<PAGE>
As filed with the Securities and Exchange Commission on September 26, 2000
------------
Registration No. 333-
811-
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
THE U.S. BANCORP
INVESTMENTS INC. PRINCIPAL-PLUS
VARIABLE ANNUITY
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ___
Post-Effective Amendment No. ___
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No.
SEPARATE ACCOUNT VA I
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
(Name of Depositor)
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (319) 297-8468
Frank A. Camp, Esq.
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499-0001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esq.
Sutherland, Asbill and Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
<PAGE>
Title of Securities Being Registered: Flexible Premium Variable Annuity
------------------------------------
Policies
Approximate Date of Proposed Public Offering:
--------------------------------------------
As soon as practicable after the effective date of the Registration statement.
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
THE U.S. BANCORP INVESTMENTS INC.
PRINCIPAL-PLUS
VARIABLE ANNUITY
Issued Through
Separate Account VA I
by
PFL LIFE INSURANCE COMPANY
Prospectus
___________________
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about The U.S. Bancorp Investments Inc.
Principal-Plus Variable Annuity ("Principal-Plus Variable Annuity") policy, you
can obtain a free copy of the Statement of Additional Information (SAI) dated
__________________. Please call us at (800) 525-6205 or write us at: PFL Life
Insurance Company, Financial Markets Division, Variable Annuity Department, 4333
Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A registration statement,
including the SAI, has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference. Information about the separate
account and the policies can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. You may obtain information about the
operation of the public reference room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a web site (http://www.sec.gov) that contains the prospectus,
the SAI, material incorporated by reference and other information. The table of
contents of the SAI is included at the end of this prospectus.
Please note that the policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
This flexible premium annuity policy has many investment choices. There is a
fixed account, which offers interest at rates that are guaranteed by PFL Life
Insurance Company (PFL), and twelve mutual fund portfolios offered by the
underlying funds listed below. You can choose any combination of these
investment choices. You bear the entire investment risk for all amounts you put
in the mutual fund portfolios.
FEDERATED INSURANCE SERIES
Managed by Federated Investment Management Company
Federated Prime Money Fund II
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
Managed by First American Asset Management
First American International Portfolio
First American Large Cap Growth Portfolio
First American Mid Cap Growth Portfolio
First American Small Cap Growth Portfolio
First American Technology Portfolio
PUTNAM VARIABLE TRUST - CLASS IB SHARES
Managed by Putnam Investment Management, Inc.
Putnam VT Diversified Income Fund
Putnam VT The George Putnam Fund of Boston
Putnam VT Growth and Income Fund
Putnam VT Income Fund
Putnam VT Investors Fund
Putnam VT New Value Fund
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
GLOSSARY OF TERMS..............................................
SUMMARY........................................................
ANNUITY POLICY FEE TABLE.......................................
EXAMPLES.......................................................
1. THE ANNUITY POLICY.........................................
2. PURCHASE...................................................
Policy Issue Requirements..................................
Premium Payments...........................................
Initial Premium Requirements...............................
Additional Premium Payments................................
Maximum Total Premium Payments.............................
Premium Enhancement........................................
Allocation of Premium Payments.............................
Policy Value...............................................
3. INVESTMENT CHOICES.........................................
The Separate Account.......................................
The Fixed Account..........................................
Transfers..................................................
4. PERFORMANCE................................................
5. EXPENSES...................................................
Surrender Charges..........................................
Excess Interest Adjustment.................................
Mortality and Expense Risk Fee.............................
Administrative Charges.....................................
Premium Taxes..............................................
Federal, State and Local Taxes.............................
Transfer Fee...............................................
Family Income Protector....................................
Portfolio Management Fees..................................
6. ACCESS TO YOUR MONEY.......................................
Withdrawals................................................
Delay of Payment and Transfers.............................
Excess Interest Adjustment.................................
7. ANNUITY PAYMENTS...........................................
(THE INCOME PHASE).........................................
Annuity Payment Options....................................
8. DEATH BENEFIT..............................................
When We Pay A Death Benefit................................
When We Do Not Pay A Death Benefit.........................
Amount of Death Benefit....................................
Guaranteed Minimum Death Benefit...........................
Adjusted Partial Withdrawal................................
9. TAXES......................................................
Annuity Policies in General................................
Qualified and Nonqualified Policies........................
Withdrawals - Qualified Policies...........................
Withdrawals - 403(b) Policies..............................
Diversification and Distribution Requirements..............
Withdrawals - Nonqualified Policies........................
Taxation of Death Benefit Proceeds.........................
Annuity Payments.............................
Transfers, Assignments and Exchanges of Policies...........
Possible Tax Law Changes...................................
10. ADDITIONAL FEATURES........................................
Systematic Payout Option...................................
Family Income Protector....................................
Nursing Care and Terminal Condition Withdrawal Optioin.....
Unemployment Waiver........................................
Telephone Transacations....................................
Dollar Cost Averaging......................................
Asset Rebalancing..........................................
11. OTHER INFORMATION..........................................
Ownership..................................................
Assignment.................................................
PFL Life Insurance Company.................................
The Separate Account.......................................
Mixed and Shared Funding...................................
Reinstatements.............................................
Voting Rights..............................................
Distributor of the Policies................................
Variations in Policy Provisions............................
IMSA.......................................................
Legal Proceedings..........................................
Financial Statements.......................................
TABLE OF CONTENTS OF THE STATEMENT.............................
OF ADDITIONAL INFORMATION......................................
APPENDIX A.....................................................
Historical Performance Data....................................
</TABLE>
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Policy Value--The policy value increased or decreased by any excess
interest adjustment.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to commence.
The annuity commencement date may not be later than the last day of the policy
month starting after the annuitant attains age 85, except as expressly allowed
by PFL. In no event will this date be later than the last day of the policy
month following the month in which the annuitant attains age 95. The annuity
commencement date may be required to be earlier for qualified policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Cash Value--The adjusted policy value less any applicable surrender charge.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The adjustment
reflects changes in the interest rates declared by PFL since the date any
payment was received by (or an amount was transferred to) the guaranteed period
option. The excess interest adjustment can either decrease or increase the
amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may offer and into which premium payments may be paid or
amounts transferred.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments (plus any premium enhancement); minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, rider fees, premium taxes and transfer fees, if any.
Separate Account--Separate Account VA I, a separate account established and
registered as a unit investment trust under the Investment Company Act of 1940,
as amended (the "1940 Act"), to which premium payments under the policies may be
allocated.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
(Note: The SAI contains a more extensive Glossary.)
3
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail.
1. THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us, or our) provides a way for you to invest on a tax-deferred
basis in the following investment choices: twelve subaccounts of the separate
account, and a fixed account of PFL. The policy is intended to accumulate money
for retirement or other long-term investment purposes.
This policy offers twelve subaccounts that are listed in Section 3. Each
subaccount invests exclusively in shares of one of the portfolios of the
underlying funds. The policy value may depend on the investment experience of
the selected subaccounts. Therefore, you bear the entire investment risk with
respect to all policy value in any subaccount. You could lose the amount that
you invest.
The fixed account offers an interest rate that PFL guarantees. We guarantee to
return your investment with interest credited for all amounts allocated to the
fixed account.
You can transfer money between any of the investment choices within certain
limits. We reserve the right to impose a $10 fee for each transfer in excess of
12 transfers per policy year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate during
the accumulation phase will largely determine the income payments you receive
during the income phase.
2. PURCHASE
You can buy this policy with $2,000 or more under most circumstances. You can
add as little as $50 at any time during the accumulation phase.
Each premium payment will receive a premium enhancement that PFL adds to your
policy value. We may change the enhancement rate at any time. Under certain
circumstances, you might forfeit (or lose) the premium enhancement.
3. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the following
investment choices described in the underlying fund prospectuses:
Federated Prime Money Fund II
First American International Portfolio
First American Large Cap Growth Portfolio
First American Mid Cap Growth Portfolio
First American Small Cap Growth Portfolio
First American Technology Portfolio
Putnam VT Diversified Income Fund - Class IB Shares
Putnam VT The George Putnam Fund
of Boston - Class IB Shares
Putnam VT Growth and Income Fund - Class IB Shares
Putnam VT Income Fund - Class IB Shares
Putnam VT Investors Fund - Class IB Shares
Putnam VT New Value Fund - Class IB Shares
Depending upon their investment performance, you can make or lose money in any
of these subaccounts.
You can also allocate your premium payments to the fixed account.
4. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the subaccounts you choose. We provide past performance
information in Appendix A and in the SAI. This data does not indicate future
performance.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
4
<PAGE>
We may deduct a surrender charge of up to 6.0% of premium payments withdrawn
within five years after the premium is paid. However, after the tenth policy
year, no surrender charges apply, regardless of when you made your last premium
payment. To calculate surrender charges, we consider the premium you paid to
come out before any earnings.
Full surrenders and partial withdrawals from a guaranteed period option of the
fixed account may also be subject to an excess interest adjustment, which may
increase or decrease the amount you receive. This adjustment may also apply to
amounts applied to an annuity payment option from a guaranteed period option of
the fixed account.
We deduct daily mortality and expense risk fees and administrative charges of
either 1.25% or 1.40% per year from the assets in each subaccount, depending on
the guaranteed minimum death benefit you choose.
During the accumulation phase, we deduct an annual service charge of no more
than $30 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%,
upon total surrender, payment of a death benefit, or when annuity payments
begin.
If you elect the family income protector rider, there is an annual fee during
the accumulation phase of 0.30% of the minimum annuitization value. If you
receive annuity payments under the rider, then during the income phase, there is
a guaranteed payment fee at an annual rate of 1.25% of the daily net asset value
in the separate account.
The value of the net assets of the mutual fund subaccounts will reflect the
management fee and other expenses incurred by the underlying fund portfolios.
6. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase (except
under certain qualified policies). You may take out up to 10% of the policy
value free of surrender charges each policy year. The percentage that may be
taken free of surrender charges is referred to as the cumulative free
percentage. Any cumulative free percentage that is not taken in one year is
carried forward and is available to be taken in the following policy year.
Amounts withdrawn in excess of the cumulative free percentage may be subject to
a surrender charge. You may also have to pay income tax and a tax penalty on any
money you take out.
Access to amounts held in qualified policies may be restricted or prohibited.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options, or
a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
8. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You may choose one of the following guaranteed minimum death benefits:
. 5% Annually Compounding (through age 80)
. Annual Step-Up (through age 80)
. Return of Premium
Charges are lower for the Return of Premium Death Benefit than they are for the
other two.
If the owner is not the annuitant, no death benefit is paid if the owner dies.
9. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as ordinary income. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase are considered partly a return of
your original
5
<PAGE>
investment so that part of each payment is not taxable as income.
10. ADDITIONAL FEATURES
This policy has additional features that might interest you. These include the
following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector." There is an
extra charge for this rider and the rider may vary by state.
. Under certain medically related circumstances, you may withdraw all or part
of your policy value without a surrender charge and excess interest
adjustment. This feature is called the "nursing care and terminal condition
withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money (at least $500)
automatically transferred from the fixed account, either monthly or
quarterly, to your choice of subaccounts. This feature is called "dollar cost
averaging."
. We will, upon your request, automatically transfer amounts among the
subaccounts on a regular basis to maintain a desired allocation of the policy
value among the various subaccounts. This feature is called "asset
rebalancing."
These features are not available in all states and may not be suitable for your
particular situation.
11. OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
time you have to return the policy will depend on the state where the policy was
issued. Our right to cancel period is 10 days (after you receive the policy), or
whatever longer time may be permitted by state law. The amount of the refund
will generally be the policy value, less any premium enhancement. PFL will pay
the refund within 7 days after it receives written notice of cancellation and
the returned policy. The policy will then be deemed void. In some states you may
have more or less than 10 days to return a policy, or receive a refund of more
(or less) than the policy value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
Who should purchase the Policy? This policy is designed for people seeking long-
term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most beneficial for people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund a
qualified plan. You should not buy this policy if you are looking for a short-
term investment or if you cannot take the risk of losing the money that you put
in.
There are various fees and charges associated with variable annuities. You
should consider whether the features and benefits of this policy, such as the
opportunity for lifetime income payments, a guaranteed death benefit, the
guaranteed level of certain charges, the premium enhancement, and the family
income protector, make this policy appropriate for your needs.
Financial Statements. Financial statements for PFL are in the SAI. There are no
financial statements for the subaccounts because they had not commenced
operations as of December 31, 1999.
6
<PAGE>
12. INQUIRIES
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
You may check your policy at www.pfllife.com/fmd. Follow the logon procedures.
You will need your pre-assigned Personal Identification Number ("PIN") to access
information about your policy.
7
<PAGE>
<TABLE>
<CAPTION>
ANNUITY POLICY FEE TABLE
-----------------------------------------------------------------------------------------------------------------------------------
Separate Account Annual Expenses
Policy Owner Transaction Expenses (as a percentage of average account value)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Load On Purchase Payments 0 Mortality and Expense Risk Fees/(3)/ 1.25%
Maximum Surrender Charge Administrative Charge 0.15%
----
(as a % of Premium Payments Surrendered)/(1)(2)/ 6%
Annual Service Charge/(2)/ $30 Per Policy TOTAL SEPARATE ACCOUNT
Transfer Fee/(2)/ Currently No Fee ANNUAL EXPENSES 1.40%
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio Annual Expenses/(4)/
(as a percentage of average net assets and after expense reimbursements)
-----------------------------------------------------------------------------------------------------------------------------------
Rule Total Portfolio
Management Other 12b-1 Annual
Fees Expenses Fees Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II 0.50% 0.23% - 0.73%
First American International Portfolio/(5)/ 1.25% 0.54% - 1.79%
First American Large Cap Growth Portfolio/(5)/ 0.70% 0.47% - 1.17%
First American Mid Cap Growth Portfolio/(5)/ 0.70% 0.47% - 1.17%
First American Small Cap Growth Portfolio/(5)/ 0.70% 0.47% - 1.17%
First American Technology Portfolio/(5)/ 0.70% 0.47% - 1.17%
Putnam VT Diversified Income Fund - Class IB Shares/(6)/ 0.68% 0.10% 0.15% 0.93%
Putnam VT The George Putnam Fund of Boston - Class IB Shares/(6)/ 0.65% 0.18% 0.15% 0.98%
Putnam VT Growth and Income Fund - Class IB Shares/(6)/ 0.61% 0.12% 0.15% 0.88%
Putnam VT Income Fund - Class IB Shares/(6)/ 0.60% 0.07% 0.15% 0.82%
Putnam VT Investors Fund - Class IB Shares/(6)/ 0.63% 0.08% 0.15% 0.86%
Putnam VT New Value Fund - Class IB Shares/(6)/ 0.70% 0.10% 0.15% 0.95%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ The surrender charge is decreased based on the number of years since the
premium payment was made, from 6% in the year in which the premium payment
was made to 0% in the sixth year after the premium payment was made.
However, after the tenth policy year, no surrender charges apply,
regardless of when you made your last premium payment. If applicable, a
surrender charge will only be applied to withdrawals that exceed the
amount available under certain listed exceptions.
/(2)/ The surrender charge and transfer fee, if any are imposed, apply to each
policy, regardless of how policy value is allocated among the separate
account and the fixed account. The service charge is the lesser of $30 or
2% of the policy value. It applies to both the fixed account and the
separate account, and is assessed on a prorata basis relative to each
account's policy value as a percentage of the policy's total policy value.
There is no fee for the first 12 transfers per policy year. For additional
transfers, PFL may charge a fee of $10 per transfer, but currently does
not charge for any transfers. Separate account expenses do not apply to
the fixed account.
/(3)/ Mortality and expense risk fees shown (1.25%) are for the "5% Annually
Compounding Death Benefit" and the "Annual Step Up Death Benefit." This
reflects a fee that is 0.15% higher than the 1.10% corresponding fees for
the "Return of Premium Death Benefit."
/(4)/ The fee table information relating to the underlying funds was provided to
PFL by the underlying funds, their investment advisers or managers, and
PFL has not independently verified such information. Actual future
expenses of the underlying funds may be greater or less than those shown
in the Table.
/(5)/ "Other Expenses" for the portfolios are based on estimated amounts for the
current fiscal year. The adviser intends to waive management fees during
the current fiscal year so that the total fund operating expenses do not
exceed 1.35%, 0.80%, 0.90%, 0.90%, and 0.90%, respectively, for the
International Portfolio, Large Cap Growth Portfolio, Mid Cap Growth
Portfolio, Small Cap Growth Portfolio and Technology Portfolio. Fee
waivers may be discontinued at any time.
/(6)/ The Class IB 12b-1 plans provide for payments by each fund to Putnam
Retail Management, Inc. at an annual rate of up to 0.35%. The Trustees
currently limit 12b-1 payments on Class IB shares to 0.15% of average net
assets.
8
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable2 subaccount,, and assuming the family income protector benefit
has not been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.10% charge)
B = 5% Annually Compounding Death Benefit or the Annual Step-Up Death
Benefit (1.25% charge)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
If the Policy is annuitized at
If the Policy is surrendered the end of the applicable time
at the end of the applicable period or if the Policy is still
time period. in the accumulation phase.
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 3 1 3
Subaccounts Year Years Year Years
------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II A
------------------------------------------------------------------------------------------------------------------
B
-------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
First American International Portfolio A
-------------------------------------------------------------------------
B
------------------------------------------------------------------------------------------------------------------
First American Large Cap Growth A
Portfolio
-------------------------------------------------------------------------
B
------------------------------------------------------------------------------------------------------------------
First American Mid Cap Growth Portfolio A
-------------------------------------------------------------------------
B
------------------------------------------------------------------------------------------------------------------
First American Small Cap Growth A
Portfolio
-------------------------------------------------------------------------
B
------------------------------------------------------------------------------------------------------------------
First American Technology Portfolio A
-------------------------------------------------------------------------
B
------------------------------------------------------------------------------------------------------------------
Putnam VT Diversified Income Fund - A
-------------------------------------------------------------------------
Class IB Shares B
------------------------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund A
-------------------------------------------------------------------------
of Boston - Class IB Shares B
------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - A
-------------------------------------------------------------------------
Class IB Shares B
------------------------------------------------------------------------------------------------------------------
Putnam VT Income Fund - A
-------------------------------------------------------------------------
Class IB Shares B
------------------------------------------------------------------------------------------------------------------
Putnam VT Investors Fund - A
-------------------------------------------------------------------------
Class IB Shares B
------------------------------------------------------------------------------------------------------------------
Putnam VT New Value Fund - A
-------------------------------------------------------------------------
Class IB Shares B
------------------------------------------------------------------------------------------------------------------
</TABLE>
The above tables will assist you in understanding the costs and expenses of the
policy that you will bear, directly or indirectly. These include the 1999
expenses of the underlying funds. In addition to the expenses listed above,
premium taxes may be applicable.
The examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or less than those shown. The
assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than the assumed rate.
In these examples, the annual $30 service charge is reflected as a charge of
_________% based on an anticipated average policy value of $____________.
These examples do not reflect the annual fee of 0.30% of the minimum
annuitization value for the family income protector rider. The above expense
figures would be approximately $3 per year higher if you elected that rider.
Financial Information. The subaccounts had not commenced operations as of
December 31, 1999, therefore there is no condensed financial information to
report as of the date of this prospectus.
9
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes the Principal-Plus Variable Annuity policy offered by
PFL Life Insurance Company.
An annuity is a policy between you, the owner, and an insurance company (in this
case PFL), where the insurance company promises to pay you an income in the form
of annuity payments. These payments begin on a designated date, referred to as
the annuity commencement date. Until the annuity commencement date, your annuity
is in the accumulation phase and the earnings (if any) are tax deferred. Tax
deferral means you generally are not taxed on your annuity until you take money
out of your annuity. After the annuity commencement date, your annuity switches
to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
The policy is a "flexible premium" policy because after you purchase it, you can
generally make additional investments of any amount of $50 or more, until the
annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest in
the variable annuity portion of the policy, the amount of money you are able to
accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your policy
also depends upon the investment performance of your investment choices for the
income phase. However, if you annuitize under the family income protector
rider, then PFL will guarantee a minimum amount of your annuity payments. There
is an extra charge for this rider.
The policy also contains a fixed account. The fixed account offers an interest
rate that we guarantee will not decrease during the selected guaranteed period.
There may be different interest rates for each different guaranteed period that
you select.
2. PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment;
. The annuitant and any joint owner are age 85 or younger.
We reserve the right to reject any application or premium payment.
Premium Payments
You should make checks for premium payments payable only to PFL Life Insurance
Company and send them to the administrative and service office. Your check must
be honored in order for PFL to pay any associated payments and benefits due
under the policy.
Initial Premium Requirements
The initial premium payment for most policies must be at least $2,000. There is
no minimum initial premium payment for policies issued under section 403(b) of
the Internal Revenue Code; however, your premium must be received within 90 days
of receipt of the application or a policy will not be issued.
PFL will credit your initial premium payment to your policy within two business
days after the day PFL receives it and your complete policy information. If we
are unable to credit your initial premium payment, we will contact you within
five business days and explain why. We will also return your initial premium
payment at that time unless you tell us to keep it and credit it as soon as
possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of the
annuitant and during the accumulation phase. Additional premium payments must be
at least $50. PFL will credit
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additional premium payments to your policy as of the business day we receive
your premium and required information. Additional premium payments must be
received before the New York Stock Exchange closes to get same-day pricing of
the additional premium payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval
($500,000 for annuitants over age 80).
Premium Enhancement
An amount equal to 1% of the initial premium payment will be added to the policy
value. The amount of the premium enhancement is not considered a premium
payment. The premium enhancement percentage may vary from premium to premium on
subsequent premium payments, but will never be less than 1% nor more than 3%. A
confirmation will be sent advising the owner of the amount of premium
enhancement applicable to each subsequent premium payment. No premium
enhancement will apply if the policy is canceled pursuant to the right to cancel
("free-look") provision.
You will forfeit, or lose, the premium enhancement upon the occurrence of any of
the following events:
. exercise of the free-look option;
. exercise of the nursing care and terminal condition withdrawal option or
the unemployment waiver within one year from the time we apply the premium
enhancement;
. a death benefit is payable within one year from the time we apply the
premium enhancement; or
. annuitization within one year from the time we apply the premium
enhancement.
In these circumstances we will take back, or 'recapture,' the full dollar amount
of the enhancement, without any adjustment for investment performance.
In certain unusual circumstances, you might be worse off because of the premium
enhancement. This could happen if we recapture the dollar amount of the premium
enhancement and the overall investment performance of your contract was negative
(if the overall investment performance of your contract was positive you would
be better off).
Allocation of Premium Payments
When you purchase a policy, PFL will allocate your premium payment (plus the
premium enhancement) to the investment choices you select. Your allocation must
be in whole percentages and must total 100%. We will allocate additional premium
payments the same way, unless you request a different allocation.
If you allocate your premium payment to the dollar cost averaging fixed account,
you must give us instructions regarding the subaccount(s) to which transfers are
to be made or we cannot accept your premium payment.
You may change allocations for future additional premium payments by sending
written instructions or by telephone, subject to the limitations described below
under "Telephone Transactions." The allocation change will apply to premium
payments received on or after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to valuation
period. A valuation period begins at the close of regular trading on the New
York Stock Exchange on each business day and ends at the close of trading on the
next succeeding business day. A business day is each day that the New York Stock
Exchange is open. The New York Stock Exchange generally closes at 4:00 p.m.
eastern time. Holidays are generally not business days.
3. INVESTMENT CHOICES
The Separate Account
The Principal-Plus Variable Annuity separate account currently consists of
twelve subaccounts.
The subaccounts invest in shares of the underlying fund portfolios. The
companies that provide investment advice and administrative services for the
underlying fund portfolios offered through this policy are listed below. The
following investment choices are currently offered through this policy:
FEDERATED INSURANCE SERIES
Managed by Federated Investment Management Company
Federated Prime Money Fund II
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FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
Managed by First American Asset Management
First American International Portfolio
First American Large Cap Growth Portfolio
First American Mid Cap Growth Portfolio
First American Small Cap Growth Portfolio
First American Technology Portfolio
PUTNAM VARIABLE TRUST - CLASS IB SHARES
Managed by Putnam Investment Management, Inc.
Putnam VT Diversified Income Fund
Putnam VT The George Putnam Fund of Boston
Putnam VT Growth and Income Fund
Putnam VT Income Fund
Putnam VT Investors Fund
Putnam VT New Value Fund
The general public may not purchase shares of these underlying fund portfolios.
The investment objectives and policies may be similar to other portfolios and
mutual funds managed by the same investment adviser or manager that are sold
directly to the public. You should not expect that the investment results of the
underlying fund portfolios to be the same as those of other portfolios or mutual
funds.
More detailed information, including an explanation of the portfolios'
investment objectives, may be found in the current prospectuses for the
underlying fund portfolios, which are attached to this prospectus. You should
read the prospectuses for each of the underlying fund portfolios carefully
before you invest.
PFL may receive expense reimbursements or other revenues from the underlying
funds or their managers. The amount of these reimbursements or revenues, if any,
may be different for different funds or portfolios, and may be based on the
amount of assets that PFL or the separate account invests in the underlying fund
portfolios.
We do not guarantee that any of the subaccounts will always be available for
premium payments, allocations, or transfers. See the SAI for more information
concerning the possible addition, deletion or substitution of investments.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general account. Interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the general
account registered as an investment company under the 1940 Act. Accordingly,
neither the general account nor any interests therein are generally subject to
the provisions of the 1933 or 1940 Acts. PFL has been advised that the staff of
the SEC has not reviewed the disclosures in this Prospectus which relate to the
fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of the guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next shorter period if
the same period is no longer offered) at the current interest rate for that
period. You can transfer to another investment choice by giving us notice within
30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest adjustment will not decrease the interest credited to your policy below
3% per year, however. You bear the risk that we will not credit interest greater
than 3% per year. We determine credited rates, which are guaranteed for at least
one year, in our sole discretion.
If you select the fixed account, your money will be placed with PFL's other
general assets. The amount of money you are able to accumulate in the fixed
account during the accumulation phase depends upon the total interest credited.
The amount of annuity payments you receive during the income phase from the
fixed portion of your policy will remain level for the entire income phase.
Transfers
During the accumulation phase, you may make transfers to or from any subaccount
or the fixed account as often as you wish within certain limitations.
Transfers out of the guaranteed period option of the fixed account are limited
to the following:
. Transfers of up to the total amount, provided that you notify us
within 30 days prior to the end of the guaranteed period that you wish
to transfer the amount in that guaranteed period option to another
investment choice. No excess interest adjustment will apply.
. Transfers of amounts equal to interest credited on a monthly,
quarterly, semi-annual or annual basis. This
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may affect your overall interest-crediting rate, because transfers are
deemed to come from the oldest premium payment first.
Otherwise, you cannot transfer out of the fixed account.
There are no transfers permitted out of the dollar cost averaging fixed account
option except through the dollar cost averaging program.
Each transfer must be at least $500, or the entire subaccount value. Transfers
of interest from a guaranteed period option of the fixed account, must be at
least $50. If less than $500 remains, then we reserve the right to include that
amount in the transfer. Transfers must be received while the New York Stock
Exchange is open to get same-day pricing of the transaction.
Currently, there is no charge for transfers and no limit on the number of
transfers during the accumulation phase. However, in the future, the number of
transfers permitted may be limited and a $10 charge per transfer may apply.
During the income phase of your policy, you may transfer values out of any
subaccount up to four times per policy year. However, you cannot transfer out of
the fixed account in this phase. The minimum amount that can be transferred
during this phase is the lesser of $10 of monthly income, or the entire monthly
income of the variable annuity units in the subaccount from which the transfer
is being made.
Transfers may be made by telephone, subject to limitations described below under
"Telephone Transactions."
We reserve the right to prohibit transfers to the fixed account if we are
crediting an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio would
be unable to invest effectively in accordance with its investment objectives and
policies or would otherwise be potentially adversely affected or if an
underlying portfolio would reject our purchase order.
4. PERFORMANCE
PFL periodically advertises performance of the various investment portfolios. We
may disclose at least three different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance number
reflects the deduction of the mortality and expense risk fees and administrative
charges. It does not reflect the deduction of any applicable premium taxes or
surrender charges or the annual service charge. The deduction of any applicable
premium taxes, surrender charges, or the annual service charge would reduce the
percentage increase or make greater any percentage decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges and
surrender charges. These figures will also reflect the premium enhancement.
Third, for certain investment portfolios, performance may be shown for the
period commencing from the inception date of the investment portfolio. These
figures should not be interpreted to reflect actual historical performance of
the separate account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix A contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value
(restrictions or prohibitions may apply
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to qualified policies). We may deduct a surrender charge to compensate us for
expenses relating to policy sales, including commissions to registered
representatives and other promotional expenses.
You can withdraw up to 10% of your policy value each year free of surrender
charges. This free amount is cumulative and is referred to as the cumulative
free percentage and is determined at the time of the withdrawal. If you withdraw
money in excess of the cumulative free percentage, you might have to pay a
surrender charge, which is a contingent deferred sales charge, on the excess
amount. The following schedule shows the surrender charges that apply during the
five years following each premium payment:
----------------------------------------------------
Number of Years Surrender Charge
Since Premium (as a percentage of
Payment Date premium withdrawn)
----------------------------------------------------
0 - 1 6%
1 - 2 6%
2 - 3 6%
3 - 4 4%
4 - 5 2%
5 or more 0%
----------------------------------------------------
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your cumulative
free percentage of 20% that is available at that time, you would pay a surrender
charge of $600 on the remaining $10,000 (6% of $30,000 - $20,000).
You receive the full amount of a requested partial withdrawal because we deduct
any surrender charge and any applicable excess interest adjustment from your
remaining policy value. You receive your cash value upon full surrender.
For surrender charge purposes, the oldest premium is considered to be withdrawn
first. After the tenth policy year, no surrender charges apply, regardless of
when you made your last premium payment.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2, may
be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or the unemployment waiver.
Excess Interest Adjustment
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce the interest
credited in the fixed account to the guaranteed minimum of 3% per year. See the
"Excess Interest Adjustment" section of this prospectus.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the current
charges will be insufficient in the future to cover costs of administering the
policy. For the Return of Premium Death Benefit the mortality and expense risk
fee is at an annual rate of 1.10% of assets. During the accumulation phase, for
the 5% Annually Compounding Death Benefit and the Annual Step-Up Death Benefit,
the mortality and expense risk fee is at an annual rate of 1.25% of assets.
During the income phase, the mortality and expense risk fee is always at an
annual rate of 1.10% of assets. This annual fee is assessed daily based on the
net asset value of each subaccount.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We expect to profit from this charge. We may use our profit or surplus for any
proper purpose, including distribution expenses.
Administrative Charges
We deduct an annual administrative charge to cover the costs of administering
the policies. This charge is equal to an annual rate of 0.15% per year of the
daily net asset value of the separate account.
In addition, an annual service charge of $30 (but not more than 2% of the policy
value) is charged on each policy anniversary and at surrender. The service
charge is waived if your policy value or the sum of your premiums, less all
partial withdrawals, is at least $50,000.
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Premium Taxes
Some states assess premium taxes on the premium payments you make. Currently we
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any other taxes we incur
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
Currently there is no charge for transfers. However, if you make more than 12
transfers per year before the annuity commencement date, we reserve the right to
charge $10 for each additional transfer. Premium payments, asset rebalancing and
dollar cost averaging transfers are not considered transfers. All transfer
requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector rider, there is an annual rider fee
during the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual rider fee is also deducted
upon a complete withdrawal.
Portfolio Management Fees
The value of the assets in each subaccount will reflect the fees and expenses
paid by the underlying funds. A list of these expenses is found in the "Fee
Table" section of this prospectus. See the prospectuses for the underlying funds
for more information.
6. ACCESS TO YOUR MONEY
During the accumulation phase, you can have access to the money in your policy
in two ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking systematic payouts.
Withdrawals
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment, minus
. any applicable surrender charges, premium taxes, service charges, and
family income protector rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of the
investment choices in proportion to the policy value.
You may take out up to 10% of the policy value free of surrender charges each
policy year. The free amount is cumulative so any free amount not taken one year
is available to be taken the following year free of surrender charges.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 8, Death Benefit, for more
details.
Withdrawals may be subject to a surrender charge. Withdrawals from the fixed
account may also be subject to an excess interest adjustment. Income taxes,
federal tax penalties and certain restrictions may apply to any withdrawals you
make.
Withdrawals from qualified policies may be restricted or prohibited.
During the income phase, you will receive annuity payments under the annuity
payment option you select; however, you generally may not take any other
withdrawals, either complete or partial.
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Delay of Payment and Transfers
Payment of any amount due from the separate account for a surrender, a death
benefit, or the death of the owner of a nonqualified policy, will generally
occur within seven business days from the date PFL receives all required
information. PFL may defer such payment from the separate account if:
. the New York Stock Exchange is closed for other than usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months. We
may defer payment of any amount until your premium check has cleared your bank.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in the guaranteed period option) may be subject to an excess
interest adjustment. At the time you request a withdrawal, if interest rates set
by PFL have risen since the date of the initial guarantee, the excess interest
adjustment will result in a lower cash value on surrender. However, if interest
rates have fallen since the date of the initial guarantee, the excess interest
adjustment will result in a higher cash value on surrender.
There will be no excess interest adjustment on any of the following:
. nursing care or terminal condition withdrawals;
. unemployment withdrawals;
. lump sum withdrawals of cumulative interest credited;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed the cumulative
interest credited.
Please note that in these circumstances, you will not receive a higher cash
value if interest rates have fallen, nor will you receive a lower cash value if
interest rates have risen.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
written notice 30 days before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85. We may
allow a later annuity commencement date, but in no event will that date be later
than the last day of the policy month following the month in which the annuitant
attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if the
----------------------------------
annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one of
the annuity payment options (unless you become the new annuitant).
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may chose any combination of annuity payment options. We will use your "adjusted
policy value" to provide these annuity payments. The adjusted policy value is
the policy value increased or decreased by any applicable excess interest
adjustment. If the adjusted policy value on the annuity commencement date is
less than $2,000, PFL reserves the right to pay it in one lump sum in lieu of
applying it under a payment option. You can receive annuity payments monthly,
quarterly, semi-annually, or annually. (We reserve the right to change the
frequency if payments would be less than $50.)
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive
16
<PAGE>
variable payments under either annuity payment option 3 or 5. The dollar amount
of the first variable payment will be determined in accordance with the annuity
payment rates set forth in the applicable table contained in the policy. The
dollar amount of additional variable payments will vary based on the investment
performance of the subaccount(s) that you select. The dollar amount of each
variable payment after the first may increase, decrease or remain constant. If
the actual investment performance exactly matched the assumed investment return
of 5% at all times, the amount of each variable annuity payment would remain
equal. If actual investment performance exceeds the assumed investment return,
the amount of the variable annuity payments would increase. Conversely, if
actual investment performance is lower than the assumed investment return, the
amount of the variable annuity payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin. The annuity payment options are explained below. Options
1, 2, and 4 are fixed only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
------------------------------------
use to provide annuity payments in equal payments, or this amount may be left to
accumulate for a period of time you and PFL agree to. You and PFL will agree on
withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
------------------------------------------------
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
------------------------------
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
-----------------------------------------------
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
---------------------------------------------
Fixed Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second (third, fourth,
etc.) annuity payment;
THEN:
. we may make only one (two, three, etc.) annuity payments.
IF:
. you choose Income for a Specified Period, Life Income with 10 years
Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income
of a Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is
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responsible for keeping PFL informed of their current address.
8. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances, if
the annuitant dies during the accumulation phase and the annuitant was also an
owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below.) The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
------------------------------------
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and the owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any owner.
These restrictions are detailed in the SAI.
After the Annuity Commencement Date
-----------------------------------
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
------------------------------------------------
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner (unless it is your spouse) must generally surrender the
policy within five years of your death for the policy value increased or
decreased by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
---------------
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice (signed
prior to the owner's death) of the trust as a successor owner signed prior to
the owner's death, then that trust may not exercise ownership rights to the
policy. It may be necessary to open a probate estate in order to exercise
ownership rights to the policy if no contingent owner is named in a written
notice PFL receives.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit option you choose when you buy
the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
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<PAGE>
. cash value on the date we receive the required information (this could be
more than the policy value if there is a positive excess interest
adjustment that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
The death benefit proceeds may reflect a deduction for premium taxes.
Guaranteed Minimum Death Benefit
On the application, you generally may choose one of the three guaranteed minimum
death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A. Return of Premium Death Benefit
------------------------------------
The Return of Premium Death Benefit is the total premium payments, less any
adjusted partial withdrawals (discussed below) as of the date of death.
The Return of Premium Death Benefit will be in effect if you do not choose
one of the other options on the policy application. After the policy is
issued, you cannot make an election and the death benefit cannot be
changed.
B. 5% Annually Compounding Death Benefit
------------------------------------------
The 5% Annually Compounding Death Benefit is the total premium payments,
less any adjusted partial withdrawals, plus interest at an effective annual
rate of 5% from the premium payment date or withdrawal date to the date of
death (but not later than your 81st birthday). There is an extra charge for
this death benefit.
The 5% Annually Compounding Death Benefit is not available if the owner or
annuitant is 81 or older on the policy date.
C. Annual Step-Up Death Benefit
---------------------------------
On each policy anniversary before your 81/st/ birthday, a new "stepped-up"
death benefit is determined and becomes the guaranteed minimum death
benefit for that policy year. The death benefit is equal to:
. the largest policy value on the policy date or on any policy
anniversary before you reach age 81; plus
. any premium payments you have made since then; minus
. any adjusted partial withdrawals we have paid to you since then.
The Annual Step-Up Death Benefit is not available if the owner or annuitant
is 81 or older on the policy date.
There is an extra charge for this death benefit.
IF, under all three death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
9. TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
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circumstances. PFL has included an additional discussion regarding taxes in the
SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs like
retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings,
if any, on the money held in your annuity policy until you take the money out.
This is referred to as tax deferral. There are different rules as to how you
will be taxed depending on how you take the money out and the type of policy--
qualified or nonqualified (discussed below).
You will generally not be taxed on increases in the value of your policy until a
distribution occurs--either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will generally
not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals
to make contributions, which may be deductible, to the contract. A Roth IRA
also allows individuals to make contributions to the contract, but it does
not allow a deduction for contributions, and distributions may be tax-free
if the owner meets certain rules.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the contract on a pre-tax basis.
. Corporate Pension and Profit-Sharing Plans and H.R. 10 Plan: Employers and
self-employed individuals can establish pension or profit-sharing plans for
their employees or themselves and make contributions to the contract on a
pre-tax basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the contract.
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals--Qualified Policies
There are special rules that govern withdrawals with respect to qualified
policies. Generally, these rules restrict:
. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policies.
In addition, a penalty tax may be assessed on amounts withdrawn from the policy
prior to the date you reach age 59 1/2, unless you meet one of the exceptions to
this rule. You may also be required to begin taking minimum distributions from
the policy by a certain date. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more information
in the SAI.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals--403(b) Policies
The Internal Revenue Code limits withdrawal from certain 403(b) policies.
Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. declares hardship. However, in the case of hardship, the owner can only
withdraw the premium payments and not any earnings.
Diversification and Distribution Requirements
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an
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annuity policy. The policy must also meet certain distribution requirements at
the death of an owner in order to be treated as an annuity policy. These
diversification and distribution requirements are discussed in the SAI. PFL may
modify the policy to attempt to maintain favorable tax treatment.
Withdrawals--Nonqualified Policies
The information hereindescribing the taxation of nonqualified policies does not
apply to qualified policies.
If you make a withdrawal from your policy before the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed on
the amount of the withdrawal that is earnings (as ordinary income, not as
capital gains). (The excess interest adjustment resulting from the withdrawal
may affect the amount on which you are taxed. The tax treatment of excess
interest adjustments is uncertain. You should consult a tax adviser if a
withdrawal results in an excess interest adjustment.) The premium enhancement
will be considered earnings. Different rules apply for annuity payments. See
"Annuity Payments" below.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after an owner dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in the
Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified annuity policies that are issued by PFL (or its
affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distribution occurs.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as a
full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in the
same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments, less amounts received, which were not
includable in gross income. The same tax treatment applies to any amounts
distributed after an owner's death. The premium enhancement that we add to your
policy value is not included in the investment in the contract.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments--by dividing the "investment in the contract" on the annuity
commencement date by the total expected value of the annuity payments for the
term of the payments. This is the percentage of each annuity payment that is
excludable.
. Variable payments--by dividing the "investment in the contract" on the annuity
commencement date by the total number of expected periodic payments. This is
the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If you select more than one annuity payment option, special rules govern the
allocation of the policy's entire "investment in the contract" to each such
option, for purposes of determining the excludable amount of each payment
received under that option. We recommend that
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you consult a competent tax adviser as to the potential tax effects of
allocating amounts to any particular annuity payment option.
If, after the annuity commencement date, annuity payments stop because an
annuitant died, the excess (if any) of the "investment in the contract" as of
the annuity commencement date over the aggregate amount of annuity payments
received that was excluded from gross income is generally allowable as a
deduction for your last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant or payee or other beneficiary who is not also the owner, the selection
of certain annuity commencement dates, or a change of annuitant, may result in
certain income or gift tax consequences to the owner that are beyond the scope
of this discussion. An owner contemplating any such transfer, assignment,
selection, or change should contact a competent tax adviser with respect to the
potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax treatment of the policy could change by legislation or
otherwise. You should consult a tax adviser with respect to legal developments
and their effect on the policy.
10. ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time (during the accumulation phase) to receive regular
payments from your policy by using the systematic payout option. Under this
option, you can receive up to 10% (annually) of your policy's value free of
surrender charges. Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50, and cannot exceed the cumulative
free percentage divided by the number of payments per year. Monthly and
quarterly payments must be made by electronic funds transfer directly to your
checking or savings account. There is no charge for this benefit.
Family Income Protector
The family income protector may vary by state and may not be available in all
states.
The optional "family income protector" assures you of a minimum level of income
in the future by guaranteeing a minimum annuitization value (discussed below)
after 10 years. You may elect to purchase this benefit, which guarantees the
total amount you will have to apply to a family income protector payment option
and which guarantees a minimum for the amounts of those payments once you begin
to receive them. By electing this benefit, you can participate in the gains of
the underlying variable investment options you select while knowing that you are
guaranteed a minimum level of income in the future, regardless of the
performance of the underlying variable investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the adjusted policy value or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
---------------------------
. the policy value on the date the rider is issued; plus
. any additional premium payments (not including any premium enhancement); minus
. an adjustment for any withdrawals made after the date the rider is issued;
. which is accumulated at the annual growth rate written on page one of the
rider; minus
. any premium taxes.
The annual growth rate is currently 6% per year; PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per year.
Once the rider is added to your policy, the annual growth rate will not vary
during the life of that rider. Withdrawals may reduce the minimum annuitization
value on a basis greater than dollar-for-dollar. See the SAI for more
information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in section 7 of this prospectus. The family income
protector payment options are:
. Life Income--An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the
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death of the annuitant prior to the end of the chosen period certain, the
remaining period certain payments will be continued to the beneficiary.
. Joint and Full Survivor--An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant or
joint annuitant is living. In the event of the death of both the annuitant and
joint annuitant prior to the end of the chosen period certain, the remaining
period certain payments will be continued to the beneficiary.
The minimum annuitization value is used solely to calculate the family income
protector annuity payments. The family income protector does not establish or
guarantee policy value or guarantee performance of any investment option.
Because this benefit is based on conservative actuarial factors, the level of
lifetime income that it guarantees may be less than the level that would be
provided by application of the policy value at otherwise applicable annuity
factors. Therefore, the family income protector should be regarded as a safety
net. The costs of annuitizing under the family income protector include the
guaranteed payment fee, and also the lower payout levels inherent in the annuity
tables used for those minimum payouts.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, the guaranteed payment fee, and the
waiting period before the family income protector can be exercised) are also
guaranteed not to change after the rider is added. However, all of these benefit
specifications may change if you elect to upgrade the minimum annuitization
value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
-----------------------------------
value to the policy value on a policy anniversary. This may be done within 30
days after any policy anniversary before your 85/th/ birthday (earlier if
required by state law). For your convenience, we will put the last date to
upgrade on page one of the rider.
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees and may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the family
income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy anniversary.
Conditions of Exercise of the Family Income Protector. You can only annuitize
-----------------------------------------------------
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade; PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully--If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family income
--------------------------------------
protector are guaranteed to never be less than the initial payment. See the
Statement of Additional Information for information concerning the calculation
of the initial payment. The payments will also be "stabilized" or held constant
during each policy year.
During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized payment will increase or decrease
depending on the performance of the investment options you selected (but will
never be less than the initial payment), and then be held constant at that
amount for that policy year. The stabilized payment on each policy anniversary
will equal the greater of the initial payment or the payment supportable by the
annuity units in the selected investment options. See the SAI for additional
information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
---------------------------------
annuitization value on the policy anniversary, is charged annually prior to
annuitization. We will also charge this fee if you take a complete withdrawal.
The rider fee is deducted from each variable investment option in proportion to
the amount of policy value in each subaccount.
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The rider fee on any given policy anniversary will be waived if the policy value
exceeds the fee waiver threshold. The fee waiver threshold currently is two
times the minimum annuitization value. PFL may, at its discretion, change the
fee waiver threshold in the future, but it will never be greater than two and
one-half times the minimum annuitization value.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
----------------------
effective annual rate of 1.25% of the daily net asset value in the separate
account, is reflected in the amount of the variable payments you receive if you
annuitize under the family income protector rider. The guaranteed payment fee is
included on page one of the rider.
Termination. The family income protector is irrevocable. You have the option not
-----------
to use the benefit but you will not receive a refund of any fees you have paid.
The family income protector will terminate upon the earliest of the following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94th birthday (earlier if
required by state law).
Nursing Care and Terminal Condition Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months or
less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
Unemployment Waiver
No surrender charges or excess interest adjustment will apply to withdrawals if
you or your spouse is unemployed. In order to qualify, you (or your spouse,
whichever is applicable) must have been:
. employed full time for at least two years prior to becoming unemployed; and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal. This benefit may not be available in all states.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authoriziation" box in the
policy application or enrollment information; or
. you later complete an authorization form.
You will be required to provide certain information for identification purposes
when requesting a transaction by the telephone and we may record your telephone
call. PFL may also require written confirmation of your request. PFL will not be
liable for following telephone requests that it believes are genuine.
Telephone requests must be received while the New York Stock Exchange is open to
get same-day pricing of the transaction. We may discontinue this option at any
time.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging
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fixed account option into one or more variable subaccounts. There is no charge
for this program.
Complete and clear instructions must be received before a dollar cost averaging
program will begin. The instructions must include:
. the subaccounts into which money from the dollar cost averaging fixed account
(or other subaccount(s) used for dollar cost averaging) is to be transferred;
and
. either the dollar amount to transfer monthly or quarterly (each transfer must
be at least $500) or the number of transfers (minimum of 6 monthly or 4
quarterly and maximum of 24 monthly or 8 quarterly).
Transfers must begin within 30 days. We will make the transfers on the 28th day
of the applicable month. You may change your allocations at anytime.
Only one dollar cost averaging program can run at one time. This means that any
addition to a dollar cost averaging program must change either the length of the
program or the dollar amount of the transfers. New instructions must be received
each time there is an addition to a dollar cost averaging program.
Any amount in the dollar cost averaging fixed account (or other subaccount(s)
used for dollar cost averaging) for which we have not received complete and
clear instructions will remain in the dollar cost averaging fixed account (or
other such subaccount) until we receive the instructions. If we have not
received complete and clear instructions within 30 days, the interest credited
in the dollar cost averaging fixed account may be adjusted downward, but not
below the guaranteed effective annual interest rate of 3%.
Dollar cost averaging buys more accumulation units when prices are low and fewer
accumulation units when prices are high. It does not guarantee profits or assure
that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance the
amounts in your subaccounts to maintain your desired asset allocation. This
feature is called asset rebalancing and can be started and stopped at any time
free of charge. However, we will not rebalance if you are in the dollar cost
averaging program or if any other transfer is requested. If a transfer is
requested, we will honor the requested transfer and discontinue asset
rebalancing. New instructions are required to start asset rebalancing. Asset
rebalancing ignores amounts in the fixed account. You can choose to rebalance
monthly, quarterly, semi-annually, or annually.
11. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying PFL in writing. An ownership change
may be a taxable event.
Assignment
You can also assign the policy at any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. PFL
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. An assignment may be a
taxable event. There may be limitations on your ability to assign a qualified
policy. An assignment may have tax consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly-owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc., is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily in
the insurance business.
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PFL is licensed in the District of Columbia, Guam, and in all states except New
York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The Separate Account
PFL established a separate account, called Separate Account VA I, under the laws
of the State of Iowa on May 15, 2000. The separate account receives and
currently invests the premium payments that are allocated to the separate
account for investment in shares of the underlying mutual fund portfolios.
The separate account is registered with the SEC as a unit investment trust under
the 1940 Act. However, the SEC does not supervise the management, the investment
practices, or the policies of the separate account or PFL. Income, gains, and
losses, whether or not realized, from assets allocated to the separate account
are, in accordance with the policies, credited or charged against the separate
account without regard to PFL's other income, gains or losses.
The assets of the separate account are held in PFL's name on behalf of the
separate account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The separate account may include other subaccounts that are not
available under these policies.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular subaccount, please read the prospectuses for the underlying funds.
The underlying funds are not limited to selling their shares to this separate
account and can accept investments from any separate account or qualified
retirement plan. Since the underlying fund portfolios are available to
registered separate accounts offering variable annuity products of PFL, as well
as variable annuity and variable life products of other insurance companies, and
qualified retirement plans, there is a possibility that a material conflict may
arise between the interests of this separate account and one or more of the
other accounts of another participating insurance company. In the event of a
material conflict, the affected insurance companies, including PFL, agree to
take any necessary steps to resolve the matter. This includes removing their
separate accounts from the underlying funds. See the prospectuses for the
underlying funds for more details.
Reinstatements
You may exchange your policy for one issued by another life insurance company
(sometimes referred to as a 1035 Exchange or a trustee-to-trustee transfer). You
may also request us to reinstate your policy after such an exchange by returning
the same total dollar amount of funds to the applicable investment choices. The
dollar amount will be used to purchase new accumulation units at the then
current price. Because of changes in market value, your new accumulation units
may be worth more or less than the units you previously owned. We recommend that
you consult a tax professional to explain the possible tax consequences of
exchanges and/or reinstatements.
Voting Rights
PFL will vote all shares of the underlying funds in accordance with instructions
we receive from you and other owners that have voting interests in the
portfolios. We will send you and other owners written requests for instructions
on how to vote those shares. When we receive those instructions, we will vote
all of the shares in proportion to those instructions. If, however, we determine
that we are permitted to vote the shares in our own right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is a Transamerica Company and an indirect wholly owned subsidiary of
AEGON USA, Inc. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG Securities Corporation is registered as a broker/dealer under
the Securities Exchange Act of 1934. It is a member of the National Association
of Securities Dealers, Inc. ("NASD"). It was incorporated in Pennsylvania on
March 12, 1986.
Commissions of up to 4% of premium payments will be paid to broker/dealers who
sell the policies under agreements with AFSG Securities Corporation. These
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commissions are not deducted from premium payments. In addition, certain
production, persistency and managerial bonuses may be paid. PFL may also pay
compensation to banks and other financial institutions for their services in
connection with the sale and servicing of the policies.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or in
riders or endorsements attached to your policy.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of individual life
insurance and annuity products. Companies must undergo a rigorous self and
independent assessment of their practices to become a member of IMSA. The IMSA
logo in our sales literature shows our ongoing commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the separate account is a party or to
which the assets of the account are subject. PFL, like other life insurance
companies, is 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. Although the outcome of any litigation
cannot be predicted with certainty, PFL believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the separate account or PFL.
Financial Statements
The financial statements of PFL are included in the SAI. As of the date of this
prospectus the separate account had not commenced operations, therefore there
are no financial statements at this time.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Family Income Protector-- Additional Information
Historical Performance Data
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Voting Rights
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
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APPENDIX A
HISTORICAL PERFORMANCE DATA
Standard Performance Data
PFL may advertise historical yields and total returns for the subaccounts of the
separate account. These figures are based on historical earnings and will be
calculated according to guidelines from the SEC. They do not indicate future
performance.
Federated Prime Money Fund II Subaccount. The yield of the Federated Prime Money
----------------------------------------
Fund II Subaccount for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment under a policy in the
subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Other Subaccounts. The yield of a subaccount of the separate account (other than
-----------------
the Federated Prime Money Fund II Subaccount) for a policy refers to the
annualized income generated by an investment under a policy in the subaccount
over a specified 30-day period. The yield is calculated by assuming that the
income generated by the investment during that 30-day period is generated each
30-day period over a 12-month period and is shown as a percentage of the
investment.
The total return of a subaccount of the separate account refers to return
quotations assuming an investment under a policy has been held in the subaccount
for various periods of time including a period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for 1,
5, and 10 years, respectively, the total return for these periods will be
provided. The total return quotations for a subaccount will represent the
average annual compounded rates of return that equate an initial investment of
$1,000 in the subaccount to the redemption value of that investment as of the
last day of each of the periods for which total return quotations are provided.
The redemption value will, of course, reflect the premium enhancement.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy and
they do not reflect the rider charge for the optional family income protector.
The yield calculations also do not reflect the effect of any surrender charge
that may be applicable to a particular policy. To the extent that any or all of
a premium tax and/or surrender charge is applicable to a particular policy, the
yield and/or total return of that policy will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the SAI, a copy of which may
be obtained from the administrative and service office upon request.
Non-Standard Performance Data
In addition to the standard data discussed above, similar performance data for
other periods may also be shown.
PFL may from time to time also advertise or disclose average annual total return
or other performance data in non-standard formats for a subaccount of the
separate account. The non-standard performance data may assume that no surrender
charge is applicable, and may also make other assumptions such as the amount
invested in a subaccount, differences in time periods to be shown, or the effect
of partial withdrawals or annuity payments.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the SAI.
Adjusted Historical Performance Data. The following performance data is historic
------------------------------------
performance data for the underlying portfolios since their inception reduced by
some or all of the fees and charges under the policy. Such adjusted historic
performance includes data that precedes the inception dates of the subaccounts.
This data is designed to show the performance that would have resulted if the
policy had been in existence during that time, based on the performance of the
applicable portfolio and the assumption that the applicable subaccount was in
existence for the same period as the portfolio with a level of charges equal to
those currently assessed under the policies. This data is not intended to
indicate future performance.
For instance, as shown in Table 1, PFL may disclose average annual total returns
for the portfolios reduced by all fees and charges under the policy, as if the
policy had been in existence since the inception of the portfolio. Such fees and
charges
28
<PAGE>
include the mortality and expense risk fee, administrative charge and surrender
charges. Table 1 assumes a complete surrender of the policy at the end of the
period, and therefore the surrender charge is deducted. Table 2 assumes that the
policy is not surrendered, and therefore the surrender charge is not deducted.
Table 1 and Table 2 total return figuress do reflect a 1% premium enhancement.
If they did not, the returns would be lower. Also, Table 1 and Table 2 do not
reflect the rider charge for the optional family income protector.
The following information is also based on the method of calculation described
in the SAI. The adjusted historical average annual total returns for periods
ended December 31, 1999, were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
TABLE 1
Adjusted Historical Average Annual Total Returns/(1)/
(Assuming A Surrender Charge, No Family Income Protector, and a 1% Premium Enhancement)
---------------------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.25%)
---------------------------------------------------------------------------------------------------------------------------------
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federated Prime Money Fund II
First American International Portfolio
First American Large Cap Growth Portfolio
First American Mid Cap Growth Portfolio
First American Small Cap Growth Portfolio
First American Technology Portfolio
Putnam VT Diversified Income Fund - Class IB Shares/(2)/ September 15, 1993
Putnam VT The George Putnam Fund of Boston - Class IB Shares April 30, 1998
Putnam VT Growth and Income Fund - Class IB Shares/(2)/ February 1, 1988
Putnam VT Income Fund - Class IB Shares/(2)/ January 14, 1988
Putnam VT Investors Fund - Class IB Shares April 30, 1998
Putnam VT New Value Fund - Class IB Shares/(2)/ January 2, 1997
---------------------------------------------------------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
---------------------------------------------------------------------------------------------------------------------------------
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
---------------------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II
First American International Portfolio
First American Large Cap Growth Portfolio
First American Mid Cap Growth Portfolio
First American Small Cap Growth Portfolio
First American Technology Portfolio
Putnam VT Diversified Income Fund - Class IB Shares/(2) / September 15, 1993
Putnam VT The George Putnam Fund of Boston - Class IB Shares April 30, 1998
Putnam VT Growth and Income Fund - Class IB Shares/(2)/ February 1, 1988
Putnam VT Income Fund - Class IB Shares/(2)/ January 14, 1988
Putnam VT Investors Fund - Class IB Shares April 30, 1998
Putnam VT New Value Fund - Class IB Shares/(2)/ January 2, 1997
---------------------------------------------------------------------------------------------------------------------------------
+Ten Year Date
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance which would have resulted if the
subaccount had been in existence since the inception of the portfolio.
(2) Class IB performance for the period prior to April 6, 1998 for Putnam VT
Diversified Income Fund, and for the period prior to April 30, 1998 for
Putnam VT Growth and Income Fund, Putnam VT Income Fund and Putnam VT New
Value Fund, are based upon the performance of Class IA Shares of the fund
(not offered in this prospectus), adjusted to replace the fees paid by
Class IB Shares, including a 12b-1 fee of 0.15%.
29
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
TABLE 2
Adjusted Historical Average Annual Total Returns/(1)/
(Assuming No Surrender Charge, No Family Income Protector, and No Premium Enhancement)
---------------------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.25%)
---------------------------------------------------------------------------------------------------------------------------------
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federated Prime Money Fund II
First American International Portfolio
First American Large Cap Growth Portfolio
First American Mid Cap Growth Portfolio
First American Small Cap Growth Portfolio
First American Technology Portfolio
Putnam VT Diversified Income Fund - Class IB Shares/(2)/ September 15, 1993
Putnam VT The George Putnam Fund of Boston - Class IB Shares April 30, 1998
Putnam VT Growth and Income Fund - Class IB Shares/(2)/ February 1, 1988
Putnam VT Income Fund - Class IB Shares/(2)/ January 14, 1988
Putnam VT Investors Fund - Class IB Shares April 30, 1998
Putnam VT New Value Fund - Class IB Shares/(2)/ January 2, 1997
---------------------------------------------------------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
---------------------------------------------------------------------------------------------------------------------------------
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
---------------------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II
First American International Portfolio
First American Large Cap Growth Portfolio
First American Mid Cap Growth Portfolio
First American Small Cap Growth Portfolio
First American Technology Portfolio
Putnam VT Diversified Income Fund - Class IB Shares/(2)/ September 15, 1993
Putnam VT The George Putnam Fund of Boston - Class IB Shares April 30, 1998
Putnam VT Growth and Income Fund - Class IB Shares/(2)/ February 1, 1988
Putnam VT Income Fund - Class IB Shares/(2)/ January 14, 1988
Putnam VT Investors Fund - Class IB Shares April 30, 1998
Putnam VT New Value Fund - Class IB Shares/(2)/ January 2, 1997
---------------------------------------------------------------------------------------------------------------------------------
+Ten Year Date
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance which would have resulted if the
subaccount had been in existence since the inception of the portfolio.
(2) Class IB performance for the period prior to April 6, 1998 for Putnam VT
Diversified Income Fund, and for the period prior to April 30, 1998 for
Putnam VT Growth and Income Fund, Putnam VT Income Fund and Putnam VT New
Value Fund, are based upon the performance of Class IA Shares of the fund
(not offered in this prospectus), adjusted to replace the fees paid by
Class IB Shares, including a 12b-1 fee of 0.15%.
30
<PAGE>
THE U.S. BANCORP INVESTMENTS INC.
PRINCIPAL-PLUS VARIABLE ANNUITY
Issued by
PFL LIFE INSURANCE COMPANY
Supplement Dated October 9, 2000
to the
Prospectus dated October 9, 2000
For New Jersey policies, the optional family income protector is as described in
this supplement and not as described in the prospectus.
Family Income Protector
The optional "family income protector" rider can be used to provide you a
certain level of income in the future by guaranteeing a minimum annuitization
value (discussed below). You may elect to purchase this benefit, which provides
a minimum amount you will have to apply to a family income protector payment
option and which guarantees a minimum level of those payments once you begin to
receive them. By electing this benefit, you can participate in the gains of the
underlying variable investment options you select while knowing that you are
guaranteed a minimum level of income in the future, regardless of the
performance of the underlying variable investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the policy value or the minimum annuitization
value (subject to any applicable adjustment).
Minimum Annuitization Value. If the family income protector is added when you
---------------------------
purchase the policy or in the first policy year, the minimum annuitization value
on the rider date (i.e., the date the rider is added to the policy) is the total
premium payments. If the family income protector is added after the first policy
year, the minimum annuitization value on the rider date is the policy value.
After the rider date, the minimum annuitization value is:
. the minimum annuitization value on the rider date; plus
. any additional premium payments; minus
. an adjustment for any withdrawals made after the rider date;
. the result of which is accumulated at the annual growth rate; minus
. any premium taxes.
Please note that if you annuitize using the family income protector on any date
other than a rider anniversary, there may be a downward adjustment to your
minimum annuitization value. See "Minimum Annuitization Value Adjustment" below.
The annual growth rate is 6% per year. Withdrawals may reduce the minimum
annuitization value on a basis greater than dollar-for-dollar. See the SAI for
more information. In addition to the immediate reduction in the minimum
annuitization value due to the withdrawal, the same withdrawal, if taken in the
rider year that you annuitize using the family income protector, may also result
in a negative minimum annuitization value adjustment. See "Minimum Annuitization
Value Adjustment" below.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the other
annuity payment options listed in the prospectus. The family income protector
payment options are:
. Life Income--An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor--An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant
or joint annuitant is living. In the event of the death of both the
annuitant and joint annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
<PAGE>
Please note that if you annuitize using the family income protector before the
10th rider anniversary, the payments will be calculated with an annuity factor
age adjustment. See "Annuity Factor Age Adjustment" below.
Minimum Annuitization Value Adjustment. If you annuitize under the family
--------------------------------------
income protector on any date other than a rider anniversary, the minimum
annuitization value will be adjusted downward if your policy value has decreased
since the last rider anniversary (or the rider date for annuitizations within
the first rider year). The adjusted minimum annuitization value will equal:
. the policy value on the date you annuitize; plus
. the minimum annuitization value on the most recent rider anniversary (or
the rider date for annuitizations within the first rider year); minus
. the policy value on the most recent rider anniversary (or the rider date
for annuitizations within the first rider year).
The minimum annuitization value will not be adjusted if:
. you annuitize on a rider anniversary; or
. your policy value has increased since the last rider anniversary (or the
rider date for annuitizations within the first rider year).
Annuity Factor Age Adjustment. If you annuitize using the family income
-----------------------------
protector before the 10th rider anniversary, the first payment will be
calculated with an annuity factor age adjustment which subtracts up to 10 years
from your age resulting in all payments being lower than if an annuity factor
age adjustment was not used. See the SAI for information concerning the
calculation of the initial payment. The age adjustment is as follows:
-------------------------- -----------------------------
Number of Years Age Adjustment:
Since the Number of Years Subtracted
Rider Date from Your Age
-------------------------- -----------------------------
0-1 10
-------------------------- -----------------------------
1-2 9
-------------------------- -----------------------------
2-3 8
-------------------------- -----------------------------
3-4 7
-------------------------- -----------------------------
4-5 6
-------------------------- -----------------------------
5-6 5
-------------------------- -----------------------------
6-7 4
-------------------------- -----------------------------
7-8 3
-------------------------- -----------------------------
8-9 2
-------------------------- -----------------------------
9-10 1
-------------------------- -----------------------------
>10 0
-------------------------- -----------------------------
Please note that the minimum annuitization value is used solely to calculate the
family income protector annuity payments. The family income protector does not
establish or guarantee policy value or guarantee performance of any investment
option. Because this benefit is based on conservative actuarial factors, the
level of lifetime income that it guarantees may be less than the level that
would be provided by application of the policy value at otherwise applicable
adjusted annuity factors. Therefore, the family income protector should be
regarded as a safety net. The costs of annuitizing under the family income
protector include the guaranteed payment fee, and also the lower payout levels
inherent in the annuity tables used for those minimum payouts (which may also
include an annuity factor age adjustment). These costs should be balanced
against the benefits of a minimum payout level.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, guaranteed payment fee, and the
annuity factor age adjustment) are also guaranteed not to change after the rider
is added. However, all of these benefit specifications may change if you elect
to upgrade the minimum annuitization value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
-----------------------------------
value to the policy value at any time before your 95th birthday.
<PAGE>
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees; and
. the new rider's specified benefits and fees may not be as advantageous as
before.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value at that time.
Conditions of Exercise of the Family Income Protector. You can annuitize using
-----------------------------------------------------
the family income protector at any time before your 95/th/ birthday. For your
convenience, we will put the last date to annuitize using the family income
protector on page one of the rider.
Note Carefully:
--------------
. If you annuitize at any time other than a rider anniversary, there may be a
negative adjustment to your minimum annuitization value. See "Minimum
Annuitization Value Adjustment."
. If you annuitize before the 10th rider anniversary there will be an annuity
factor age adjustment. See "Annuity Factor Age Adjustment."
. If you take a withdrawal during the rider year that you annuitize, your
minimum annuitization value will be reduced to reflect the withdrawal and
will likely be subject to a negative minimum annuitization value
adjustment.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family income
--------------------------------------
protector are guaranteed to never be less than the initial payment. See the SAI
for information concerning the calculation of the initial payment. The payments
will also be "stabilized" or held constant during each rider year.
During the first rider year after annuitizing using the family income protector,
each stabilized payment will equal the initial payment. On each rider
anniversary thereafter, the stabilized payment will increase or decrease
depending on the performance of the investment options you selected (but will
never be less than the initial payment), and then be held constant at that
amount for that rider year. The stabilized payment on each rider anniversary
will equal the greater of the initial payment or the payment supportable by the
annuity units in the selected investment options. See the SAI for additional
information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.35% of the minimum
---------------------------------
annuitization value on the rider anniversary, is charged annually prior to
annuitization. We will also charge this fee upon termination. The rider fee is
deducted from each variable investment option in proportion to the amount of
policy value in each subaccount.
The rider fee on any given rider anniversary will be waived if the policy value
exceeds the fee waiver threshold. The fee waiver threshold currently is two
times the minimum annuitization value. PFL may, at its discretion, change the
fee waiver threshold in the future, but it will never be greater than two and
one-half times the minimum annuitization value.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
----------------------
effective annual rate of 1.25% of the daily net asset value in the separate
account, is reflected in the amount of the variable payments you receive if you
annuitize under the family income protector rider.
Termination. The family income protector will terminate upon the earliest of the
-----------
following:
. the date we receive written notice from you requesting termination of the
family income protector;
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector);
. upgrade of the minimum annuitization value (although a new rider will be
issued);
. termination of your policy; or
. 30 days after the last date to elect the benefit as shown on page 1 of the
rider.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE U.S. BANCORP INVESTMENTS INC. PRINCIPAL-PLUS VARIABLE ANNUITY
Issued through
SEPARATE ACCOUNT VA I
Offered by
PFL LIFE INSURANCE COMPANY
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for The U.S. Bancorp Investments Inc. Principal-Plus Variable
Annuity ("Principal-Plus Variable Annuity") offered by PFL Life Insurance
Company. You may obtain a copy of the prospectus dated _______________, by
calling 1-800-525-6205, or by writing to the administrative and service office,
Financial Markets Division-Variable Annuity Dept., 4333 Edgewood Road N.E.,
Cedar Rapids, Iowa 52499-0001. The prospectus sets forth information that a
prospective investor should know before investing in a policy. Terms used in the
current prospectus for the policy are incorporated in this Statement of
Additional Information.
This Statement of Additional Information (SAI) is not a prospectus and should be
read only in conjunction with the prospectus for the policy and the prospectus
for the underlying fund portfolios.
Dated: __________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS................................................................................................
THE POLICY--GENERAL PROVISIONS...................................................................................
Owner.......................................................................................................
Entire Policy...............................................................................................
Misstatement of Age or Sex..................................................................................
Addition, Deletion or Substitution of Investments...........................................................
Excess Interest Adjustment..................................................................................
Reallocation of Policy Values After the Annuity Commencement Date...........................................
Annuity Payment Options.....................................................................................
Death Benefit...............................................................................................
Death of Owner..............................................................................................
Assignment..................................................................................................
Evidence of Survival........................................................................................
Non-Participating...........................................................................................
Amendments..................................................................................................
Employee and Agent Purchases................................................................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..........................................................................
Tax Status of the Policy....................................................................................
Taxation of PFL.............................................................................................
INVESTMENT EXPERIENCE............................................................................................
Accumulation Units..........................................................................................
Annuity Unit Value and Annuity Payment Rates................................................................
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION..................................................................
HISTORICAL PERFORMANCE DATA......................................................................................
Money Market Yields.........................................................................................
Other Subaccount Yields.....................................................................................
Total Returns...............................................................................................
Other Performance Data......................................................................................
Adjusted Historical Performance Data........................................................................
PUBLISHED RATINGS................................................................................................
STATE REGULATION OF PFL..........................................................................................
ADMINISTRATION...................................................................................................
RECORDS AND REPORTS..............................................................................................
DISTRIBUTION OF THE POLICIES.....................................................................................
VOTING RIGHTS....................................................................................................
OTHER PRODUCTS...................................................................................................
CUSTODY OF ASSETS................................................................................................
LEGAL MATTERS....................................................................................................
INDEPENDENT AUDITORS.............................................................................................
OTHER INFORMATION................................................................................................
FINANCIAL STATEMENTS.............................................................................................
</TABLE>
-2-
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Policy Value--The policy value increased or decreased by any excess
interest adjustment.
Administrative and Service Office--Financial Markets Division Variable Annuity
Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499-0001.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to commence.
The annuity commencement date may not be later than the last day of the policy
month starting after the annuitant attains age 85, except as expressly allowed
by PFL. In no event will this date be later than the last day of the policy
month following the month in which the annuitant attains age 95. The annuity
commencement date may be required to be earlier for qualified policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value-- The adjusted policy value less any applicable surrender charge.
Code--The Internal Revenue Code of 1986, as amended.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment ("EIA")--A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The adjustment
reflects changes in the interest rates declared by PFL since the date any
payment was received by (or an amount was transferred to) the guaranteed period
option. The excess interest adjustment can either decrease or increase the
amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Excess Partial Withdrawal--The portion of a partial withdrawal (surrender) that
exceeds the cumulative free percentage.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may be offer and into which premium payments may be paid
or amounts transferred.
Nonqualified Policy--A policy other than a qualified policy.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
-3-
<PAGE>
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, rider fees, premium taxes, and transfer fees, if any.
Policy Year--A policy year begins on the policy date in which the policy becomes
effective and on each anniversary thereof.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Separate Account--Separate Account VA I, a separate account established and
registered as a unit investment trust under the Investment Company Act of 1940,
as amended (the "1940 Act"), to which premium payments under the policies may be
allocated.
Service Charge--There is an annual service charge on each policy anniversary
(and a charge at the time of surrender during any policy year) for policy
maintenance and related administrative expenses. This annual charge is $30, but
in no event will this charge be more than 2% of the policy value.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--The applicable contingent deferred sales charge, assessed on
certain full surrenders or partial withdrawals of premium payments to cover
expenses relating to the sale of the policies.
Underlying Funds--The designated portfolios of: (1) Federated Insurance Series,
managed by Federated Investment Management Company; (2) First American Insurance
Portfolios, Inc., managed by First American Asset Management; and (3) Putnam
Variable Trust, managed by Putnam Investment Management, Inc.
Valuation Period--The period of time from one determination of accumulation unit
and annuity unit values to the next subsequent determination of values. Such
determinations shall be made on each business day.
Variable Annuity Payment(s)--Payment(s) made pursuant to an annuity payment
option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the separate account.
Written Notice--Written notice, signed by the owner, that gives PFL the
information it requires and is received at the administrative and service
office. For some transactions, PFL may accept an electronic notice such as
telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
-4-
<PAGE>
In order to supplement the description in the prospectus, the following provides
additional information about PFL and the policy, which may be of interest to a
prospective purchaser.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender the
policy; (3) amend or modify the policy with PFL's consent; (4) receive annuity
payments or name a payee to receive the payments; and (5) exercise, receive and
enjoy every other right and benefit contained in the policy. The exercise of
these rights may be subject to the consent of any assignee or irrevocable
beneficiary; and of the owner's spouse in a community or marital property state.
Unless PFL has been notified of a community or marital property interest in the
policy, it will rely on its good faith belief that no such interest exists and
will assume no responsibility for inquiry.
A successor owner can be named in the application or in a written notice. The
successor owner will become the new owner upon your death, if you predecease the
annuitant. If no successor owner survives the owner and the owner predeceases
the annuitant, your estate will become the owner.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or other
instrument, unless PFL has received written notice of the trust as a successor
owner signed prior to the owner's death, that trust may not exercise ownership
rights to the policy. It may be necessary to open a probate estate in order to
exercise ownership rights to the policy if no contingent owner is named in a
written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded it will take effect
as of the date the owner signs the written notice, subject to any payment PFL
has made or action PFL has taken before recording the change. Changing the owner
or naming a new successor owner cancels any prior choice of successor owner, but
does not change the designation of the beneficiary or the annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the adjusted policy value generally must be
distributed to the successor owner within five years of the owner's death, or if
the first payment begins within one year of the owner's death, payments must be
made for a period certain which does not exceed that successor owner's life
expectancy.
Entire Policy
The policy, any endorsements thereon, the application, and information provided
in lieu thereof, constitute the entire contract between PFL and the owner. All
statements in the application are representations and not warranties. No
statement will cause the policy to be void or to be used in defense of a claim
unless contained in the application or information provided in lieu thereof.
Misstatement of Age or Sex
If the age or sex of the annuitant has been misstated, PFL will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of any underpayment made by PFL
shall be paid in full with the next payment due such person or the beneficiary.
The dollar amount of any overpayment made by PFL due to any misstatement shall
be deducted from payments subsequently accruing to such person or beneficiary.
Any underpayment or overpayment will include interest at 5% per year, from the
date of the wrong payment to the date of the adjustment. The age of the
annuitant may be established at any time by the submission of proof satisfactory
to PFL.
-5-
<PAGE>
Addition, Deletion, or Substitution of Investments
PFL cannot and does not guarantee that any of the subaccounts or portfolios will
always be available for premium payments, allocations, or transfers. PFL retains
the right, subject to any applicable law, to make certain changes in the
separate account and its investments. PFL reserves the right to eliminate the
shares of any portfolio held by a subaccount and/or to substitute shares of
another portfolio of the underlying funds, or of another registered open-end
management investment company for the shares of any portfolio, if the shares of
the portfolio are no longer available for investment or if, in PFL's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the separate account. To the extent required by the 1940 Act, substitutions of
shares attributable to an owner's interest in a subaccount will not be made
without prior notice to the owner and the prior approval of the Securities and
Exchange Commission (SEC). Nothing contained herein shall prevent the separate
account from purchasing other securities for other series or classes of variable
annuity policies, or from effecting an exchange between series or classes of
variable annuity policies on the basis of your requests.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio or other
investment vehicle. PFL may also eliminate one or more subaccounts if, in its
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event any subaccount is eliminated, PFL will notify owners and
request a reallocation of the amounts invested in the eliminated subaccount. If
no such reallocation is provided by the owner, PFL will reinvest the amounts
invested in the eliminated subaccount in the subaccount that invests in the
Money Market Portfolio (or in a similar portfolio of money market instruments)
or in another subaccount, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to be
in the best interests of persons having voting rights under the policies, the
separate account may be (i) operated as a management company under the 1940 Act
or any other form permitted by law, (ii) deregistered under the 1940 Act in the
event such registration is no longer required or (iii) combined with one or more
other separate accounts. To the extent permitted by applicable law, PFL also may
(1) transfer the assets of the separate account associated with the policies to
another account or accounts, (2) restrict or eliminate any voting rights of
owners or other persons who have voting rights as to the separate account, (3)
create new separate accounts, (4) add new subaccounts to or remove existing
subaccounts from the separate account, or combine subaccounts, or (5) add new
underlying funds, or substitute a new fund for an existing fund.
Excess Interest Adjustment
Money that you withdraw from or apply to an annuity payment option from a
guaranteed period option of the fixed account before the end of its guaranteed
period (the number of years you specified the money would remain in the
guaranteed period option) may be subject to an excess interest adjustment. At
the time you request a withdrawal, if interest rates PFL set have risen since
the date of the initial guarantee, the excess interest adjustment will result in
a lower cash value. However, if interest rates have fallen since the date of the
initial guarantee, the excess interest adjustment will result in a higher cash
value.
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the amount paid into it, less any prior partial
withdrawals and transfers from that guaranteed period option, plus interest at
the policy's minimum guaranteed effective annual interest rate of 3%. This is
referred to as the excess interest adjustment floor.
The formula which will be used to determine the excess interest adjustment is:
S*(G-C)* (M/12)
S = Gross amount being withdrawn that is subject to the excess interest
adjustment.
G = Guaranteed interest rate applicable to S.
C = Current Guaranteed Interest Rate then being offered on new premium payments
for the next longer guaranteed period than "M". If this policy form or such
a guaranteed period is no longer offered, "C" will be the U.S. Treasury rate
for the next longer maturity (in whole years) than "M" on the 25th day of
the previous calendar month, plus up to 2%.
M = Number of months remaining in the current guaranteed period, rounded up to
the next higher whole number of months.
* = multiplication
^ = exponentiation
-6-
<PAGE>
Example 1 (Full Surrender, rates increase by 3%):
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------------
Single premium: $50,000
---------------------------------------------------------------------------------------------------------------------------------
Guarantee period: 5 Years
---------------------------------------------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
---------------------------------------------------------------------------------------------------------------------------------
Full surrender: middle of contract year 3
---------------------------------------------------------------------------------------------------------------------------------
Policy value at middle of contract year 3 = 50,000* (1.055) ^ 2.5 = 57,161.18
---------------------------------------------------------------------------------------------------------------------------------
Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
---------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
---------------------------------------------------------------------------------------------------------------------------------
Amount subject to excess interest adjustment = 57,161.18 - 7,161.18 = 50,000.00
---------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03) ^ 2.5 = 53,834.80
---------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment
---------------------------------------------------------------------------------------------------------------------------------
G = .055
---------------------------------------------------------------------------------------------------------------------------------
C = .085
---------------------------------------------------------------------------------------------------------------------------------
M = 30
---------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment = S* (G-C)* (M/12)
---------------------------------------------------------------------------------------------------------------------------------
= 50,000.00* (.055 - .085)* (30/12)
---------------------------------------------------------------------------------------------------------------------------------
= -3,750.00, but excess interest adjustment0
cannot cause the adjusted policy value to fall
below the excess interest adjustment floor, so the
adjustment is limited to 53,834.80 - 57,161.18 = -
3,326.38
---------------------------------------------------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest adjustment
= 57,161.18 - 3,326.38 = 53,834.80
---------------------------------------------------------------------------------------------------------------------------------
Surrender charge = (50,000 - 17,148.35)* .06 = 1,971.10
---------------------------------------------------------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest adjustment - surrender
charge
---------------------------------------------------------------------------------------------------------------------------------
= 57,161.18 - 3,326.38 - 1,971.10
---------------------------------------------------------------------------------------------------------------------------------
= 51,863.70
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
Example 2 (Full Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------------
Single premium: $50,000
---------------------------------------------------------------------------------------------------------------------------------
Guarantee period: 5 Years
---------------------------------------------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
---------------------------------------------------------------------------------------------------------------------------------
Full surrender: middle of contract year 3
---------------------------------------------------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055) ^ 2.5 = 57,161.18
---------------------------------------------------------------------------------------------------------------------------------
Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
---------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
---------------------------------------------------------------------------------------------------------------------------------
Amount subject to excess interest adjustment = 57,161.18 - 7,161.18 = 50,000.00
---------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03) ^ 2.5 = 53,834.80
---------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment
---------------------------------------------------------------------------------------------------------------------------------
G = .055
---------------------------------------------------------------------------------------------------------------------------------
C = .045
---------------------------------------------------------------------------------------------------------------------------------
M = 30
---------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
---------------------------------------------------------------------------------------------------------------------------------
= 50,000* (.055 - .045)* (30/12)
---------------------------------------------------------------------------------------------------------------------------------
= 1,250.00
---------------------------------------------------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest adjustment
---------------------------------------------------------------------------------------------------------------------------------
= 57,161.18 + 1,250.00 = 58,411.18
---------------------------------------------------------------------------------------------------------------------------------
Surrender charge = (50,000 - 17,148.35)* .06 = 1,971.10
---------------------------------------------------------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest adjustment - surrender
charge
---------------------------------------------------------------------------------------------------------------------------------
= 57,161.18 + 1,250 - 1,971.10
---------------------------------------------------------------------------------------------------------------------------------
= 56,440.08
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On a partial withdrawal, PFL will pay the owner the full amount of withdrawal
requested (as long as the policy value is sufficient). Surrender charge--free
withdrawals will reduce the policy value by the amount withdrawn. Amounts
withdrawn in excess of the surrender charge--free amount will reduce the policy
value by an amount equal to:
X - Y + Z
X = excess partial withdrawal = requested withdrawal less surrender charge--free
amount
A = amount of partial withdrawal which is subject to excess interest adjustment
= requested withdrawal- excess interest adjustment--free amount, where
excess interest adjustment--free amount = cumulative interest credited at
time of, but prior to, withdrawal.
Y = excess interest adjustment = (A)*(G-C)*(M/12) where G, C, and M are defined
above, with "A" substituted for "S" in the definition of G and M.
Z = surrender charge on X minus Y.
-8-
<PAGE>
Example 3 (Partial Withdrawal, rates increase by 1%):
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------
Single premium: $50,000
---------------------------------------------------------------------------------------------------------------------------
Guarantee period: 5 Years
---------------------------------------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
---------------------------------------------------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year 3
---------------------------------------------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055) ^2.5 = 57,161.18
---------------------------------------------------------------------------------------------------------------------------
Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
---------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
---------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment / surrender charge
---------------------------------------------------------------------------------------------------------------------------
X = 30,000 - 17,148.35 = 12,851.65
---------------------------------------------------------------------------------------------------------------------------
A = 30,000 - 7,161.18 = 22,838.82
---------------------------------------------------------------------------------------------------------------------------
G = .055
---------------------------------------------------------------------------------------------------------------------------
C = .065
---------------------------------------------------------------------------------------------------------------------------
M = 30
---------------------------------------------------------------------------------------------------------------------------
Y = 22,838.82* (.055 - .065)* (30/12) = -570.97
---------------------------------------------------------------------------------------------------------------------------
Z = .06* [12,851.65 - (-570.97)] = 805.36
---------------------------------------------------------------------------------------------------------------------------
Reduction to policy value due to surrender charge--free withdrawal = 17,148.35
---------------------------------------------------------------------------------------------------------------------------
Reduction to policy value due to excess withdrawal = X - Y + Z
---------------------------------------------------------------------------------------------------------------------------
= 12,851.65 - (-570.97) + 805.36
---------------------------------------------------------------------------------------------------------------------------
= 14,227.98
---------------------------------------------------------------------------------------------------------------------------
Policy value after withdrawal at middle of policy year 3
= 57,161.18 - [17,148.35 + 14,227.98]
---------------------------------------------------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 + 12,851.65 -
(-570.97) + 805.36]
---------------------------------------------------------------------------------------------------------------------------
= 57,161.18 - [30,000 - (-570.97) + 805.36]
---------------------------------------------------------------------------------------------------------------------------
= 57,161.18 - 31,376.33 = 25,784.85
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
Example 4 (Partial Withdrawal, rates decrease by 1%):
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------
Single premium: $50,000
---------------------------------------------------------------------------------------------------------------------------
Guarantee period: 5 Years
---------------------------------------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
---------------------------------------------------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year 3
---------------------------------------------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055) ^ 2.5 = 57,161.18
---------------------------------------------------------------------------------------------------------------------------
Surrender charge free amount at middle of
policy year 3 = 57,161.18* .30 = 17,148.35
---------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
---------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment / surrender charge
X = 30,000 - 17,148.35 = 12,851.65
A = 30,000 - 7,161.18 = 22,838.82
G = .055
C = .045
M = 30
Y = 22,838.82* (.055 - .045)* (30/12) = 570.97
Z = .06* [12,851.65 - (570.97)] = 736.84
---------------------------------------------------------------------------------------------------------------------------
Reduction to policy value due to surrender charge--free withdrawal = 17,148.35
---------------------------------------------------------------------------------------------------------------------------
Reduction to policy value due to excess withdrawal = X - Y + Z
---------------------------------------------------------------------------------------------------------------------------
= 12,851.65 - 570.97 + 736.84
---------------------------------------------------------------------------------------------------------------------------
= 13,017.52
---------------------------------------------------------------------------------------------------------------------------
Policy value after withdrawal at middle of policy year 3
= 57,161.18 - [17,148.35 + 13,017.52]
---------------------------------------------------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 + 12,851.65 -
570.97 + 736.84]
---------------------------------------------------------------------------------------------------------------------------
= 57,161.18 - [30,000 - (570.97) + 736.84]
---------------------------------------------------------------------------------------------------------------------------
= 57,161.18 - 30,165.87 = 26,995.31
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Reallocation of Annuity Units After the Annuity Commencement Date
After the annuity commencement date, the owner may reallocate the value of a
designated number of annuity units of a subaccount of the separate account then
credited to a policy into an equal value of annuity units of one or more other
subaccounts of the separate account, or the fixed account. An annuity unit is an
accounting unit used in the calculation of the amount of the second and each
subsequent variable annuity payment. The reallocation shall be based on the
relative value of the annuity units of the account(s) or subaccount(s) at the
end of the business day on the next payment date. The minimum amount which may
be reallocated is the lesser of (1) $10 of monthly income or (2) the entire
monthly income of the annuity units in the account or subaccount from which the
transfer is being made. If the monthly income of the annuity units remaining in
an account or subaccount after a reallocation is less than $10, PFL reserves the
right to include the value of those annuity units as part of the transfer. The
request must be in writing to PFL's administrative and service office. There is
no charge assessed in connection with such reallocation. A reallocation of
annuity units may be made up to four times in any given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the separate account.
Annuity Payment Options
During the lifetime of the annuitant and prior to the annuity commencement date,
the owner may choose an annuity payment option or change the election, but
written notice of any election or change of election must be received by PFL at
its administrative and service office at least thirty (30) days prior to the
annuity commencement date. If no election is made prior to the annuity
commencement date, annuity payments will be made under (i) Payment Option 3,
life income with level payments for 10 years certain, using the existing
adjusted policy value of the fixed account, or (ii) under Payment Option 3, life
income with variable payments for 10 years certain using the existing policy
value of the separate account, or (iii) in a combination of (i) and (ii).
-10-
<PAGE>
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount PFL has at the death of a payee.
Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL agrees.
Variable Payment Options. The dollar amount of the first variable annuity
-------------------------
payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the policy. The tables are based on a
5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table with projection using
projection Scale G factors, assuming a maturity date in the year 2000. ("The
1983 Table a" mortality rates are adjusted based on improvements in mortality
since 1983 to more appropriately reflect increased longevity. This is
accomplished using a set of improvement factors referred to as projection scale
G.) The dollar amount of additional variable annuity payments will vary based on
the investment performance of the subaccount(s) of the separate account selected
by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
--------------------------------------------
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
Annuity Commencement Date Adjusted Age
------------------------- ------------
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
This adjustment assumes an increase in life expectancy, and therefore it results
in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
----------------------------------------------
other than the first are calculated using annuity units which are credited to
the policy. The number of annuity units to be credited in respect of a
particular subaccount is determined by dividing that portion of the first
variable annuity payment attributable to that subaccount by the annuity unit
value of that subaccount on the annuity commencement date. The number of annuity
units of each particular subaccount credited to the policy then remains fixed,
assuming no transfers to or from that subaccount occur. The dollar value of
variable annuity units in the chosen subaccount will increase or decrease
reflecting the investment experience of the chosen subaccount. The dollar amount
of each variable annuity payment after the first may increase, decrease or
remain constant, and is equal to the sum of the amounts determined by
multiplying the number of annuity units of each particular subaccount credited
to the policy by the annuity unit value for the particular subaccount on the
date the payment is made.
Death Benefit
Adjusted Partial Withdrawal. The amount of your guaranteed minimum death benefit
----------------------------
is reduced due to a partial withdrawal called the adjusted partial withdrawal.
The reduction amount depends on the relationship between your guaranteed minimum
death benefit and policy value. The adjusted partial withdrawal is the sum of
(1) and (2), where:
(1) The surrender charge-free withdrawal amount taken; and
(2) The amount that an excess partial withdrawal (the portion of a withdrawal
that can be subject to a surrender charge) reduces the policy value times
[(a) divided by (b)] where:
(a) is the amount of the death benefit prior to the excess partial
withdrawal; and
(b) is the policy value prior to the excess partial withdrawal.
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
-11-
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 1
(Assumed Facts for Example)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$75,000 current guaranteed minimum death benefit before withdrawal
------------------------------------------------------------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
------------------------------------------------------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum death benefit)
------------------------------------------------------------------------------------------------------------------------------------
6% current surrender charge percentage
------------------------------------------------------------------------------------------------------------------------------------
$15,000 requested withdrawal
------------------------------------------------------------------------------------------------------------------------------------
$10,000 surrender charge-free amount (assumes 20% cumulative free percentage is available)
------------------------------------------------------------------------------------------------------------------------------------
$ 5,000 excess partial withdrawal-- (amount subject to surrender charge)
------------------------------------------------------------------------------------------------------------------------------------
$ 100 excess interest adjustment
(assumes interest rates have decreased since initial guarantee)
------------------------------------------------------------------------------------------------------------------------------------
$ 294 surrender charge on (excess partial withdrawal less excess interest adjustment) = 0.06*(5000 - 100)
------------------------------------------------------------------------------------------------------------------------------------
$ 5,194 reduction in policy value due to excess partial withdrawal = 5000 - 100 + 294
------------------------------------------------------------------------------------------------------------------------------------
$17,791 adjusted partial withdrawal = $10,000 + [$5,194* (75,000/50,000)]
------------------------------------------------------------------------------------------------------------------------------------
$57,209 New guaranteed minimum death benefit (after withdrawal) = 75,000 - 17,791
------------------------------------------------------------------------------------------------------------------------------------
$34,806 New policy value (after withdrawal) = 50,000 - 10,000 - 5,194
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Summary:
--------
Reduction in guaranteed minimum death benefit = $17,791
Reduction in policy value = $15,194
Note, guaranteed minimum death benefit is reduced more than the policy value
since the guaranteed minimum death benefit was greater than the policy value
just prior to the withdrawal.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 2
(Assumed Facts for Example)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$50,000 current guaranteed minimum death benefit before withdrawal
-----------------------------------------------------------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
-----------------------------------------------------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum death benefit)
-----------------------------------------------------------------------------------------------------------------------------------
6% current surrender charge percentage
------------------------------------------------------------------------------------------------------------------------------------
$15,000 requested withdrawal
------------------------------------------------------------------------------------------------------------------------------------
$11,250 surrender charge-free amount (assumes 15% cumulative free percentage is available)
------------------------------------------------------------------------------------------------------------------------------------
$ 3,750 excess partial withdrawal--(amount subject to surrender charge)
------------------------------------------------------------------------------------------------------------------------------------
$ -100 excess interest adjustment
(assumes interest rates have increased since initial guarantee)
------------------------------------------------------------------------------------------------------------------------------------
$ 231 surrender charge on (excess partial withdrawal less excess interest adjustment) = 0.06*[(3750-(-100)]
------------------------------------------------------------------------------------------------------------------------------------
$ 4,081 reduction in policy value due to excess partial withdrawal = 3750 - (-100) + 231 = 3750 + 100 + 231
------------------------------------------------------------------------------------------------------------------------------------
$15,331 adjusted partial withdrawal = $11,250 + [$4,081* (75,000/75,000)]
------------------------------------------------------------------------------------------------------------------------------------
$34,669 New guaranteed minimum death benefit (after withdrawal) = 50,000 - 15,331
------------------------------------------------------------------------------------------------------------------------------------
$59,669 New policy value (after withdrawal) = 75,000 - 11,250 - 4,081
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Summary:
--------
Reduction in guaranteed minimum death benefit = $15,331
Reduction in policy value = $15,331
Note, the guaranteed minimum death benefit and policy value are reduced by the
same amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the owner
died prior to the commencement of annuity payments. A certified copy of a death
certificate, a certified copy of a decree of a court of competent jurisdiction
as to the finding of death, a written statement by the attending physician, or
any other proof satisfactory to PFL, will constitute due proof of death.
Upon receipt of this proof and an election of a method of settlement and return
of the policy, the death benefit generally will be paid within seven days, or as
soon thereafter as PFL has sufficient information about the beneficiary to make
the payment. The
-12-
<PAGE>
beneficiary may receive the amount payable in a lump sum cash benefit, or,
subject to any limitation under any state or federal law, rule, or regulation,
under one of the annuity payment options described above, unless a settlement
agreement is effective at the death of the owner preventing such election.
Distribution Requirements. If the annuitant was the owner, and the beneficiary
--------------------------
was not the annuitant's spouse, the death benefit must (1) be distributed within
five years of the date of the deceased owner's death, or (2) payments under an
annuity payment option must begin no later than one year after the deceased
owner's death and must be made for the beneficiary's lifetime or for a period
certain (so long as any period certain does not exceed the beneficiary's life
expectancy). Death Proceeds which are not paid to or for the benefit of a
natural person must be distributed within five years of the date of the deceased
owner's death. If the sole beneficiary is the deceased owner's surviving spouse,
such spouse may elect to continue the policy as the new annuitant and owner
instead of receiving the death benefit. (See "Certain Federal Income Tax
Consequences.")
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the adjusted policy value. If the successor owner is not the
deceased owner's spouse, however, the adjusted policy value must be distributed:
(1) within five years after the date of the deceased owner's death, or (2)
payments under an annuity payment option must begin no later than one year after
the deceased owner's death and must be made for the successor owner's lifetime
or for a period certain (so long as any period certain does not exceed the
successor owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
------------
effect until changed. The owner may change the designated beneficiary by sending
written notice to PFL. The beneficiary's consent to such change is not required
unless the beneficiary was irrevocably designated or law requires consent. (If
an irrevocable beneficiary dies, the owner may then designate a new
beneficiary.) The change will take effect as of the date the owner signs the
written notice, whether or not the owner is living when the notice is received
by PFL. PFL will not be liable for any payment made before the written notice is
received. If more than one beneficiary is designated, and the owner fails to
specify their interests, they will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where (1) the spouse of the deceased owner is the sole beneficiary, (2)
the owner is not a natural person and the primary annuitant dies or is changed,
or (3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" below for more information about these rules. Other
rules may apply to qualified policies.
Assignment
During the lifetime of the annuitant the owner may assign any rights or benefits
provided by the policy if your policy is a nonqualified policy. An assignment
will not be binding on PFL until a copy has been filed at its administrative and
service office. The rights and benefits of the owner and beneficiary are subject
to the rights of the assignee. PFL assumes no responsibility for the validity or
effect of any assignment. Any claim made under an assignment shall be subject to
proof of interest and the extent of the assignment. An assignment may have tax
consequences.
Unless you so direct by filing written notice with PFL, no beneficiary may
assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any beneficiary's
creditors.
Ownership under qualified policies is restricted to comply with the Code.
Evidence of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
-13-
<PAGE>
Amendments
No change in the policy is valid unless made in writing by PFL and approved by
one of PFL's officers. No registered representative has authority to change or
waive any provision of the policy.
PFL reserves the right to amend the policy to meet the requirements of the Code,
regulations or published rulings. You can refuse such a change by giving written
notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the policy
due to lower acquisition costs PFL experiences on those purchases. The credit
will be reported to the Internal Revenue Service as taxable income to the
employee or registered representative. PFL may offer certain employer sponsored
savings plans, in its discretion, reduced fees and charges including, but not
limited to, the annual service charge, the surrender charges, the mortality and
expense risk fee and the administrative charge for certain sales under
circumstances which may result in savings of certain costs and expenses. In
addition, there may be other circumstances of which PFL is not presently aware
which could result in reduced sales or distribution expenses. Credits to the
policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general discussion
of certain of the expected federal income tax consequences of investment in and
distributions with respect to a policy, based on the Internal Revenue Code of
1986, as amended, proposed and final Treasury Regulations thereunder, judicial
authority, and current administrative rulings and practice. This summary
discusses only certain federal income tax consequences to "United States
Persons," and does not discuss state, local, or foreign tax consequences. United
States Persons means citizens or residents of the United States, domestic
corporations, domestic partnerships and trusts or estates that are subject to
United States federal income tax regardless of the source of their income.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies as
an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the Code provides that in order
-----------------------------
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account must
be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. ((S)) 1.817-5)
apply a diversification requirement to each of the subaccounts of the separate
account. The separate account, through the underlying funds and their
portfolios, intends to comply with the diversification requirements of the
Treasury. PFL has entered into agreements regarding participation in the
Principal-Plus Variable Annuity that require the underlying funds and their
portfolios to be operated in compliance with the Treasury regulations.
Owner Control. In certain circumstances, owners of variable annuity contracts
--------------
may be considered the owners, for Federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contractowner's gross income. Several years ago, the IRS state
in published rulings that a variable contract owner will be considered the owner
of separate account assets if the contractowner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. More recently, the Treasury Department announced, in connection with the
issuance of regulations concerning investment diversification, that those
regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor, rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of underlying assets."
-14-
<PAGE>
The ownership rights under the contract are similar to, but different in certain
respects from those described by the IRS in rulings in which it was determined
that contractowners were not owners of separate account assets. For example, the
owner of a policy has the choice of one or more subaccounts in which to allocate
premiums and policy values, and may be able to transfer among these accounts
more frequently than in such rulings. These differences could result in
policyowners being treated as the owners of the assets of the separate account.
In addition, PFL does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. PFL therefore reserves the right to modify the policies as necessary to
attempt to prevent the policyowners from being considered the owners of a pro
rata share of the assets of the separate account.
Distribution Requirements. The Code also requires that nonqualified policies
--------------------------
contain specific provisions for distribution of policy proceeds upon the death
of any owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest in
the policy has been distributed, the remaining portion must be distributed at
least as rapidly as under the method in effect on such owner's death. If any
owner dies before the annuity commencement date, the entire interest in the
policy must generally be distributed within 5 years after such owner's date of
death or be applied to provide an immediate annuity under which payments will
begin within one year of such owner's death and will be made for the life of the
beneficiary or for a period not extending beyond the life expectancy of the
beneficiary. However, if such owner's death occurs prior to the annuity
commencement date, and such owner's surviving spouse is named the beneficiary,
then the policy may be continued with the surviving spouse as the new owner. If
any owner is not a natural person, then for purposes of these distribution
requirements, the primary annuitant shall be treated as the owner and any death
or change of such primary annuitant shall be treated as the death of an owner.
The policy contains provisions intended to comply with these requirements of the
Code. No regulations interpreting these requirements of the Code have yet been
issued and thus no assurance can be given that the provisions contained in the
policies satisfy all such Code requirements. The provisions contained in the
policies will be reviewed and modified if necessary to maintain their compliance
with the Code requirements when clarified by regulation or otherwise.
Withholding. The portion of any distribution under a policy that is includable
------------
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or made.
The withholding rate varies according to the type of distribution and the
owner's tax status. For qualified policies, "eligible rollover distributions"
from Section 401(a) plans, Section 403(a) annuities, and Section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding of
20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the owner chooses a "direct
rollover" from the plan to another tax-qualified plan or IRA. Different
withholding requirements may apply in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
-------------------
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions); distributions
that do not conform to specified commencement and minimum distribution rules;
and in other specified circumstances. Some retirement plans are subject to
distribution and other requirements that are not incorporated into the policies
or PFL's Policy administration procedures. Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the policies comply with applicable law.
For qualified plans under section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year in which the owner (or plan participant) reaches age 70
1/2. Each owner is responsible for requesting distributions under the policy
that satisfy applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional individual
--------------------------------
retirement annuity under Section 408(b) of the Code, a policy must contain
certain provisions: (i) the owner must be the annuitant; (ii) the policy
generally is not transferable by the owner, e.g., the owner may not designate a
new owner, designate a contingent owner or assign the policy as collateral
-15-
<PAGE>
security; (iii) the total premium payments for any calendar year on behalf of
any individual may not exceed $2,000, except in the case of a rollover amount or
contribution under Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the
Code; (iv) annuity payments or partial withdrawals must begin no later than
April 1 of the calendar year following the calendar year in which the annuitant
attains age 70 1/2; (v) an annuity payment optional with a period certain that
will guarantee annuity payments beyond the life expectancy of the annuitant and
the beneficiary may not be selected; (vi) certain payments of death benefits
must be made in the event the annuitant dies prior to the distribution of the
policy value; and (vii) the entire interest of the owner is non-forfeitable.
Policies intended to qualify as traditional individual retirement annuities
under Section 408(b) of the Code contain such provisions. Amounts in the IRA
(other than nondeductible contributions) are taxed when distributed from the
IRA. Distributions prior to age 59 1/2 (unless certain exceptions apply) are
subject to a 10% penalty tax.
No part of the funds for an individual retirement account (including a Roth IRA)
or annuity may be invested in a life insurance contract, but the regulations
thereunder allow such funds to be invested in an annuity policy that provides a
death benefit that equals the greater of the premiums paid or the cash value for
the contract. The policy provides an enhanced death benefit that could exceed
the amount of such a permissible death benefit, but it is unclear to what extent
such an enhanced death benefit could disqualify the policy as an IRA. The
Internal Revenue Service has not reviewed the policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the policy, comports
with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
------------------------------------------------
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not deductible
and must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply to the rollover or conversion and to
distributions attributable thereto. You should consult a tax adviser before
combining any converted amounts with any other Roth IRA contributions, including
any other conversion amounts from other tax years. The Roth IRA is available to
individuals with earned income and whose modified adjusted gross income is under
$110,000 for single filers, $160,000 for married filing jointly, and $10,000 for
married filing separately. The amount per individual that may be contributed to
all IRAs (Roth and traditional) is $2,000. Secondly, the distributions are taxed
differently. The Roth IRA offers tax-free distributions when made 5 tax years
after the first contribution to any Roth IRA of the individual and made after
attaining age 59 1/2, or to pay for qualified first time homebuyer expenses
(lifetime maximum of $10,000), or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are generally the
same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
--------------------
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject to
certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, (ii) earnings on those contributions, and (iii) earnings on
amounts attributed to elective contributions held as of the end of the last year
beginning before January 1, 1989. Distributions of such amounts will be allowed
only upon the death of the employee, on or after attainment of age 59 1/2,
separation from service, disability, or financial hardship, except that income
attributable to elective contributions may not be distributed in the case of
hardship.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections 401(a)
-------------------------------------------------------------
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the policy
is assigned or transferred to any individual as a means to provide benefit
payments. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in an
pension or profit-sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax adviser.
Deferred Compensation Plans. Section 457 of the Code, while not actually
----------------------------
providing for a qualified plan (as that term is used in the Code), provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The
-16-
<PAGE>
policies can be used with such plans. Under such plans a participant may specify
the form of investment in which his or her participation will be made. For non-
governmental Section 457 plans, all such investments, however, are owned by the
sponsoring employer, and are subject to the claims of the general creditors of
the sponsoring employer. Depending on the terms of the particular plan, a non-
governmental employer may be entitled to draw on deferred amounts for purposes
unrelated to its Section 457 plan obligations. In general, all amounts received
under a Section 457 plan are taxable and are subject to federal income tax
withholding as wages.
Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity contract
--------------------
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the Code; accordingly, an owner who is not a natural
person will recognize as ordinary income for a taxable year the excess of (i)
the sum of the cash value as of the close of the taxable year and all previous
distributions under the policy over (ii) the sum of the premium payments paid
for the taxable year and any prior taxable year and the amounts includable in
gross income for any prior taxable year with respect to the policy. For these
purposes, the policy value at year end may have to be increased by any positive
excess interest adjustment which could result from a full surrender at such
time. There is, however, no definitive guidance on the proper tax treatment of
excess interest adjustments and the owner should contact a competent tax adviser
with respect to the potential tax consequences of an excess interest adjustment.
Notwithstanding the preceding sentences in that paragraph, Section 72(u) of the
Code does not apply to (i) a policy where the nominal owner is not a natural
person but the beneficial owner of which is a natural person, (ii) a policy
acquired by the estate of a decedent by reason of such decedent's death, (iii) a
qualified policy (other than one qualifying under Section 457) or (iv) a single-
payment annuity where the Commencement Date is no later than one year from the
date of the single premium payment; such policies are taxed as described above
under the heading "Taxation of Annuities."
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of Subchapter L
of the Code. The separate account is treated as part of PFL and, accordingly,
will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. PFL does not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the separate account retained as part of the reserves under
the policy. Based on this expectation, it is anticipated that no charges will be
made against the separate account for federal income taxes. If, in future years,
any federal income taxes are incurred by PFL with respect to the separate
account, PFL may make a charge to the separate account.
INVESTMENT EXPERIENCE
A "Net Investment Factor" is used to determine the value of accumulation units
and annuity units, and to determine annuity payment rates.
Accumulation Units
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the premium
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a given
business day is based on the net asset value of a share of the corresponding
portfolio of the underlying funds less any applicable charges or fees. The
investment performance of the portfolio, expenses, and deductions of certain
charges affect the value of an accumulation unit.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. The number of
accumulation units to be credited is determined by dividing the dollar amount
allocated to each subaccount by the value of an accumulation unit for that
subaccount as next determined after the premium payment is received at the
administrative and service office or, in the case of the initial premium
payment, when the application is completed, whichever is later. The value of an
accumulation unit was arbitrarily established at $1 at the inception of each
subaccount. Thereafter, the value of an accumulation unit is determined as of
the close of trading on each day the New York Stock Exchange is open for
business.
An index (the "Net Investment Factor") which measures the investment performance
of a subaccount during a valuation period, is used to determine the value of an
accumulation unit for the next subsequent valuation period. The Net Investment
Factor may be greater or less than or equal to one; therefore, the value of an
accumulation unit may increase, decrease or remain the same from one valuation
period to the next. The owner bears this investment risk. The net investment
performance of a subaccount and deduction of certain charges affect the
accumulation unit value.
-17-
<PAGE>
The Net Investment Factor for any subaccount for any valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value per share of the shares held in the subaccount
determined at the end of the current valuation period, plus
(2) the per share amount of any dividend or capital gain distribution made
with respect to the shares held in the subaccount if the ex-dividend date
occurs during the current valuation period, plus or minus
(3) a per share credit or charge for any taxes determined by PFL to have
resulted from the investment operations of the subaccount;
(b) the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period; and
(c) is the charge for mortality and expense risk during the valuation period
(equal on an annual basis to 1.10% for the Return of Premium Death Benefit and
1.25% for both the 5% Annually Compounding Death Benefit or the Annual Step-Up
Death Benefit) of the daily net asset value of the subaccount, plus the .15%
administrative charge for all three death benefit options.
Illustration of Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
(Assume Either the 5% Annually Compounding Death Benefit or
the Annual Step-Up Death Benefit is in effect.)
Investment Experience Factor = (A + B - C) - E
-----------
D
<TABLE>
<S> <C>
Where: A = The Net Asset Value of an underlying fund share as of the end of the current valuation
period.
Assume................................................................................................A = $11.57
B = The per share amount of any dividend or capital gains distribution since the end of the
immediately preceding valuation period.
Assume.....................................................................................................B = 0
C = The per share charge or credit for any taxes reserved for at the end of the current
valuation period.
Assume.....................................................................................................C = 0
D = The Net Asset Value of an underlying fund share at the end of the immediately preceding
valuation period.
Assume................................................................................................D = $11.40
E = The daily deduction for mortality and expense risk fee and administrative charges, which
totals 1.40% on an annual basis.
On a daily basis.................................................................................. = .0000380909
</TABLE>
<TABLE>
<S> <C>
Then, the Investment Experience Factor = (11.57+ 0 - 0) - .0000380909 = Z = 1.0148741898
--------------
11.40
</TABLE>
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<S> <C>
Where: A = The accumulation unit value for the immediately preceding valuation period.
Assume............................................................................... = $X
B = The Net Investment Factor for the current valuation period.
Assume................................................................................ = Y
</TABLE>
Then, the accumulation unit value = $X * Y = $Z
-18-
<PAGE>
Annuity Unit Value and Annuity Payment Rates
The amount of variable annuity payments will vary with annuity unit values.
Annuity unit values rise if the net investment performance of the subaccount
exceeds the assumed interest rate of 5% annually. Conversely, annuity unit
values fall if the net investment performance of the subaccount is less than the
assumed rate. The value of a variable annuity unit in each subaccount was
established at $1 on the date operations began for that subaccount. The value of
a variable annuity unit on any subsequent business day is equal to (a)
multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the immediately
preceding business day;
(b) is the net investment factor for that subaccount for the valuation period;
and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
Assumed Investment Return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business day.
The net investment factor for the policy used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a fund share held in that subaccount
determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that subaccount if the ex-dividend
date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which PFL
determines to have resulted from the investment operations of the
subaccount.
(ii) is the net asset value of a fund share held in that subaccount
determined as of the end of the immediately preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis, to 1.25% (for
the Return of Premium Death Benefit) or 1.40% (for the 5% Annually Compounding
Death Benefit and the Annual Step-Up Death Benefit) of the daily net asset
value of a fund share held in that subaccount.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity Unit Value = A * B * C
<TABLE>
<S> <C>
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume....................................................................................= $X
B = Investment Experience Factor for the valuation period for which the annuity unit value is
being calculated.
Assume....................................................................................= Y
C = A factor to neutralize the assumed interest rate of 5% built into the Annuity Tables used.
Assume....................................................................................= Z
</TABLE>
Then, the annuity unit value is: $X * Y * Z = $Q
-19-
<PAGE>
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First Monthly Variable Annuity Payment = A * B
-----
$1,000
<TABLE>
<S> <C>
Where: A = The policy value as of the annuity commencement date.
Assume..........................................................................................= $X
B = The Annuity purchase rate per $1,000 based upon the option selected, the sex and adjusted age
of the annuitant according to the tables contained in the policy.
Assume..........................................................................................= $Y
</TABLE>
Then, the first Monthly Variable Annuity Payment = $X * $Y = $Z
------------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
-
B
<TABLE>
<S> <C>
Where: A = The dollar amount of the first monthly Variable Annuity Payment.
Assume....................................................................................= $X
B = The annuity unit value for the Valuation Date on which the first monthly payment is due.
Assume....................................................................................= $Y
</TABLE>
Then, the number of annuity units = $X = Z
--
$Y
FAMILY INCOME PROTECTOR -- ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
. there were no subsequent premium payments or withdrawals;
. there were no premium taxes;
. the $100,000 premium is subject to the family income protector;
. the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 6.0% (once established an annual growth rate will
not change during the life of the family income protector rider); and
. there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10 Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with 10
Years Certain
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Rider Anniversary at Male Female Joint & Survivor
Exercise Date
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life Only Life 10 Life Only Life 10 Life Only Life 10
-------------------------------------------------------------------------------------------------
10 (age 70) $1,135 $1,067 $ 976 $ 949 $ 854 $ 852
-------------------------------------------------------------------------------------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
-------------------------------------------------------------------------------------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
-------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 1
------------------------------------------------------------------------------------------------------------------------------------
Assumptions
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
------------------------------------------------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
------------------------------------------------------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
------------------------------------------------------------------------------------------------------------------------------------
. distribution amount: $500
------------------------------------------------------------------------------------------------------------------------------------
. prior distribution in current policy year: None
------------------------------------------------------------------------------------------------------------------------------------
Calculations
------------------------------------------------------------------------------------------------------------------------------------
. maximum annual free amount: $10,000 x 6% = $600
------------------------------------------------------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $500 = $14,500
------------------------------------------------------------------------------------------------------------------------------------
. minimum annuitization value after distribution: $10,500 - $500 = $10,000
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 2
------------------------------------------------------------------------------------------------------------------------------------
Assumptions
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
------------------------------------------------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
------------------------------------------------------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
------------------------------------------------------------------------------------------------------------------------------------
. distribution amount: $1,500
------------------------------------------------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
------------------------------------------------------------------------------------------------------------------------------------
Calculations
------------------------------------------------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
------------------------------------------------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600])
------------------------------------------------------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $1,500 = $13,500
------------------------------------------------------------------------------------------------------------------------------------
(since the policy value is reduced 10% ($1,500/$15,000), the minimum annuitization value is also reduced 10%)
------------------------------------------------------------------------------------------------------------------------------------
. minimum annuitization value after distribution: $10,500 - (10% x $10,500) = $9,450
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 3
------------------------------------------------------------------------------------------------------------------------------------
Assumptions
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
------------------------------------------------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
------------------------------------------------------------------------------------------------------------------------------------
. policy value at time of distribution: $7,500
------------------------------------------------------------------------------------------------------------------------------------
. distribution amount: $1,500
------------------------------------------------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
------------------------------------------------------------------------------------------------------------------------------------
Calculations
------------------------------------------------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
------------------------------------------------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600])
------------------------------------------------------------------------------------------------------------------------------------
. policy value after distribution: $7,500 - $1,500 = $6,000
------------------------------------------------------------------------------------------------------------------------------------
(since the policy value is reduced 20% ($1,500/$7,500), the minimum annuitization value is also reduced 20%)
------------------------------------------------------------------------------------------------------------------------------------
. minimum annuitization value after distribution: $10,500 - (20% x $10,500) = $8,400
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The
-21-
<PAGE>
applicable annuity factor depends upon the annuitant's (and joint annuitant's,
if any) sex (or without regard to gender if required by law), age, and the
family income protector payment option selected and is based on a guaranteed
interest rate of 3% and the "1983 Table a" mortality table with projection using
projection Scale G factors, assuming a maturity date in the year 2000.
Subsequent payments will be calculated as described in the family income
protector rider using a 5% assumed investment return. Subsequent payments may
fluctuate annually in accordance with the investment performance of the annuity
subaccounts. However, subsequent payments are guaranteed to never be less than
the initial payment.
The stabilized payment on each subsequent policy anniversary after annuitization
using the family income protector will equal the greater of the initial payment
or the payment supportable by the annuity units in the selected subaccounts. The
supportable payment is equal to the number of variable annuity units in the
selected subaccounts multiplied by the variable annuity unit values in those
subaccounts on the date the payment is made. The variable annuity unit values
used to calculate the supportable payment will assume a 5% assumed investment
return. If the supportable payment at any payment date during a policy year is
greater than the stabilized payment for that policy year, the excess will be
used to purchase additional annuity units. Conversely, if the supportable
payment at any payment date during a policy year is less than the stabilized
payment for that policy year, there will be a reduction in the number of annuity
units credited to the policy to fund the deficiency. In the case of a reduction,
you will not participate as fully in the future investment performance of the
subaccounts you selected since fewer annuity units are credited to your policy.
Purchases and reductions will be allocated to each subaccount on a proportionate
basis.
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a guaranteed payment fee
will be deducted.
HISTORICAL PERFORMANCE DATA
Money Market Yields
PFL may from time to time disclose the current annualized yield of the Federated
Prime Money Fund II Subaccount for a 7-day period in a manner which does not
take into consideration any realized or unrealized gains or losses on shares of
the portfolio securities. This current annualized yield is computed by
determining the net change (exclusive of realized gains and losses on the sale
of securities and unrealized appreciation and depreciation and income other than
investment income) at the end of the 7-day period in the value of a hypothetical
account having a balance of 1 unit at the beginning of the 7-day period,
dividing such net change in account value by the value of the account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects (i)
net income from the portfolio attributable to the hypothetical account; and (ii)
charges and deductions imposed under a policy that are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for (i) the administrative charges; and (ii) the
mortality and expense risk fee. Current Yield will be calculated according to
the following formula:
Current Yield = ((NCS * ES)/UV) * (365/7)
Where:
NCS = The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Federated Prime Money Fund II Subaccount will be lower than the yield for the
Federated Prime Money Fund II. The yield calculations do not reflect the effect
of any premium taxes or surrender charges that may be applicable to a particular
policy. Surrender charges range from 6% to 0% of the amount of premium payments
withdrawn based on the number of years since the premium payment was made.
However, surrender charges will not be assessed after the tenth policy year.
PFL may also disclose the effective yield of the Federated Prime Money Fund II
Subaccount for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the base period return according to
the following formula:
-22-
<PAGE>
Effective Yield = (1 + ((NCS - ES)/UV))/365/7/ - 1
Where:
NCS = The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the Federated Prime Money Fund II Subaccount
normally will fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The Federated Prime Money Fund II Subaccount actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Federated Prime Money Fund II, the types and quality
of portfolio securities held by the Federated Prime Money Fund II and its
operating expenses. There was no yield or effective yield for the Federated
Prime Money Fund II Subaccount for the seven days ended December 31, 1999,
because the Federated Prime Money Fund II Subaccount had not yet commenced
operations.
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts of the separate account (except the Federated
Prime Money Fund II Subaccount) for 30-day periods. The annualized yield of a
subaccount refers to income generated by the subaccount over a specific 30-day
period. Because the yield is annualized, the yield generated by a subaccount
during the 30-day period is assumed to be generated each 30-day period over a
12-month period. The yield is computed by: (i) dividing the net investment
income of the subaccount less subaccount expenses for the period, by (ii) the
maximum offering price per unit on the last day of the period times the daily
average number of units outstanding for the period, compounding that yield for a
6-month period, and (iv) multiplying that result by 2. Expenses attributable to
the subaccount include (i) the administrative charge and (ii) the mortality and
expense risk fee. The 30-day yield is calculated according to the following
formula:
Yield = 2 * ((((NI - ES)/(U * UV)) + 1)/6/ -1)
Where:
NI = Net investment income of the subaccount for the 30-day period
attributable to the subaccount's unit.
ES = Expenses of the subaccount for the 30-day period.
U = The average number of units outstanding.
UV = The unit value at the close (highest) of the last day in the 30-day
period.
Because of the charges and deductions imposed by the separate account, the yield
for a subaccount of the separate account will be lower than the yield for its
corresponding portfolio. The yield calculations do not reflect the effect of any
premium taxes or surrender charges that may be applicable to a particular
policy. Surrender charges range from 6% to 0% of the amount of premium payments
withdrawn based on the number of years since the premium payment was made.
However, surrender charges will not be assessed after the tenth policy year.
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. A subaccount's actual yield is affected by the types and quality of its
investments and its operating expenses.
Total Returns
PFL may from time to time also advertise or disclose total returns for one or
more of the subaccounts of the separate account for various periods of time. One
of the periods of time will include the period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for 1,
5 and 10 years, respectively, the total return for these periods will be
provided. Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates of return
that would equate an initial investment of $1,000 to the redemption value of
that investment as of the last day of each of the periods. The ending date for
each period for which total return quotations are provided will be for the most
recent month end practicable, considering the type and media of the
communication and will be stated in the communication.
-23-
<PAGE>
Total returns will be calculated using subaccount unit values which PFL
calculates on each business day based on the performance of the subaccount's
underlying portfolio, and the deductions for the mortality and expense risk fee
and the administrative charges. Total return calculations will reflect the
effect of surrender charges that may be applicable to a particular period. The
total return will then be calculated according to the following formula:
P (1 + T)/N/ = ERV
Where:
T = The average annual total return net of subaccount recurring charges.
ERV = The ending redeemable value of the hypothetical account at the end of
the period.
P = A hypothetical initial payment of $1,000.
N = The number of years in the period.
Other Performance Data
PFL may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
surrender charge percentage will be assumed to be 0%.
PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the surrender charge
percentage will be 0%.
CTR = (ERV/P) -1
Where:
CTR = The cumulative total return net of subaccount recurring charges for
the period.
ERV = The ending redeemable value of the hypothetical investment at the end
of the period.
P = A hypothetical initial payment of $1,000.
All non-standardized performance data will only be advertised if the
standardized performance data is also disclosed.
Adjusted Historical Performance Data
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date the separate account commenced
operations. Such performance information for the subaccounts will be calculated
based on the performance of the various portfolios and the assumption that the
subaccounts were in existence for the same periods as those indicated for the
portfolios, with the level of policy charges that are currently in effect.
PUBLISHED RATINGS
PFL may from time to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of PFL and they should not be considered
as bearing on the investment performance of assets held in the separate account
or of the safety or riskiness of an investment in the separate account. Each
year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's ratings. These ratings reflect
their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of PFL as
measured by Standard & Poor's Insurance Ratings Services, Moody's Investors
Service or Duff & Phelps Credit Rating Co. may be referred to in advertisements
or sales literature or in reports to owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability ratings
do not refer to an insurer's ability to meet non-policy obligations such as debt
or commercial paper obligations.
-24-
<PAGE>
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
PFL. As presently required by the 1940 Act and regulations promulgated
thereunder, PFL will mail to all owners at their last known address of record,
at least annually, reports containing such information as may be required under
that Act or by any other applicable law or regulation. Owners will also receive
confirmation of each financial transaction and any other reports required by law
or regulation.
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies, however, PFL reserves the right to do so.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. Distribution of the policies did not begin until
the date of this SAI.
VOTING RIGHTS
To the extent required by law, PFL will vote the underlying funds' shares held
by the mutual fund account at regular and special shareholder meetings of the
underlying funds in accordance with instructions received from persons having
voting interests in the portfolios, although none of the underlying funds hold
regular annual shareholder meetings. If, however, the 1940 Act or any regulation
thereunder should be amended or if the present interpretation thereof should
change, and as a result PFL determines that it is permitted to vote the
underlying funds shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount. The number of votes that you
have the right to instruct for a particular subaccount will be determined by
dividing your policy value in the subaccount by the net asset value per share of
the corresponding portfolio in which the subaccount invests. Fractional shares
will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying fund for determining shareholders eligible to vote at the meeting of
the underlying fund. PFL will solicit voting instructions by sending you, or
other persons entitled to vote, written requests for instructions prior to that
meeting in accordance with procedures established by the underlying fund.
Portfolio shares as to which no timely instructions are received and shares held
by PFL in which you, or other persons entitled to vote, have no beneficial
interest will be voted in proportion to the voting instructions that are
received with respect to all policies participating in the same subaccount.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
-25-
<PAGE>
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the separate account. These variable annuity policies may have different
features, such as different investment choices or charges.
CUSTODY OF ASSETS
PFL holds assets of each of the subaccounts of the separate account. The assets
of each of the subaccounts of the separate account are segregated and held
separate and apart from the assets of the other subaccounts and from PFL's
general account assets. PFL maintains records of all purchases and redemptions
of shares of the underlying funds held by each of the subaccounts. Additional
protection for the assets of the separate account is afforded by PFL's fidelity
bond, presently in the amount of $5,000,000, covering the acts of officers and
employees of PFL.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C. has provided legal advice to
PFL relating to certain matters under the federal securities laws applicable to
the issue and sale of the policies.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December 31,
1999 and 1998, and for each of the three years in the period ended December 31,
1999, included in this SAI have been audited by Ernst & Young LLP, Independent
Auditors, Suite 3400, 801 Grand Avenue, Des Moines, Iowa 50309. There are no
financial statements of the separate account because it had not commenced
operations as of December 31, 1999.
OTHER INFORMATION
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, with respect to the policies discussed in this SAI. Not all
of the information set forth in the registration statement, amendments and
exhibits thereto has been included in the prospectus or this SAI. Statements
contained in the prospectus and this SAI concerning the content of the policies
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the SEC.
FINANCIAL STATEMENTS
The values of the interest of owners in the separate account will be affected
solely by the investment results of the selected subaccount(s). The financial
statements of PFL, which are included in this SAI, should be considered only as
bearing on the ability of PFL to meet its obligations under the policies. They
should not be considered as bearing on the investment performance of the assets
held in the separate account.
-26-
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
(1) (a) Resolution of the Board of Directors of PFL Life
Insurance Company authorizing establishment of the
Mutual Fund Account. Note 4.
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between PFL
Life Insurance Company, on its own behalf and on the
behalf of the Mutual Fund Account, and AFSG Securities
Corporation. Note 4.
(b) Form of Broker/Dealer Supervision and Sales Agreement
by and between AFSG Securities Corporation and the
Broker/Dealer. Note 4.
(4) (a) Form of Policy. Note 5.
(5) (a) Form of Application. Note 5.
(6) (a) Articles of Incorporation of PFL Life Insurance
Company. Note 1.
(b) ByLaws of PFL Life Insurance Company. Note 1.
(7) Not Applicable.
(8) (a) Participation Agreement by and between Putnam Variable
Trust, Putnam Mutual Funds Corp. and PFL Life Insurance
Company. Note 2.
(a)(1) Form of Amended Schedule A to Participation Agreement
by and between Putnam Variable Trust, Putnam Mutual
Funds Corp. and PFL Life Insurance Company. Note 4.
(b) Form of Participation Agreement by and among First
American Insurance Portfolios, Inc., First American
Asset Management, a division of U.S. Bank National
Association, and PFL Life Insurance Company. Note 4.
(c) Participation Agreement by and between PFL Life
Insurance Company and Federated Insurance Series. Note
3.
(c)(1) Form of Amended Exhibit A and Exhibit B to
Participation Agreement by and between PFL Life
Insurance Company, Federated Insurance Series and
Federated Securities Corp. Note 4.
(9) Opinion and Consent of Counsel. Note 5.
(10) (a) Consent of Independent Auditors. Note 5.
(b) Opinion and Consent of Actuary. Note 5.
(11) Not applicable.
<PAGE>
(12) Not applicable.
(13) Performance Data Calculations. Note 5.
(14) Powers of Attorney. (P.S. Baird, C.D. Vermie, L.N.
Norman, B. Herbert, Jr., D.C. Kolsrud, R.J. Kontz, B.K.
Clancy) Note 4.
Note 1. Incorporated by reference to the Initial Filing to Form N-4
Registration Statement (File No. 333-26209) on April 30, 1997.
Note 2. Incorporated by reference to Post-Effective Amendment No. 5 to Form
N-4 Registration Statement (File No. 333-7509) on July 16, 1998.
Note 3. Incorporated by reference to Pre-Effective Amendment No. 1 on Form N-
4 (File No. 333-26209) on July 28, 1997.
Note 4. Filed herewith
Note 5. To be filed by Amendment.
Item 25. Directors and Officers of the Depositor (PFL Life Insurance Company)
Name and Business Address Principal Positions and Offices with Depositor
------------------------- ----------------------------------------------
Bart Herbert, Jr. Director, Chairman of the Board and
1111 N. Charles Street Executive Vice President
Baltimore, MD 21201
Larry N. Norman Director and President
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Patrick S. Baird Director, Senior Vice President and Chief
4333 Edgewood Road, N.E. Operating Officer
Cedar Rapids, Iowa 52499-0001
Craig D. Vermie Director, Vice President, Secretary and
4333 Edgewood Road, N.E. General Counsel
Cedar Rapids, Iowa 52499-0001
Douglas C. Kolsrud Director, Senior Vice President, Chief
4333 Edgewood Road, N.E. Investment Officer and Corporate Actuary
Cedar Rapids, Iowa 52499-0001
Robert J. Kontz Vice President and Corporate Controller
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Brenda K. Clancy Vice President, Treasurer and Chief Financial
4333 Edgewood Road, N.E. Officer
Cedar Rapids, Iowa 52499-0001
<PAGE>
Item 26. Persons Controlled by or under Common Control With the Depositor or
Registrant.
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
---- ---------------- ----------------- ---------------------
<S> <C> <C> <C>
AEGON N.V. Netherlands 51.16% of Vereniging Holding company
AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% AEGON N.V. Holding company
AEGON Netherland N.V. Netherlands 100% AEGON N.V. Holding company
AEGON Nevak Holding B.V. Netherlands 100% AEGON N.V. Holding company
AEGON International N.V. Netherlands 100% AEGON N.V. Holding company
Voting Trust Trustees: Delaware Voting Trust
K.J.Storm
Donald J. Shepard H.B.
Van Wijk Dennis Hersch
AEGON U.S. Holding Corporation Delaware 100% Voting Trust Holding company
Short Hills Management Company New Jersey 100% AEGON U.S. Holding company
Holding Corporation
COPRA Reinsurance Company New York 100% AEGON U.S. Holding company
Holding Corporation
AEGON Management Company Indiana 100% AEGON U.S. Holding company
Holding Corporation
RCC North America Inc. Delaware 100% AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
Transamerica Holding Company Delaware 100% AEGON USA, Inc. Holding company
AEGON Funding Corp. Delaware 100% Transamerica Issue debt securities-net
Holding Corporation proceeds used to make
loans to affiliates
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding
Company company
AUSA Life Insurance New York 82.33% First AUSA Life Insurance
Company, Inc. Insurance Company
17.67% Veterans Life
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and
hold the equity
interest of other
entities
Great American Insurance Iowa 100 % LIICA Marketing
Agency, Inc.
Bankers United Life Iowa 100% Life Investors Insurance
Assurance Company Insurance Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of
of Kentucky Services Group, Inc. structured
settlements
AEGON Assignment Corporation Illinois 100% AEGON Financial Administrator of
Services Group, Inc. structured
settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Arizona 100% of Common Voting Stock Insurance
Co. First AUSA Life Ins. Co.
Western Reserve Life Ohio 100% First AUSA Life Ins. Co. Insurance
Assurance Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides
Assurance Co. of Ohio administration for
affiliated mutual
fund
WRL Investment Florida 100% Western Reserve Life Registered
Management, Inc. Assurance Co. of Ohio Investment advisor
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
and Subsidiaries Assurance Co. of Ohio
ISI Insurance Agency Alabama 100% ISI Insurance Agency, Insurance agency
of Alabama, Inc. Inc.
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Insurance agency
of Ohio, Inc. Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency, Insurance agency
of Massachusetts, Inc. Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Insurance agency
of Texas, Inc. Inc.
ISI Insurance Agency Hawaii 100% ISI Insurance Agency, Insurance agency
of Hawaii, Inc. Inc.
ISI Insurance Agency New Mexico 100% ISI Insurance Agency, Insurance agency
of New Mexico, Inc. Inc.
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
Monumental General Casualty Maryland 100% First AUSA Life Ins. Co. Insurance
Co.
United Financial Services, Maryland 100% First AUSA Life Ins. Co. General agency
Inc.
Bankers Financial Life Ins. Arizona 100% First AUSA Life Ins. Co. Insurance
Co.
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Ins. Co. Holding company
Monumental General Life Puerto Rico 51% First AUSA Life Insurance
Insurance Company of Insurance Company
Puerto Rico 49% Baldrich & Associates
of Puerto Rico
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Kansas 100% Monumental General Sale/admin. of
Inc. Insurance Group, Inc. travel insurance
Monumental General Maryland 100% Monumental General Provides management
Administrators, Inc. Insurance Group, Inc. srvcs. to
unaffiliated third
party administrator
Executive Management and Maryland 100% Monumental General Provides actuarial
Consultant Services, Inc. Administrators, Inc. consulting services
Monumental General Mass Maryland 100% Monumental General Marketing arm for
Marketing, Inc. Insurance Group, Inc. sale of mass
marketed insurance
coverage
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Capital, Inc. California 100% AUSA Holding Co. Broker/Dealer
Endeavor Management Company California 100% AUSA Holding Co. Investment Management
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party
administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of
America, Inc. automobile extended
maintenance contracts
Massachusetts Fidelity Trust Iowa 100% AUSA Holding Co. Trust company
Co.
Money Service, Inc. Delaware 100% AUSA Holding Co. Provides financial
counseling for
employees and agents
of affiliated
companies
ADB Corporation Delaware 100% Money Services, Inc. Special purpose
limited Liability
company
ORBA Insurance Services, Inc. California 10.56% Money Services, Inc. Insurance agency
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
Zahorik Texas, Inc. Texas 100% Zahorik Company, Inc. Insurance agency
Long, Miller & Associates, California 33-1/3% AUSA Holding Co. Insurance agency
L.L.C.
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered
Services, Inc. investment advisor
InterSecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% InterSecurities, Inc. Holding company/
Group, Inc. management services
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 100% AUSA Holding Co. Investment advisor
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
IDEX Mutual Funds Massachusetts Various Mutual fund
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment
Advisor, Inc. advisor
Diversified Investors Delaware 100% Diversified Investment Broker-Dealer
Securities Corp. Advisors, Inc.
George Beram & Company, Inc. Massachusetts 100% Diversified Investment Employee benefit and
Advisors, Inc. actuarial consulting
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
(De-registered)
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
Weiner Agency, Inc. Maryland 100% Creditor Resources, Inc. Insurance agency
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and
real estate investment
AEGON USA Real Estate Delaware 100% AEGON USA Realty Real estate and
Services, Inc. Advisors, Inc. mortgage holding
company
QSC Holding, Inc. Delaware 100% AEGON USA Realty Real estate and
Advisors, Inc. financial software
production and sales
LRA, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Realty Associates, Texas 100% Landauer Associates, Inc. Real estate counseling
Inc.
Realty Information Systems, Iowa 100% AEGON USA Realty Information Systems
Inc. Advisors, Inc. for real estate
investment management
USP Real Estate Investment Iowa 12.89% First AUSA Life Ins. Co. Real estate
Trust 13.11% PFL Life Ins. Co. investment trust
4.86% Bankers United Life
Assurance Co.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples
Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Real Estate Delaware 100% CGC Furniture and
Development Corporation Equipment lessor
Commonwealth General Kentucky 100% CGC Administrator of
Assignment Corporation structured settlements
Diversified Financial Delaware 100% CGC Provider of
Products Inc. investment, marketing
and admin. services
to ins. cos.
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of services
to insurance companies
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment
advisor (de-registered)
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Commonwealth General LLC Turks & 100% CGC Special-purpose
Caicos Islands subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose
Corporation Agency, Inc. subsidiary
Financial Planning Services, Dist. Columbia 100% Ampac Insurance Special-purpose
Inc. Agency, Inc. subsidiary
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose
Agency, Inc. subsidiary
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment
Agency, Inc. lessor
Veterans Benefit Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Delaware 100% Ampac Insurance Special-purpose
Inc. Agency, Inc. subsidiary
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Life Insurance company
Company of America Insurance Company
FED Financial, Inc. Delaware 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose
Insurance Agency, Inc. Group, Inc. subsidiary
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose
(EIN 23-2364438) Group, Inc. subsidiary
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
Force Financial Services, Inc. Massachusetts 100% Force Financial Group, Special-purpose
Inc. subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
NCOAA Management Company Texas 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin.
Services, Inc. Group, Inc. services
Unicom Administrative Germany 100% Unicom Administrative Provider of admin.
Services, GmbH Services, Inc. services
Capital General Development Delaware 100% CGC Holding company
Corporation
Monumental Life Maryland 73.33% Capital General Insurance company
Insurance Company Development Company
26.77% First AUSA Life
Insurance Company
AEGON Special Markets Maryland 100% Monumental Life Marketing company
Group, Inc. Insurance Company
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20.0% Capital Liberty, L.P.
76.3% Monumental Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Insurance Special-purpose
Company subsidiary
Coverna Direct Insurance Maryland 100% Peoples Benefit Insurance agency
Services, Inc. Life Insurance Company
Ammest Realty Corporation Texas 100% Monumental Life Special-purpose
Insurance Company subsidiary
JMH Operating Company, Inc. Mississippi 100% Monumental Life Real estate holdings
Insurance Company
Capital Liberty, L.P. Delaware 99.0% Monumental Life Holding company
Insurance Company
1.0% CGC
Transamerica Corporation Delaware 100% AEGON NV Major interest in
insurance and finance
Transamerica Pacific Hawaii 100% Transamerica Corp. Life insurance
Insurance Company, Ltd.
TREIC Enterprises, Inc. Delaware 100% Transamerica Corp. Investments
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARC Reinsurance Corporation Hawaii 100% Transamerica Corp. Property & Casualty
Insurance
Transamerica Management, Inc. Delaware 100% ARC Reinsurance Corp. Asset management
Inter-America Corporation California 100% Transamerica Corp. Insurance Broker
Pyramid Insurance Company, Hawaii 100% Transamerica Corp. Property & Casualty
Ltd. Insurance
Pacific Cable Ltd. Bmda. 100% Pyramid Insurance Sold 25% of TC Cable,
Company, Ltd. Inc. stock in 1998
Transamerica Business Tech Delaware 100% Transamerica Corp. Telecommunications
Corp. and data processing
Transamerica CBO I, Inc. Delaware 100% Transamerica Corp. Owns and manages a
pool of high-yield
bonds
Transamerica Corporation Oregon 100% Transamerica Corp. Name holding only -
(Oregon) Inactive
Transamerica Finance Corp. Delaware 100% Transamerica Corp. Commercial & Consumer
Lending & equipment
leasing
TA Leasing Holding Co., Inc. Delaware 100% Transamerica Finance Corp. Holding company
Trans Ocean Ltd. Delaware 100% TA Leasing Holding Co. Holding company
Inc.
Trans Ocean Container Corp. Delaware 100% Trans Ocean Ltd. Intermodal leasing
("TOCC")
SpaceWise Inc. Delaware 100% TOCC Intermodal leasing
Trans Ocean Container Delaware 100% TOCC Intermodal leasing
Finance Corp.
Trans Ocean Leasing Germany 100% TOCC Intermodal leasing
Deutschland GmbH
Trans Ocean Leasing PTY Ltd. Austria 100% TOCC Intermodal leasing
Trans Ocean Management S.A. Switzerland 100% TOCC Intermodal lesing
Trans Ocean Regional California 100% TOCC Holding company
Corporate Holdings
Trans Ocean Tank Services Delaware 100% TOCC Intermodal leasing
Corp.
Transamerica Leasing Inc. Delaware 100% TA Leasing Holding Co. Leases & Services
intermodal equipment
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Leasing Holdings Delaware 100% Transamerica Leasing Inc. Holding company
Inc. ("TLHI")
Greybox Logistics Services Delaware 100% TLHI Intermodal leasing
Inc.
Greybox L.L.C. Delaware 100% TLHI Intermodal freight
container interchange
facilitation service
Transamerica Trailer France 100% Greybox L.L.C. Leasing
Leasing S.N.C.
Greybox Services Limites U.K. 100% TLHI Intermodal leasing
Intermodal Equipment, Inc. Delaware 100% TLHI Intermodal leasing
Transamerica Leasing N.V. Belg. 100% Intermodal Equipment Inc. Leasing
Transamerica Leasing SRL Italy 100% Intermodal Equipment Inc. Leasing
Transamerica Distribution Delaware 100% TLHI Provided door-to-door
Services, Inc. services for the domestic
transportation of
temperature-sensitive
products
Transamerica Leasing Belg. 100% TLHI Leasing
Coordination Center
Transamerica Leasing do Braz. 100% TLHI Container Leasing
Brasil Ltda.
Transamerica Leasing GmbH Germany 100% TLHI Leasing
Transamerica Leasing Limited U.K. 100% TLHI Leasing
ICS Terminals (UK) Limited U.K. 100% Transamerica Leasing Leasing
Limited
Transamerica Leasing Pty. Ltd. Australia 100% TLHI Leasing
Transamerica Leasing (Canada) Canada 100% TLHI Leasing
Inc.
Transmerica Leasing (HK) Ltd. H.K. 100% TLHI Leasing
Transamerica Leasing S. Africa 100% TLHI Intermodal leasing
(Proprietary) Limited
Transamerica Tank Container Australia 100% TLHI The Australian
Leasing Pty. Limited (domestic) leasing of
tank containers
Transamerica Trailer Holdings Delaware 100% TLHI Holding company
I Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Trailer Holdings Delaware 100% TLHI Holding company
II Inc.
Transamerica Trailer Holdings Delaware 100% TLHI Holding company
III Inc.
Transamerica Trailer Leasing Swed. 100% TLHI Leasing
AB
Transamerica Trailer Leasing Swetzerland 100% TLHI Leasing
AG
Transamerica Trailer Leasing Denmark 100% TLHI Leasing
A/S
Transamerica Trailer Leasing Germany 100% TLHI Leasing
GmbH
Transamerica Trailer Leasing Belgium 100% TLHI Leasing
(Belgium) N.V.
Transamerica Trailer Leasing Netherlands 100% TLHI Leasing
(Netherlands) B.V.
Transamerica Trailer Spain Spain 100% TLHI Leasing
S.A.
Transamerica Transport Inc. New Jersey 100% TLHI Dormant
Transamerica Commercial Delaware 100% Transamerica Finance Corp. Holding company for
Finance Corporation, I commercial/consumer
("TCFCI") finance subsidiaries
Transamerica Equipment Delaware 100% TCFCI
Financial Services
Corporation
BWAC Credit Corporation Delaware 100% TCFCI
BWAC International Corporation Delaware 100% TCFCI
BWAC Twelve, Inc. Delaware 100% TCFCI Holding company for
premium finance
subsidiaries
TIFCO Lending Corporation Illinois 100% BWAC Twelve, Inc. General financing &
other services in the
US & elsewhere
Transamerica Insurance Maryland 100% BWAC Twelve, Inc. Provides insurance
Finance Corporation ("TIFC") premium financing in
the US with the
exception of CA and HI
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Insurance Maryland 100% TIFC Provides insurance
Finance Company (Europe) premium financing in
California
Transamerica Insurance California 100% TIFC Disability insurance
Finance Corporation, & holding co. for
California various insurance
subsidiaries of
Transamerica Corporation
Transamerica Insurance ON 100% TIFC Provides insurance
Finance Corporation, Canada premium financing in
Canada
Transamerica Business Credit Delaware 100% TCFCI Provides asset based
Corporation ("TBCC") lending, leasing &
equipment financing
Transamerica Mezzanine Delaware 100% TBCC Holds investments in
Financing, Inc. several joint
ventures/partnerships
Transamerica Business Delaware 100% TBCC
Advisory Group
Bay Capital Corporation Delaware 100% TBCC Special purpose
company for the
purchase of real
estate tax liens
Coast Funding Corporation Delaware 100% TBCC Special purpose
company for the
purchase of real
estate tax liens
Transamerica Small Business Delaware 100% TBCC
Capital, Inc. ("TSBC")
Emergent Business Capital Delaware 100% TSBC
Holdings, Inc.
Gulf Capital Corporation Delaware 100% TBCC Special purpose
company for the
purchase of real
estate tax liens
Direct Capital Equity Delaware 100% TBCC Small business loans
Investment, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Air East, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air I, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air II, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air III, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air IV, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air V, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air VI, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air VII, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air VIII, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air IX, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air X, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air XI, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air XII, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Air XIII, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air XIV, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Air XV, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
TA Marine I, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases barges or ships
TA Marine II, Corp. Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases barges or ships
TBC I, Inc. Delaware 100% TBCC Special purpose corp.
TBC II, Inc. Delaware 100% TBCC Special purpose corp.
TBC III, Inc. Delaware 100% TBCC Special purpose corp.
TBC IV, Inc. Delaware 100% TBCC Special purpose corp.
TBC V, Inc. Delaware 100% TBCC Special purpose corp.
TBC VI, Inc. Delaware 100% TBCC Special purpose corp.
TBC Tax I, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
TBC Tax II, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
TBC Tax III, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
TBC Tax IV, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
TBC Tax V, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TBC Tax VI, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
TBC Tax VII, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
TBC Tax VIII, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
TBC Tax IX, Inc. Delaware 100% TBCC Special purpose co.
for the purchase of
real estate tax lien
The Plain Company Delaware 100% TBCC Special purpose corp.
which hold an
ownership interest or
leases aircraft
Transamerica Distribution Delaware 100% TCFCI Holding corp. for
Finance Corporation ("TDFC") inventory, comm. leasing,
retail finance comm.
recovery service and
accounts
Transamerica Accounts Holding Delaware 100% TDFC
Corp.
Transamerica Commercial Delaware 100% TDFC Wholesale floor plan
Finance Corporation ("TCFC") for appliances,
electronics, computers,
office equip. and marine
equipment
Transamerica Acquisition Canada 100% TCFC Holding company
Corporation, Canada
Transamerica Distribution Delaware 100% TCFC
Finance Corporation -
Overseas, Inc. ("TDFCO")
TDF Mauritius Limited Mauritius 100% TDFCO Mauritius holding
company of our Indian
Joint Venture
Inventory Funding Trust Delaware 100% TCFC
Inventory Funding Company, LLC Delaware 100% Inventory Funding Trust
TCF Asset Management Colorado 100% TCFC A depository for
Corporation foreclosed real
personal property
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Joint Ventures, Delaware 100% TCFC To enter into general
Inc. partnerships for the
ownership of comm. &
finance business
Transamerica Inventory Delaware 100% TDFC Holding company for
Finance Corporation ("TIFC") inventory finance
subsidiaries
Transamerica GmbH, Inc. Delaware 100% TIFC Commercial lending in
Germany
Transamerica Netherlands 100% Trans. GmbH, Inc. Commercial lending in
Fincieringsmaatschappij B.V. Europe
BWAC Seventeen, Inc. Delaware 100% TIFC Holding company for
principal Canadian
operation, Transamerica
Comm. Finance Corp.,
Canada
Transamerica Commercial ON 100% BWAC Seventeen, Inc. Shell corp. - Dormant
Finance Canada, Limited
Transamerica Commercial Canada 100% BWAC Seventeen, Inc. Commercial finance
Finance Corporation, Canada
BWAC Twenty-One, Inc. Delaware 100% TIFC Holding co. for United
Kingdom operation,
Transamerica Comm.
Finance Limited
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Commercial lending in
Finance Limited ("TCFL") the United Kingdom
Whirlpool Financial 100% TCFL Inactive commercial
Corporation Polska Spozoo finance company in Poland
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Holding company
Holdings Limited
Transamerica Commercial France 100% BWAC Twenty-One Inc. Carries out factoring
Finance France S.A. transactions in France &
abroad
Transamerica GmbH Inc. Delaware 100% BWAC Twenty-One Inc. Holding co. for
Transamerica
Financieringsmaatschappij B.V.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Retail Financial Delaware 100% TIFC Provides retail
Services Corporation financing
("TRFSC")
Transamerica Bank, NA Delaware 100% TRFSC Bank (Credit Cards)
Transamerica Consumer Finance Delaware 100% TRFSC Consumer finance
Holding Company ("TCFHC") holding company
Transamerica Mortgage Company Delaware 100% TCFHC Consumer mortgages
Transamerica Consumer Delaware 100% TCFHC Securitization company
Mortgage Receivables Company
Metropolitan Mortgage Company Florida 100% TCFHC Consumer mortgages
Easy Yes Mortgage, Inc. Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Easy Yes Mortgage, Inc. Georgia 100% Metropolitan Mtg. Co. No active business/Name
holding only
First Florida Appraisal Georgia 100% Metropolitan Mtg. Co. Appraisal and
Services, Inc. inspection services
First Georgia Appraisal Georgia 100% First FL App. Srvc, Inc. Appraisal services
Services, Inc.
Freedom Tax Services, Inc. Florida 100%. Metropolitan Mtg. Co. Property tax
information services
J.J. & W. Advertising, Inc. Florida 100% Metropolitan Mtg. Co. Advertising and
marketing services
J.J. & W. Realty Corporation Florida 100% Metropolitan Mtg. Co. To hold problem REO
properties
Liberty Mortgage Company of Florida 100% Metropolitan Mtg. Co. No active business/Name
Ft. Myers, Inc. holding only
Metropolis Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Perfect Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Transamerica Vendor Financial Delaware 100% TDFC Provides commercial
Service lease
Transamerica Distribution 100% TCFCI
Finance Corporation de
Mexico ("TDFCM")
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TDF de Mexico Mexico 100% TDFCM
Transamerica Corporate 100% TDFCM
Services
De Mexico
Transamerica Home Loan California 100% TFC Consumer mortgages
Transamerica Lending Company Delaware 100% TFC Consumer lending
Transamerica Financial California 100% Transamerica Corp. Service investments
Products, Inc.
Transamerica Insurance California 100% Transamerica Corp. Provides insurance
Corporation of California premium financing in
("TICC") California
Arbor Life Insurance Company Arizona 100% TICC Life insurance,
disability insurance
Plaza Insurance Sales Inc. California 100% TICC Casualty insurance
placement
Transamerica Advisors, Inc. California 100% TICC Retail sale of
investment advisory
services
Transamerica Annuity Services New Mexico 100% TICC Performs services
Corp. required for structured
settlements
Transamerica Financial Delaware 100% TICC Retail sale of
Resources, Inc. securities products
Financial Resources Insurance Texas 100% Transamerica Fin. Res. Retail sale of
Agency of Texas securities products
TBK Insurance Agency Ohio 100% Transamerica Fin. Res. Variable insurance
of Ohio, Inc. contract sales in state
of Ohio
Transamerica Financial Alabama 100% Transamerica Fin. Res. Insurance agent & broker
Resources Agency of Alabama,
Inc.
Transamerica Financial Massachusetts 100% Transamerica Fin. Res. Insurance agent & broker
Resources Ins. Agency of
Massachusetts, Inc.
Transamerica International Delaware 100% TICC Holding & administering
Insurance Services, Inc. foreign operations
("TIIS")
Home Loans and Finance Ltd. U.K. 100% TIIS Inactive
Transamerica Occidental Life California 100% TICC Licensed in all forms
Insurance Company ("TOLIC") of life insurance,
accident and sickness
insurance
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
NEF Investment Company California 100% TOLIC Real estate development
Transamerica Life Insurance N. Carolina 100% TOLIC Writes life and pension
and Annuity Company ("TLIAC") insurance originally
incorporated in CA
April 14, 1966
Transamerica Assurance Company Missouri 100% TLIAC Life and disability
insurance
Gemini Investments, Inc. Delaware 100% TLIAC Investment subsidiary
Transamerica Life Insurance Canada 100% TOLIC Sells individual life
Company of Canada insurance & investment
products in all
provinces and
territories of Canada
Transamerica Life Insurance New York 100% TOLIC Licensed in NY to
Company of New York market life insurance,
annuities and health
insurance
Transamerica South Park Delaware 100% TOLIC Provide market analysis
Resources, Inc. of certain undeveloped
land holdings held by
TOLIC
Transamerica Variable Maryland 100% TOLIC Mutual Fund
Insurance Fund, Inc.
USA Administration Services, Kansas 100% TOLIC Third party
Inc. administrator
Transamerica Products, Inc. California 100% TICC Parent co. of various
subsidiary corp. which
are formed to be
co-general partners of
proprietary limited
Transamerica Securities Sales Maryland 100% Transamerica Prod. Inc. Retail sale of the
Corp. variable life ins. and
variable annuity products
of the Transamerica life
companies
Transamerica Service Company Delaware 100% Transamerica Prod. Inc. Passive loss tax
service for Lloyd's
U.S. names
Transamerica Intellitech, Inc. Delaware 100% TICC Real estate information
and technology services
Transamerica International Delaware 100% TICC Investments
Holdings, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Investment Delaware 100% TICC Investment adviser
Services, Inc.
Transamerica Income Shares, Maryland 100% Trans. Invest. Srvc. Transamerica investment
Inc. Inc. services
Transamerica LP Holdings Corp. Delaware 100% TICC Limited partnership
investment (initial
limited partner of
Transamerica Delaware, L.P.)
Transamerica Real Estate Tax N/A 100% TICC Real estate tax reporting
Service (A Division of and processing services
Transamerica Corp)
Transamerica Realty Services, Delaware 100% TICC Responsible for real
Inc. estate investments for
Transamerica
Bankers Mortgage Company of CA California 100% Transamerica Realty Holds bank account and
Service owns certain residual
investments in certain
French real estate
projects which are
managed special purpose
company for the
purchase of real estate
tax liens
Pyramid Investment Corporation Delaware 100% Transamerica Realty Owns office buildings
Service in San Francisco and
other properties
The Gilwell Company California 100% Transamerica Realty Ground lessee of 517
Service Washington Street, San
Francisco
Transamerica Affordable California 100% Transamerica Realty Owns general
Housing, Inc. Services partnership interests
in low-income housing
tax credit partnerships
Transamerica Minerals Company California 100% Transamerica Realty Owner and lessor of oil
Services and gas properties
Transamerica Oakmont California 100% Transamerica Realty General partner in
Corporation Services Transamerica/Oakmont
Retirement Associates
Transamerica Senior Delaware 100% TICC Owns congregate care
Properties, Inc. and assisted living
retirement properties
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Transamerica Senior Living, Delaware 100% Trans. Sr. Prop. Inc. Manages congregate care
Inc. and assisted living
retirement properties
</TABLE>
Item 27. Number of Contract Owners
As of December 31, 1999, there were no Contract owners.
Item 28. Indemnification
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
--------
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies producers for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Depositor pursuant to the
foregoing provisions, or otherwise, the Depositor 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 Depositor of expenses incurred or
paid by a director, officer or controlling person in connection
with the securities being registered), the Depositor 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.
Item 29. Principal Underwriters
AFSG Securities Corporation
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
The directors and officers of AFSG Securities Corporation are as follows:
Larry N. Norman Thomas R. Moriarty
Director and President Vice President
Frank A. Camp Robert W. Warner
Secretary Assistant Compliance Officer
Lisa Wachendorf Linda Gilmer
Director, Vice President and Controller and Treasurer
Chief Compliance Officer
Priscilla Hechler
Anne M. Spaes Assistant Vice President and Assistant
Director and Vice President Secretary
Emily Bates Thomas Pierpan
Assistant Treasurer Assistant Vice President and Assistant
Secretary
Clifton Flenniken Darin D. Smith
Assistant Treasurer Assistant Vice President and Assistant
Secretary
<PAGE>
The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
Commissions and Other Compensation Received by Principal Underwriter.
--------------------------------------------------------------------
AFSG Securities Corporation, the broker/dealer, received $0 from the Registrant
for the year ending December 31, 1999, for its services in distributing the
Policies. No other commission or compensation was received by the principal
underwriter, directly or indirectly, from the Registrant during the fiscal year.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor Variable Annuity Account, the PFL Endeavor Platinum Variable Annuity
Account, the PFL Retirement Builder Variable Annuity Account, the PFL Life
Variable Annuity Account A, the PFL Life Variable Annuity Account C, the PFL
Life Variable Annuity Account D, PFL Life Variable Annuity Account E, Separate
Account VA F, the PFL Wright Variable Annuity Account, the AUSA Endeavor
Variable Annuity Account, and PFL Endeavor Variable Life Account. These
accounts are separate accounts of PFL Life Insurance Company or AUSA Life
Insurance Company, Inc. AFSG Securities Corporation also serves as principal
underwriter for Separate Account I, Separate Account II, and Separate Account V
of Peoples Benefit Life Insurance Company, and for Separate Account C of AUSA
Life Insurance Company, Inc.
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
Item 31. Management Services.
All management Contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the Contract may be
accepted.
(b) Registrant undertakes that it will include either (i) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Policy application that an applicant can check to
request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to PFL at the address or phone number
listed in the Prospectus.
(d) PFL Life Insurance Company hereby represents that the fees and charges
deducted under the contracts, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life Insurance Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Cedar Rapids and State of Iowa, on this 20/th/ day of
------
September, 2000.
---------
SEPARATE ACCOUNT VA I
PFL LIFE INSURANCE COMPANY
Depositor
/s/ Larry N. Norman
-------------------
Larry N. Norman
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
Signatures Title Date
---------- ----- ----
/s/ Bart Herbert Jr. Director September 20, 2000
------------------------
Bart Herbert, Jr.
/s/ Patrick S. Baird Director September 20, 2000
------------------------
Patrick S. Baird
/s/ Larry N. Norman Director September 20, 2000
------------------------
Larry N. Norman (Principal Executive Officer)
/s/ Craig D. Vermie Director September 20, 2000
------------------------
Craig D. Vermie
/s/ Douglas C. Kolsrud Director September 20, 2000
------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and September 20, 2000
------------------------
Robert J. Kontz Corporate Controller
/s/ Brenda K. Clancy Treasurer September 20, 2000
------------------------
Brenda K. Clancy
<PAGE>
Registration No.
333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
THE U.S. BANCORP INVESTMENT INC.
PRINCIPAL-PLUS
VARIABLE ANNUITY
_______________
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.*
----------- ---------------------- ---------
<S> <C> <C>
(1)(a) Resolution of Board of Directors
(3)(a) Principal Underwriting Agreement
(3)(b) Form of Broker/Dealer Supervision and Sales Agreement
(8)(a)(1) Form of Amended Schedule A to Participation Agreement by
and between Putnam Variable Trust, Putnam Mutual Funds
Corp. and PFL Life Insurance Company
(8)(b) Form of Participation Agreement by and among First
American Insurance Portfolios, Inc., First American
Asset Management, a Division of U.S. Bank National
Association, and PFL Life Insurance Company
(8)(c)(1) Form of Amended Exhibit A and Exhibit B to Participation
Agreement by and between PFL Life Insurance Company,
Federated Insurance Series and Federates Securities Corp.
(14) Powers of Attorney
</TABLE>
___________________________
* Page numbers included only in manually executed original.
