge
that replacement of a contract sold hereunder is subject to all applicable laws
and regulations, including the preparation of appropriate replacement forms and
delivery of same to applicants and to the Company. Such reports are to be
furnished in the proper format on forms provided by the Company. Commissions on
reissued, replaced or converted policies, or for issue ages not published by the
Company, are not covered under this Schedule, but may be quoted upon request to
the Company's Home Office.
The Company reserves the right to adjust or chargeback commissions for decreases
in amounts of insurance not contractually allowed and for face amounts of
insurance in excess of $5,000,000.
<PAGE>
INTERSECURITIES, INC.
Date:_______________ By:_________________________________
Title:______________________________
PFL LIFE INSURANCE COMPANY
Date:_______________ By:_________________________________
Title:______________________________
AFSG SECURITIES CORPORATION
Date:_______________ By:_________________________________
Title:______________________________
EXHIBIT 1.A.8(a)
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 30TH of JUNE, 1999, between JANUS ASPEN
SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), and PFL LIFE INSURANCE COMPANY, a life insurance
company organized under the laws of the State of Iowa (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth on Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its Institutional Shares ("shares") under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and
Exchange Commission ("SEC") granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register (unless
registration is not required under applicable law) certain variable life
insurance policies and/or variable annuity contracts under the 1933 Act (the
"Contracts"); and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act or alternatively, has properly relied
on the exclusion from registration in 3(c)(11), 3(c)(1) or 3(c)(7) of the 1940
Act; and
-1-
<PAGE>
WHEREAS, the Company desires to utilize shares of one or more
Portfolios as an investment vehicle of the Accounts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
SALE OF TRUST SHARES
1.1 The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.2 The Trust will redeem any full or fractional shares of any
Portfolio when requested by the Company on behalf of an Account at the net asset
value next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 10:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the SEC.
1.4 Purchase orders that are transmitted to the Trust in accordance
with Section 1.3 shall be paid for no later than 12:00 noon New York time on the
same Business Day that the Trust receives notice of the order. Payments shall be
made in federal funds transmitted by wire.
-2-
<PAGE>
1.5 Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Trust's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on a Portfolio's shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
dividends and capital gain distributions in cash. The Trust shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions.
1.7 The Trust shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6 p.m. New York
time.
1.8 The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Exemptive Order. No shares
of any Portfolio will be sold directly to the general public. The Company agrees
that Trust shares will be used only for the purposes of funding the Contracts
and Accounts listed in Schedule A, as amended from time to time.
1.9 The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.8 and
Article IV of this Agreement.
ARTICLE II
OBLIGATIONS OF THE PARTIES
2.1 The Trust shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares,
preparation and filing of the documents listed in this Section 2.1 and all taxes
to which an issuer is subject on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide
the Company (at the Company's expense) with as many copies of the Trust's
current prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments
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or supplements to any of the foregoing, as the Company shall reasonably request;
or (b) provide the Company with a camera ready copy of such documents in a form
suitable for printing. The Trust shall provide the Company with a copy of its
statement of additional information in a form suitable for duplication by the
Company. The Trust (at its expense) shall provide the Company with copies of any
Trust-sponsored proxy materials in such quantity as the Company shall reasonably
require for distribution to Contract owners. The Trust shall provide the
materials described in this Section 2.2 promptly after receipt of SEC comments
(if any) and shall use best efforts to provide such materials within a
reasonable time prior to required printing and distribution of such materials.
2.3 (a) The Company shall bear the costs of printing and
distributing the Trust's prospectus, statement of additional information,
shareholder reports and other shareholder communications to owners of and
applicants for policies for which the Trust is serving or is to serve as an
investment vehicle. The Company shall bear the costs of distributing proxy
materials (or similar materials such as voting solicitation instructions) to
Contract owners. The Company assumes sole responsibility for ensuring that such
materials are delivered to Contract owners in accordance with applicable federal
and state securities laws.
(b) If the Company elects to include any materials provided by
the Trust, specifically prospectuses, SAIs, shareholder reports and proxy
materials, on its web site or in any other computer or electronic format, the
Company assumes sole responsibility for maintaining such materials in the form
provided by the Trust and for promptly replacing such materials with all updates
provided by the Trust.
2.4 The Company agrees and acknowledges that the Trust's adviser, Janus
Capital Corporation ("Janus Capital"), is the sole owner of the name and mark
"Janus" and that all use of any designation comprised in whole or part of Janus
(a "Janus Mark") under this Agreement shall inure to the benefit of Janus
Capital. Except as provided in Section 2.5, the Company shall not use any Janus
Mark on its own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or other materials
relating to the Accounts or Contracts without the prior written consent of Janus
Capital. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Janus Mark(s) as soon as reasonably practicable.
2.5 (a) The Company shall furnish, or cause to be furnished, to the
Trust or its designee, a copy of each Contract prospectus or statement of
additional information in which the Trust or its investment adviser is named
prior to the filing of such document with the SEC. The Company shall furnish, or
shall cause to be furnished, to the Trust or its designee, each piece of sales
literature or other promotional material in which the Trust or its investment
adviser is named, at least fifteen Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.
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(b) The Trust shall furnish, or shall cause to be furnished,
to the Company or its designee, each piece of sales literature or other
promotional material in which the Company or its investment adviser is named, at
least fifteen Business Days prior to its use. No such material shall be used if
the Company or its designee reasonably objects to such use within fifteen
Business Days after receipt of such material.
2.6 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
its investment adviser in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
reports of the Trust, Trust-sponsored proxy statements, or in sales literature
or other promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee.
2.7 The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.8 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from policyowners are received as well as shares it
owns that are held by that Account, in the same proportion as those shares for
which voting instructions are received. The Company and its agents will in no
way recommend or oppose or interfere with the solicitation of proxies for Trust
shares held by Contract owners without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state
insurance laws that restrict the Portfolios' investments or otherwise affect the
operation of the Trust and shall notify the Trust of any changes in such laws.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Ohio and that
it has legally and validly established each Account as a segregated asset
account under such law on the date set forth in Schedule A.
3.2 The Company represents and warrants that each Account has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act or alternatively, has not registered an Account in proper reliance upon
the exclusion from registration in 3(c)(11), 3(c)(1) or 3(c)(7) of the 1940 Act.
For its unregistered Accounts which are exempt from registration under the 1940
Act in reliance upon Section 3(c)(1) or Section 3(c)(7) thereof, the Company
represents and agrees that:
(a) AFSG Securities Corporation is the principal underwriter for
each such unregistered Account and its subaccounts and is a
registered broker-dealer under the Securities and Exchange Act
of 1934 (the "1934 Act"),
(b) the shares of the Portfolios of the Trust are and will
continue to be the only investment securities held by the
corresponding Account subaccounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding Account subaccount will:
i. vote such shares held by it in the same proportion
as the vote of all other holders of such shares; and
ii. refrain from substituting shares of another security
for such shares unless the SEC has approved such
substitution in the manner provided in Section 26 of
the 1940 Act.
3.3 The Company represents and warrants that the Contracts or interests
in the Accounts (1) are or, prior to issuance, will be registered as securities
under the 1933 Act or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws; and the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements.
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3.4 Each party represents and warrants to the other that it will use
best efforts to ensure that any of its trading systems implicated under this
Agreement prior to, during and after the calendar year 2000 will recognize
accurate century data, and user interfaces and operation environments will
comply with Year 2000 application standards. Notwithstanding any other provision
of this Agreement, no party shall be liable for any indirect, special or
consequential losses even if the party has notice of the possibility of such
loss.
3.5 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.6 The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to any issuance or sale of
such shares. The Trust shall amend its registration statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.7 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.
3.8 The Trust represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
3.9 The Trust's Institutional Shares currently do not intend to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act or otherwise, although they may make such payments in the future. To
the extent that the Trust decides to finance distribution expenses for the
Institutional Shares pursuant to Rule 12b-1, the Trust undertakes to have a
board of trustees, a majority of whom are not interested persons of the Trust,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
3.10 The Trust represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Trust are and shall continue to be at
all times covered by a blanket fidelity bond or similar coverage for the benefit
of the Trust in an amount not less than the minimal coverage as required
currently by Rule 17g-(1) of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
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ARTICLE IV
POTENTIAL CONFLICTS
4.1 The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (I.E., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position
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or would preclude a majority vote, the Company may be required, at the Trust's
election, to withdraw the affected Account's investment in the Trust and
terminate this Agreement with respect to such Account; provided, however that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this provision
is being implemented. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by the Company for the purchase
and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take
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such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Trust and each of its Trustees, officers, employees and agents
and each person, if any, who controls the Trust within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of the
Trust's shares or the Contracts and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved by
the Company on behalf of the Contracts or Accounts (or any amendment or
supplement to any of the foregoing) (collectively, "Company Documents"
for the purposes of this Article V), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not apply as
to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2(a)) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such
statement or
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omission was made in reliance upon and accurately derived from
written information furnished to the Trust by or on behalf of the
Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company.
5.2 INDEMNIFICATION BY THE TRUST. The Trust agrees to indemnify and
hold harmless the Company and each of its directors, officers, employees and
agents and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust) or
expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Trust (or any amendment or
supplement thereto), (collectively, "Trust Documents" for the purposes
of this Article V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Trust by or on behalf
of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the Trust or
persons under its control, with respect to the sale or acquisition of
the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Trust; or
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(d) arise out of or result from any failure by the Trust to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Trust.
5.3 Neither the Company nor the Trust shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4 Neither the Company nor the Trust shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim shall
not relieve that party from any liability which it may have to the Indemnified
Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI
TERMINATION
6.1 (a) This Agreement may be terminated by either party for any
reason by ninety (90) days advance written notice delivered to the other party.
(b) This Agreement may be terminated by the Company
immediately upon written notice to the Trust with respect to any Portfolio:
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(i) based upon the Company's determination that shares of
such Portfolio are not reasonably available to meet the requirements of the
Contracts; or
(ii) in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(iii) in the event that such Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that the
Trust may fail to so qualify; or
(iv) in the event that such Portfolio fails to meet the
diversification requirements specified in this Agreement.
6.2 Notwithstanding any termination of this Agreement, the Trust shall,
at the option of the Company, continue to make available additional shares of
the Trust (or any Portfolio) pursuant to the terms and conditions of this
Agreement for all Contracts in effect on the effective date of termination of
this Agreement, provided that the Company continues to pay the costs set forth
in Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
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If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Attention: Financial Markets Division Counsel
ARTICLE VIII
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of Colorado.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
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8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
JANUS ASPEN SERIES
By: /s/ BONNIE HOWE
---------------
Name: BONNIE HOWE
-----------
Title: ASSISTANT V. P.
---------------
PFL LIFE INSURANCE COMPANY
By: /s/ WILLIAM L. BUSLER
---------------------
Name: WILLIAM L. BUSLER
-----------------
Title: PRESIDENT
---------
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SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Contracts Funded
DATE ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT
PFL Retirement Builder PFL Retirement Income
Variable Annuity Account Builder Variable Annuity
March 29, 1996 Contracts (1933 Act Registered)
PFL Corporate Account One Advantage V (or Successor
August 10, 1998 Marketing Names) Variable
(1940 Act Exclusion) Universal Life Policy
Form No. 712 136 84 798 (may
vary by state) (1933 Act Exempt)
Legacy Builder Variable Life Separate PFL Life Insurance Company
Account Policy Form Nos. VL20 & JL 20
November 20. 1998 (1933 Act Registered)
(1940 Act Registered)
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AMENDMENT TO
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
Effective as of October 1, 1999, this Schedule A is hereby amended as
follows:
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Contracts Funded
DATE ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT
PFL RETIREMENT BUILDER
PFL RETIREMENT INCOME
Variable Annuity Account Builder Variable Annuity
March 29, 1996 Contracts (1933 Act Registered)
(1940 Act Registered)
PFL Corporate Account One Advantage V (or Successor
August 10, 1998 Marketing Names) Variable
(1940 Act Exclusion) Universal Life Policy
Form No. 712 136 84 798 (may
vary by state) (1933 Act Exempt)
Legacy Builder Variable Life Separate PFL Life Insurance Company
Account Policy Form Nos. VL20 & JL20
November 20, 1998 (1933 Act Registered)
(1940 Act Registered)
PFL Variable Life Account A Variable Protector
July 1, 1999 Form No. APUL0600 699
(1940 Act Registered) (1933 Act Registered)
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect. In the event of a conflict between the
Agreement and this Amendment, it is understood and agreed that the provisions of
this Amendment shall control.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Janus Aspen Series Fund Participation Agreement to be executed in its name and
on its behalf by its duly authorized representative as of this 7TH day of
October, 1999.
PFL LIFE INSURANCE COMPANY
By: /s/ WILLIAM L. BUSLER
---------------------
Name: William L. Busler
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Title: PRESIDENT
JANUS ASPEN SERIES
By: /s/ BONNIE HOWE
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Name: BONNIE M. HOWE
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Title: ASSISTANT VICE PRESIDENT
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EXHIBIT 1.A.8(b)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
PFL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AFSG SECURITIES CORPORATION, AS UNDERWRITER
OF VARIABLE CONTRACTS AND POLICIES
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TABLE OF CONTENTS
DESCRIPTION PAGE
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Section 1. Available Funds..................................................2
1.1 Availability.....................................................2
1.2 Addition, Deletion or Modification of Funds......................2
1.3 No Sales to the General Public...................................2
Section 2. Processing Transactions..........................................2
2.1 Timely Pricing and Orders........................................2
2.2 Timely Payments..................................................3
2.3 Applicable Price.................................................3
2.4 Dividends and Distributions......................................4
2.5 Book Entry.......................................................4
Section 3. Costs and Expenses...............................................4
3.1 General..........................................................4
3.2 Parties To Cooperate.............................................4
Section 4. Legal Compliance.................................................4
4.1 Tax Laws.........................................................4
4.2 Insurance and Certain Other Laws.................................7
4.3 Securities Laws..................................................7
4.4 Notice of Certain Proceedings and Other Circumstances............8
4.5 LIFE COMPANY To Provide Documents; Information
About AVIF.....................................................9
4.6 AVIF To Provide Documents; Information About LIFE
COMPANY.........................................................10
Section 5. Mixed and Shared Funding........................................12
5.1 General.........................................................12
5.2 Disinterested Directors.........................................12
5.3 Monitoring for Material Irreconcilable Conflicts................12
5.4 Conflict Remedies...............................................13
5.5 Notice to LIFE COMPANY..........................................14
5.6 Information Requested by Board of Directors.....................14
5.7 Compliance with SEC Rules.......................................15
5.8 Other Requirements..............................................15
Section 6. Termination.....................................................15
6.1 Events of Termination...........................................15
6.2 Notice Requirement for Termination..............................16
6.3 Funds To Remain Available.......................................17
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6.4 Survival of Warranties and Indemnifications.....................17
6.5 Continuance of Agreement for Certain Purposes...................17
Section 7. Parties To Cooperate Respecting Termination.....................17
Section 8. Assignment......................................................17
Section 9. Notices.........................................................18
Section 10. Voting Procedures...............................................18
Section 11. Foreign Tax Credits.............................................19
Section 12. Indemnification.................................................19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER.................19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM.................21
12.3 Effect of Notice................................................24
12.4 Successors......................................................24
Section 13. Applicable Law..................................................24
Section 14. Execution in Counterparts.......................................24
Section 15. Severability....................................................24
Section 16. Rights Cumulative...............................................24
Section 17. Headings........................................................25
Section 18. Confidentiality.................................................25
Section 19. Trademarks and Fund Names.......................................25
Section 20. Parties to Cooperate............................................27
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PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of May,
1998 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM"),
PFL Life Insurance Company, an Iowa life insurance company ("LIFE COMPANY"), on
behalf of itself and each of its segregated asset accounts listed in Schedule A
hereto, as the parties hereto may amend from time to time (each, an "Account,"
and collectively, the "Accounts"); and AFSG Securities Corporation, an affiliate
of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER")
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each
of which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
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WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to LIFE COMPANY for purchase
and redemption at net asset value and with no sales charges, subject to the
terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or will
be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide LIFE
COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central
Time on each Business Day.
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As used herein, "Business Day" shall mean any day on which (i) the New York
Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net
asset value, and (iii) LIFE COMPANY is open for business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; PROVIDED, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and of
redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall
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constitute receipt by AVIF; PROVIDED that AVIF receives notice of such orders by
9:00 a.m. Central Time on the next following Business Day or such later time as
computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule C, attached hereto
and made a part hereof, each Party will bear all expenses incident to its
performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
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(a) AVIF represents and warrants that each Fund is currently qualified as
a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(I) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of
Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(iii) LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such
failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations Section 1.817-5(a)(2), to the
Commissioner of the IRS that such failure was inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative
or judicial proceeding or contests (including judicial appeals
thereof) with the IRS, any Participant or any other claimant
regarding any claims that could give rise to liability to AVIF
or its affiliates as a result of such a failure or alleged
failure; PROVIDED, however, that LIFE COMPANY will retain
control of the conduct of such conferences discussions,
proceedings, contests or appeals;
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(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection with
any of the foregoing proceedings or contests (including,
without limitation, any such materials to be submitted to the
IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)),
(a) shall be provided by LIFE COMPANY to AVIF (together with
any supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least ten (10)
business days or such shorter period to which the Parties
hereto agree prior to the day on which such proposed materials
are to be submitted, and (b) shall not be submitted by LIFE
COMPANY to any such person without the express written consent
of AVIF which shall not be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to
review the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the preceding
clause or its assessment of the validity or amount of any
claim against its arising from such a failure or alleged
failure;
(vii) LIFE COMPANY shall not with respect to any claim of the IRS or
any Participant that would give rise to a claim against AVIF
or its affiliates (a) compromise or settle any claim, (b)
accept any adjustment on audit, or (c) forego any allowable
administrative or judicial appeals, without the express
written consent of AVIF or its affiliates, which shall not be
unreasonably withheld, PROVIDED that LIFE COMPANY shall not be
required, after exhausting all administrative penalties, to
appeal any adverse judicial decision unless AVIF or its
affiliates shall have provided an opinion of independent
counsel to the effect that a reasonable basis exists for
taking such appeal; and PROVIDED FURTHER that the costs of any
such appeal shall be borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result
of such failure or alleged failure if LIFE COMPANY fails to
comply with any of the foregoing clauses (I) through (vii),
and such failure could be shown to have materially contributed
to the liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, LIFE COMPANY
may, in its discretion, authorize AVIF or its affiliates to act in the name of
LIFE COMPANY in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; PROVIDED, that in no event shall LIFE
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COMPANY have any liability resulting from AVIF's refusal to accept the proposed
settlement or compromise with respect to any failure caused by AVIF. As used in
this Agreement, the term "affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently are
and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. LIFE COMPANY will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Iowa and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under the Iowa Insurance Code and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) LIFE COMPANY represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the
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Contracts will be duly authorized for issuance and sold in compliance with all
applicable federal and state laws, including, without limitation, the 1933 Act,
the 1934 Act, the 1940 Act and Iowa law, (iii) each Account is and will remain
registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each
Account does and will comply in all material respects with the requirements of
the 1940 Act and the rules thereunder, to the extent required, (v) each
Account's 1933 Act registration statement relating to the Contracts, together
with any amendments thereto, will at all times comply in all material respects
with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE
COMPANY will amend the registration statement for its Contracts under the 1933
Act and for its Accounts under the 1940 Act from time to time as required in
order to effect the continuous offering of its Contracts or as may otherwise be
required by applicable law, and (vii) each Account Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
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(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF's Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
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(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers or agents selling the Contracts (I.E., information that
is not intended for distribution to Participants) ("broker only materials") is
so used, and neither AVIF nor any of its affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (E.G.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY camera ready or computer diskette
copies of all AVIF prospectuses and printed copies, in an amount specified by
LIFE COMPANY, of AVIF statements of additional information, proxy materials,
periodic reports to shareholders and other materials required by law to be sent
to Participants who have allocated any Contract value to a Fund. AVIF will
provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE
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COMPANY, as the case may be, to print and distribute such materials within the
time required by law to be furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (I.E., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (E.G.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
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SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). AVIF will provide a complete copy of such order to
LIFE COMPANY upon execution of this Agreement. The Parties recognize that the
SEC has imposed terms and conditions for such orders that are substantially
identical to many of the provisions of this Section 5. Sections 5.2 through 5.8
below shall apply pursuant to such an exemptive order granted to AVIF. AVIF
hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and
Shared Funding, it may be appropriate to include in the prospectus pursuant to
which a Contract is offered disclosure regarding the potential risks of Mixed
and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
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(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity contract
and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such assets in a
different investment medium, including another Fund of AVIF, or
submitting the question whether such segregation should be
implemented to a vote of all affected Participants and, as
appropriate, segregating the assets of any particular group
(E.G., annuity Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of making such
a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940
Act or a new separate account that is operated as a management
company.
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(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
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LIFE COMPANY and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request in writing so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium for
variable life insurance contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any party, with or without cause with respect to the
Fund, upon six (6) months advance written notice to the other parties, or, if
later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings against
LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
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be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE
COMPANY reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the
Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares are
not registered and, in all material respects, issued and sold in accordance with
any applicable federal or state law, or (ii) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's breach of any material provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
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(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund pursuant
to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof,
this Agreement shall nevertheless continue in effect as to any Shares of that
Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
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SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
PFL LIFE INSURANCE COMPANY
AFSG SECURITIES CORPORATION
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
Facsimile: (319) 297-8290
Attn: Frank A. Camp, Esq.
Financial Markets Division General Counsel
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SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with LIFE COMPANY concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, its
affiliates, and each person, if any, who controls AVIF or its affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective directors
and officers, (collectively, the "Indemnified Parties" for purposes of this
Section 12.1) against any and all losses, claims, damages, liabilities
(including
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amounts paid in settlement with the written consent of LIFE COMPANY and
UNDERWRITER) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise; PROVIDED, the Account
owns shares of the Fund and insofar as such losses, claims, damages, liabilities
or actions:
(I) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; PROVIDED, that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to LIFE COMPANY or
UNDERWRITER by or on behalf of AVIF or AIM for use in any
Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of Contracts or
Shares (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not supplied
for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or
their respective affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of LIFE COMPANY, UNDERWRITER or their respective
affiliates or persons under their control (including, without
limitation, their employees and "Associated Persons," as that
term is defined in paragraph (m) of Article I of the NASD's
By-Laws), in connection with the sale or distribution of the
Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of
the foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its affiliates
by or on behalf of LIFE COMPANY, UNDERWRITER or their respective
affiliates for use in AVIF's 1933 Act registration statement,
AVIF Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing; or
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(iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement, or
any material breach of any representation and/or warranty made
by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of
or result from any other material breach of this Agreement by
LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any Fund's
failure to comply with Subchapter M or Section 817(h) of the
Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
or AIM shall have notified LIFE COMPANY and UNDERWRITER in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY and
UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER
from any liability which they may have to the Indemnified Party against whom
such action is brought otherwise than on account of this Section 12.1. Except as
otherwise provided herein, in case any such action is brought against an
Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to
participate, at their own expense, in the defense of such action and also shall
be entitled to assume the defense thereof, with counsel approved by the
Indemnified Party named in the action, which approval shall not be unreasonably
withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified
Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof,
the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and
shall bear the fees and expenses of any additional counsel retained by it, and
neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF AND AIM.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or
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their respective affiliates within the meaning of Section 15 of the 1933 Act and
each of their respective directors and officers, (collectively, the "Indemnified
Parties" for purposes of this Section 12.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of AVIF and/or AIM) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law, or otherwise;
PROVIDED, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus or sales literature
or advertising of AVIF (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; PROVIDED, that this agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to AVIF or its affiliates by or on behalf of LIFE
COMPANY, UNDERWRITER or their respective affiliates for use in
AVIF's 1933 Act registration statement, AVIF Prospectus, or in
sales literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising for the
Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of AVIF,
AIM, or its affiliates and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of AVIF,
AIM, or its affiliates or persons under its control (including,
without limitation, their employees and "Associated Persons" as
that term is defined in Section (n) of Article I of the NASD
By-Laws), in connection with the sale or distribution of AVIF
Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, or the omission
or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished to
LIFE COMPANY, UNDERWRITER or their respective affiliates by or
on behalf of AVIF or AIM for use in any Account's 1933 Act
registration
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statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made by
AVIF in this Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e)
hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of AVIF
and/or AIM) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY,
UNDERWRITER, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and/or AIM in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the
23
<PAGE>
action, which approval shall not be unreasonably withheld. After notice from
AVIF and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume
the defense thereof, the Indemnified Party will cooperate fully with AVIF and
AIM and shall bear the fees and expenses of any additional counsel retained by
it, and AVIF will not be liable to such Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
(e) In no event shall either AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
24
<PAGE>
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY or
any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list
25
<PAGE>
or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVIF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other trade names, trademarks and service marks as
may be set forth on Schedule B, as amended from time to time by written notice
from AIM to LIFE COMPANY (the "AIM licensed marks" or the "licensor's licensed
marks") and is authorized to use and to license other persons to use such marks.
LIFE COMPANY and its affiliates are hereby granted a non-exclusive license to
use the AIM licensed marks in connection with LIFE COMPANY's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that LIFE COMPANY shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, LIFE COMPANY and its affiliates
shall immediately cease to issue any new annuity or life insurance contracts
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or that
it has any association with AIM, except that LIFE COMPANY shall have the right
to continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The licensee shall obtain the prior written approval of the licensor
for the public release by such licensee of any materials bearing the licensor's
licensed marks. The licensor's approvals shall not be unreasonably withheld.
(d) During the term of this grant of license, a licensor may request that
a licensee submit samples of any materials bearing any of the licensor's
licensed marks which were previously approved by the licensor but, due to
changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the
26
<PAGE>
written approval of the licensor, then the licensee shall immediately cease
distributing such disapproved materials. The licensor's approval shall not be
unreasonably withheld, and the licensor, when requesting reconsideration of a
prior approval, shall assume the reasonable expenses of withdrawing and
replacing such disapproved materials. The licensee shall obtain the prior
written approval of the licensor for the use of any new materials developed to
replace the disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to the
best of the knowledge of the licensee, the licensor's licensed marks are valid
and enforceable trademarks and/or service marks and that such licensee does not
own the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (ii) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (iii) acknowledges and agrees that
the use of the licensor's licensed marks pursuant to this grant of license shall
inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
------------------------------
27
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------- --------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary -----------------------------
Title: President
-----------------------------
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
------------------------- --------------------------------
Nancy L. Martin Name: Michael J. Cemo
Assistant Secretary -----------------------------
Title: President
-----------------------------
PFL LIFE INSURANCE COMPANY, on behalf of
itself and its separate accounts
Attest: /s/ RONALD L. ZIEGLER By: /s/ WILLIAM L. BUSLER
------------------------- --------------------------------
Name: Ronald L. Ziegler Name: William L. Busler
------------------------- ------------------------------
Title: VP & Actuary Title: President
------------------------- ----------------------------
AFSG SECURITIES CORPORATION
Attest: /s/ FRANK A. CAMP By: /s/ LARRY N. NORMAN
------------------------- --------------------------------
Name: Frank A. Camp Name: Larry N. Norman
--------------------------- ------------------------------
Title: Secretary Title: President
-------------------------- -----------------------------
28
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund
AIM V.I. International Equity Fund
AIM V.I. Growth & Income Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
PFL Retirement Builder Variable Annuity Account
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
PFL Life Insurance Company
Policy Form No. AV288-101-95-796
(including successor forms, addenda and endorsements may vary by state
under marketing names: "Retirement Income Builder Variable Annuity,"
"First Union Variable Annuity" or successor marketing names.)
29
<PAGE>
SCHEDULE B
AIM VARIABLE INSURANCE FUNDS, INC.
AIM _____________________________________Fund
AIM and Design
[LOGO]
30
<PAGE>
SCHEDULE C
EXPENSE ALLOCATIONS
===============================================================================
LIFE COMPANY AVIF / AIM
preparing and filing the Account's preparing and filing the Fund's
registration statement registration statement
text composition for Account text composition for Fund
prospectuses and supplements prospectuses and supplements
text alterations of prospectuses text alterations of prospectuses
(Account) and supplements (Account) (Fund) and supplements (Fund)
printing Account and Fund prospectuses a camera ready Fund prospectus;
and supplements printing costs of Fund prospectus to
existing policy owners with amounts
allocated to the Fund
text composition and printing Account text composition and printing Fund
SAIs SAIs
mailing and distributing Account SAIs mailing and distributing Fund SAIs to
to policy owners upon request by policy owners upon request by policy policy
owners owners
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities
Laws and to prospective purchasers
text composition (Account), printing, text composition of annual and
mailing, and distributing annual and and semi-annual reports (Fund)
semi-annual reports for Account (Fund
and Account as, applicable)
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of distributing and tabulation of proxy
proxy statements and voting instruction statements and voting instruction
solicitation materials to policy solicitation materials to policy
owners with respect to proxies owners with respect to proxies
related to the Account related to the Fund
preparation, printing and distributing
sales material and advertising relating
to the Funds, insofar as such materials
relate to the
31
<PAGE>
Contracts and filing such materials with
and obtaining approval from, the SEC,
the NASD, any state insurance regulatory
authority, and any other appropriate
regulatory authority, to the extent required
32
<PAGE>
AMENDMENT NO. 3
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated May 1, 1998, by and among
AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M Distributors,
Inc., a Delaware corporation, PFL Life Insurance Company, an Iowa life insurance
company, and AFSG Securities Corporation, a Pennsylvania corporation, is hereby
amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced with
the following:
SCHEDULE A
- --------------------------------------------------------------------------------
FUNDS AVAILABLE UNDER THE SEPARATE ACCOUNTS POLICIES FUNDED BY THE
POLICIES UTILIZING THE FUNDS SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
AIM V.I. Capital PFL Retirement Builder PFL Life Insurance
Appreciation Fund Variable Annuity Account Company Policy Form No.
AV288-101-95-796
(including successor
forms, addenda and
endorsements may vary by
state under marketing
names: "Retirement
Income Builder Variable
Annuity", "Portfolio
Select Variable Annuity")
- --------------------------------------------------------------------------------
AIM V.I. Government
Securities Fund
- --------------------------------------------------------------------------------
AIM V.I. Growth Fund
- --------------------------------------------------------------------------------
AIM V.I. Growth & Income Legacy Builder Variable
Fund Life Separate Account
- --------------------------------------------------------------------------------
AIM V.I. International
Equity Fund
- --------------------------------------------------------------------------------
AIM V.I. Value Fund PFL Variable Life Account
- --------------------------------------------------------------------------------
PFL Life Insurance
Company Policy Form No.'s
VL20 & JL20 under the
marketing name "Legacy
Builder II"
- --------------------------------------------------------------------------------
PFL Life Insurance
Company Policy Form
No.'s WL851 136 58 699
under the marketing name
"Legacy Builder Plus"
- --------------------------------------------------------------------------------
PFL Life Insurance
Company Policy Form No.
APUL0600 699 under the
marketing name "Variable
Protector"
- --------------------------------------------------------------------------------
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: August 1, 1999
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERY H. GRAHAM
--------------------------- ------------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
--------------------------- ------------------------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
33
<PAGE>
PFL LIFE INSURANCE COMPANY
Attest: /s/ FRANK A. CAMP By: /s/ WILLIAM L. BUSLER
--------------------------- ------------------------------------
Name: Frank A. Camp Name: William L. Busler
----------------------------- ----------------------------------
Title: Vice President Title: President
---------------------------- ---------------------------------
AFSG SECURITIES CORPORATION
Attest: /s/ FRANK A. CAMP By: /s/ LARRY N. NORMAN
--------------------------- ------------------------------------
Name: Frank A. Camp Name: Larry N. Norman
---------------------------- ------------------------------------
Title: Secretary Title: President
---------------------------- ---------------------------------
EXHIBIT 1.A.8(c)
PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT (the "Agreement"), made and entered into as of
the 15th day of December, 1997 by and among PFL Life Insurance Company
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement, as may be amended
from time to time by mutual consent (hereinafter collectively the "Accounts"),
Oppenheimer Variable Account Funds (hereinafter the "Fund") and
OppenheimerFunds, Inc. (hereinafter the "Adviser").
WHEREAS, the Fund is an open-end management investment company
and is available to act as the investment vehicle for separate accounts now in
existence or to be established at any date hereafter for variable life insurance
policies and variable annuity contracts (collectively, the "Variable Insurance
Products") offered by insurance companies (hereinafter "Participating Insurance
Company");
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each designated a "Portfolio", and each representing
the interests in a particular managed pool of securities and other assets;
<PAGE>
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission ("SEC"), dated July 16, 1986 (File No. 812-6324)
granting Participating Insurance Company and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Mixed and Shared Funding Exemptive Order")
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940; WHEREAS, the Company
has registered or will register certain variable annuity and/or life insurance
contracts under the 1933 Act (hereinafter "Contracts") (unless an exemption from
registration is available);
WHEREAS, the Accounts are or will be duly organized, validly
existing segregated asset accounts, established by resolution of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid variable contracts (the Contract(s) and the Account(s) covered by the
Agreement are specified in Schedule 2 attached hereto, as may be modified by
mutual consent from time to time);
WHEREAS, the Company have registered or will register the
Accounts as unit investment trusts under the 1940 Act (unless an exemption from
registration is available);
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intend to purchase shares in the Portfolios (the
Portfolios covered by this Agreement are specified in Schedule 3 attached hereto
as may be modified by mutual consent from time to time), on behalf of the
Accounts to fund the Contracts named in Schedule 2, as may be amended from time
to time by mutual consent, and the Fund is authorized to sell such shares to
unit investment trusts such as the Accounts at net asset value; and
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the
Fund, the Adviser and the Company agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next
Business Day after it places an order to purchase Fund shares in accordance with
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire or by
a credit for any shares redeemed.
1.3. The Fund agrees to make Fund shares available for
purchase at the applicable net asset value per share by the Company for their
separate Accounts listed in Schedule 1 on those days on which the Fund
calculates its net asset value pursuant to rules of the SEC; provided, however,
that the Board of Trustees of the Fund (hereinafter the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Trustees, acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, in the best interests of the shareholders
of any Portfolio.
<PAGE>
1.4. The Fund agrees to redeem, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption and receipt by such designee shall constitute receipt by
the Fund; provided that the Fund receives written (or facsimile) notice of such
request for redemption by 9:30 a.m. New York time on the next following Business
Day. Payment shall be made within the time period specified in the Fund's
prospectus or statement of additional information, in federal funds transmitted
by wire to the Company's account as designated by the Company in writing from
time to time.
1.5. The Company shall pay for the Fund shares on the next
Business Day after an order to purchase shares is made in accordance with the
provisions of Section 1.4 hereof. Payment shall be in federal funds transmitted
by wire pursuant to the instructions of the Fund's treasurer or by a credit for
any shares redeemed.
1.6. The Company agrees to purchase and redeem the shares of
the Portfolios named in Schedule 3 offered by the then current prospectus and
statement of additional information of the Fund in accordance with the
provisions of such prospectus and statement of additional information. The
Company shall not permit any person other than a Contract owner to give
instructions to the Company which would require the Company to redeem or
exchange shares of the Fund.
1.7. The Fund shall make the net asset value per share for
each portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:00
p.m. central time) and shall use its best efforts to make such net asset value
per share available by 5:00 p.m. central time.
<PAGE>
ARTICLE II. SALES MATERIAL, PROSPECTUSES AND OTHER REPORTS
2.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably object to such use within ten Business Days after
receipt of such material. "Business Day" shall mean any day in which the New
York Stock Exchange is open for trading and in which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
2.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sale literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
2.3. For purposes of this Article II, the phrase "sales
literature or other promotional material" means advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboard or electronic media), and sales literature (such as brochures,
circulars, market letters and form letters), distributed or made generally
available to customers or the public.
2.4. The Company and the Fund will each provide to the other
at least one complete copy of all registration statements, prospectuses,
Statements of Additional Information, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no action letters and all amendments to any of the
above, that relate to the Contracts or each Account, contemporaneously with the
filing of such document with the SEC or other regulatory authorities.
<PAGE>
2.5. The Fund or the Adviser shall provide the Company with as
many printed copies of the Fund's current prospectus and Statement of Additional
Information as the Company may reasonably request. If requested by the Company
in lieu thereof, the Fund or the Adviser shall provide camera-ready film
containing the Fund's prospectus and the Statement of Additional Information and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its Statement
of Additional Information in combination with other fund companies' prospectuses
and Statements of Additional Information. Except as provided in the following
three sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in orders to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund or the Adviser. If the Company chooses to receive camera-ready
film in lieu of receiving printed copies of the Fund's prospectus, the Fund or
the Adviser will reimburse the Company in an amount equal to the product of A
and B where A is the number of such prospectuses distributed to owners of the
Contracts, and B is the Fund's per unit cost of typesetting and printing the
Fund's prospectus. The same procedures shall be followed with respect to the
Fund's Statement of additional Information.
The Company agrees to provide the fund or its designee with
such information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
2.6. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Fund or the Company
(or in the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund or the Fund's transfer agent).
<PAGE>
2.7. The Fund or the Adviser, at its expense, shall provide
the Company with copies of the Fund's proxy statements, reports to shareholders,
and other communications (except for prospectuses and Statements of Additional
Information, which are covered in Section 2.5) to shareholders in such quantity
as the Company shall reasonably require for distributing to Contract owners.
2.8 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account, so
long as and to the extent that the SEC continues to
interpret the 1940 Act to require pass-through voting
privileges for variable contract owners. The Company
reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent
permitted by law. The Company shall be responsible for
assuring that each of its separate accounts participating in
the Fund calculates voting privileges in a manner consistent
with the voting provisions set forth in the Mixed and Shared
Funding Exemptive Order.
2.9. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders.
ARTICLE III. FEES AND EXPENSES
3.1. The Fund and Adviser shall pay no fee or other
compensation to the Company under this agreement, and the Company shall pay no
fee or other compensation to the Fund or Adviser, except as provided herein.
Nothing herein shall prevent the parties from otherwise agreeing to perform, and
arranging for appropriate compensation for, other services related to the Fund
and/or to the Accounts.
<PAGE>
3.2. All expenses incident to performance by each party of its
respective duties under this Agreement shall be paid by that party. The Fund
shall see to it that all its shares are registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent advisable by
the Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law. The Fund or the Adviser shall
bear the expenses of setting the Fund's prospectus in type, setting in type and
printing the Fund's proxy materials and the Fund's reports to shareholders
(including the costs of printing a prospectus that constitutes and annual
report), the preparation of all statements and notices required by any federal
or state law, and all taxes on the issuance or transfer of the Fund's shares.
3.3. The Company shall bear the expenses of distributing the
Fund's prospectus, proxy materials and reports to owners of Contracts issued by
the Company. . 3.4. In the event the Fund adds one or more additional Portfolios
and the parties desire to make such Portfolios available to the respective
Contract owners as an underlying investment medium, a new Schedule 3 or an
amendment to this Agreement shall be executed by the parties authorizing the
issuance of shares of the new Portfolios to the particular Account. The
amendment may also provide for the sharing of expenses for the establishment of
new Portfolios among Participating Insurance Company desiring to invest in such
Portfolios and the provision of funds as the initial investment in the new
Portfolios.
<PAGE>
ARTICLE IV. POTENTIAL CONFLICTS
4.1. The Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
4.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. The Company agrees to be bound by the
responsibilities of a participating insurance company as set forth in the Mixed
and Shared Funding Exemptive Order, including without limitation the requirement
that the Company report any potential or existing conflicts of which it is aware
to the Board. The Company will assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded and by confirming in writing,
at the Fund's request, that the Company are unaware of any such potential or
existing material irreconcilable conflicts.
<PAGE>
4.3. If it is determined by a majority of the Board, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the disinterested trustees), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to an including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (I.E., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Company) that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
4.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six months after the Board informs the Company in writing that it has
determined that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Fund shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Fund,
subject to applicable regulatory limitation.
<PAGE>
4.6. For purposes of Sections 4.3 through 4.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new funding
medium for the Contracts. The Company shall not be required by Section 4.3 to
establish a new funding medium for Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the particular Account's investment in
the Fund and terminate this Agreement within six (6) months after the Board
informs the Company in writing of the foregoing determination, provided,
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
ARTICLE V. INDEMNIFICATION
5.1. Indemnification By The Company
5.1.(a). The Company agrees to indemnify and hold harmless
the Adviser and the Fund and each trustee of the Board and Officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
5.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
<PAGE>
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections 5.1(b)
and 5.1(c) hereof.
<PAGE>
5.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's wilful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
5.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons of other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
5.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
5.2. Indemnification by the Adviser
<PAGE>
5.2(a) The Adviser agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 5.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect of) or settlements are
related to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to the state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Adviser or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sale literature for the Contracts not
supplied by the Adviser or persons under its control) or wrongful conduct of the
Fund, Adviser or Adviser or persons under their control, with respect to the
sale of distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Fund;
or
<PAGE>
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Adviser; as limited by and in accordance with the provisions of Sections 5.2(b)
and 5.2(c) hereof.
5.2(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
<PAGE>
5.2(c). The Adviser shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Adviser in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
5.2(d). The Company agrees promptly to notify the Adviser of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of each Account.
5.3. Indemnification By the Fund
5.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 5.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Fund) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of the Board
or any member thereof, are related to the operations of the Fund and arise out
of or result from any material breach of any representation and/or warranty made
by the Fund in this Agreement or arise out of or result from any other material
breach of this Agreement by the Fund; as limited by and in accordance with the
provisions of Sections 5.3(b) and 5.3(c) hereof.
<PAGE>
5.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Adviser or each Account,
whichever is applicable.
5.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund shall also be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
5.3(d). The Company and the Adviser agree promptly to notify
the Fund of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
<PAGE>
ARTICLE VI. APPLICABLE LAW
6.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York.
6.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Mixed and Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith. ARTICLE VII. TERMINATION
7.1 This Agreement shall terminate with respect to some or
all Portfolios:
(a) at the option of any party upon six month's advance
written notice to the other parties;
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the
requirements of its Contracts or are not appropriate funding
vehicles for the Contracts, as determined by the Company
reasonably and in good faith. Prompt notice of the election
to terminate for such cause and an explanation of such cause
shall be furnished by the Company; or
(c) as provided in Article IV
7.2. It is understood and agreed that the right of any party
hereto to terminate this Agreement pursuant to Section 7.1(a) may be exercised
for cause or for no cause.
<PAGE>
7.3. Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Adviser shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement for which shares of the Fund serve as the
underlying investment medium (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments n the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 7.3 shall not apply
(i) to any terminations under Article IV and the effect of such Article IV
terminations shall be governed by Article IV of this Agreement, or (ii) if the
further sale of additional shares of the Fund to the Contracts is prohibited by
law or by regulatory authorities. ARTICLE VIII. NOTICES
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify to
the other party.
If to the Fund:
Oppenheimer Variable Account Funds
c/o OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Legal Department
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: General Counsel
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, IA 52499-0001
Attn: Financial Markets Division, Legal Department
<PAGE>
ARTICLE IX. MISCELLANEOUS
9.1. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential the names
and addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as it may come into the
public domain.
9.2. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
9.3. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
9.4. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
9.5. Each party hereto shall cooperate with, and promptly
notify each other party and all appropriate governmental authorities (including
without limitation the Securities and Exchange Commission, the NASD and state
insurance regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
9.6. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
9.7. It is understood by the parties that this Agreement is
not an exclusive arrangement in any respect. 9.8. The Company and the Adviser
each understand and agree that the obligations of the Fund under this Agreement
are not binding upon any shareholder of the Fund personally, but bind only the
Fund and the Fund's property; the Company and the Adviser each represent that it
has notice of the provisions of the Declaration of Trust of the Fund disclaiming
shareholder liability for acts or obligations of the Fund.
<PAGE>
9.9. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
9.10. This Agreement sets forth the entire agreement between
the parties and supersedes all prior communications, agreements and
understandings, oral or written, between the parties regarding the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date specified
below.
PFL LIFE INSURANCE COMPANY
By: s/ WILLIAM L. BUSLER
----------------------------------
Title: President
-------------------------------
Date: 12/15/97
-------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By: s/ ANDREW J. DONOHUE
-----------------------------------
Title: Vice President
--------------------------------
Date:
--------------------------------
OPPENHEIMERFUNDS, INC.
By: s/
-----------------------------------
Title: Vice President
--------------------------------
Date: 12/9/97
---------------------------------
<PAGE>
SCHEDULE 1
SEPARATE ACCOUNTS:
PFL Retirement Builder
Variable Annuity Account
Established by the Board of Directors
on March 29, 1996
<PAGE>
SCHEDULE 2
PFL Life Insurance Company
Policy Form No.
AV 288-101-95-796
(including successor forms, addenda
and endorsements - may vary by state)
Under marketing names:
"Retirement Income Builder Variable Annuity"
or
"First Union First Choice Variable Annuity"
(or successor marketing names)
<PAGE>
SCHEDULE 3
Portfolios of Oppenheimer Variable Account Funds:
Oppenheimer Growth Fund
Oppenheimer Strategic Bond Fund
Oppenheimer Multiple Strategies Fund
<PAGE>
AMENDMENT TO
PARTICIPATION AGREEMENT
The Participation Agreement, dated as of December 15, 1997 (and
amendments thereto), by and among OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC., and PFL LIFE INSURANCE COMPANY (the "Agreement") is
hereby amended as follows:
Schedule 1 of the Agreement (and amendments thereto) is hereby deleted in its
entirety and replaced with the following:
SCHEDULE 1
PFL Retirement Builder Variable Annuity Account
Established by the Board of Directors on March 29, 1996
Legacy Builder Variable Life Separate Account
Established by the Board of Directors on November 20, 1998
PFL Variable Life Account A
Established by the Board of Directors on July 1, 1999
Schedule 2 of the Agreement (and amendments thereto) is hereby deleted in its
entirety and replaced with the following:
SCHEDULE 2
PFL Life Insurance Company Policy Form No. AV 288-101-95-796
(including successor forms, addenda and endorsements - may vary by state)
Under the marketing names: "Retirement Income Builder Variable Annuity"
or "Portfolio Select Variable Annuity"
PFL Life Insurance Company Policy Form No.'s VL20 & JL20
Under the marketing name "Legacy Builder II"
PFL Life Insurance Company Policy Form No. APUL0600 699
Under the marketing name: "Variable Protector"
Schedule 3 of the Agreement (and amendments thereto) is hereby deleted in its
entirety and replaced with the following:
SCHEDULE 3
Portfolios of Oppenheimer Variable Account Funds:
Oppenheimer Capital Appreciation Fund/VA Oppenheimer Aggressive Growth Fund/VA
Oppenheimer Strategic Bond Fund/VA Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Global Securities Fund/VA Oppenheimer High Income Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA Oppenheimer Bond Fund/VA
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Effective Date: October 1, 1999
OPPENHEIMER VARIABLE OPPENHEIMERFUNDS, INC.
ACCOUNT FUNDS
By: S/ ANDREW J. DONOHUE By: S/ ANDREW J. DONOHUE
-------------------------------- --------------------------
Name: Andrew J. Donohue Name: Andrew J. Donohue
------------------------------ ------------------------
Title: Vice President and Secretary Title: Executive Vice President
----------------------------- ------------------------
PFL LIFE INSURANCE COMPANY
By: S/ WILLIAM L. BUSLER
--------------------------------
Name: William L. Busler
------------------------------
Title: President
-----------------------------
EXHIBIT 1-A-8(d)
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 14th day of June, 1999
by and among PFL LIFE INSURANCE COMPANY, (hereinafter the "Company"), an Iowa
corporation, on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A hereto as may be amended from time to time
(each such account hereinafter referred to as the "Account"), and the VARIABLE
INSURANCE PRODUCTS FUND, an unincorporated business trust organized under the
laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and FIDELITY
DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a Massachusetts
corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity
1
<PAGE>
and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:30 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading
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and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Sections 2.5 and 2.12 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
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Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Fund or Underwriter consents to the use of such other investment
company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 508A.1 of the Iowa Insurance Code and has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Iowa and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as
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<PAGE>
required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently does
not intend to make any payments to finance distribution expenses pursuant to
Rule 12b-1 under the 1940 Act or otherwise, although it may make such payments
in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan
under which it makes no payments for distribution expenses. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
(b) With respect to Service Class shares, the Fund has adopted a
Rule 12b-1 Plan under which it makes payments to finance distribution expenses.
The Fund represents and warrants that it has a board of trustees, a majority of
whom are not interested persons of the Fund, which has formulated and approved
the Fund's Rule 12b-1 Plan to finance distribution expenses of the Fund and that
any changes to the Fund's Rule 12b-1 Plan will be approved by a similarly
constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance with
the laws of the state of Iowa and the Fund and the Underwriter represent that
their respective operations are and shall at all times remain in material
compliance with the laws of the state of Iowa to the extent required to perform
this Agreement.
2.7. The Underwriter represents and warrants that it is a member
in good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the state of Iowa and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
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<PAGE>
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the state of Iowa and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
2.12 The Company represents and warrants that it will not purchase Fund
shares with Account assets derived from the sale of Contracts to deferred
compensation plans with respect to service for state and local governments which
qualify under Section 457 of the federal Internal Revenue Code, as may be
amended. The Company may purchase Fund shares with Account assets derived from
any sale of a Contract to any other type of tax-advantaged employee benefit
plan; PROVIDED however that such plan has no more than 500 employees who are
eligible to participate at the time of the first such purchase by the Company of
Fund shares derived from the sale of such Contract.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide such documentation (including a final copy of
the new prospectus as set in type at the Fund's expense) and other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is amended) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense).
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3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner who
requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to stockholders and other communications to
stockholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such portfolio for
which instructions have been received: so long as and to the
extent that the Securities and Exchange Commission continues
to interpret the 1940 Act to require pass-through voting
privileges for variable contract owners. The Company
reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be
responsible for assuring that each of their separate
accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set
forth on Schedule B attached hereto and incorporated herein
by this reference, which standards will also be provided to
the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
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<PAGE>
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or
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<PAGE>
all agents or employees, and registration statements, prospectuses, Statements
of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing
the Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
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<PAGE>
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board
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informs the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1 (a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
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(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration Statement
or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1 (b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1 (c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall
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<PAGE>
have notified the Company in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1 (d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2 (a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
13
<PAGE>
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration
Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund,
Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statement or statements therein not misleading,
if such statement or omission was made in reliance
upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise,
to comply with the diversification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Underwriter, as limited by and in
accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2 (b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2 (c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After
14
<PAGE>
notice from the Underwriter to such party of the Underwriter's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Underwriter will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2 (d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3 (a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements result
from the gross negligence, bad faith or willful misconduct of the Board or any
member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure to
comply with the diversification requirements
specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3 (b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3 (c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund
15
<PAGE>
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Fund
will be entitled to participate, at its own expense, in the defense thereof. The
Fund also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Fund to
such party of the Fund's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Fund will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3 (d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written
notice to the other parties; or
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the
requirements of the Contracts as determined by the Company,
provided however, that such termination shall apply only to
the Portfolio(s) not reasonably available. Prompt notice of
the election to terminate for such cause shall be furnished
by the Company; or
(c) at the option of the fund in the event that formal
administrative proceedings are instituted against the
Company by the NASD, the Securities and Exchange
Commission, the Insurance Commissioner or any other
regulatory body regarding the Company's duties under this
Agreement or related to the sale of
16
<PAGE>
the Contracts, the operation of any Account, or the purchase
of ht Fund shares, provided, however, that the Fund
determines in its sole judgment exercised in good faith, that
any such administrative proceedings will have a material
adverse effect upon the ability of the Company to perform its
obligations under this Agreement; or
(d) at the option of the company in the event that formal
administrative proceedings are instituted against the Fund
or Underwriter by the NASD, the Securities and Exchange
Commission, or any state securities or insurance department
or any other regulatory body, provided, however, that the
Company determines in its sold judgment exercised in good
faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the fund or
Underwriter to perform its obligations under this
Agreement; or
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in such Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Portfolio shares of the Fund
in accordance with the terms of the Contracts for which
those Portfolio shares had been selected to serve as the
underlying investment media. The Company will give 30 days'
prior written notice to the Fund of the date of any
proposed vote to replace the Fund's shares; or
(f) at the option of the Company, in the event any of the
Fund's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
(g) at the option of the Company, if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision, or if the
Company reasonably believes that the Fund may fail to so
qualify; or
(h) at the option of the Company, if the Fund fails to meet the
diversification requirements specified in Article VI
hereof; or
(i) at the option of the Fund or the Underwriter, if (1) the Fund
or the Underwriter respectively, shall determine, in their
sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business or
financial condition or is the subject of material adverse
publicity and such material adverse change or publicity will
have a material adverse impact upon the business and
operations of either the Fund or the Underwriter, (2) the
Fund or the Underwriter shall notify the Company in writing
of such determination and its intent to terminate this
Agreement, and (3) after considering the actions taken by
the Company and any other changes in circumstances since the
giving of such notice, such determination of the Fund or the
Underwriter shall
17
<PAGE>
continue to apply on the sixtieth (6-0th) day following the
giving of such notice, which sixtieth day shall be the
effective date of termination; or
(j) at the option of the Company, if (1) the Company shall
determine, in its sole judgment exercised in good faith,
that either the Fund or the Underwriter has suffered a
material adverse change in its business or financial
condition or is the subject of material adverse publicity
and such material adverse change or publicity will have a
material adverse impact upon the business and operations of
the Company, (2) the Company shall notify the Fund and the
Underwriter in writing of such determination and its intent
to terminate this Agreement, and (3) after considering the
actions taken by the Fund and/or the Underwriter and any
other changes in circumstances since the giving of such
notice, such determination shall continue to apply on the
sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of
termination; or
(k) at the option of either the Fund or the Underwriter, if the
Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section
10.1(k) shall be effective forty five (45) days after the
notice specified in Section 1.6(b) was given.
10.2 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3 NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to terminate
which notice shall set forth the basis for such termination. Furthermore,
(a) in the event that any termination is based upon the
provisions of Article VII, or the provision of Section
10.1(a), 10.1 (i), and 10.1 (k) of this Agreement, such
prior written notice shall be given in advance of the
effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1 (c) r 10.1 (d) of this
Agreement, such prior written notice shall be given at
least ninety (90) days before the effective date of the
termination.
10.4. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of
18
<PAGE>
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.2 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
10.5 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, Northeast
Cedar Rapids, Iowa 52499
Attention: Annuities Division, Law Dept.
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
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<PAGE>
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
PFL LIFE INSURANCE COMPANY
By its authorized officer,
SEAL
By: /s/ WILLIAM L. BUSLER
---------------------
Title: Executive Vice President
-------------------------
Date: 5/24/91
--------
Fund:
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
SEAL
By: /s/ J. LARRY BURKHEAD
---------------------
Title: Senior Vice President
----------------------
Date:
Underwriter:
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/ SETH B. KINCAID
--------------------
Title: President
------------------
Date: 9/5/91
-------
21
<PAGE>
SCHEDULE A
CONTRACTS
1. Contract Form __________________________
22
<PAGE>
SCHEDULE B
ACCOUNTS
Name of Account Date of Resolution of Company's Board, WHICH
Established the Account
Fidelity Variable Annuity Account August 24, 1978 (Pacific Fidelity Life
Insurance Company)
23
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found
on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by the
Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
24
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed
to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return
25
<PAGE>
envelope. The mutilated or illegible Card is disregarded and considered
to be NOT RECEIVED for purposes of vote tabulation. Any Cards that have
"kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system.
Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur.
This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
26
<PAGE>
AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
PFL LIFE INSURANCE COMPANY
WHEREAS, Variable Insurance Products Fund (the "Fund"), Fidelity
Distributors Corporation (the "Underwriter") and PFL Life Insurance Company (the
"Company") have previously entered into a Participation Agreement ("the
Agreement") dated April 1, 1991 (as amended) and desire to adjust certain
provisions of the Agreement; and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act or will not register the Account in
proper reliance upon an exclusion from registration under the 1940 Act; and
WHEREAS, the Company has issued or will issue certain variable life
insurance or variable annuity contracts (including any certificates thereunder)
supported wholly or partially by the Account (the "Contract"), and said
Contracts are listed in Schedule A hereto, as it may be amended from time to
time by mutual written agreement;
NOW, THEREFORE, the parties do hereby agree to amend the Agreement as
follows:
1. Paragraph 2.1 of the Agreement shall be amended by striking that
paragraph and adding the following:
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act or that the Contracts are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act. The Company further represents and warrants that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the Iowa insurance laws and has registered or,
prior to any issuance or sale of the Contracts, will register the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts or that it has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act.
27
<PAGE>
2. This Schedule A replaces and supersedes Schedule A of the Participation
Agreement dated April 1, 1991 (as amended) among the Variable Insurance Products
Fund, Fidelity Distributors Corporation and PFL Life Insurance Company.
SCHEDULE A
ACCOUNTS
DATE OF RESOLUTIONS OF
COMPANY'S BOARD THAT
ESTABLISHED
NAME OF CONTRACTS NAMES OF ACCOUNTS THE ACCOUNTS
----------------- ----------------- ----------------------
Fidelity Income Plus Fidelity Variable Annuity August 24, 1979 (by
Individual Variable Annuity Account an affiliate
Contracts subsequently acquired
by the Company)
PFL Retirement Builder PFL Retirement Builder March 29, 1996
Individual Variable Annuity Variable Annuity Account
Contracts
PFL Retirement Builder PFL Retirement Builder March 29, 1996
Immediate Variable Annuity Variable Annuity Account
Contracts
Portfolio Select Individual PFL Retirement Builder March 29, 1996
Variable Annuity Contracts Variable Annuity Account
Advantage V PFL Corporate August 10, 1998
Account One
PFL Variable Universal PFL Variable Life July 1, 1999
Life Policy Account A
28
<PAGE>
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect. In the event of a conflict between the
Agreement and this Amendment No. 3, it is understood and agreed that the
provisions of this Amendment No. 3 shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3
to Participation Agreement to be executed in its name and on its behalf by its
duly authorized representative as of this 1ST day of SEPTEMBER, 1999.
PFL LIFE INSURANCE COMPANY
By: /s/ WILLIAM L. BUSLER
----------------------
Name: William L. Busler
---------------------
Title: President
--------------------
VARIABLE INSURANCE
PRODUCTS FUND
By: /s/ ROBERT C. POZEN
--------------------
Name: Robert C. Pozen
-------------------
Title: Senior Vice President
-----------------------
FIDELITY DISTRIBUTORS
CORPORATION
By: /s/ KEVIN J. KELLY
------------------
Name: Kevin J. Kelly
-----------------
Title: Vice President
----------------
29
<PAGE>
AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
PFL LIFE INSURANCE COMPANY
WHEREAS, Variable Insurance Products Fund (the "Fund"), Fidelity
Distributors Corporation (the "Underwriter") and PFL Life Insurance Company (the
"Company") have previously entered into a Participation Agreement ("the
Agreement") dated April 1, 1991 (as amended) and desire to adjust certain
provisions of the Agreement; and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act or will not register the Account in
proper reliance upon an exclusion from registration under the 1940 Act; and
WHEREAS, the Company has issued or will issue certain variable life
insurance or variable annuity contracts (including any certificates thereunder)
supported wholly or partially by the Account (the "Contract"), and said
Contracts are listed in Schedule A hereto, as it may be amended from time to
time by mutual written agreement;
NOW, THEREFORE, the parties do hereby agree to amend the Agreement as
follows:
1. Paragraph 2.1 of the Agreement shall be amended by striking that
paragraph and adding the following:
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act or that the Contracts are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act. The Company further represents and warrants that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the Iowa insurance laws and has registered or,
prior to any issuance or sale of the Contracts, will register the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts or that it has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act.
30
<PAGE>
2. This Schedule A replaces and supersedes Schedule A of the Participation
Agreement dated April 1, 1991 (as amended) among the Variable Insurance Products
Fund, Fidelity Distributors Corporation and PFL Life Insurance Company.
SCHEDULE A
ACCOUNTS
DATE OF RESOLUTIONS OF
COMPANY'S BOARD THAT
ESTABLISHED
NAME OF CONTRACTS NAMES OF ACCOUNTS THE ACCOUNTS
- --------------------------- ------------------------- ----------------------
Fidelity Income Plus Fidelity Variable Annuity August 24, 1979 (by
Individual Variable Annuity Account an affiliate
Contracts subsequently acquired
by the Company)
PFL Retirement Builder PFL Retirement Builder March 29, 1996
Individual Variable Annuity Variable Annuity Account
Contracts
PFL Retirement Builder PFL Retirement Builder March 29, 1996
Immediate Variable Annuity Variable Annuity Account
Contracts
Portfolio Select Individual PFL Retirement Builder March 29, 1996
Variable Annuity Contracts Variable Annuity Account
Advantage V PFL Corporate August 10, 1998
Account One
PFL Variable Universal PFL Variable Life July 1, 1999
Life Policy Account A
31
<PAGE>
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect. In the event of a conflict between the
Agreement and this Amendment No. 3, it is understood and agreed that the
provisions of this Amendment No. 3 shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3
to Participation Agreement to be executed in its name and on its behalf by its
duly authorized representative as of this 1ST day of SEPTEMBER, 1999.
PFL LIFE INSURANCE COMPANY
By: /s/ WILLIAM L. BUSLER
---------------------
Name: William L. Busler
--------------------
Title: President
-------------------
VARIABLE INSURANCE
PRODUCTS FUND II
By: /s/ ROBERT C. POZEN
-------------------
Name: Robert C. Pozen
------------------
Title: Senior Vice President
----------------------
FIDELITY DISTRIBUTORS
CORPORATION
By: /s/ KEVIN J. KELLY
------------------
Name: Kevin J. Kelly
-----------------
Title: Vice President
----------------
32
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of June, 1991
by and among PFL LIFE INSURANCE COMPANY, (hereinafter the "Company"), an Iowa
corporation, on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A hereto as may be amended from time to time
(each such account hereinafter referred to as the "Account"), a segregated asset
account of the Company, and the VARIABLE INSURANCE PRODUCTS FUND II, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
substantially identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance
1
<PAGE>
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the Accounts to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by
2
<PAGE>
9:30 a.m. Boston time on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Fund calculates its net asset value pursuant to the rules of the
Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 and 2.12 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule B attached hereto and incorporated herein
by this reference, as such Schedule B may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the
3
<PAGE>
investment objectives and policies of all the Portfolios of the Fund; or (b) the
Company gives the Fund and the Underwriter 45 days written notice of its
intention to make such other investment company available as a funding vehicle
for the Contracts; or (c) such other investment company was available as a
funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement; or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 508A.1 of the Iowa Insurance Code and has registered or,
4
<PAGE>
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Iowa and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. With respect to Initial Class shares, the Fund currently does not
intend to make any payments to finance distribution expenses pursuant to Rule
12b-1 under the 1940 Act or otherwise, although it may make such payments in the
future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan under
which it makes no payments for distribution expenses. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
state of Iowa and the Fund and the Underwriter represent that their respective
operations are and shall at all times remain in material compliance with the
laws of the state of Iowa to the extent required to perform this Agreement.
5
<PAGE>
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the state of Iowa and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the state of Iowa and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
the minimal coverage as required currently by entities subject to the
requirements of Rule 17g-1 of the 1940 Act or related provisions or may be
promulgated from time to time. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
2.12 The Company represents and warrants that it will not purchase Fund
shares with Account assets derived from the sale of Contracts to deferred
compensation plans with respect to service for state and local governments which
qualify under Section 457 of the federal Internal Revenue Code, as may be
amended. The Company may purchase Fund shares with Account assets derived from
any sale of a Contract to any other type of tax-advantaged employee benefit
plan; PROVIDED however that such plan has no more than 500 employees who are
eligible to participate at the time of the first such purchase by the Company of
Fund shares derived from the sale of such Contract.
6
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus and Statement of
Additional Information as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus as set in type at the Fund's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's prospectus
printed together in one document (such printing to be at the Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy materials, reports to stockholders and other communications to
stockholders and other communications to stockholders in such quantity as the
Company shall reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract Owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in the same proportion as Fund shares
of such portfolio for which instructions have been received:
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule C
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings
7
<PAGE>
or comply with Section 16(c) of the 1940 Act (although the Fund is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that
8
<PAGE>
relate to the Fund or its shares, contemporaneously with the filing of such
document with the Securities and Exchange Commission or other regulatory
authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the
Securities and Exchange Commission or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all
9
<PAGE>
statements and notices required by any federal or state law, and all taxes on
the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing
the Fund's prospectus to owners of Contracts issued by the Company of the
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably
10
<PAGE>
practicable (as determined by a majority of the disinterested trustees), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1), withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (I.E., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
11
<PAGE>
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1 (a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement or
12
<PAGE>
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company; as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1 (b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1 (c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at
13
<PAGE>
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1 (d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2 (a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature for the Contracts not
14
<PAGE>
supplied by the Underwriter or persons under its control) or
wrongful conduct of the Fund, Adviser or Underwriter or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2 (b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2 (c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at
15
<PAGE>
its own expense, in the defense thereof. The Underwriter also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Underwriter to such party of the Underwriter's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2 (d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3 (a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements result
from the gross negligence, bad faith or willful misconduct of the Trustees or
any member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure to comply with
the diversification requirements specified in Article VI of
this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3 (b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations
16
<PAGE>
and duties under this Agreement or to the Company, the Fund, the Underwriter or
each Account, whichever is applicable.
8.3 (c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3 (d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
17
<PAGE>
(a) at the option of any party upon one year advance written
notice to the other parties; or
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the
requirements of the Contracts as determined by the Company,
provided however, that such termination shall apply only to
the Portfolio(s) not reasonably available. Prompt notice of
the election to terminate for such cause shall be furnished
by the Company; or
(c) at the option of the fund in the event that formal
administrative proceedings are instituted against the
Company by the NASD, the Securities and Exchange
Commission, the Insurance Commissioner or any other
regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of ht Fund
shares, provided, however, that the Fund determines in its
sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its
obligations under this Agreement; or
(d) at the option of the company in the event that formal
administrative proceedings are instituted against the Fund
or Underwriter by the NASD, the Securities and Exchange
Commission, or any state securities or insurance department
or any other regulatory body, provided, however, that the
Company determines in its sold judgment exercised in good
faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the fund or
Underwriter to perform its obligations under this
Agreement; or
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in such Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Portfolio shares of the Fund
in accordance with the terms of the Contracts for which
those Portfolio shares had been selected to serve as the
underlying investment media. The Company will give 30 days'
prior written notice to the Fund of the date of any
proposed vote to replace the Fund's shares; or
(f) at the option of the Company, in the event any of the
Fund's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
18
<PAGE>
(g) at the option of the Company, if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision, or if the
Company reasonably believes that the Fund may fail to so
qualify; or
(h) at the option of the Company, if the Fund fails to meet the
diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Fund or the Underwriter, if (1)
the Fund or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its
business or financial condition or is the subject of
material adverse publicity and such material adverse change
or publicity will have a material adverse impact upon the
business and operations of either the Fund or the
Underwriter, (2) the Fund or the Underwriter shall notify
the Company in writing of such determination and its intent
to terminate this Agreement, and (3) after considering the
actions taken by the Company and any other changes in
circumstances since the giving of such notice, such
determination of the Fund or the Underwriter shall continue
to apply on the sixtieth (60th) day following the giving of
such notice, which sixtieth day shall be the effective date
of termination; or
(j) at the option of the Company, if (1) the Company shall
determine, in its sole judgment exercised in good faith,
that either the Fund or the Underwriter has suffered a
material adverse change in its business or financial
condition or is the subject of material adverse publicity
and such material adverse change or publicity will have a
material adverse impact upon the business and operations of
the Company, (2) the Company shall notify the Fund and the
Underwriter in writing of such determination and its intent
to terminate this Agreement, and (3) after considering the
actions taken by the Fund and/or the Underwriter and any
other changes in circumstances since the giving of such
notice, such determination shall continue to apply on the
sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of
termination; or
(k) at the option of either the Fund or the Underwriter, if the
Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section
10.1(k) shall be effective forty five (45) days after the
notice specified in Section 1.6(b) was given.
19
<PAGE>
10.2 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3 NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to terminate
which notice shall set forth the basis for such termination. Furthermore,
(a) in the event that any termination is based upon the
provisions of Article VII, or the provision of Section
10.1(a), 10.1 (i), and 10.1 (k) of this Agreement, such
prior written notice shall be given in advance of the
effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1 (c) or 10.1 (d) of this
Agreement, such prior written notice shall be given at least
ninety (90) days before the effective date of the
termination.
10.4. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.5 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. NOTICES
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<PAGE>
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, Northeast
Cedar Rapids, IA 52499
Attention: Annuities Division, Law Dept.
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
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<PAGE>
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
PFL LIFE INSURANCE COMPANY
By its authorized officer,
SEAL By: /s/ WILLIAM L. BUSLER
---------------------
William L. Busler
Title: Executive Vice President
Date: 5/24/91
Fund:
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
SEAL By: /s/ ______________________
Title: Senior Vice President
Date:
Underwriter:
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
SEAL By: /s/ ______________________
Title: President
Date: 9/5/91
22
<PAGE>
SCHEDULE A
CONTRACTS
1. Contract Form _______________________________
23
<PAGE>
SCHEDULE B
ACCOUNTS
Name of Account Date of Resolution of Company's
Board
which Established the Account
24
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to
call in the number of Customers to Fidelity, as soon as possible,
but no later than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide at least one copy of the last
Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found
on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by the
Fund)
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<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed
to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
26
<PAGE>
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur.
This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
27
<PAGE>
AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
PFL LIFE INSURANCE COMPANY
WHEREAS, Variable Insurance Products Fund II (the "Fund"), Fidelity
Distributors Corporation (the "Underwriter") and PFL Life Insurance Company (the
"Company") have previously entered into a Participation Agreement ("the
Agreement") dated April 1, 1991 (as amended) and desire to adjust certain
provisions of the Agreement; and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act or will not register the Account in
proper reliance upon an exclusion from registration under the 1940 Act; and
WHEREAS, the Company has issued or will issue certain variable life
insurance or variable annuity contracts (including any certificates thereunder)
supported wholly or partially by the Account (the "Contract"), and said
Contracts are listed in Schedule A hereto, as it may be amended from time to
time by mutual written agreement;
NOW, THEREFORE, the parties do hereby agree to amend the Agreement as
follows:
1. Paragraph 2.1 of the Agreement shall be amended by striking that
paragraph and adding the following:
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act or that the Contracts are not registered because
they are properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under the Iowa insurance laws and has registered or, prior to any
issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment
28
<PAGE>
account for the Contracts or that it has not registered the Account in proper
reliance upon an exclusion from registration under the 1940 Act.
2. This Schedule A replaces and supersedes Schedule A of the Participation
Agreement dated April 1, 1991 (as amended) among the Variable Insurance Products
Fund II, Fidelity Distributors Corporation and PFL Life Insurance Company.
SCHEDULE A
ACCOUNTS
DATE OF RESOLUTIONS
OF COMPANY'S BOARD
THAT ESTABLISHED
NAME OF CONTRACTS NAMES OF ACCOUNTS THE ACCOUNTS
----------------- ----------------- -------------------
Fidelity Income Plus Fidelity Variable Annuity August 24,1979 (by
Individual Variable Annuity Account an affiliate
Contracts subsequently acquired
by the Company)
PFL Retirement Builder PFL Retirement Builder March 29, 1996
Individual Variable Annuity Variable Annuity Account
Contracts
PFL Retirement Builder PFL Retirement Builder March 29, 1996
Immediate Variable Annuity Variable Annuity Account
Contracts
Portfolio Select Individual PFL Retirement Builder March 29, 1996
Variable Annuity Contracts Variable Annuity Account
Advantage V PFL Corporate August 10, 1998
Account One
PFL Variable Universal PFL Variable Life July 1, 1999
Life Policy Account A
29
<PAGE>
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect. In the event of a conflict between the
Agreement and this Amendment No. 3, it is understood and agreed that the
provisions of this Amendment No. 3 shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3
to Participation Agreement to be executed in its name and on its behalf by its
duly authorized representative as of this 1ST day of SEPTEMBER, 1999.
PFL LIFE INSURANCE COMPANY
By: /s/ WILLIAM L. BUSLER
---------------------
Name: William L. Busler
--------------------
Title: President
-------------------
VARIABLE INSURANCE
PRODUCTS FUND II
By: /s/ ROBERT C. POZEN
-------------------
Name: Robert C. Pozen
------------------
Title: Senior Vice President
-----------------------
FIDELITY DISTRIBUTORS
CORPORATION
By: /s/ KEVIN J. KELLY
------------------
Name: Kevin J. Kelly
----------------
Title: Vice President
---------------
30
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 21st day of March, 1997
by and among PFL LIFE INSURANCE COMPANY, (hereinafter the "Company"), an Iowa
corporation, on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A hereto as may be amended from time to time
(each such account hereinafter referred to as the "Account"), and the VARIABLE
INSURANCE PRODUCTS FUND III, an unincorporated business trust organized under
the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit
1
<PAGE>
shares of the Fund to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life insurance
companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act or will not register the Account in
proper reliance upon an exclusion from registration under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the
2
<PAGE>
Fund for receipt of such orders from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such order by 9:30 a.m. Boston time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an
3
<PAGE>
investment company other than the Fund if (a) such other investment company, or
series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of all the Portfolios of
the Fund; or (b) the Company gives the Fund and the Underwriter 45 days written
notice of its intention to make such other investment company available as a
funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance
4
<PAGE>
company duly organized and in good standing under applicable law and that it has
legally and validly established each Account prior to any issuance or sale
thereof as a segregated asset account under Section 508A.1 of the Iowa Insurance
Code and has registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Iowa and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Iowa and the Fund and the Underwriter represent that their respective
operations are and shall at all times remain in
5
<PAGE>
material compliance with the laws of the State of Iowa to the extent required to
perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Iowa and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of
6
<PAGE>
Additional Information, and such other assistance as is reasonably necessary in
order for the Company once each year (or more frequently if the prospectus
and/or Statement of Additional Information for the Fund is amended during the
year) to have the prospectus for the Contracts and the Fund's prospectus printed
together in one document, and to have the Statement of Additional Information
for the Fund and the Statement of Additional Information for the Contracts
printed together in one document. Alternatively, the Company may print the
Fund's prospectus and/or its Statement of Additional Information in combination
with other fund companies' prospectuses and statements of additional
information. Except as provided in the following three sentences, all expenses
of printing and distributing Fund prospectuses and Statements of Additional
Information shall be the expense of the Company. For prospectuses and Statements
of Additional Information provided by the Company to its existing owners of
Contracts in order to update disclosure annually as required by the 1933 Act
and/or the 1940 Act, the cost of printing shall be borne by the Fund. If the
Company chooses to receive camera-ready film in lieu of receiving printed copies
of the Fund's prospectus, the Fund will reimburse the Company in an amount equal
to the product of A and B where A is the number of such prospectuses distributed
to owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in a particular separate account in
the same proportion as Fund shares of such
portfolio for which instructions have been received
in that separate account,
7
<PAGE>
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
8
<PAGE>
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the
9
<PAGE>
Underwriter or other resources available to the Underwriter. No such payments
shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an
10
<PAGE>
insurer to disregard the voting instructions of contract owners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision
11
<PAGE>
has created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1 (a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as
12
<PAGE>
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration Statement
or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1 (b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from
13
<PAGE>
such Indemnified Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.
8.1 (c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1 (d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2 (a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
14
<PAGE>
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for
the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund, Adviser
or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
15
<PAGE>
8.2 (b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2 (c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2 (d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements result
from the gross negligence, bad faith or willful misconduct of the Board or any
member thereof, are related to the operations of the Fund and:
16
<PAGE>
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure to comply with
the diversification requirements specified in Article VI of
this Agreement);or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3 (b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3 (c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3 (d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
17
<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify;
or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the
diversification requirements specified in Article VI
hereof; or
18
<PAGE>
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that either the
Fund or the Underwriter or an affiliate of either has
suffered a material adverse change in its business,
operations, financial condition or prospects since the
date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.6(b) hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
forty five (45) days after the notice specified in Section
1.6(b) was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent
19
<PAGE>
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, IA 52499
Attention: Financial Markets Division, Law Department
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
20
<PAGE>
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any),
as soon as practical and in any event within 90 days after
the end of each fiscal year;
21
<PAGE>
(b) the Company's quarterly statements (statutory) (and GAAP,
if any), as soon as practical and in any event within 45
days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery
thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities
and Exchange Commission or any state insurance regulator, as
soon as practical after the filing thereof;
(e) any other report submitted to the Company by
independent accountants in connection with any annual,
interim or special audit made by them of the books of the
Company, as soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
PFL LIFE INSURANCE COMPANY
By: /s/ WILLIAM L. BUSLER
---------------------
Name: William L. Busler
Title: President
VARIABLE INSURANCE PRODUCTS FUND III
By: /s/ J. GARY BURKHEAD
--------------------
Name: J. Gary Burkhead
Title: Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ PAUL J. HONDROS
-------------------
Name: Paul J. Hondros
Title: President
22
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND POLICY FORM NUMBERS OF CONTRACTS
DATE ESTABLISHED BY BOARD OF DIRECTORS FUNDED BY SEPARATE ACCOUNT
- -------------------------------------- --------------------------------
<S> <C>
PFL Retirement Builder Variable Annuity AV289 101 95 796 - KS
Account AV319 101 95 796 - MD
(March 29, 1996) AV318 101 95 796 - MA
AV294 101 95 796 - MN
AV317 101 95 796 - NC
AV300 101 95 796 - TX
Fidelity Variable Annuity Account 80-0-009 (580) (V-CR)
(February 29, 1980) and previous versions
</TABLE>
23
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found
on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by
the Fund)
24
<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed
to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
25
<PAGE>
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur.
This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
26
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Janus Insurance Products Fund
Janus Insurance Products Fund II
27
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
PFL LIFE INSURANCE COMPANY
WHEREAS, Variable Insurance Products Fund III (the "Fund"), Fidelity
Distributors Corporation (the "Underwriter") and PFL Life Insurance Company (the
"Company") have previously entered into a Participation Agreement ("the
Agreement") dated March 21, 1997 and desire to adjust certain provisions of the
Agreement; and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act or will not register the Account in
proper reliance upon an exclusion from registration under the 1940 Act; and
WHEREAS, the Company has issued or will issue certain variable life
insurance or variable annuity contracts (including any certificates thereunder)
supported wholly or partially by the Account (the "Contract"), and said
Contracts are listed in Schedule A hereto, as it may be amended from time to
time by mutual written agreement;
NOW, THEREFORE, the parties do hereby agree to amend the Agreement as
follows:
1. Paragraph 2.1 of the Agreement shall be amended by striking that
paragraph and adding the following:
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act or that the Contracts are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act. The Company further represents and warrants that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the Iowa insurance laws and has registered or,
prior to any issuance or sale of the Contracts, will register the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts or that it has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act.
28
<PAGE>
2. This Schedule A replaces and supersedes Schedule A of the Participation
Agreement dated March 21, 1997 among the Variable Insurance Products Fund III,
Fidelity Distributors Corporation and PFL Life Insurance Company.
SCHEDULE A
ACCOUNTS
DATE OF RESOLUTIONS
OF COMPANY'S BOARD
THAT ESTABLISHED
NAME OF CONTRACTS NAMES OF ACCOUNTS THE ACCOUNTS
----------------- ----------------- -------------------
Fidelity Income Plus Fidelity Variable Annuity August 24, 1979 (by
Individual Variable Annuity Account an affiliate
Contracts subsequently
acquired by the
Company)
PFL Retirement Builder PFL Retirement Builder March 29, 1996
Individual Variable Annuity Variable Annuity Account
Contracts
PFL Retirement Builder PFL Retirement Builder March 29, 1996
Immediate Variable Annuity Variable Annuity Account
Contracts
Portfolio Select Individual PFL Retirement Builder March 29, 1996
Variable Annuity Contracts Variable Annuity Account
Advantage V PFL Corporate August 10, 1998
Account One
PFL Variable Universal PFL Variable Life July 1, 1999
Life Policy Account A
29
<PAGE>
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect. In the event of a conflict between the
Agreement and this Amendment, it is understood and agreed that the provisions of
this Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Participation Agreement to be executed in its name and on its behalf by its duly
authorized representative as of this 1ST day of SEPTEMBER, 1999.
PFL LIFE INSURANCE COMPANY
By: /s/ WILLIAM L. BUSLER
---------------------
Name: William L. Busler
-----------------
Title: President
---------
VARIABLE INSURANCE
PRODUCTS FUND III
By: /s/ ROBERT C. POZEN
-------------------
Name: Robert C. Pozen
---------------
Title: Senior Vice President
---------------------
FIDELITY DISTRIBUTORS
CORPORATION
By: /s/ KEVIN J. KELLY
------------------
Name: Kevin J. Kelly
--------------
Title: Vice President
--------------
30
DESCRIPTION OF ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
PFL LIFE INSURANCE COMPANY
This document sets forth the administrative procedures that will be
followed by PFL Life Insurance Company (the "Company") in connection with the
issuance of its variable life insurance policy ("Policy" or "Policies") and
acceptance of payments thereunder, the transfer of assets held thereunder, and
the redemption by owners of the Policy ("Owners") of their interests in those
Policies. Capitalized terms used herein have the same definition as in the
prospectus for the Policy that is included in the current registration statement
on Form S-6 for the Policy (File Nos. 333-87023 and 811-9579) as filed with the
Securities and Exchange Commission ("Commission" or "SEC").
I. PROCEDURES RELATING TO PURCHASE AND ISSUANCE OF THE POLICIES AND
ACCEPTANCE OF PREMIUMS
A. OFFER OF THE POLICIES, APPLICATION, INITIAL PREMIUMS, AND ISSUANCE
1. OFFER OF THE POLICIES. The Policies are offered and issued for
premiums pursuant to underwriting standards in accordance with state
insurance laws. Premiums for the Policies are not the same for all
Owners selecting the same Specified Amount. Insurance is based on
the principle of pooling and distribution of mortality risks, which
assumes that each Owner pays charges commensurate with the Insured's
mortality risk as actuarially determined utilizing factors such as
age, sex, and premium class of the Insured. Uniform charges for all
Insureds would discriminate unfairly in favor of those Insureds
representing greater risk. Although there is no uniform charge for
all Insureds, there is a uniform charge for all Insureds of the same
premium class and same Specified Amount.
2. APPLICATION. Persons wishing to purchase a Policy must complete
an application and submit it to the Company through an authorized
agent of the Company. The application must specify the name of the
Insured and provide certain required information about the Insured.
The application also must specify a premium payment plan, which
contemplates level premiums at specified intervals, designate Net
Premium allocation percentages, select the initial Specified Amount,
select the No-Lapse Period, and name the Beneficiary. Before an
application will be deemed complete so that underwriting will
proceed, the application must include the Insured's signature and
date of birth, a signed authorization, a valid authorized agent's
state code, and suitability
-1-
<PAGE>
information. The initial premium and Specified Amount selected must
meet certain minimums for the Policy.
3. RECEIPT OF APPLICATION AND UNDERWRITING. Upon receipt of a
completed application in good order from an applicant, the Company
will follow its established insurance underwriting procedures for
life insurance designed to determine whether the proposed Insured is
insurable. This process may involve such verification procedures as
medical examinations and may require that further information be
provided about the proposed Insured before a determination can be
made.
The underwriting process determines the premium class to which
the Insured is assigned if the application is accepted. The Company
currently places Insureds in the following premium classes, based on
the Company's underwriting: a male or female or unisex premium
class, and a tobacco (smoker) or preferred (non-smoker) or
super-preferred premium class. Juveniles (persons under age 18) are
placed in a male or female or unisex preferred premium class. This
original premium class applies to the initial Specified Amount. The
premium class may change upon an increase in Specified Amount.
The Company reserves the right to reject an application for
any reason permitted by law. If an application is rejected, any
premium received will be returned, without interest.
4. ISSUANCE OF POLICY. When the underwriting procedure has been
completed and the application has been approved, the Policy is
issued.
5. INITIAL PREMIUM. An applicant must pay an initial premium which,
if not submitted with the application or during the underwriting
period, must be submitted when the Policy is delivered. Coverage
becomes effective as of the date the Company receives the initial
premium, but is limited to $500,000 until the application is
approved. Moreover, if the proposed Insured is under the age of 15
days at death or is more than 60 years old, no insurance shall take
effect until the policy is delivered. The Policy Date is used to
measure Policy Months, Policy Years, and Policy Anniversaries. The
Policy Date is the date coverage under this policy becomes
effective. If the Policy Date would have occurred on the 29th, 30th
or 31st day of any month, the Company will designate the 28th day of
the month as the Policy Date. For a premium to be received in "good
order", it must be received in cash (U.S. currency) or by check
payable in U.S. currency, and must clearly identify the purpose for
the payment.
The initial premium must be at least equal to the minimum
initial premium for a Policy. The minimum initial premium for a
Policy depends on a number of
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<PAGE>
factors, such as the Insured's age, sex, and premium class the
selected No-Lapse Period, the requested Specified Amount, and any
supplemental benefits.
B. ADDITIONAL PREMIUMS
1. ADDITIONAL PREMIUMS PERMITTED. Additional premiums may be paid in
any amount, and at any time, subject to the following limits:
o A premium must be at least $25.
o Total premiums paid in a Policy Year may not exceed guideline
premium limitations for life insurance set forth in the Internal
Revenue Code.
2. REFUND OF EXCESS PREMIUM AMOUNTS. If at any time a premium is
paid that would result in total premiums exceeding limits
established by law to qualify a Policy as a life insurance policy,
the Company will only accept that portion of the premium that would
make total premiums equal the maximum amount that may be paid under
the Policy. The excess premium will be refunded. The Company will
also refund premiums if payment of a greater amount would increase
the death benefit by application of the death benefit ratio. The
Company will monitor Policies and will attempt to notify an Owner on
a timely basis if the Owner's Policy is in jeopardy of becoming a
modified endowment contract under the Internal Revenue Code.
3. PLANNED PREMIUMS. At the time of application, each Owner will
select a plan for paying premiums at specified intervals. The Owner
may change the planned premium frequency and amount by providing a
written notice to the Home Office. Any such change must comply with
the premium limits for additional premiums discussed above.
4. ALLOCATING PREMIUMS
a. INITIAL PREMIUMS. Prior to the Investment Start Date, the
Company will place the Initial Premiums (less charges) in the
Premium Suspense Account. On the first Valuation Date on or
following the Investment Start Date the Company will transfer
the amounts in the Premium Suspense Account to the Fixed
Account and/or the Separate Account in accordance with the
allocation instructions.
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<PAGE>
b. OTHER PREMIUMS. Other premiums received by the Company
after the Investment Start Date will be allocated in
accordance with the current allocation instructions at the unit
value next determined on the Valuation Date on or following the
date the premium is received at the Home Office.
c. ELECTRONIC FUNDS TRANSFER. An Owner may arrange with the
Company to have monthly premiums paid via pre-authorized,
automatic deductions from the Owner's checking account. The
Company will notify the Owner's bank of the automatic
deduction, and funds will be deducted from the Owner's
checking account and credited to the Owner's Policy on the
next Valuation Date.
C. OVERPAYMENTS AND UNDERPAYMENTS In accordance with industry
practice, the Company will establish procedures to handle errors
in initial and additional premium payments to refund overpayments
and collect underpayments, except for de minimis amounts. The
Company will issue a refund check for any minimal overpayment in
excess of the guideline annual premium amount. For larger
overpayments, the Company will place the premium in a suspense
account to determine whether the premium actually is in excess of
the guideline annual premium or whether the premium was intended
for another policy issued by the Company. In the case of an
underpayment, if the Cash Surrender Value on a Monthly Date is
less than the Monthly Deduction to be made on that date and the
Policy is not in a No-Lapse Period, the Policy will be in default
and a grace period will begin. The Company will notify Owners of
the required premium that must be paid prior to the end of the
grace period.
D. PREMIUMS UPON INCREASE IN SPECIFIED AMOUNT, PREMIUMS DURING A
GRACE PERIOD, AND PREMIUMS UPON
REINSTATEMENT
1. PREMIUMS UPON INCREASE IN SPECIFIED AMOUNT. Generally, no premium
is required for an increase in Specified Amount. However, depending
on the Policy Value at the time of an increase in the Specified
Amount and the amount of the increase requested, an additional
premium or change in the amount of planned premiums may be
advisable. Also, the Minimum Monthly Premium for the No- Lapse
Period will increase and the No-Lapse Period will begin anew. See
"Changing the Specified Amount."
2. PREMIUMS DURING A GRACE PERIOD. If the Cash Surrender Value on a
Monthly Date is less than the amount of the Monthly Deduction due on
that date, and the Policy is not in a No-Lapse Period, the Policy
will be in default and a grace period will begin. During the
No-Lapse Period, the Policy will remain in force, regardless of the
sufficiency of the Cash Surrender Value, if the total premiums paid
less any
-4-
<PAGE>
withdrawals and Indebtedness, is greater than or equal to
the Cumulative Minimum Monthly Premium for the Policy. The Minimum
Monthly Premium is the amount necessary to guarantee coverage for a
No-Lapse Period. The Minimum Monthly Premium is based in part on the
No-Lapse Period selected (20 Policy Years, 30 Policy Years or to
Insured's age 100), sex, age, and premium class of the Insured, the
requested Specified Amount and any supplemental benefits and riders.
o The grace period will end 61 days after the date on which the
Company sends a grace period notice stating the amount
required to be paid during the grace period to the Owner's
last known address and to any assignee of record. The Policy
does not lapse, and the insurance coverage continues, until
the expiration of this grace period.
o If the grace period ends prior to the end of the No-Lapse
Period, the required premium must be large enough to provide
the lesser of (1) the Minimum Monthly Premium required at the
end of the grace period, or (2) an amount large enough to
provide an increase in the Cash Surrender Value to cover the
Monthly Deductions for the grace period. If the grace period
ends after the end of the No-Lapse Period, the required
premium must be large enough to provide an increase in the
Cash Surrender Value to cover the Monthly Deductions for the
grace period.
o Failure to make a sufficient payment within the grace period
will result in lapse of the Policy without value or benefits
payable.
3. PREMIUMS UPON REINSTATEMENT. A Policy that lapses without value
may be reinstated at any time within five years after lapse by
submitting: evidence of the Insured's insurability satisfactory to
the Company; Written Notice requesting reinstatement of the policy;
the Insured's written consent to reinstatement; payment or
reinstatement of any Indebtedness; and payment of enough premium to
keep the Policy in force for at least 3 months.
E. ALLOCATIONS OF NET PREMIUMS AMONG THE SEPARATE ACCOUNT AND THE
FIXED ACCOUNT
1. NET PREMIUM. The net premium is equal to the premium paid
less the premium expense charge.
2. The Separate Account. An Owner may allocate Net Premiums to one
or more of the Subaccounts of PFL Variable Life Account A (the
"Separate Account"). The Separate Account currently consists of
twenty Subaccounts, the assets of each of which are used to purchase
shares of one portfolio from the following mutual funds:
-5-
<PAGE>
Janus Aspen Series, Fidelity Variable Insurance Products Funds,
AIM Variable Insurance Funds and Oppenheimer Variable Account
Funds (the "Funds"). The Funds are registered under the
Investment Company Act of 1940 as open-end management investment
companies. Additional Subaccounts may be added from time to time
to invest in any of the portfolios of the Funds or any other
investment company.
When an Owner allocates an amount to a Subaccount (either by
Net Premium allocation, transfer of Policy Value or repayment of a
Policy loan) the Policy is credited with units in that Subaccount.
The number of units is determined by dividing the amount allocated,
transferred or repaid to the Subaccount by the Subaccount's unit
value for the Valuation Date when the allocation, transfer or
repayment is effected. The unit value for each Subaccount was
arbitrarily set at $10 when the Subaccount was established. A
Subaccount's unit value is determined for each Valuation Period
after the date of establishment calculating the total value of
assets held in the Subaccount, minus a deduction for the mortality
and expense risk charge, minus the accrued amount of reserve for any
taxes attributable to the Subaccount, and dividing the result by the
number of units in the Subaccount.
3. THE FIXED ACCOUNT. Owners also may allocate Net Premiums to the
Fixed Account, which guarantees a minimum fixed rate of interest.
4. ALLOCATIONS AMONG THE SEPARATE ACCOUNT AND THE FIXED ACCOUNT. Net
Premiums are allocated to the Subaccounts and the Fixed Account in
accordance with the following procedures:
a. GENERAL. In the application for the Policy, the Owner will
specify the percentage of Net Premium to be allocated to each
Subaccount of the Separate Account and/or the Fixed Account.
The percentage of each Net Premium that may be allocated to
any Subaccount or the Fixed Account must be a whole number not
less than 5%, and the sum of the allocation percentages must
be 100%. Such allocation percentages may be changed at any
time (up to 4 times per Policy year) by the Owner submitting a
written notice or telephone instructions to the Home Office,
provided that the 5%/100% requirements described above are
met. No more than 10 accounts (Subaccounts and Fixed Account)
may be concurrently active (have Net Premiums allocate to it).
b. ALLOCATION PRIOR TO THE INVESTMENT START DATE. Prior to the
Investment Start Date, all Net Premiums will be allocated to
the Premium Suspense Account. On the first Valuation Date on
or following the Investment Start Date, the amounts in the
Premium Suspense Account will be transferred to the
-6-
<PAGE>
Fixed Account and/or the Separate Account in accordance with
the allocation instructions.
c. ALLOCATION AFTER THE INVESTMENT START DATE. Net Premiums
received after the Investment Start Date will be allocated to
the Subaccounts or Fixed Account in accordance with the
allocation percentages in effect on the Valuation Date on or
following the date that the premium is received at the Home
Office, unless other instructions by written notice accompany
the premium, in which case the Net Premium will be allocated
in accordance with those instructions, provided such
instructions comply with the Company's allocation rules.
F. LOAN REPAYMENTS AND INTEREST PAYMENTS
1. LOAN REPAYMENTS. The Owner may repay all or part of the
Indebtedness at any time while the Policy is in force and the
Insured is living. The Indebtedness is equal to the sum of all
outstanding Policy loans including both principal plus any accrued
interest. Repayments of Indebtedness must be sent to the Home Office
and will be credited as of the date received. Repayments of
Indebtedness will not be subject to a premium expense charge. If the
Death Benefit becomes payable while a Policy loan is outstanding,
the Indebtedness will be deducted in calculating the Death Benefit.
2. ALLOCATION FOR REPAYMENT OF POLICY LOANS. On the date the Company
receives a repayment of all or part of a loan, an amount equal to
the repayment will be transferred from the loan reserve (part of the
Fixed Account) to the Subaccounts and the Fixed Account. If no
direction is provided, the amount will be allocated in accordance
with the Owner's current allocation instructions.
3. INTEREST ON LOAN RESERVE. On each Monthly Date, the amount in the
loan reserve will be credited with interest at a minimum guaranteed
annual effective rate of 3% (4% for Policies issued in Florida).
See "Policy Loans" below.
4. NOTICE OF EXCESSIVE INDEBTEDNESS. If the Indebtedness exceeds the
Policy Value less the Surrender Charge on any Monthly Date the
Policy will lapse. The Company will send Owners and any assignee of
record, notice of the lapse. The notice will specify the amount that
must be paid to prevent termination. This amount must be paid to the
Home Office within a 61-day grace period to avoid termination. A
Policy that terminates due to excessive Indebtedness can be
reinstated.
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<PAGE>
II. TRANSFERS
A. TRANSFERS AMONG THE SUBACCOUNTS AND THE FIXED ACCOUNT
The Owner may transfer Policy Value between and among the
Subaccounts of the Separate Account and the Fixed Account by written
or telephone request to the Home Office.
In any Policy Year, the Owner may make an unlimited number of
transfers; however, the Company will impose a transfer processing
fee of $25 for each transfer in excess of 12 during any Policy Year.
For purposes of the transfer processing fee, each transfer request
is considered one transfer, regardless of the number of Subaccounts
affected by the transfer. Any unused "free" transfers do not carry
over to the next year.
The company will process transfers based on the unit values
determined at the end of the Valuation Date when the transfer
request is received. The minimum amount that may be transferred from
each Subaccount or the Fixed Account is $100 or the balance in the
Subaccount or the Fixed Account if less than $100. There is no
minimum amount that must remain in a Subaccount or the Fixed Account
following a transfer. If a transfer request does not conform to this
provision, the transfer will be rejected.
For any class of Policies, the Company reserves the right to
modify, restrict, suspend, or eliminate the transfer privileges
(including telephone transfer privileges) at any time and for any
reason.
B. DOLLAR COST AVERAGING
The dollar-cost averaging program permits Owners to
systematically transfer on a monthly basis a set dollar amount from
a "source" account (either the Fixed Account, the AIM VI Government
Securities Fund Subaccount, the Oppenheimer Bond Fund/VA Subaccount
or the Fidelity VIP Money Market Subaccount) to any combination of
Subaccounts and/or the Fixed Account. Owners may elect to
participate in the dollar-cost averaging program at any time by
sending the Company a written request. To use the dollar-cost
averaging program, Owners must transfer at least $100 from the
source account and the source account must have at least $5,000 in
Policy Value. Once elected, dollar-cost averaging remains in effect
from the date the Company receives the Owner's request until the
value of the source account is depleted, or until the Owner cancels
the program by written request. There is no additional charge for
dollar-cost averaging. A transfer under this program is not
considered a transfer for purposes of assessing a transfer
processing fee. The Company reserves the right to discontinue
offering the dollar-cost averaging
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<PAGE>
program at any time and for any reason. Dollar-cost averaging is
not available while Owners are participating in the asset
rebalancing program.
C. ASSET REBALANCING
An Owner may instruct the Company to automatically rebalance
(on a semi-annual basis) the Policy Value to return to the
percentages specified in the Owner's allocation instructions. An
Owner may elect to participate in the asset rebalancing program at
any time by sending the Company a written request at the Home Office
and having a minimum Policy Value of at least $5,000. The percentage
allocations must be in whole percentages and be at least 5%.
Subsequent changes to the percentage allocations may be made at any
time by written or telephone instructions to the Home Office (up to
4 times per Policy Year). Once elected, asset rebalancing remains in
effect from the date an Owner's written request is received until
the Owner instructs the Company to discontinue asset rebalancing or
a transfer is made to or from any Subaccount other than under a
scheduled rebalancing. There is no additional charge for using asset
rebalancing, and an asset rebalancing transfer is not considered a
transfer for purposes of assessing a transfer processing fee. The
Company reserves the right to discontinue offering the asset
rebalancing program at any time and for any reason. Asset
rebalancing is not available while an Owner is participating in the
dollar-cost averaging program.
D. TRANSFER ERRORS
In accordance with industry practice, the Company will
establish procedures to address and to correct errors in amounts
transferred among the Subaccounts and the Fixed Account, except for
de minimis amounts. The Company will correct errors it makes and
will assume any risk associated with the error. Owners will not be
penalized in any way for errors made by the Company. The Company
will take any gain resulting from the error.
III. "REDEMPTION" PROCEDURES
A. "FREE-LOOK" RIGHTS
The Policy provides for an initial free-look period during
which an Owner may cancel the Policy by returning it to the Company
or to an agent of the Company who sold it before the end of 10 days
after the Policy is received. The free-look period may be longer in
some states. Upon returning the Policy to the Company or to an
authorized agent for forwarding to the Home Office, the Policy will
be deemed void from the beginning. Within seven days after the
Company or the Home Office receives the cancellation request and
Policy, the Company or the Home Office will refund all payments made
under the Policy (less any withdrawals and Indebtedness).
B. SURRENDERS
1. REQUESTS FOR CASH SURRENDER VALUE. The Owner may surrender the
Policy at any time for its Cash Surrender Value. The Cash Surrender
Value on any Valuation Date is the Policy Value less any applicable
surrender charge minus any Indebtedness. The Cash Surrender Value
will be determined by the Company on the Valuation Date on or
following the date on which the Home Office receives all required
documents, including a satisfactory written request signed by the
Owner. The written request must include the Policy number, signature
of the Owner, and clear instructions regarding the request. The
Company will cancel the Policy as of the date the written request is
received at the Home Office and the Company will ordinarily pay the
Cash Surrender Value within seven days following receipt of the
written request and all other required documents.
2. SURRENDER OF POLICY -- SURRENDER CHARGES. If the Policy is
surrendered during the first 19 Policy Years or the first 19 years
after an increase in Specified Amount, the Company will deduct a
surrender charge based on the Specified Amount at issue, or
increase, as applicable. The surrender charge will be deducted
before any surrender proceeds are paid. The surrender charge is set
forth in each Policy and depends on the Insured's age at issue, or
on the Policy Anniversary preceding an increase, sex and premium
class. It is calculated as an amount per thousand of the Specified
Amount at issue (or increase).
C. WITHDRAWALS
1. WHEN WITHDRAWALS ARE PERMITTED. At any time after the first
Policy Year, the Owner may, by submitting a written request to the
Home Office, withdraw a portion of the Cash Surrender Value subject
to the following conditions:
o The minimum amount that may be withdrawn is the lesser of $500
or the Cash Surrender Value if less than $500 (withdrawal of
the Cash Surrender Value will be considered a Surrender of the
Policy).
o The amount withdrawn must be less than the then-current Cash
Surrender Value and may not reduce the Cash Surrender Value
below $500.
o No more than 1 withdrawal may be made during a Policy Year.
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<PAGE>
o A withdrawal processing fee equal to the lesser of $25 or 2%
of the amount withdrawn will be assessed on each withdrawal.
The withdrawal processing fee will be deducted from the Policy
Value along with the amount requested to be withdrawn.
o When the Owner requests a withdrawal, the Owner must direct
how the withdrawal will be deducted from the Policy Value.
o The Company generally will pay a withdrawal request within
seven days after the Valuation Date when the Home Office
receives the request and all the documents required for such a
payment.
o The Company may delay making a payment if: (1) the disposal
or valuation of the Separate Account's assets is not
reasonably practicable because the New York Stock Exchange
is closed for other than a regular holiday or weekend,
trading is restricted by the SEC, or the SEC declares that
an emergency exists; or (2) the SEC by order permits
postponement of payment to protect Life Investor's Policy
Owners. The Company also may defer making payments
attributable to a check that has not cleared, and may defer
payment of proceeds from the Fixed Account for a withdrawal,
surrender or Policy loan request for up to six months from
the date the request is received.
o If the Level Death Benefit is in effect, a withdrawal will
reduce the Specified Amount dollar-for-dollar. If the
Specified Amount reflects increases in the Initial Specified
Amount, the withdrawal will reduce first the most recent
increase, and then the next most recent increase, if any, in
reverse order, and finally the Initial Specified Amount. If
the Increasing Death Benefit is in effect, the Specified
Amount is unaffected by the withdrawal.
D. LAPSES
If a sufficient premium has not been received by the 61st day
after a grace period notice is sent, the Policy will lapse without
value and no amount will be payable to the Owner.
E. MONTHLY DEDUCTIONS
On each Monthly Date, redemptions in the form of deductions
will be made from the Policy Value for the Monthly Deduction, which
is a charge compensating the Company for the services and benefits
provided, costs and expenses incurred, and risks assumed by the
Company in connection with the Policy. The Monthly Deduction
consists of four components: (a) the cost of insurance charge; (b) a
monthly
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<PAGE>
administrative charge; (c) any charges for additional
benefits added by riders to the Policy; (d) any charges for
substandard premium class ratings. The Monthly Deduction will be
deducted from the Subaccounts of the Separate Account and the Fixed
Account on a pro rata basis.
1. COST OF INSURANCE CHARGE. The cost of insurance charge is the
primary charge for the death benefit provided by the Policy. The
cost of insurance charge is calculated monthly, and depends on a
number of variables, including the age, sex, premium class, and
Specified Amount of the Insured. The charge varies from Policy to
Policy and from Monthly Date to Monthly Date. The charge is
calculated separately for the Specified Amount at issue and for any
increase in the Specified Amount.
The cost of insurance charge is equal to the Company's current
monthly cost of insurance rate for the Insured multiplied by the net
amount at risk under the Policy for the Specified Amount at issue or
increase. The net amount at risk is equal to the difference between
(1) the death benefit at the beginning of the month divided by
1.0024663, and (2) the Policy Value at the beginning of the month.
The Company's current cost of insurance rates may be less than
the guaranteed rates. Current cost of insurance rates will be
determined based on the Company's expectations as to future
mortality, investment earnings, expenses and persistency. These
rates may change from time to time, but they will never be more than
the guaranteed maximum rates set forth in the Owner's policy. The
Company can change the rates without notice to Owners. The maximum
cost of insurance rates are based on the Insured's age last birthday
at the start of the Policy Year, sex, and tobacco use. The
guaranteed maximum rates are based on the Commissioner's 1980
Standard Ordinary Smoker and Non-Smoker Mortality Tables.
2. MONTHLY ADMINISTRATIVE CHARGE. The current monthly administrative
charge is $10 per month and is guaranteed never to exceed $10 a
month. This charge is designed to reimburse the Company for expenses
associated with underwriting applications, increases in Specified
Amount, riders, various overhead and other expenses associated with
providing the services and benefits provided by the Policy, sales
and marketing expenses, and other costs of doing business, such as
federal, state and local premium and other taxes and fees.
3. SUPPLEMENTAL BENEFIT CHARGES. An Owner may add supplemental
benefits to the Policy. These benefits are made available by the
Company through riders to the Policy. If any additional benefits are
added to a Policy, charges for these benefits will be deducted
monthly as part of the Monthly Deduction.
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<PAGE>
4. SUBSTANDARD RATING CHARGES. If the Insured is placed in a
substandard premium class, an additional charge will be deducted.
This charge compensates the Company for the additional mortality
risk assumed.
F. DEATH BENEFITS
No change in death benefits will be permitted that will result
in the Policy being disqualified as a life insurance policy under
Section 7702 of the Internal Revenue Code.
1. PAYMENT OF DEATH PROCEEDS. As long as the Policy remains in
force, the Company will pay the death benefit to the Beneficiary
upon receipt at the Home Office of due proof of the Insured's death.
The death benefit is equal to the amount of insurance determined
under the Death Benefit Option in effect on the date of the
Insured's death, plus any supplemental death benefit provided by
riders, minus any Indebtedness on the date of death and, if the date
of death occurred during a grace period, minus the past due Monthly
Deductions. The death benefit will be paid to the Beneficiary in a
lump sum generally within seven days after the Valuation Date by
which the Company has received at the Home Office all materials
necessary to constitute due proof of death. If a payment option is
elected, the death benefit will be applied to the option within
seven days after the Valuation Date by which the Company received
due proof of death and payments will begin under that option when
provided by the option.
2. DEATH BENEFIT OPTIONS. The Policy Value on the Insured's date of
death is used in determining the amount of insurance. Under the
Level Death Benefit, the death benefit is the greater of (1) the
Specified Amount, or (2) the applicable percentage amount of the
Policy Value based on the Insured's age at the start of the current
Policy Year, as determined using the table of percentages prescribed
by federal income tax law. Under the Increasing Death Benefit, the
death benefit is the greater of (1) the Specified Amount plus the
Policy Value, or (2) the applicable percentage amount of the Policy
Value based on the Insured's age at the start of the current Policy
Year, as determined using the table of percentages prescribed by
federal income tax law. The percentage is 250% to age 40 and
declines thereafter as the Insured's age increases. A table of
percentages is shown in the prospectus under "Death Benefit
Options." The Company may change the table if the table of
percentages currently in effect becomes inconsistent with any
federal income tax laws and/or regulations.
Under the Level Death Benefit, the death benefit ordinarily
will not change. Under the Increasing Death Benefit, the death
benefit will vary directly with the investment performance of the
Policy Value.
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<PAGE>
3. CHANGING THE DEATH BENEFIT OPTION. The Death Benefit Option is
selected in the application for the Policy. The Owner, by written
request submitted to, and received by, the Home Office, may change
the Death Benefit Option on the Policy subject to the following
rules:
o After the first Policy Year, the Death Benefit Option may be
changed only once each twelve month period;
o The resulting Specified Amount must be at least equal to
the Minimum Specified Amount;
o The effective date of the change will be the Monthly Date on
or following the date when the Company approves the request;
o When a change from the Level Death Benefit to the Increasing
Death Benefit is made, the Specified Amount will be decreased
by the Policy Value on the effective date of the change;
o When a change from the Increasing Death Benefit to Level Death
Benefit is made, the Specified Amount after the change will be
increased by the Policy Value on the effective date of the
change; and
o Only one Death Benefit Option change is allowed for a Policy.
Before approving a change in Death Benefit Option, the Company
will review the Guideline Annual Premiums.
4. CHANGING THE SPECIFIED AMOUNT. The initial Specified Amount is
set at the time the Policy is issued. The minimum initial Specified
Amount is $100,000 for issue ages 0 to 49 and $50,000 for issue ages
50 to 85. After the first Policy Year, the Owner may increase or
decrease the Specified Amount from time to time, subject to the
following conditions:
o Only one change (increase or decrease) may be made during any
12 month period.
RULES FOR INCREASES
o To increase the Specified Amount, the Owner must see an agent
authorized by the Company.
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<PAGE>
o Any increase in the Specified Amount must be at least
$10,000 and an application on a prescribed form must be
submitted. The Company may require additional evidence of
insurability. When an increase in Specified Amount is
requested, the Company conducts underwriting before
approving the increase to determine whether a different
premium class will apply to the increase. If an increase in
Specified Amount is approved, a different premium class may
apply to the increase, based on the Insured's circumstances
at the time of the increase.
o There must be enough Cash Surrender Value to make a Monthly
Deduction that includes the cost of insurance for the
increase.
o If approved, the increase in Specified Amount will become
effective on the next Monthly Date after the Company approves
the request.
o Increasing the Specified Amount will result in an additional
surrender charge that lasts for 19 years, will increase the
Minimum Monthly Premium, and cause the No-Lapse Period to
begin again.
o No increases will be allowed after the Policy Anniversary when
the Insured is age 85.
o Revised pages to the Policy will be sent to the Owner
indicating the amount of the increase, the effective date of
the increase, the premium class for the increase and any
changes in premium.
RULES FOR DECREASES
o To decrease the Specified Amount, the Owner must submit a
written request to the Home Office.
o The Specified Amount after the decrease must be at least
$100,000 for issue ages 0 to 49 and $50,000 for issue ages 0
to 85.
o The effective date of any decrease in Specified Amount will be
the next Monthly Date after written request is processed.
o Any decrease will first be used to reduce the most recent
increase, then the next most recent increases, then the
initial Specified Amount.
o No surrender charge will be deducted upon a decrease in
Specified Amount.
o The surrender charge will not be reduced upon a decrease in
Specified Amount.
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<PAGE>
G. POLICY LOANS
1. POLICY LOANS. The Owner may obtain a Policy loan from the Company
at any time by submitting a written or telephone request to the Home
Office. The maximum Loan Amount is 90% of the Policy's Cash
Surrender Value less 6 months of Monthly Deductions at the time of
the loan. Policy loans will be processed on the Valuation Date on or
following the date the request is received and loan proceeds
generally will be sent to the Owner within seven days thereafter.
2. COLLATERAL FOR POLICY LOANS. When a Policy loan is made, an
amount equal to the loan proceeds plus interest in advance is
transferred from the Policy Value in the Subaccounts or Fixed
Account to the Loan Reserve. This withdrawal is made in accordance
with the owner's instructions.
3. INTEREST ON POLICY LOANS. The Company charges interest in advance
on any outstanding Policy loan at an annual effective interest rate
of 5.66%. Interest is due and payable at the beginning of each
Policy Year while a Policy loan is outstanding. If, on any Policy
Anniversary, the interest accrued has not been paid, the amount of
the interest is added to the loan and becomes part of the
outstanding Indebtedness. The Company will allocate annually the
amount of unpaid interest transferred from each Subaccount and the
Fixed Account in accordance with the current premium allocation.
4. EFFECT OF POLICY LOANS. If the death benefit becomes payable
while a Policy loan is outstanding, the Indebtedness will be
deducted in calculating the death benefit. If the Indebtedness
exceeds the Policy Value, less any applicable Surrender Charge, on
any Monthly Date, the Policy will lapse. The Company will send the
Owner, and any assignee of record, notice of the lapse. The Owner
will have a 61-day grace period to submit a sufficient payment to
avoid termination.
H. PAYMENT OPTIONS
The Policy offers five methods of receiving proceeds payable
under the Policy. In addition to these methods, which are described
below, payment may be made by any other method to which the Company
agrees. If proceeds from a surrender or death benefits are to be
applied to a payment option, the proceeds will usually be applied
within seven days of the Valuation Date on or following the date on
which the Company receives the request and all required
documentation at the Home Office.
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<PAGE>
o INTEREST PAYMENTS. The Company will pay interest at agreed
upon intervals. Withdrawals of at least $100 may be made at
any time, and the Company will pay interest to the date of
withdrawal on the amount withdrawn.
o PAYMENTS FOR A SPECIFIED PERIOD. The Company will make equal
payments at the end of each monthly interval for a fixed
number of years. The present value of any unpaid payments may
be withdrawn at any time.
o LIFE INCOME. The Company will make equal payments at the
end of each monthly interval for as long as the payee is
alive. The amount of each payment is based on the payee's
age and sex at the start of the first monthly interval. The
Company may require proof of the payee's age and sex. The
payee may not withdraw the present value of the payments.
If the payee dies during a certain period, the Company will
continue the payments to the successor payee to the end of
the certain period, or the successor payee may have the
present value of any remaining payments (in the certain
period) paid in one sum.
o PAYMENTS OF A SPECIFIED AMOUNT. The Company will make equal
monthly payments until the amount put under this method
together with compound interest has been paid. The unpaid
balance may be withdrawn at any time.
o JOINT AND SURVIVOR LIFE INCOME. The Company will make equal
payments at the end of each monthly interval as long as at
least one of the two payees is alive. The Company will base
each payment on the age and sex of both payees at the start of
the first monthly interval. The Company may require proof of
the age and sex of each payee. The payees may not withdraw the
present value of any payments.
I. LUMP SUM PAYMENTS BY THE COMPANY
Lump sum payments of withdrawals, surrenders or death benefits
from the Subaccounts will be made within seven days of the Valuation
Date on or following the date on which the Company receives the
request and all required documentation at the Home Office. The
Company may postpone the processing of any such transactions for any
of the following reasons:
1. If the disposal or valuation of the Separate Account's assets is
not reasonably practicable because the New York Stock Exchange
("NYSE") is closed for trading other than for customary holiday or
weekend closings, or trading on the NYSE is otherwise restricted, or
an emergency exists, as determined by the Securities and Exchange
Commission ("SEC").
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<PAGE>
2. When the SEC by order permits a delay for the protection of
Owners.
3. If the payment is attributable to a check that has not cleared.
The Company may defer for up to six months after the date the
Company receives the request, the payment of any proceeds from the
Fixed Account for a withdrawal, surrender or Policy loan request.
J. EXCHANGE PRIVILEGE
At any time, while the Policy is in force during the life of
the Insured, the Owner may exchange the Policy without evidence of
insurability to a universal life policy on the life of the Insured
providing benefits that do not vary with the investment experience
of the Separate Account. This conversion is accomplished by the
transfer of the entire Policy Value in the Subaccounts to the Fixed
Account and the allocation of all future premiums to the Fixed
Account. No charge will be imposed on the transfer in exercising
this exchange privilege.
K. REDEMPTION ERRORS
In accordance with industry practice, the Company will
establish procedures to address and to correct errors in amounts
redeemed from the Subaccounts and the Fixed Account, except for de
minimis amounts. The Company will assume the risk of any errors
caused by the Company.
L. MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex has been misstated in the
application, the Death Benefit under the Policy will be the amount
that would have been provided by the correct age and sex. The
adjustment will be based on the ratio of the correct cost of
insurance for the most recent Monthly Date for that benefit to the
cost of insurance charge that was made.
M. INCONTESTABILITY
The Policy limits the Company's right to contest the Policy as
issued or as increased, except for material misstatements contained
in the application, after it has been in force during the Insured's
lifetime for a minimum period, generally for two years from the
Issue Date of the Policy or effective date of the increase.
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EXHIBIT 2
PFL Life Insurance Company
4333 Edgewood Rd. NE
Cedar Rapids, IA 52499
November 1,1999
Ladies and Gentlemen:
As Vice President and General Counsel, Individual Division, of PFL Life
Insurance Company (the "Company"), I have general supervision of the legal
affairs of the Company's Individual Division. In connection with the proposed
registration statement under the Securities Act of 1933, as amended, of certain
variable universal life insurance policies (the "Contracts") to be issued by the
Company through PFL Variable Life Account A (the "Separate Account"), I have
been advised by members of our legal staff concerning the establishment of the
Separate Account by the Board of Directors of the Company on July 1, 1999 as a
separate account for assets applicable to variable life insurance policies,
pursuant to the provisions of the Iowa Insurance Laws. I have further been
advised by members of our legal staff concerning such other documents and
matters of law as I deem necessary and appropriate for this opinion, and I
therefore advise you that:
1. The Company was duly organized and is a validly existing corporation under
the laws of the State of Iowa.
2. The Company has been duly authorized by the Iowa Department of Insurance to
issue variable life insurance policies.
3. The Separate Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Iowa. The assets of the
Separate Account are owned by the Company. The income, gains and losses,
realized or unrealized, from assets allocated to the Separate Account must be
credited to or charged against the Separate Account, without regard to other
income, gains or losses of the Company.
4. The Contracts, when issued in accordance with the prospectus constituting a
part of the Registration Statement and upon compliance with applicable local
law, will be legal, validly issued and binding obligations of the Company in
accordance with their respective terms.
5. The portion of the assets held in the Separate Account equal to reserves
and other contract liabilities with respect to the Separate Account is not
chargeable with liabilities arising out of any other business the Company may
conduct.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the heading "Legal Matters" in the
prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ JOHN D. CLEAVENGER
- ----------------------
John D. Cleavenger
Vice President and General Counsel, Individual Division
EXHIBIT 5
Roger Hallquist, F.S.A., M.A.A.A.
Actuary
Phone (319) 398-7962
Fax: (319) 369-2378
November 1, 1999
Gentlemen:
This opinion is furnished in connection with the registration by PFL Life
Insurance Company of its Variable Universal Life Insurance Policy ("the
Policy"), under the Securities Act of 1933 (the "Registration Statement"). The
prospectus included in the Registration Statement on Form S-6 describes the
Policy. I have reviewed the Policy form and I have participated in the
preparation and review of the Registration Statement and Exhibits thereto. In my
opinion:
(1) The illustrations of policy account values, cash surrender
values, and death benefits included in the section of the
prospectus entitled, "ILLUSTRATIONS", based on the assumptions
stated in this section, are consistent with the provisions of the
Policy. The rate structure of the Policy has not been designed so
as to make the relationship between premiums and benefits, as
shown in the illustrations, appear more favorable to a
prospective purchaser of a Policy for males age 35 than to
prospective purchasers of Policies on males of other ages or on
females.
(2) The Example of Surrender Charges is consistent with the
provisions of the Policy.
I hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to my name in the prospectus.
Sincerely,
/s/ ROGER HALLQUIST
- -------------------
Roger Hallquist, F.S.A., M.A.A.A.
Actuary
EXHIBIT 6
[Letterhead of Sutherland Asbill & Brennan LLP]
December 21, 1999
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499
Re: PFL Variable Life Account A
File No. 333-87023
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of Pre-Effective Amendment No. 1 to the
Form S-6 registration statement for PFL Variable Life Account A (File No.
333-87023). In giving this consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
-------------------
Stephen E. Roth, Esq.
EXHIBIT 7
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Financial Statements"
and to the use of our report dated February 19, 1999 with respect to the
statutory-basis financial statements and schedules of PFL Life Insurance
Company, included in the Pre-Effective Amendment No. 1 to the Registration
Statement (Form S-6 No. 333-87023) and related Prospectus of PFL Variable Life
Account A.
/s/ ERNST & YOUNG LLP
---------------------
Des Moines, Iowa
December 20, 1999
