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As filed with the Securities and Exchange Commission on April 29, 1997
Registration No. 33-56908
811-06032
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PFL ENDEAVOR PLATINUM VARIABLE ANNUITY
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 7 X
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 X
PFL ENDEAVOR VA SEPARATE ACCOUNT
--------------------------------
(Exact Name of Registrant)
PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
-------------------------------------
(Former name of Registrant)
PFL LIFE INSURANCE COMPANY
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(Name of Depositor)
4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499
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(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code
(319) 297-8121
Frank A. Camp, Esquire
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
PLATREVC
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DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant declares that a notice pursuant to Rule 24f-2 for the year
ended December 31, 1996 was filed on February 18, 1997.
______________
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
___ on _______ pursuant to paragraph (a)(i) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(ii)
___ on _________ pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
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CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
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PART A
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Item of Form N-4 Prospectus Caption
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1. Cover Page........................... Cover Page
2. Definitions.......................... Definitions
3. Synopsis............................. Summary; Historical Performance
Data
4. Condensed Financial Information...... Financial Statements
5. General
(a) Depositor...................... PFL Life Insurance Company
(b) Registrant..................... The Mutual Fund Account
(c) Portfolio Company.............. The Mutual Fund Account
(d) Fund Prospectus................ The Mutual Fund Account
(e) Voting Rights.................. Voting Rights
6. Deductions and Expenses
(a) General........................ Charges and Deductions
(b) Sales Load %................... N/A
(c) Special Purchase Plan.......... N/A
(d) Commissions.................... Distributor of the Policies
(e) Expenses - Registrant.......... N/A
(f) Fund Expenses.................. Expenses Including Investment
Advisory Fees
(g) Organizational Expenses........ N/A
7. Policies
(a) Persons with Rights............ The Policy; Election of Annuity
Option; Determination of Annuity
Payments; Annuity Commencement
Date; Ownership of the Policy
Voting Rights
(b) (i) Allocation of Premium
Payments................. Allocation of Premiums
(ii) Transfers................ Transfers
(iii) Exchanges................ N/A
(c) Changes........................ Addition, Deletion or
Substitution of Investments;
Election of Annuity Option;
Annuity Commencement Date;
Beneficiary; Ownership of the
Policy
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(d) Inquiries....................... Summary
8. Annuity Period....................... Annuity Options
9. Death Benefit........................ Death of Annuitant Prior to
Annuity Commencement Date
10. Purchase and Policy Values
(a) Purchases....................... Policy Application and Issuance
of Policies; Premiums
(b) Valuation....................... Policy Value; The Mutual Fund
Account Value
(c) Daily Calculation............... The Mutual Fund Account Value
(d) Underwriter..................... Distributor of the Policies
11. Redemptions
(a) By Owners....................... Surrenders
By Annuitant.................... N/A
(b) Texas ORP....................... Restrictions Under the Texas
Optional Retirement Program
(c) Check Delay..................... Payment not Honored by Bank
(d) Lapse........................... N/A
(e) Free Look....................... Summary
12. Taxes................................ Certain Federal Income Tax
Consequences
13. Legal Proceedings.................... Legal Proceedings
14. Table of Contents for the
Statement of Statement of Additional
Additional Information............... Information
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PART B
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Item of Form N-4 Statement of Additional
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15. Cover Page.......................... Cover Page
16. Table of Contents................... Table of Contents
17. General Information
and History......................... (Prospectus) PFL Life Insurance
Company
18. Services............................
(a) Fees and Expenses
of Registrant.................. N/A
(b) Management Policies............ N/A
(c) Custodian...................... Custody of Assets
Independent
Auditors....................... Independent Auditors
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(d) Assets of Registrant........... Custody of Assets
(e) Affiliated Person.............. N/A
(f) Principal Underwriter.......... Distribution of the Policies
19. Purchase of Securities
Being Offered....................... Distribution of the Policies
Offering Sales Load................. N/A
20. Underwriters........................ Distribution of the Policies;
(Prospectus) Distributor of the
Policies
21. Calculation of Performance
Data................................ Calculation of Yields and Total
Returns; Other Performance Data
22. Annuity Payments.................... (Prospectus) Election of Annuity
Option; (Prospectus)
Determination of Annuity Payments
23. Financial Statements................ Financial Statements
<CAPTION>
PART C -- OTHER INFORMATION
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Item of Form N-4 Part C Caption
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24. Financial Statements
and Exhibits........................ Financial Statements and Exhibits
(a) Financial Statements........... Financial Statements
(b) Exhibits....................... Exhibits
25. Directors and Officers of Directors and Officers of the
the Depositor....................... Depositor
26. Persons Controlled By or Under Persons Controlled By or Under
Common Control with the Common Control with the
Depositor or Registrant............. Depositor or Registrant
27. Number of Policyowners.............. Number of Policyowners
28. Indemnification..................... Indemnification
29. Principal Underwriters.............. Principal Underwriters
30. Location of Accounts
and Records......................... Location of Accounts and Records
31. Management Services................. Management Services
32. Undertakings........................ Undertakings
Signature Page...................... Signatures
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PROSPECTUS_____________________________________________________ May 1, 1997
THE ENDEAVOR PLATINUM VARIABLE ANNUITY
Issued Through
PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT
by
PFL LIFE INSURANCE COMPANY
The Endeavor Platinum Variable Annuity Policy is a Flexible Premium Variable
Annuity that is offered by PFL Life Insurance Company ("PFL"). You can use the
Policy to accumulate funds for retirement or other long- term financial
planning purposes. You are generally not taxed on any earnings on amounts you
invest until you withdraw them or begin to receive annuity payments. The Policy
is a "variable" annuity because the value of your investments can go up or down
based on the performance of mutual fund portfolios that you select. It 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 when PFL begins making annuity payments to you.
You have twelve investment options to choose from. They include these eleven
mutual fund portfolios:
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TCW Managed Asset Allocation Dreyfus Small Cap Value Portfolio
Portfolio
Dreyfus U.S. Government Securities
Portfolio
TCW Money Market Portfolio
T. Rowe Price International Stock Value Equity Portfolio
Portfolio
Opportunity Value Portfolio
T. Rowe Price Equity Income Enhanced Index Portfolio
Portfolio
WRL Growth Portfolio, managed by Janus
Capital Corporation
T. Rowe Price Growth Stock Portfolio
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YOU AS THE OWNER OF THE POLICY, BEAR THE ENTIRE INVESTMENT RISK FOR ALL
AMOUNTS THAT YOU ALLOCATE TO ANY OF THE MUTUAL FUNDS. THIS MEANS THAT YOU COULD
LOSE THE AMOUNT THAT YOU INVEST. But if the mutual fund shares increase in
value, then the value of your Policy will also increase.
The twelfth investment option is the Fixed Account. If you invest in one of
the alternatives available under the Fixed Account, then PFL guarantees to
return your investment with interest at rates that PFL will declare from time
to time.
Of course, you can choose any combination of these investment options. You
can also transfer amounts among these options (subject to some restrictions).
LIKE ALL SECURITIES, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PVAP597
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You should only purchase a Policy as a long-term investment. However, you do
have access to all or some of the current cash value of your investments at
any time before the Annuity Commencement Date. You may have to pay income
taxes on some or all of the amount you withdraw, and if you are under the age
59 1/2 there may also be a tax penalty. Finally, there may be an interest
penalty if you make a premature withdrawal from the Fixed Account (this is
called an "Excess Interest Adjustment," and it could also result in you
earning extra interest). PFL has the right to postpone withdrawals from the
Fixed Account.
Prospectuses for the mutual fund portfolios are attached to the back of this
Prospectus. This Prospectus and the mutual fund prospectuses give you vital
information about the Policies and the mutual funds. Please read them
carefully before you invest. Keep them for future reference.
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
AND ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL.
This Prospectus sets forth the information that a prospective purchaser
should consider before purchasing a Policy. A Statement of Additional
Information about the Policy and the Mutual Fund Account which has the same
date as this Prospectus has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of
Additional Information is available at no cost to any person requesting a copy
by writing PFL at the Administrative and Service Office or by calling 1-800-
525-6205. The table of contents of the Statement of Additional Information is
included at the end of this Prospectus.
This Prospectus and the Statement of Additional Information generally
describe only the Policies and the Mutual Fund Account, except when the Fixed
Account is specifically mentioned.
Administrative and Service Office:
Financial Markets Division--Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
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TABLE OF CONTENTS
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PAGE
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DEFINITIONS............................................................... 5
SUMMARY................................................................... 8
CONDENSED FINANCIAL INFORMATION........................................... 19
FINANCIAL STATEMENTS...................................................... 21
HISTORICAL PERFORMANCE DATA............................................... 21
Standardized Performance Data........................................... 21
TCW Money Market Subaccount............................................. 21
Other Subaccounts....................................................... 21
Hypothetical Performance Data of Subaccounts............................ 23
Opportunity Value and Equity Index Portfolios........................... 25
Non-Standardized Performance Data....................................... 25
PUBLISHED RATINGS......................................................... 26
PFL LIFE INSURANCE COMPANY................................................ 26
THE ENDEAVOR ACCOUNTS..................................................... 26
The Mutual Fund Account................................................. 26
The Fixed Account....................................................... 31
Guaranteed Periods.................................................... 31
Dollar Cost Averaging Fixed Account Option............................ 32
Guaranteed Interest Rates............................................. 32
Transfers............................................................... 33
Reinstatements.......................................................... 34
Telephone Transactions.................................................. 35
Dollar Cost Averaging (DCA)............................................. 35
Asset Rebalancing....................................................... 36
THE POLICY................................................................ 36
Policy Application and Issuance of Policies--Premium Payments........... 37
Additional Premium Payments........................................... 37
Maximum Total Premium Payments........................................ 37
Allocation of Premium Payments........................................ 38
Payment Not Honored By Bank........................................... 38
Policy Value............................................................ 38
The Mutual Fund Account Value......................................... 38
Amendments.............................................................. 39
Non-participating Policy................................................ 39
DISTRIBUTIONS UNDER THE POLICY............................................ 39
Surrenders.............................................................. 39
Nursing Care and Terminal Condition Withdrawal Option................... 40
Excess Interest Adjustment (EIA)........................................ 41
Systematic Payout Option................................................ 41
Annuity Payments........................................................ 42
Annuity Commencement Date............................................. 42
Election of Payment Option............................................ 42
Premium Tax........................................................... 43
Supplementary Policy.................................................. 43
Annuity Payment Options................................................. 43
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PAGE
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Death Benefit........................................................... 47
Death of Annuitant Prior to Annuity Commencement Date................. 47
Adjusted Partial Withdrawal .......................................... 48
Death On or After Annuity Commencement Date........................... 49
Beneficiary........................................................... 49
Death of Owner.......................................................... 49
Restrictions Under the Texas Optional Retirement Program................ 50
Restrictions Under Section 403(b) Plans................................. 50
Restrictions under Qualified Policies................................... 50
CHARGES AND DEDUCTIONS.................................................... 50
Mortality and Expense Risk Charge....................................... 50
Administrative Charges.................................................. 51
Distribution Financing Charges.......................................... 52
Premium Taxes........................................................... 52
Federal, State and Local Taxes.......................................... 52
Transfer Charge......................................................... 52
Other Expenses Including Investment Advisory Fees....................... 52
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 53
Tax Status of the Policy................................................ 54
Taxation of Annuities................................................... 54
DISTRIBUTOR OF THE POLICIES............................................... 59
Employee and Agent Purchases............................................ 60
VOTING RIGHTS............................................................. 60
LEGAL PROCEEDINGS......................................................... 61
STATEMENT OF ADDITIONAL INFORMATION....................................... 61
Appendix A.............................................................. A-1
Appendix B.............................................................. B-1
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DEFINITIONS
Accumulation Unit--An accounting unit of measure used in calculating the
Policy Value in the Mutual Fund Account before the Annuity Commencement Date.
Adjusted Policy Value--An amount equal to the Policy Value increased or
decreased by any Excess Interest Adjustments.
Administrative and Service Office--Financial Markets Division--Variable
Annuity Dept., PFL Life Insurance Company, 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499-0001.
Annuitant--The person entitled to receive Annuity Payments after the Annuity
Commencement Date and during whose life any Annuity Payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which Annuity Payments are to
commence. This 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, but in no event later than the last day of the month following the month
in which the Annuitant attains age 95.
Annuity Payment Option or 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 after the
Annuity Commencement Date.
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--On or before the Annuity Commencement Date, is the amount equal
to the Adjusted Policy Value.
Code--The Internal Revenue Code of 1986, as amended.
Current Interest Rate--The interest rate or rates currently guaranteed to be
credited on amounts under a Policy allocated to the Fixed Account. This
interest rate will always equal or exceed a minimum of 3%. See Appendix B for
variations in the minimum guaranteed effective annual interest rate applicable
to the Fixed Account.
Due Proof of Death--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.
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Distribution Financing Charge--a daily charge for the first ten Policy Years
equal to an effective annual rate of 0.25% of the Mutual Fund Account's net
assets.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon Partial Withdrawal or surrenders, to amounts transferred by the
Owner 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 (EIA) can either decrease or increase the amount to be received by
the Owner upon surrender or commencement of Annuity Payments, depending upon
whether there has been an increase or decrease in interest rates,
respectively.
Fixed Account--A group of Investment Options under the Policy, other than
the Mutual Fund Account, that are part of the general assets of PFL that are
not in separate accounts.
Fixed Annuity Payments--Payments made pursuant to an Annuity Payment Option
which do not fluctuate in amount.
Guaranteed Period Options--The various guaranteed interest rate periods
which may be offered by PFL into which premiums may be paid or amounts
transferred.
Investment Options--Any of the Guaranteed Period Options of the Fixed
Account, and the Dollar Cost Averaging Fixed Account Option, and any of the
subaccounts of the Mutual Fund Account.
Mutual Fund Account--The PFL Endeavor Platinum Variable Annuity Account,
which comprises a portion of the PFL Endeavor VA Separate Account, a separate
account established and registered as a unit investment trust under the
Investment Company Act of 1940, as amended, to which Premium Payments under
the Policies may be allocated and which invests in the Growth Portfolio of the
WRL Series Fund, Inc. and in the portfolios of the Endeavor Series Trust.
Nonqualified Policy--A Policy other than a Qualified Policy.
PFL--PFL Life Insurance Company, the issuer of the Policies.
Policy--One of the variable annuity policies offered by this Prospectus.
Policy Anniversary--Each anniversary of the Policy Date.
Policy Date--The date shown on the Policy data page attached to the Policy
and the date on which the Policy becomes effective.
Policy Owner or Owner--The person who may exercise all rights and privileges
under the Policy. The Policy Owner during the lifetime of the
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Annuitant and prior to the Annuity Commencement Date is the person designated
as the Policy Owner or a Successor Owner in the application.
Policy Value--On or before the Annuity Commencement Date, this is an amount
equal to (a) the Premium Payments; minus (b) Partial Withdrawals taken
(including any applicable Excess Interest Adjustments on such Partial
Withdrawals); plus (c) interest credited in the Fixed Account; plus or minus
(d) accumulated gains or losses in the Mutual Fund Account; minus (e) any
applicable service charges, premium taxes, and transfer fees, if any.
Policy Year--Each 12-month period beginning on the Policy Date shown on the
Policy Data page and each Policy Anniversary thereafter.
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.
Service Charge--An annual 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 the lesser of 2% of the
Policy Value or $35.
Subaccount--A subdivision within the Mutual Fund Account, the assets of
which are invested in a specified Portfolio of the Underlying Funds.
Successor Policy Owner--A person appointed by the Policy Owner to succeed to
ownership of the Policy in the event of the death of the Policy Owner (if the
Policy Owner is not the Annuitant) before the Annuity Commencement Date.
Underlying Funds--The Growth Portfolio of the WRL Series Fund, Inc., and the
portfolios of the Endeavor Series Trust.
Valuation Period--The period of time from one determination of Accumulation
Unit and Annuity Unit values to the next subsequent determination of values.
Such determination shall be made on each Business Day.
Variable Annuity Payments--Payments 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 Mutual Fund
Account.
Written Notice or Written Request--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.
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THE ENDEAVOR PLATINUM VARIABLE ANNUITY
SUMMARY
THE POLICY
The Endeavor Platinum Variable Annuity is a Flexible Premium Variable
Annuity which can be purchased as a Nonqualified Policy or as a Qualified
Policy. The Owner allocates the Premium Payments among the two Endeavor
Accounts of PFL: the PFL Endeavor Platinum Variable Annuity Account, (the
"Mutual Fund Account") and the Fixed Account. Certain features described in
this Prospectus may only be available to Policies purchased after the
effective date of the Policy form used. (See "Variations in Policy
Provisions," p. 17 and Appendix B to this Prospectus.)
THE ACCOUNTS
The Mutual Fund Account. The Mutual Fund Account is a separate account of
PFL, which invests exclusively in shares of the ten portfolios of the Endeavor
Series Trust and the Growth Portfolio of the WRL Series Fund, Inc.
(collectively, the "Underlying Funds"). The Endeavor Series Trust is a mutual
fund managed by Endeavor Investment Advisers, a general partnership between
Endeavor Management Co. and AUSA Financial Markets, Inc. (an affiliate of
PFL), which contracts with several subadvisers (as described in separate
prospectuses that accompany this Prospectus) for investment advisory services.
The WRL Growth Portfolio is a portfolio within the WRL Series Fund, Inc. The
WRL Series Fund, Inc. is a mutual fund whose investment adviser is WRL
Investment Management, Inc., a subsidiary of Western Reserve Life Assurance
Co. of Ohio ("Western Reserve"), (an affiliate of PFL). WRL Investment
Management, Inc. contracts with Janus Capital Corporation as a subadviser to
the WRL Growth Portfolio for investment advisory services.
The Underlying Funds currently have eleven Portfolios: the WRL Growth
Portfolio, the TCW Managed Asset Allocation Portfolio; the TCW Money Market
Portfolio; the T. Rowe Price International Stock Portfolio; the Value Equity
Portfolio; the Dreyfus Small Cap Value Portfolio; the Dreyfus U.S. Government
Securities Portfolio; the T. Rowe Price Equity Income Portfolio; the T. Rowe
Price Growth Stock Portfolio; the Opportunity Value Portfolio; and the
Enhanced Index Portfolio. Each of the eleven Subaccounts of the Mutual Fund
Account invests solely in a corresponding Portfolio of the Underlying Funds.
Because the Policy Value may depend on the investment experience of the
selected Subaccounts, the Owner bears the entire investment risk with respect
to Premium Payments allocated to, and amounts transferred to, the Mutual Fund
Account. (See "THE ENDEAVOR ACCOUNTS--Mutual Fund Account," p. 26.)
The Fixed Account. The Fixed Account guarantees an annual credited rate of
at least 3% on: Premium Payments and transfers to, less Partial Withdrawals
and transfers from, the Fixed Account (see Appendix "B" for variations in the
minimum guaranteed effective annual interest rate for prior versions of
Policies and for Policies offered in certain states). Upon
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surrender, PFL guarantees return of at least the Premium Payments made to less
prior Partial Withdrawals and transfers from the Fixed Account. PFL may, in
its sole discretion, declare a higher Current Interest Rate. A Current
Interest Rate is guaranteed for at least one year. (See "THE ENDEAVOR
ACCOUNTS--The Fixed Account," p. 31.)
PREMIUM PAYMENTS
A Nonqualified Policy may be purchased with an initial Premium Payment of at
least $5,000, and a Qualified Policy generally may be purchased with an
initial Premium Payment of at least $1,000. A Policy purchased and used in
connection with a Tax Deferred 403(b) Annuity may be purchased with an initial
premium payment in any amount chosen by the purchaser, however, PFL must
receive the initial Premium Payment within 90 days following the Policy Date,
otherwise the Policy will be canceled. An Owner may make subsequent additional
Premium Payments of at least $50 each at any time before the Annuity
Commencement Date. The maximum total Premium Payments allowed without prior
approval of PFL is $1,000,000. Unless required by state law, at the time of
each Premium Payment no charges or fees are deducted, so the entire Premium
Payment is invested immediately. (See "CHARGES AND DEDUCTIONS--Premium Taxes,"
p. 52).
The Owner must allocate the initial Premium Payment among the Investment
Options in the Policy application or transmittal form. Any allocation must be
in whole percents, and the total allocation must equal 100%. Allocations
specified by the Owner for the Initial Premium Payment will be used for
subsequent additional Premium Payments unless the Owner requests a change in
allocation. Allocations of additional Premium Payments may be changed by
sending Written Notice to PFL's Administrative and Service Office. (See "THE
POLICY--Policy Application and Issuance of Policies--Premium Payments," p.
37.)
RIGHT TO CANCEL PERIOD
The Owner may, until the end of the period of time specified in the Policy
(the Right to Cancel period), examine the Policy and return it for a refund.
The applicable period will depend on the state in which the Policy is issued.
In most states the period is ten (10) days after the Policy is delivered to
the Owner. Several states allow for a longer period to return the Policy. The
amount of the refund will also depend on the state in which the Policy is
issued. Ordinarily the amount of the refund will be the Policy Value. However,
some states may require a return of the Premium Payments, or the greater of
the Premium Payments or the Policy Value. PFL will pay the refund within seven
(7) days after it receives written notice of cancellation and the returned
Policy. The Policy will then be deemed void.
TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE
An Owner can transfer Policy Values from one Subaccount to another within
the Mutual Fund Account or to the Fixed Account, or may transfer
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Policy Values or an amount equal to the interest credited from the Guaranteed
Period Options of the Fixed Account to the Mutual Fund Account. Transfers of
amounts equal to interest credited to a Guaranteed Period Option are referred
to as "interest transfers." The minimum amount which may be transferred is
$500, or the entire Subaccount (or Guaranteed Period Option) Policy Value,
whichever is less. However, following a transfer out of a particular
Subaccount or Guaranteed Period Option, at least $500 must remain in that
Subaccount or Guaranteed Period Option, otherwise PFL reserves the right to
include remaining amounts in the transfer. Transfers currently may be made
either by telephone (subject to the provisions described below under
"Telephone Transactions," p. 35) or by sending Written Notice to the
Administrative and Service Office.
An Owner may choose which Guaranteed Period Option to or from which
transfers may be made. Transfers of Policy Value from a Guaranteed Period
Option prior to the end of the Guaranteed Period are subject to the Excess
Interest Adjustment which may increase or decrease the amount removed from the
Guaranteed Period Option in order to honor the transfer amount requested.
"Interest transfers" are not subject to an Excess Interest Adjustment. Due to
the manner of crediting interest in the Fixed Account, however, interest
transfers may affect the rate of interest credited on funds remaining in the
Fixed Account. Transfers out of the Fixed Account will be limited, in certain
circumstances, to 25% a year. (See "THE ENDEAVOR ACCOUNTS--Transfers," p. 33.)
(See "DISTRIBUTIONS UNDER THE POLICY--Excess Interest Adjustment," p. 41 and
"THE ENDEAVOR ACCOUNTS--Transfers," p. 33.)
Transfers from the Dollar Cost Averaging Fixed Account Option except through
automatic Dollar Cost Averaging transfers, are not allowed. (See "THE ENDEAVOR
ACCOUNTS--Dollar Cost Averaging Fixed Account Option," p. 32.)
Prior versions of the Policy and Policies issued in certain states may have
additional restrictions on transfers. See Appendix B and the Policy or
endorsement for details. If the Excess Interest Adjustment (at the time of a
transfer request only) from any Guaranteed Period Option (GPO) is a negative
adjustment, then the maximum amount that can be transferred is 25% of that
GPO's Policy Value, less amounts previously transferred out of that GPO during
the current Policy Year. No maximum will apply to amounts transferred from any
Guaranteed Period Option if the Excess Interest Adjustment is a positive
adjustment at the time of transfer.
A $10 charge may be imposed for each transfer in excess of twelve per Policy
Year. Currently PFL does not charge for any transfers. (See "THE ENDEAVOR
ACCOUNTS--Transfers," p. 33.)
SURRENDERS AND PARTIAL WITHDRAWALS
The Owner may elect to surrender the Policy or make a Partial Withdrawal
from the Policy ($500 minimum) in exchange for a cash payment from PFL at any
time prior to the earlier of the Annuitant's death or the
- 10 -
<PAGE>
Annuity Commencement Date. A surrender or Partial Withdrawal may be subject to
deductions for Excess Interest Adjustments and Service Charges. (See "CHARGES
AND DEDUCTIONS," p. 50.) A surrender or Partial Withdrawal request must be
made by Written Request, and a request for a partial withdrawal must specify
the Subaccounts or Guaranteed Period Options from which the withdrawal is
requested. There is currently no limit on the frequency or timing of
withdrawals. (See "DISTRIBUTIONS UNDER THE POLICY--Surrenders," p. 39). For
Qualified Policies, the retirement plan or applicable law may restrict or
penalize withdrawals. In addition to any applicable charges and deductions
under the Policy, surrenders and Partial Withdrawals may be subject to premium
taxes, income taxes and a 10% Federal penalty tax.
NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION
If the Owner or Owner's spouse (or Annuitant or Annuitant's spouse if the
Owner is not a natural person): (1) has been confined in a hospital or nursing
facility for 30 consecutive days or (2) has been diagnosed as having a
terminal condition, as defined in the Policy or endorsement, (generally, a
life expectancy of not more than 12 months) then Partial Withdrawals or
surrenders may be taken with no Excess Interest Adjustment. (This benefit may
not be available in all states or for all policy forms. See Appendix B and the
Policy or endorsement for details.) (See "DISTRIBUTIONS UNDER THE POLICY--
Nursing Care and Terminal Condition Withdrawal Option," p. 40.)
CHARGES AND DEDUCTIONS
Excess Interest Adjustment. Surrenders, Partial Withdrawals, transfers
(other than "10% Withdrawals" and "interest transfers"), and amounts applied
to a Payment Option out of Fixed Account Guaranteed Period Options, which
occur prior to the end of the Guaranteed Period, are subject to an Excess
Interest Adjustment, which could eliminate all credited interest in excess of
the minimum guaranteed effective annual interest rate of 3%. The Excess
Interest Adjustment could also result in the crediting of additional interest.
(See "DISTRIBUTIONS UNDER THE POLICY--Excess Interest Adjustment," p. 41.)
Account Charges. PFL deducts a daily charge equal to a percentage of the net
assets in the Mutual Fund Account for the mortality and expense risks assumed
by PFL. For Guaranteed Minimum Death Benefit Options "A" (5% Annually
Compounding Death Benefit) and "B" (Annual Step-Up Death Benefit), the
effective annual rate of this charge is 1.25% of the value of the Mutual Fund
Account's net assets. For Guaranteed Minimum Death Benefit Option "C" (Return
of Premium Death Benefit), the effective annual rate of this charge is 1.10%
of the value of the Mutual Fund Account's net assets. (See "CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Fee," p. 50 and "DISTRIBUTIONS UNDER
THE POLICY--Death Benefit," p. 47.)
PFL also deducts a daily Administrative Charge from the net assets of the
Mutual Fund Account to partially cover expenses incurred by PFL in connection
with the administration of the Mutual Fund Account and the
- 11 -
<PAGE>
Policies. The effective annual rate of this charge is .15% of the value of the
Mutual Fund Account's net assets. (See "CHARGES AND DEDUCTIONS--Administrative
Charges," p. 51.)
PFL guarantees that the account charges for mortality and expense risks and
administrative expenses will not exceed a total of 1.40% for the 5% Annually
Compounding Death Benefit or the Annual Step-Up Death Benefit, and 1.25% for
the Return of Premium Death Benefit.
Service Charge. Prior to the Annuity Commencement Date, 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 the lesser of 2% of the Policy
Value or $35. The Service Charge is deducted from each Investment Option in
proportion to each Investment Option's percentage of the Policy Value just
prior to such charge. This charge is waived if either the Policy Value or the
sum of all Premium Payments less the sum of all Partial Withdrawals equals or
exceeds $50,000 on a Policy Anniversary (or date of surrender). PFL guarantees
that this charge will not be increased in the future. (See "CHARGES AND
DEDUCTIONS--Administrative Charges," p. 51.)
Distribution Financing Charges. During the first ten Policy years PFL
imposes a daily Distribution Financing Charge equal to an effective annual
rate of 0.25% of the Mutual Fund Account's net assets. This charge is used by
PFL to defray a portion of the cost of distribution of the Policies. The sum
of the cumulative Distribution Financing Charges will never exceed 8.5% of the
cumulative Premium Payments. (See "CHARGES AND DEDUCTIONS--Distribution
Financing Charges," p. 52.)
Taxes. PFL may incur premium taxes relating to the Policies. When permitted
by state law, PFL will not deduct any premium taxes related to a particular
Policy from the Policy Value until the time of surrender, payment of the death
benefit, or the Annuity Commencement Date. Premium taxes currently range from
0% to 3.50% of Premium Payments. (See "CHARGES AND DEDUCTIONS--Premium Taxes,"
p. 52.)
No charges are currently made against the Fixed Account or the Mutual Fund
Account for federal, state, or local income taxes. Should PFL determine that
any such taxes may be imposed, PFL may deduct such taxes from amounts held in
the relevant Account. (See "CHARGES AND DEDUCTIONS--Federal, State and Local
Taxes," p. 52.)
Charges Against the Underlying Funds. The value of the net assets of the
Subaccounts of the Mutual Fund Account will reflect the investment advisory
fee and other expenses incurred by the Underlying Funds. Those fees and
expenses are detailed in the prospectuses for the Underlying Funds that
accompany this Prospectus.
- 12 -
<PAGE>
Expense Data. The charges and deductions are summarized in the following
tables. This tabular information regarding expenses assumes that the entire
Policy Value is in the Mutual Fund Account.
<TABLE>
<CAPTION>
DREYFUS
TCW T. ROWE U.S.
TCW MANAGED PRICE DREYFUS GOVERNMENT
MONEY ASSET INTERNATIONAL VALUE SMALL CAP SECURITIES
MARKET ALLOCATION STOCK EQUITY VALUE PORTFOLIO
------ ---------- ------------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
OWNER TRANSACTION
EXPENSES
Sales Load On Purchase
Payments............... 0 0 0 0 0 0
Surrender Fees.......... 0 0 0 0 0 0
-------------------------------------------------------
Annual Service
Charge(/1/)............ $35 Per Policy
-------------------------------------------------------
Transfer Fee(/1/)....... Currently No Fee
MUTUAL FUND ACCOUNT
ANNUAL EXPENSES (as a
percentage of account
value)
Mortality and Expense
Risk Fees(/2/)......... 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Charge... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Distribution Financing
Charge................. 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
---- ---- ---- ---- ---- ----
Total Mutual Fund
Account Annual
Expenses............... 1.65% 1.65% 1.65% 1.65% 1.65% 1.65%
UNDERLYING FUNDS ANNUAL
EXPENSES
(as a percentage of
average net assets and
after expense
reimbursements)
Management Fees......... 0.50% 0.75% 0.90% 0.80% 0.80% 0.65%
Other Expenses.......... 0.10% 0.10% 0.28% 0.11% 0.12% 0.17%
---- ---- ---- ---- ---- ----
Total Underlying Funds
Annual
Expense(/3/)(/4/)...... 0.60% 0.85% 1.18% 0.91% 0.92% 0.82%
</TABLE>
<TABLE>
<CAPTION>
T. ROWE T. ROWE
PRICE PRICE WRL
EQUITY GROWTH OPPORTUNITY ENHANCED GROWTH
INCOME STOCK VALUE INDEX (JANUS)
------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Sales Load On Purchase Payments.. 0 0 0 0 0
Surrender Fees................... 0 0 0 0 0
--------------------------------------
Annual Service Charge(/3/)....... $35 Per Policy
--------------------------------------
Transfer Fee(/1/)................ Currently No Fee
MUTUAL FUND ACCOUNT ANNUAL
EXPENSES
(as a percentage of account
value)
Mortality and Expense Risk
Fees(/2/)....................... 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Charge............ 0.15% 0.15% 0.15% 0.15% 0.15%
Distribution Financing Charge.... 0.25% 0.25% 0.25% 0.25% 0.25%
---- ---- ---- ---- ----
Total Mutual Fund Account Annual
Expenses........................ 1.65% 1.65% 1.65% 1.65% 1.65%
UNDERLYING FUNDS ANNUAL EXPENSES
(as a percentage of average net
assets and after expense
reimbursements)
Management Fees.................. 0.80% 0.80% 0.80% 0.75% 0.80%
Other Expenses................... 0.16% 0.21% 0.50% 0.55% 0.08%
---- ---- ---- ---- ----
Total Underlying Funds Annual
Expense(/3/)(/4/)............... 0.96% 1.01% 1.30% 1.30% 0.88%
</TABLE>
- ----------------------------------
/1/The Transfer Fee, if any is imposed, applies to each Policy, regardless of
how the Policy Value is allocated among the Mutual Fund Account and the
Fixed Account. The Service Charge applies to both the Fixed Account and the
Mutual Fund 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.
The Service Charge is deducted on each Policy Anniversary and at the time
of surrender, if surrender occurs during a Policy year. (See "CHARGES AND
DEDUCTIONS--Other Expenses Including Investment Advisory Fees," p. 52.)
/2/The Mortality and Expense Risk Fees shown (1.25%) are for the 5% Annually
Compounding Death Benefit and the Annual Step Up Death Benefit. The
corresponding fee for the Return of Premium Death Benefit is 1.10% for each
Subaccount. (See "DISTRIBUTIONS UNDER THE POLICY--Death Benefit," p. 47.)
/3/Endeavor Investment Advisers has agreed, until terminated by them, to
assume expenses of the Portfolios that exceed the following rates: TCW
Money Market--0.99%; TCW Managed Asset Allocation--1.25%; T. Rowe Price
International Stock--1.53%; Value Equity--1.30%; Dreyfus Small Cap Value--
1.30%; Dreyfus U.S. Government Securities--1.00%;
- 13 -
<PAGE>
T. Rowe Price Equity Income--1.30%; T. Rowe Price Growth Stock--1.30%;
Opportunity Value--1.30%; Enhanced Index--1.30%. Amounts shown for the
Enhanced Index Portfolios are estimated for 1997. During 1996, Endeavor
Investment Advisers waived fees relative to, or reimbursed, the Opportunity
Value Portfolio. The annualized operating expense ratio before
waiver/reimbursement by Endeavor Investment Advisers for the period ended
December 31, 1996, was 12.69%. The fee table information relating to the
Underlying Funds was provided to PFL by the Underlying Funds, and PFL has
not independently verified such information.
/4/Effective January 1, 1997, the WRL Series Fund, Inc. has adopted a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act") ("Distribution Plan") and pursuant to the
Distribution Plan, has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the WRL Series
Fund, Inc. Under the Distribution Plan, the WRL Series Fund, Inc., on
behalf of the WRL Growth Portfolio, is authorized to pay to various service
providers, as direct payment for expenses incurred in connection with the
distribution of the Portfolio's shares, amounts equal to actual expenses
associated with distributing the Portfolio's shares, up to a maximum rate
of 0.15% (fifteen one-hundredths of one percent) on an annualized basis of
the average daily net assets. This fee is measured and accrued daily and
paid monthly. ISI has determined that it will not seek payment by the WRL
Series Fund, Inc. of distribution expenses with respect to any portfolio
(including the WRL Growth Portfolio) during the fiscal year ending December
31, 1997. Owners will be notified in advance prior to ISI's seeking such
reimbursement.
- 14 -
<PAGE>
Example
I. An Owner would pay the following expenses on a $1,000 investment, assuming
Return of Premium Death Benefit, a hypothetical 5% annual return on assets,
and assuming the entire Policy Value is in the applicable Subaccount:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio...................... $22 $66 $114 $245
TCW Managed Asset Allocation Portfolio.......... $24 $74 $127 $271
T. Rowe Price International Stock Portfolio..... $27 $84 $143 $303
Value Equity Portfolio.......................... $25 $76 $130 $277
Dreyfus Small Cap Value Portfolio............... $25 $76 $130 $278
Dreyfus U.S. Government Securities Portfolio.... $24 $73 $125 $268
T. Rowe Price Equity Income Portfolio........... $25 $77 $132 $282
T. Rowe Price Growth Stock Portfolio............ $26 $79 $135 $287
Opportunity Value Portfolio..................... $29 $87 $149 $315
Enhanced Index Portfolio........................ $29 $87 $149 $315
WRL Growth (Janus) Portfolio.................... $24 $75 $128 $274
</TABLE>
II. An Owner would pay the following expenses on a $1,000 investment, assuming
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit, a
hypothetical 5% annual return on assets, and assuming the entire Policy Value
is in the applicable Subaccount:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio...................... $23 $71 $122 $261
TCW Managed Asset Allocation Portfolio.......... $26 $79 $134 $286
T. Rowe Price International Stock Portfolio..... $29 $88 $150 $318
Value Equity Portfolio.......................... $26 $80 $137 $292
Dreyfus Small Cap Value Portfolio............... $26 $81 $138 $293
Dreyfus U.S. Government Securities Portfolio.... $25 $78 $133 $283
T. Rowe Price Equity Income Portfolio........... $27 $82 $140 $297
T. Rowe Price Growth Stock Portfolio............ $27 $83 $142 $301
Opportunity Value Portfolio..................... $30 $92 $156 $329
Enhanced Index Portfolio........................ $30 $92 $156 $329
WRL Growth (Janus) Portfolio.................... $26 $79 $136 $289
</TABLE>
The expenses would be the same whether the Policy is completely surrendered,
simply continued, or annuitized at the end of the applicable period, since
there is no surrender or withdrawal charge.
The above tables are intended to assist the Owner in understanding the costs
and expenses that will be borne, directly or indirectly. These include the
expenses of the Underlying Funds. (See "CHARGES AND DEDUCTIONS," p. 50, and
the Underlying Funds' prospectuses.) In addition to the expenses listed above,
premium taxes may be applicable.
- 15 -
<PAGE>
THESE 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 used in these examples is purely hypothetical and
should not be considered a guarantee of past or future performance. The
figures and data for the Underlying Funds annual expenses have been provided
by WRL Investment Management, Inc. and Endeavor Investment Advisers, and while
PFL does not dispute these figures, PFL has not independently verified their
accuracy.
In the examples, the $35 Annual Service Charge is reflected as a charge of
.0547% based on an average Policy Value of $64,005. Normally the $35 Annual
Service Charge would be waived if the Premium Payment(s) less Partial
Withdrawals, or the Policy Value is at least $50,000. However, it was included
in these examples for illustrative purposes.
These examples include the 1.25% Mortality and Expense Risk Fee for the 5%
Annually Compounding and the Annual Step-Up Death Benefits; and the 1.10%
Mortality and Expense Risk Fee for the Return of Premium Death Benefit.
DEATH BENEFIT
Upon receipt of proof that the Annuitant, who is the Owner, has died prior
to the Annuity Commencement Date, the Death Benefit is calculated and is
payable to the Beneficiary when PFL receives due proof of death, an election
of the method of settlement and return of the Policy. The Death Benefit is
only paid if the Owner and Annuitant are the same person, and that person dies
prior to the Annuity Commencement Date. In the event that the Annuitant who is
not the Owner dies prior to the Annuity Commencement Date, the Owner will
generally become the Annuitant unless the Owner specifically requests on the
application or in writing prior to the Annuitant's death that the death
benefit be paid upon the Annuitant's death and PFL agrees to such an election.
The amount of the death benefit will depend on the state where the Policy is
purchased and will depend on the Death Benefit option elected by the Owner.
However, the Death Benefit will always be at least equal to the greater of the
Policy Value or the Cash Value on the date PFL receives due proof of death and
election of the method of settlement.
The Death Benefit is not paid on the death of an Owner if the Owner is not
the Annuitant. If an Owner who is not the Annuitant dies before the Annuity
Commencement Date, the amount payable under the Policy upon surrender will be
the Adjusted Policy Value. (See "DISTRIBUTIONS UNDER THE POLICY--Death
Benefit," p.47, Appendix B or the Policy or endorsement for details.)
The Owner has the "one-time" option of choosing a Guaranteed Minimum Death
Benefit at the time of purchase of the Policy. The Owner may choose among the
"5% Annually Compounding Death Benefit," the "Annual Step-Up Death Benefit,"
or the "Return of Premium Death Benefit."
- 16 -
<PAGE>
Certain age restrictions may apply, and prior versions of the Policy or
Policies offered in certain states may not offer all Guaranteed Minimum Death
Benefit Options. Appendix B contains information regarding the Death Benefit
in prior versions of the Policy and for Policies issued in certain states. See
the Policy or endorsement for details. If no Guaranteed Minimum Death Benefit
Option election is made by the Owner, the contract will be issued with the
Return of Premium Death Benefit. The Death Benefit may be paid as either a
lump sum cash benefit or as an annuity as permitted by federal or state law.
VARIATIONS IN POLICY PROVISIONS
Certain provisions in prior versions of the Policies sold before May 1,
1997, and those offered in certain states may vary from the descriptions in
this Prospectus in order to comply with different state laws. Any such state
variations will be included in the Policy itself or in riders or endorsements
attached to the Policy. A summary of those differences is contained in
Appendix B to this Prospectus. See the Policy or endorsement for details.
New Jersey residents: Annuity payments must begin on or before the Policy
Anniversary that is closest to the Annuitant's 70th birthday or the 10th
Policy Anniversary, whichever occurs last. The Owner may not select a
Guaranteed Period Option that would extend beyond that date. The Owner's
options at the Annuity Commencement Date are to elect a lump sum payment, or
elect to receive annuity payments under one of the Fixed Payment Options. New
Jersey residents cannot elect Variable Payment Options. Consult your agent and
the policy form itself for details regarding these and other terms applicable
to policies sold in New Jersey.
FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN THE POLICY
With respect to Owners who are natural persons, there should be no federal
income tax on increases in the Policy Value until a distribution under the
Policy occurs (for example, a surrender, Partial Withdrawal, or Annuity
Payment) or is deemed to occur (for example, a pledge or assignment of a
Policy). Generally, a portion of any distribution or deemed distribution will
be taxable as ordinary income. The taxable portion of certain distributions
will be subject to withholding unless the recipient elects otherwise. In
addition, a 10% Federal penalty tax may apply to certain distributions or
deemed distributions under the Policy. (See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES," p. 53.)
INQUIRIES, WRITTEN NOTICES AND WRITTEN REQUESTS
Any questions about procedures or the Policy, or any Written Notice or
Written Request required to be sent to PFL, should be sent to the
Administrative and Service Office, Financial Markets Division--Variable
Annuity Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Telephone requests and inquires may be made by calling 800-525-6205. All
inquiries, Notices and Requests should include the Policy number, the Owner's
name and the Annuitant's name.
- 17 -
<PAGE>
* * *
Note: The foregoing summary is qualified in its entirety by the detailed
information in the remainder of this Prospectus and in the Statement of
Additional Information and in the prospectuses for the Underlying Funds and in
the Policy, all of which should be referred to for more detailed information.
This Prospectus generally describes only the Policy and the Mutual Fund
Account. Separate prospectuses describe the Underlying Funds. (There is no
prospectus for the Fixed Account since interests in the Fixed Account are not
securities. See "The Fixed Account," p. 31).
- 18 -
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Accumulation Unit Values and the number of Accumulation Units
outstanding for each Subaccount from the date of inception:
<TABLE>
<CAPTION>
TCW MONEY MARKET SUBACCOUNT*
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $1.053205 $1.086872 9,416,706.021
1995......................... 1.014839 1.053205 3,516,158.473
1994(/1/).................... 1.003677 1.014839 1,522,675.448
</TABLE>
<TABLE>
<CAPTION>
TCW MANAGED ASSET ALLOCATION SUBACCOUNT**
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $ 1.184740 $ 1.372991 6,522,822.306
1995......................... .979750 1.184740 3,313,507.707
1994(/1/).................... 0.974417 $ 0.979750 1,329,672.671
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE INTERNATIONAL STOCK SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $ 1.022539 $1.159025 8,619,163.798
1995......................... .940071 1.022539 3,606,823.400
1994(/1/).................... 0.978667 0.940071 1,444,711.154
</TABLE>
<TABLE>
<CAPTION>
VALUE EQUITY SUBACCOUNT***
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $ 1.336071 $1.627513 9,053,564.567
1995......................... 1.009026 1.336071 2,808,066.903
1994(/1/).................... 0.977843 1.009026 740,211.153
</TABLE>
<TABLE>
<CAPTION>
DREYFUS SMALL CAP VALUE SUBACCOUNT****
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $ 1.127390 $1.394113 5,378,653.976
1995......................... 1.004766 1.127390 2,577,504.165
1994(/1/).................... 0.958389 1.004766 673,042.726
</TABLE>
<TABLE>
<CAPTION>
DREYFUS U.S. GOVERNMENT SECURITIES SUBACCOUNT*****
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $ 1.120922 $1.122583 3,772,426.054
1995......................... .985254 1.120922 2,656,099.798
1994(/1/).................... 1.000769 0.985254 450,510.347
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE EQUITY INCOME SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $1.284124 $1.514228 7,413,620.068
1995(/2/).................... 0.999237 $1.284124 1,786,079.570
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE GROWTH STOCK SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $1.350045 $1.603706 5,893,560.949
1995(/3/).................... 0.999910 $1.350045 1,611,995.783
</TABLE>
<TABLE>
<CAPTION>
OPPORTUNITY VALUE SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996(/4/).................... $.999910 $1.004062 205,301.400
</TABLE>
<TABLE>
<CAPTION>
ENHANCED INDEX SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996(/5/).................... $ 0 $ 0 0
</TABLE>
<TABLE>
<CAPTION>
WRL GROWTH SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... $13.795672 $16.007469 1,130,886.988
1995......................... $ 9.531263 $13.795672 442,772.285
1994(/1/).................... 9.418271 9.531263 182,787.313
</TABLE>
- ----------------------------------
* Prior to May 1, 1996, known as the Money Market Subaccount.
** Prior to May 1, 1996, known as the Managed Asset Allocation Subaccount.
*** Prior to May 1, 1996, known as the Quest for Value Equity Subaccount.
**** Prior to October 29, 1996, known as the Value Small Cap Subaccount, and
prior to May 1, 1996, known as the Quest for Value Small Cap Subaccount.
**** Prior to May 1, 1996, known as the U.S. Government Securities
Subaccount.
(1) Period from July 5, 1994 through December 31, 1994.
(2) Period from January 20, 1995 through December 31, 1995.
(3) Period from January 5, 1995 through December 31, 1995.
(4) Period from November 20, 1996 through December 31, 1996.
(5) Had not commenced operations as of December 31, 1996.
These figures reflect the 1.25% Mortality and Expense Risk Fee.
The offering of the Enhanced Index Subaccount is expected to commence on or
about the date of this Prospectus. Accordingly, no comparable data is
available for that Subaccount.
- 20 -
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Mutual Fund Account and PFL and the
independent auditors' reports thereon are in the Statement of Additional
Information which is available free upon request to the Administrative and
Service Office.
HISTORICAL PERFORMANCE DATA
STANDARDIZED PERFORMANCE DATA
From time to time, PFL may advertise historical yields and total returns for
the Subaccounts of the Mutual Fund Account. In addition, PFL may advertise the
effective yield of the Subaccount investing in the TCW Money Market Portfolio
(the "TCW Money Market Subaccount"). These figures will be calculated
according to standardized methods prescribed by the Securities and Exchange
Commission ("SEC"). They will be based on historical earnings and are not
intended to indicate future performance.
TCW MONEY MARKET SUBACCOUNT
The yield of the TCW Money Market 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 Mutual Fund Account (other than the TCW
Money Market Subaccount) for a Policy refers to the annualized income
generated by an investment under a Policy in the Subaccount over a specified
thirty-day period. The yield is calculated by assuming that the income
generated by the investment during that thirty-day period is generated each
thirty-day period over a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount of the Mutual Fund Account refers to return
quotations assuming an investment under a Policy has been held in the
Subaccount for various periods of time including, but not limited to, a period
measured from the date the Subaccount commenced operations. When a Subaccount
has been in operation for one, five, and ten 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
- 21 -
<PAGE>
Subaccount to the redemption value of that investment as of the first day of
each of the periods for which total return quotations are provided.
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. To
the extent that any or all of a premium tax 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 Statement of
Additional Information, a copy of which may be obtained from the
Administrative and Service Office upon request.
Based on the method of calculation described in the Statement of Additional
Information, the average annual total returns for periods from inception of
the Subaccounts to December 31, 1996, and for the one and five year periods
ended December 31, 1996 are shown below.
AVERAGE ANNUAL TOTAL RETURNS
Return of Premium Death Benefit (Total Mutual Fund Account Annual Expenses:
1.50%)
<TABLE>
<CAPTION>
INCEPTION
OF THE
ONE YEAR FIVE YEARS SUBACCOUNT SUBACCOUNT
ENDED ENDED TO INCEPTION
SUBACCOUNT 12/31/96 12/31/96 12/31/96 DATE
---------- -------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
TCW Managed Asset Allocation.. 15.99% N/A 14.69% July 5, 1994
T. Rowe Price International
Stock(/1/).................. 13.49% N/A 6.99% July 5, 1994
Value Equity.................. 21.97% N/A 22.65% July 5, 1994
Dreyfus Small Cap Value....... 23.81% N/A 16.30% July 5, 1994
Dreyfus U.S. Government
Securities.................. 0.28% N/A 5.00% August 3, 1994
T. Rowe Price Equity Income... 18.07% N/A 23.94% January 20, 1995
T. Rowe Price Growth Stock.... 18.94% N/A 26.96% January 5, 1995
Opportunity Value............. 0.43% N/A .43% November 20, 1996
Enhanced Index(/2/) .......... N/A N/A N/A N/A
WRL Growth (Janus)............ 16.01% N/A 21.31% July 5, 1994
</TABLE>
- 22 -
<PAGE>
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit (Total
Mutual Fund Account Annual Expenses: 1.65%)
<TABLE>
<CAPTION>
INCEPTION
OF THE
ONE YEAR FIVE YEARS SUBACCOUNT SUBACCOUNT
ENDED ENDED TO INCEPTION
SUBACCOUNT 12/31/96 12/31/96 12/31/96 DATE
---------- -------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
TCW Managed Asset Allocation.. 15.87% N/A 14.32% July 5, 1994
T. Rowe Price International
Stock(/1/).................. 13.32% N/A 6.62% July 5, 1994
Value Equity.................. 21.79% N/A 22.39% July 5, 1994
Dreyfus Small Cap Value....... 23.63% N/A 16.05% July 5, 1994
Dreyfus U.S. Government
Securities.................. .13% N/A 4.82% August 3, 1994
T. Rowe Price Equity Income... 17.89% N/A 23.76% January 20, 1995
T. Rowe Price Growth Stock.... 18.76% N/A 26.77% January 5, 1995
Opportunity Value............. N/A N/A .41% November 20, 1996
Enhanced Index(/2/) .......... N/A N/A N/A N/A
WRL Growth (Janus)............ 15.78% N/A 20.90% July 5, 1994
</TABLE>
- ----------------------------------
(1) Effective January 1, 1995, Rowe-Price Fleming International, Inc. became
the Adviser to the T. Rowe Price International Stock Portfolio. The
Portfolio's name was changed from the Global Growth Portfolio and the
Portfolio's shareholders approved a change in investment objective from
investments in small capitalization companies on a global basis to
investments in a broad range of companies on an international basis (i.e.,
non-U.S. companies).
(2) The Enhanced Index Portfolio is expected begin operations on or about the
date of this Prospectus, therefore comparable information is not
available.
The figures for the "from inception" periods in the above tables reflect
waiver of advisory fees and reimbursement of other expenses for all portfolios
except the T. Rowe Price Equity Income Portfolio and T. Rowe Price Growth
Stock Portfolio. In the absence of such waivers, the average annual total
return figures above for the from inception periods would have been lower.
HYPOTHETICAL PERFORMANCE DATA OF SUBACCOUNTS
Prior to July 5, 1994, the Subaccounts had not yet commenced operations. The
following performance data for the periods prior to the date the Subaccount
commenced operations is based on the performance of the corresponding
Portfolio and the hypothetical assumption that the applicable Subaccount was
in existence for the same period as the corresponding Portfolio with a level
of charges equal to those currently assessed against the Subaccount or against
Owner's Policy Values.
- 23 -
<PAGE>
HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURNS
Return of Premium Death Benefit (Total Mutual Fund Account Annual Expenses:
1.50%)
<TABLE>
<CAPTION>
CORRESPONDING
ONE YEAR FIVE YEARS TEN YEARS* PORTFOLIO
ENDED ENDED OR INCEPTION INCEPTION
SUBACCOUNT 12/31/96 12/31/96 TO 12/31/96 DATE
---------- -------- ---------- ------------ -----------------
<S> <C> <C> <C> <C>
TCW Managed Asset
Allocation................ 15.99% 10.01% 10.92% April 8, 1991
T. Rowe Price International
Stock(/1/)................ 13.49% 4.60% 4.72% April 8, 1991
Value Equity................ 21.97% N/A 15.56% May 27, 1993
Dreyfus Small Cap Value..... 23.81% N/A 11.45% May 4, 1993
Dreyfus U.S. Government
Securities................ 0.28% N/A 4.61% May 9, 1993
T. Rowe Price Equity Income. 18.07% N/A 23.21% January 1, 1995
T. Rowe Price Growth Stock.. N/A N/A N/A January 1, 1995
Opportunity Value........... 0.43% N/A .42% November 18, 1996
Enhanced Index(/2/) ........ N/A N/A N/A N/A
WRL Growth (Janus)(/3/)..... 16.01% 8.14% 15.51%* October 2, 1986
</TABLE>
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit (Total
Mutual Fund Account Annual Expenses: 1.65%)
<TABLE>
<CAPTION>
CORRESPONDING
ONE YEAR FIVE YEARS TEN YEARS* OR PORTFOLIO
ENDED ENDED INCEPTION TO INCEPTION
SUBACCOUNT 12/31/96 12/31/96 12/31/96 DATE
---------- -------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
TCW Managed Asset
Allocation............... 15.87% 9.75% 10.68% April 8, 1991
T. Rowe Price International
Stock(/1/)............... 13.32% 4.34% 4.48% April 8, 1991
Value Equity............... 21.79% N/A 15.34% May 27, 1993
Dreyfus Small Cap Value.... 23.63% N/A 11.23% May 4, 1993
Dreyfus U.S. Government
Securities............... .13% N/A 4.43% May 9, 1993
T. Rowe Price Equity
Income................... 17.89% N/A 23.03% January 1, 1995
T. Rowe Price Growth Stock. N/A N/A N/A January 1, 1995
Opportunity Value.......... N/A N/A .40% November 18, 1996
Enhanced Index(/2/) ....... N/A N/A N/A N/A
WRL Growth (Janus)(/3/) ... 15.78% 7.87% 15.28%* October 2, 1986
</TABLE>
- ----------------------------------
- 24 -
<PAGE>
- ----------------------------------
(1) Effective January 1, 1995, Rowe Price-Fleming International, Inc. became
the new adviser to the Global Growth Portfolio. The Portfolio's name
changed to the T. Rowe Price International Stock Portfolio and the
Portfolio's shareholders approved a change in investment objective from
investments in small capitalization companies on a global basis to
investments in a broad range of companies on an international basis (that
is, non-U.S. companies).
(2) The Enhanced Index Subaccount is expected to begin operations on or about
the date of this Prospectus, therefore comparable information is not
available.
(3) The WRL Growth Portfolio, commenced operations on October 2, 1986. For
purposes of the calculation of the performance data prior to July 5,
1994, the deductions for the Mortality and Expense Risk Fee, and
Administrative Charge are made 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 actually been in existence since the inception of the WRL
Growth Portfolio.
The figures for the "five year" and "from inception" periods in the above
tables reflect waiver of advisory fees and reimbursement of other expenses for
all portfolios except the T. Rowe Price Equity Income Portfolio and the T.
Rowe Price Growth Stock Portfolio. In the absence of such waivers, the average
annual total return figures above from the five year and from inception
periods would have been lower.
OPPORTUNITY VALUE AND EQUITY INDEX PORTFOLIOS
The Opportunity Value Portfolio and the Equity Index Portfolio are new and
therefore do not have (in the case of the Opportunity Value Portfolio, no
significant) historical performance data. However, their investment managers
(OpCap Advisors and J.P. Morgan Investment Management Inc. respectively) have
years of experience managing very similar portfolios with substantially the
same investment objectives and policies. Historical performance data showing
the results the investment managers achieved for those other portfolios is in
the prospectus for the Endeavor Series Trust, which is included with this
Prospectus. See "Performance Information" in the Endeavor Series Trust's
prospectus. That performance information in the Endeavor Series Trust's
prospectus does not take into account the fees and charges under the Policy;
if those fees and charges were reflected, the investment returns would be
lower.
NON-STANDARDIZED PERFORMANCE DATA
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 Mutual Fund Account. The non-standard performance data may make
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 Statement of
Additional Information, a copy of which may be obtained from the
Administrative and Service Office upon request.
- 25 -
<PAGE>
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 the ratings should not be
considered as bearing on the investment performance of assets held in the
Mutual Fund Account or of the safety or riskiness of an investment in the
Mutual Fund 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 (i.e., debt/commercial paper).
PFL LIFE INSURANCE COMPANY
PFL Life Insurance Company ("PFL"), 4333 Edgewood Road, N.E., Cedar Rapids,
Iowa 52499-0001, is a stock life insurance company. It was incorporated under
the name NN Investors Life Insurance Company, Inc. under the laws of the State
of Iowa on April 19, 1961. It is principally engaged in the sale of life
insurance and annuity policies, and is licensed in the District of Columbia,
Guam, and in all states except New York. As of December 31, 1996, PFL had
assets of approximately $7.9 billion. PFL is a wholly-owned indirect
subsidiary of AEGON USA, Inc., which conducts substantially all 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. AEGON n.v., a
holding company, conducts its business through subsidiary companies engaged
primarily in the insurance business.
THE ENDEAVOR ACCOUNTS
Premium Payments made under a Policy may be allocated to the Mutual Fund
Account, to the Fixed Account, or to a combination of these Accounts.
THE MUTUAL FUND ACCOUNT
The PFL Endeavor Platinum Variable Annuity Account comprises a portion of
the PFL Endeavor VA Separate Account of PFL Life Insurance Company (the
"Mutual Fund Account"). The PFL Endeavor VA Separate
- 26 -
<PAGE>
Account was established as a separate investment account under the laws of the
State of Iowa on January 19, 1990. The Mutual Fund Account receives and
invests the Premium Payments under the Policies that are allocated to it for
investment in shares of the WRL Growth Portfolio and the Endeavor Series
Trust.
The Mutual Fund Account currently is divided into eleven Subaccounts.
Additional Subaccounts may be established in the future at the discretion of
PFL. Each Subaccount invests exclusively in shares of one of the Portfolios of
the Underlying Funds. Under Iowa law, the assets of the Mutual Fund Account
are owned by PFL, but they are held separately from the other assets of PFL.
To the extent that these assets are attributable to the Cash Value of the
Policies, these assets are not chargeable with liabilities incurred in any
other business operation of PFL. Income, gains, and losses incurred on the
assets in the Subaccounts of the Mutual Fund Account, whether or not realized,
are credited to or charged against that Subaccount without regard to other
income, gains or losses of any other Account or Subaccount of PFL. Therefore,
the investment performance of any Subaccount is entirely independent of the
investment performance of PFL's general account assets or any other Account or
Subaccount maintained by PFL.
The Mutual Fund Account is registered with the SEC under the Investment
Company Act of 1940, as amended, (the "1940 Act") as a unit investment trust
and meets the definition of a separate account under federal securities laws.
However, the SEC does not supervise the management or the investment practices
or policies of the Mutual Fund Account or PFL.
The Underlying Funds. The Mutual Fund Account will invest exclusively in
shares of Endeavor Series Trust and the Growth Portfolio of the WRL Series
Fund, Inc. (collectively the "Underlying Funds"). The WRL Series Fund, Inc.,
and the Endeavor Series Trust are each a series-type mutual fund registered
with the SEC under the 1940 Act as an open-end, diversified management
investment company. The registration of the Underlying Funds does not involve
supervision of the management or investment practices or policies of the
Underlying Funds by the SEC.
The following eleven Portfolios are currently available under the Policies:
the WRL Growth Portfolio, managed by Janus Capital Corporation, the TCW
Managed Asset Allocation Portfolio, the TCW Money Market Portfolio, the T.
Rowe Price International Stock Portfolio, the Value Equity Portfolio, the
Dreyfus Small Cap Value Portfolio, the Dreyfus U.S. Government Securities
Portfolio, the T. Rowe Price Equity Income Portfolio, the T. Rowe Price Growth
Stock Portfolio, the Opportunity Value Portfolio and the Enhanced Index
Portfolio. The assets of each Portfolio are held separate from the assets of
the other Portfolios, and each Portfolio has its own distinct investment
objectives and policies. Each Portfolio operates as a separate investment
fund, and the income or losses of one Portfolio generally have no effect on
the investment performance of any other Portfolio.
- 27 -
<PAGE>
Endeavor Investment Advisers (the "Manager"), an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, is the
Endeavor Series Trust's manager. The Manager selects and contracts with
advisers for investment services for the Portfolios of the Endeavor Series
Trust, reviews the advisers' activities, and otherwise performs administerial
and managerial functions for the Endeavor Series Trust. Six advisers each
perform investment advisory services for particular Portfolios of Endeavor
Series Trust: TCW Funds Management, Inc. (a wholly-owned subsidiary of The TCW
Group, Inc.), T. Rowe Price Associates, Inc., Rowe Price-Fleming
International, Inc. (a joint venture between T. Rowe Price Associates, Inc.
and Robert Fleming Holdings Limited), OpCap Advisors (formerly known as Quest
for Value Advisors), J.P. Morgan Investment Management Inc. (a wholly owned
subsidiary of J.P. Morgan and Co. Incorporated), and The Dreyfus Corporation
(a wholly-owned subsidiary of Mellon Bank, N.A.), as successor to The Boston
Company Asset Management, Inc. (the "Advisers").
TCW Funds Management, Inc. is the Adviser for the TCW Managed Asset
Allocation Portfolio and the TCW Money Market Portfolio. T. Rowe Price
Associates, Inc. is the Adviser for the T. Rowe Price Equity Income Portfolio
and the T. Rowe Price Growth Stock Portfolio. Rowe Price-Fleming
International, Inc. is the Adviser for the T. Rowe Price International Stock
Portfolio. OpCap Advisors is the Adviser for the Value Equity Portfolio and
the Opportunity Value Portfolio. J.P. Morgan Investment Management Inc.
("Morgan") is the Adviser for the Enhanced Index Portfolio. The Dreyfus
Corporation is the Adviser for the Dreyfus U.S. Government Securities
Portfolio, and the Dreyfus Small Cap Value Portfolio. WRL Investment
Management, Inc. a subsidiary of Western Reserve Life Assurance Co. of Ohio
(an affiliate of PFL), is the Adviser for the WRL Series Fund, Inc. and
contracts with Janus Capital Corporation (also an "Adviser") as the sub-
adviser to the WRL Growth Portfolio.
The Adviser of a Portfolio is responsible for selecting the investments of
the Portfolio consistent with the investment objectives and policies of the
Portfolio, and will conduct securities trading for the Portfolio. All Advisers
are investment advisers registered with the SEC under the Investment Advisers
Act of 1940. The investment objectives of each Portfolio are summarized as
follows:
TCW Money Market Portfolio--seeks current income, preservation of capital
and maintenance of liquidity through investment in short-term money market
securities. The Portfolio seeks to maintain a constant net asset value of
$1.00 per share although no assurances can be given that such constant net
asset value will be maintained.
TCW Managed Asset Allocation Portfolio--seeks high total return through a
managed asset allocation portfolio of equity, fixed income and money market
securities.
T. Rowe Price International Stock Portfolio--seeks long-term growth of
capital through investments primarily in common stocks of established non-U.S.
companies.
- 28 -
<PAGE>
Value Equity Portfolio--seeks long-term capital appreciation through
investment in securities (primarily equity securities) of companies that are
believed by the Portfolio's Adviser to be undervalued in the marketplace in
relation to factors such as the companies' assets or earnings.
Dreyfus Small Cap Value Portfolio--seeks capital appreciation through
investments in a diversified portfolio consisting primarily of equity
securities of companies with a median capitalization of approximately $750
million, provided that under normal market conditions at least 75% of the
Portfolio's investments will be in equity securities of companies with
capitalizations at the time of purchase between $150 million and $1.5 billion.
Dreyfus U.S. Government Securities Portfolio--seeks as high a level of total
return as is consistent with prudent investment strategies by investing under
normal conditions at least 65% of its assets in debt obligations and
mortgaged-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
T. Rowe Price Equity Income Portfolio--seeks to provide substantial dividend
income and also capital appreciation by investing primarily in dividend paying
stocks of established companies.
T. Rowe Price Growth Stock Portfolio--seeks long-term growth of capital and
to increase dividend income through investment primarily in common stocks of
well established growth companies.
Opportunity Value Portfolio--seeks growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based upon the Portfolio
Adviser's assessment of relative values.
Enhanced Index Portfolio--seeks to earn a total return modestly in excess of
the total return performance of the S&P 500 Composite Stock Index (the "S&P
500 Index") while maintaining a volatility of return similar to the S&P 500
Index.
WRL Growth (Janus) Portfolio--seeks growth of capital. At most times this
Portfolio will be invested primarily in equity securities which are selected
solely for their capital growth potential; investment income is not a
consideration.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVE.
MORE DETAILED INFORMATION, INCLUDING A DESCRIPTION OF EACH PORTFOLIO'S
INVESTMENT OBJECTIVE AND POLICIES AND A DESCRIPTION OF RISKS INVOLVED IN
INVESTING IN EACH OF THE PORTFOLIOS AND OF EACH PORTFOLIO'S FEES AND EXPENSES
IS CONTAINED IN THE PROSPECTUSES FOR THE UNDERLYING FUNDS, CURRENT COPIES OF
WHICH ARE ATTACHED TO THIS PROSPECTUS. INFORMATION CONTAINED IN THE UNDERLYING
FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE INVESTING IN A SUBACCOUNT
OF THE MUTUAL FUND ACCOUNT.
- 29 -
<PAGE>
An investment in the Mutual Fund Account, or in any Portfolio, including the
TCW Money Market Portfolio and the Dreyfus U.S. Government Securities
Portfolio, is not insured or guaranteed by the U.S. government or any
government agency.
Addition, Deletion, or Substitution of Investments. PFL cannot and does not
guarantee that any of the 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 Mutual Fund Account and its
investments. PFL reserves the right to eliminate the shares of any Portfolio
held by a Subaccount and 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 Mutual Fund
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 SEC. Nothing contained
herein shall prevent the Mutual Fund 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 requests made by Owners.
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 TCW 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 Mutual Fund 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 transfer the assets of the Mutual Fund Account
associated with the Policies to another account or accounts.
- 30 -
<PAGE>
THE FIXED ACCOUNT
This Prospectus is generally intended to serve as a disclosure document only
for the Policy and the Mutual Fund Account. In addition, all Policies issued
before May 1, 1996, and Policies issued on or after that date but issued under
a form other than AV265 101 89 396 do not contain a Fixed Account. (See
Appendix B to this Prospectus.) For complete details regarding any applicable
Fixed Account, see the Policy itself.
Premium Payments allocated and amounts transferred to the Fixed Account
become part of the general account of PFL, which supports insurance and
annuity obligations. 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 and PFL has been advised that the staff of
the SEC has not reviewed the disclosures in this Prospectus which relate to
the Fixed Account.
The Fixed Account is made up of all the general assets of PFL, other than
those in the Mutual Fund Account or in any other segregated asset account. The
Owner may allocate Premium Payments to the Fixed Account at the time of
Premium Payment or by subsequent transfers from the Mutual Fund Account.
Instead of the Owner bearing the investment risk, as is the case for Policy
Value in the Mutual Fund Account, PFL bears the full investment risk for all
Policy Value in the Fixed Account. PFL has sole discretion to invest the
assets of its general account, including the Fixed Account, subject to
applicable law. While PFL bears the full investment risk for all Policy Value
in the Fixed Account, the Owner bears the risk that PFL would not be able to
satisfy its contractual obligations.
Premium Payments applied to and any amounts transferred to the Fixed Account
will reflect a fixed interest rate. The interest rates PFL sets will be
credited for increments of at least one year measured from each premium
payment or transfer date. These rates will never be less than an effective
annual interest rate of 3%. Upon Surrender of the Policy, the Owner will
receive at least the Premium Payments applied to, less prior Partial
Withdrawals and transfers from, the Fixed Account.
Guaranteed Periods. PFL may offer optional guaranteed interest rate periods
("Guaranteed Period Options" or "GPOs") into which Premium Payments may be
paid or amounts transferred. For example, PFL may, from time to time, offer
Guaranteed Period Options for periods of 1, 3, or 5 years. The current
interest rate PFL sets for funds entering each Guaranteed Period Option will
apply to those funds until the end of that Guaranteed Period. At the end of
the Guaranteed Period, the Premium Payment or amount transferred into the
Guaranteed Period Option less any withdrawals or transfers from that
Guaranteed Period Option, including the effect of any Excess Interest
Adjustment due to withdrawals or transfers prior to the end of a Guaranteed
Period, plus accrued interest, will be rolled into a new Guaranteed Period
Option.
- 31 -
<PAGE>
The Owner may choose the Guaranteed Period Option in which the funds are to
be placed by giving PFL notice within 30 days before the end of the expiring
Guaranteed Period. In the absence of such election, the new Guaranteed Period
will be the same as the expiring one. If that Guaranteed Period Option is no
longer offered by PFL, the next shorter Guaranteed Period Option then being
offered will be used. PFL reserves the right, for new Premium Payments,
transfers, or rollovers, to offer or not to offer any Guaranteed Period
Option. PFL will, however, always offer at least a one-year Guaranteed Period
Option.
Surrenders, Partial Withdrawals, transfers, and amounts applied to a Payment
Option from a Guaranteed Period Option prior to the end of the Guaranteed
Period may be subject to an Excess Interest Adjustment. An Excess Interest
Adjustment may result in a loss of interest credited, but the Owner's Fixed
Account Policy Values will always be credited with an effective annual
interest rate of at least 3%. (See "DISTRIBUTIONS UNDER THE POLICY--Excess
Interest Adjustment," p.41)
For purposes of crediting interest, the oldest Premium Payment or transfer
into a Guaranteed Period Option within the Fixed Account, plus interest
allocable to that Premium Payment or transfer, is considered to be withdrawn
or transferred out first; the next oldest Premium Payment plus interest is
considered to be transferred out next, and so on (this is a "first-in, first-
out" procedure).
Dollar Cost Averaging Fixed Account Option. PFL may offer a Dollar Cost
Averaging Fixed Account Option separate from the Guaranteed Period Option(s).
This option will have a one-year interest rate guarantee and will only be
available under a Dollar Cost Averaging (DCA) program. The current interest
rate PFL credits for the DCA Fixed Account may differ from the rates credited
on other Guaranteed Period Option(s) in the Fixed Account.
Prior to the Annuity Commencement Date, the Owner can instruct PFL to make
automatic transfers from the Dollar Cost Averaging Fixed Account to one or
more subaccounts of the Mutual Fund Account. Transfers must be scheduled for
at least six but not more than 24 months, or for at least four, but not more
than eight quarters. No changes to the automatic amount transferred will be
allowed, but changes can be made to the Subaccounts to which these transfers
are allocated. Dollar Cost Averaging transfers from the Dollar Cost Averaging
Fixed Account will not be subject to an Excess Interest Adjustment. (See
"Dollar Cost Averaging," p. 35.)
Guaranteed Interest Rates. PFL periodically will establish an applicable
Guaranteed Interest Rate for each of the Guaranteed Period Options within the
Fixed Account, and the Dollar Cost Averaging Fixed Account Option. Current
Guaranteed Interest Rates may be changed by PFL frequently or infrequently
depending on interest rates on investments available to PFL and other factors
as described below, but once established, the rate will be guaranteed for the
entire duration of the Guaranteed Period. Each Guaranteed Period will have a
duration of at least one year. However,
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except for limited situations, any amount withdrawn or transferred will be
subject to an Excess Interest Adjustment, except at the end of the Guaranteed
Period. (See "Excess Interest Adjustment," p. 41.)
The Guaranteed Interest Rate will not be less than 3% per year, regardless
of any application of the Excess Interest Adjustment. PFL has no specific
formula for determining the rate of interest that it will declare as a
Guaranteed Interest Rate, as this rate will be reflective of interest rates
available on the types of debt instruments in which PFL intends to invest
amounts allocated to the Fixed Account. In addition, PFL's management may
consider other factors in determining Guaranteed Interest Rates for a
particular Guaranteed Period including but not limited to: regulatory and tax
requirements; sales commissions and administrative expenses borne by the
Company; general economic trends; and competitive factors. There is no
obligation to declare a rate in excess of 3%; the Owner assumes the risk that
declared rates will not exceed 3%. PFL has complete discretion to declare any
rate of at least 3%, regardless of market interest rates, the amounts earned
by PFL on its investments, or any other factors.
PFL'S MANAGEMENT HAS COMPLETE AND SOLE DISCRETION TO DETERMINE THE
GUARANTEED INTEREST RATES. PFL CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE
GUARANTEED INTEREST RATES, EXCEPT THAT PFL GUARANTEES THAT FUTURE GUARANTEED
EFFECTIVE INTEREST RATES WILL NOT BE BELOW 3% PER YEAR.
TRANSFERS
An Owner can transfer Policy Values or an amount equal to the interest
credited from one Investment Option to another within certain limits.
Transfers (from the Guaranteed Period Option(s) of the Fixed Account) of an
amount up to the interest credited (that is, "interest transfers") are not
subject to an Excess Interest Adjustment, but may affect the interest
crediting rates on the remaining funds in the Guaranteed Period Option.
Subject to the limitations and restrictions described below, transfers from
an Investment Option may be made, up to thirty days prior to the Annuity
Commencement Date, by sending Written Notice, signed by the Owner, to the
Administrative and Service Office. The minimum amount which may be transferred
is the lesser of $500 or the entire Subaccount or Guaranteed Period Option
Value. If the Subaccount or Guaranteed Period Option Value remaining after a
transfer is less than $500, PFL reserves the right, at its discretion, either
to deny the transfer request or to include that amount as part of the
transfer.
If the Excess Interest Adjustment (at the time of a transfer request) from
any Guaranteed Period Option is a negative adjustment, then the maximum amount
of Policy Value that can be transferred is 25% of that Guaranteed Period
Option's Policy Value, less amounts previously transferred out of that
Guaranteed Period Option during the current Policy
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Year. No maximum will apply to amounts transferred from any Guaranteed Period
Option if the Excess Interest Adjustment is a positive adjustment at the time
of transfer. The Owner must notify PFL within 30 days prior to the end of any
expiring Guaranteed Period Option to instruct PFL regarding any transfers to
be performed at that time.
Transfers prior to the Annuity Commencement Date currently may be made
without charge as often as the Owner wishes, subject to the minimum amount
specified above. PFL reserves the right to limit these transfers to no more
than 12 per Policy Year in the future, or to charge up to $10 for any transfer
in excess of 12 per Policy Year.
The Owner may transfer an amount up to the interest credited in any of the
Guaranteed Period Option(s) to any Subaccount(s) of the Mutual Fund Account
prior to the end of the Guaranteed Period. No Excess Interest Adjustment will
apply to such interest transfers. Interest transfers may affect the interest
crediting rates on the remaining funds in the Guaranteed Period Option. This
is because interest transfers may have the effect of reducing or eliminating
principal amounts in the Guaranteed Period Options since, for purposes of
crediting interest, PFL considers the oldest Premium Payment or transfer into
the Guaranteed Period Option, plus interest allocable to that particular
Premium Payment or transfer, to be withdrawn first.
Transfers out of the Dollar Cost Averaging Fixed Account, except through an
automatic Dollar Cost Averaging program, are not allowed.
After the Annuity Commencement Date, transfers out of the Fixed Account are
not permitted, and transfers between Subaccounts or from Subaccounts to the
Fixed Account may be limited to once per Policy Year. (See "DISTRIBUTIONS
UNDER THE POLICY--Annuity Payment Options," p. 43.)
Transfers may be made by telephone, subject to the provisions described
below under "Telephone Transactions".
REINSTATEMENTS
Requests are occasionally received by PFL to reinstate funds which had been
transferred to another company via a Section 1035 exchange or trustee to
trustee transfer. In this situation PFL will require the Owner to replace the
same total amount of money in the applicable Subaccounts and/or Fixed Accounts
as was taken from them to effect the Exchange. The total dollar amount of
funds reapplied to the Separate Account will be used to purchase a number of
units available for each Subaccount based on the unit prices at the date of
Reinstatement (within two days of the date the funds are received by PFL). It
should be noted that the number of units available on the Reinstatement date
may be more or less than the number surrendered for the Exchange. Amounts
reapplied to the Fixed Account will receive the interest rate they would
otherwise have received, had they not been withdrawn. However, an adjustment
will be made to the amount reapplied to compensate PFL for the additional
interest credited during the period of
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time between the withdrawal and the reapplication of the funds. Owners should
consult a qualified tax adviser concerning the tax consequences of any Section
1035 exchanges or reinstatements.
TELEPHONE TRANSACTIONS
An Owner (or the Owner's designated account executive) may make transfers
and/or change the allocation of subsequent Premium Payments by telephone.
Telephone transfers are only allowed if the "Telephone Transfer/Reallocation
Authorization" box in the application has been checked or telephone transfers
have been subsequently authorized in writing on a form provided to PFL by the
Owner. PFL and/or the Administrative and Service Office will not be liable for
following instructions communicated by telephone that it reasonably believes
to be genuine. PFL will employ reasonable procedures, however, to confirm that
instructions communicated by telephone are genuine. If PFL fails to do so, it
may be liable for any losses due to unauthorized or fraudulent instructions.
All telephone requests will be recorded on voice recorder equipment for the
protection of the Owner. The Owner, when making telephone requests may be
required to provide their social security number and/or other information for
identification purposes.
Telephone requests must be received at the Administrative and Service Office
no later than 3:00 p.m. Central time in order to assure same day pricing of
the transaction.
At its discretion, PFL may discontinue the telephone transaction privilege
at any time as to some or all Owners, and PFL may require written confirmation
of any transaction request.
DOLLAR COST AVERAGING (DCA)
Under the Dollar Cost Averaging program, prior to the Annuity Commencement
Date, the Owner can instruct PFL to automatically transfer a specified dollar
amount from the Dollar Cost Averaging Fixed Account Option, the TCW Money
Market Subaccount or the Dreyfus U.S. Government Securities Subaccount to any
other Subaccount or Subaccounts of the Mutual Fund Account. The automatic
transfers can occur monthly or quarterly and will occur on the 28th day of the
month. If the Dollar Cost Averaging request is received prior to the 28th day
of any month, the first transfer will occur on the 28th day of that month. If
the Dollar Cost Averaging request is received on or after the 28th day of any
month, the first transfer will occur on the 28th day of the following month.
The amount transferred each time must be at least $500. A minimum of six
monthly or four quarterly transfers are required, and a maximum of 24 monthly
or eight quarterly transfers are allowed from the DCA Fixed Account.
Dollar Cost Averaging results in the purchase of more units when the Unit
Value is low, and fewer units when the Unit Value is high. However, there is
no guarantee that the Dollar Cost Averaging program will result in
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higher Policy Values or will otherwise be successful. Dollar Cost Averaging
requires regular investment regardless of fluctuating prices and does not
guarantee profits nor prevent losses in a declining market. Before electing
this option, individuals should consider their financial ability to continue
transfers through periods of both high and low price levels.
The Owner may request Dollar Cost Averaging when purchasing the Policy or at
a later date. The program will terminate when the amount in the Dollar Cost
Averaging Fixed Account, the TCW Money Market Subaccount or the Dreyfus U.S.
Government Securities Subaccount is insufficient for the next transfer, at
which time the entire remaining balance is transferred.
Except for automatic Dollar Cost Averaging transfers from the Dollar Cost
Averaging Fixed Account Option, the Owner may increase or decrease the amount
of the transfers by sending PFL a new Dollar Cost Averaging form. The Owner
may discontinue the program at any time by sending a Written Notice to the
Administrative and Service Office. The minimum number of transfers (6 monthly
or 4 quarterly) requirement must be satisfied each time the Dollar Cost
Averaging program is restarted following termination of the program for any
reason. There is no charge for participation in the Dollar Cost Averaging
program.
ASSET REBALANCING
Prior to the Annuity Commencement Date the Owner may instruct PFL to
automatically transfer amounts among the Subaccounts of the Mutual Fund
Account on a regular basis to maintain a desired allocation of the Policy
Value among the various Subaccounts offered. Rebalancing will occur on a
monthly, quarterly, semi-annual, or annual basis, beginning on a date selected
by the Owner. If no date is selected, the account will be rebalanced on the
day of the month the Policy was effective. The Owner must select the
percentage of the Policy Value desired in each of the various Subaccounts
offered (totaling 100%). Any amounts in the Fixed Account are ignored for
purposes of asset rebalancing. Rebalancing may be started, stopped, or changed
at any time, except that rebalancing will not be available when:
(1) Automatic Dollar Cost Averaging transfers are being made; or
(2) any other transfer is requested.
There is no charge for participation in the asset rebalancing program .
THE POLICY
The Endeavor Platinum Variable Annuity Policy is a Flexible Premium Variable
Annuity Policy. The rights and benefits under the Policy are summarized below;
however, the description of the Policy contained in this Prospectus is
qualified in its entirety by reference to the Policy itself, a copy of which
is available upon request from PFL. The Policy may be purchased on a non-tax
qualified basis ("Nonqualified Policy"). The Policy may also be
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purchased and used in connection with retirement plans or individual
retirement accounts that qualify for favorable federal income tax treatment
("Qualified Policy").
POLICY APPLICATION AND ISSUANCE OF POLICIES--PREMIUM PAYMENTS
Before it will issue a Policy, PFL must receive a completed Policy
application or transmittal form and a minimum initial Premium Payment of
$5,000 for a Nonqualified Policy, or $1,000 for a Qualified Policy. There is
no minimum initial Premium Payment required for tax deferred 403(b) annuity
purchases. Any amount selected by the Owner in such case, up to the maximum
total Premium Payment allowed by PFL, may be used to start a Policy. The
initial Premium Payment for tax deferred 403(b) purchases must be received
within 90 days following the Policy Date, otherwise the Policy will be
canceled. The initial Premium Payment is the only Premium Payment required to
be paid under a Policy. A Policy ordinarily will be issued only in respect of
Annuitants and Owners Age 0 through 80. Acceptance or declination of an
application shall be based on PFL's underwriting standards, and PFL reserves
the right to reject any application or Premium Payment based on those
underwriting standards.
If the application or transmittal form can be accepted in the form received,
the initial Premium Payment will be credited to the Policy Value within two
Business Days after the later of receipt of the information needed to issue
the Policy or receipt of the initial Premium Payment. If the initial Premium
Payment cannot be credited because the application or other issuing
requirements are incomplete, the applicant will be contacted within five
Business Days and given an explanation for the delay and the initial Premium
Payment will be returned at that time unless the applicant consents to PFL's
retaining the initial Premium Payment and crediting it as soon as the
necessary requirements are fulfilled.
The date on which the initial Premium Payment is credited to the Policy
Value is the Policy Date. The Policy Date is the date used to determine Policy
Years and Policy Anniversaries.
All checks or drafts for Premium Payments should be made payable to PFL Life
Insurance Company and sent to the Administrative and Service Office. The Death
Benefit will not take effect until the Premium Payment is received and any
check or draft for the Premium Payment is honored.
Additional Premium Payments. While the Annuitant is living and prior to the
Annuity Commencement Date, the Owner may make Additional Premium Payments at
any time, and in any frequency. The minimum Additional Premium Payment under
both a Nonqualified Policy and a Qualified Policy is $50. Additional Premium
Payments will be credited to the Policy and added to the Policy Value as of
the Business Day when the premium and required information are received.
Maximum Total Premium Payments. The maximum total Premium Payments allowed
without prior approval of PFL is $1,000,000.
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Allocation of Premium Payments. An Owner must allocate Premium Payments to
one or more of the Investment Options. The Owner must specify the initial
allocation in the Policy application or transmittal form. This allocation will
be used for Additional Premium Payments unless the Owner requests a change of
allocation. All allocations must be made in whole percentages and must total
100%. If Premium Payments are allocated to the Dollar Cost Averaging Fixed
Account, directions regarding the Subaccount(s) to which transfers are to be
made must be specified on the Application or other proper Written Request. If
the Owner fails to specify how Premium Payments are to be allocated, the
Premium Payment(s) cannot be accepted.
The Owner may change the allocation instructions for future additional
Premium Payments by sending Written Notice, signed by the Owner, to PFL's
Administrative and Service Office, or by telephone (subject to the provisions
described under "Telephone Transactions," p. 35). The allocation change will
apply to Premium Payments received after the date the Written Notice or
telephone request is received.
Payment Not Honored by Bank. Any payment due under the Policy which is
derived, all or in part, from any amount paid to PFL by check or draft may be
postponed until such time as PFL determines that such instrument has been
honored.
POLICY VALUE
On the Policy Date, the Policy Value equals the initial Premium Payment.
Thereafter, the Policy Value equals the sum of the values in the Mutual Fund
Account and the Fixed Account. The Policy Value will increase by (1) any
subsequent additional Premium Payments received by PFL; (2) any increases in
the Policy Value due to investment results of the selected Subaccount(s); (3)
any positive Excess Interest Adjustments on transfers; and (4) interest
credited in the Fixed Account. The Policy Value will decrease by (1) any
surrenders including applicable Excess Interest Adjustments; (2) any decreases
in the Policy Value due to investment results of the selected Subaccounts; (3)
the charges and deductions imposed by PFL; and (4) any negative Excess
Interest Adjustments on transfers.
The Policy Value is expected to change from Valuation Period to Valuation
Period, reflecting the investment experience of the selected Subaccount(s), as
well as the deductions for charges. A Valuation Period is the period between
successive Business Days. It begins at the close of business on each Business
Day and ends at the close of business on the next succeeding Business Day. A
Business Day is each day that both the New York Stock Exchange is open for
business. Holidays are generally not Business Days.
The Mutual Fund Account Value. When a Premium Payment is allocated or an
amount is transferred to a Subaccount of the Mutual Fund Account, it is
credited to the Policy Value in the form of Accumulation Units. Each
Subaccount of the Mutual Fund Account has a distinct Accumulation
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Unit value (the "Unit Value"). The number of units credited is determined by
dividing the Premium Payment or amount transferred by the Unit Value of the
Subaccount as of the end of the Valuation Period during which the allocation
is made. When amounts are transferred out of, or surrendered or withdrawn from
a Subaccount, units are canceled or redeemed in a similar manner.
For each Subaccount, the 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. Therefore, the Unit Values will fluctuate from day to day based on the
investment experience of the corresponding Portfolio. The determination of
Subaccount Unit Values is described in detail in the Statement of Additional
Information.
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 Policies to meet the requirements of the
Code, regulations or published rulings. An Owner can refuse such a change by
giving Written Notice, but a refusal may result in adverse tax consequences.
NON-PARTICIPATING POLICY
The Policy does not participate or share in the profits or surplus earnings
of PFL. No dividends are payable on the Policy.
DISTRIBUTIONS UNDER THE POLICY
SURRENDERS
Prior to or on the Annuity Commencement Date the Owner may surrender all or
a portion of the Cash Value in exchange for a cash withdrawal payment from
PFL. Prior to or on the Annuity Commencement Date, the Cash Value is the
Policy Value increased or decreased by any applicable Excess Interest
Adjustments. (See "Annuity Payment Options," p. 43). The Policy cannot be
surrendered after the Annuity Commencement Date. (See "Annuity Payments,"
p.42.)
When requesting a Partial Withdrawal ($500 minimum), the Owner must tell PFL
how the withdrawal is to be allocated among various Guaranteed Period Options
of the Fixed Account and/or the Subaccount(s) of the Mutual Fund Account. If
the Owner's request for a Partial Withdrawal from a Guaranteed Period Option
of the Fixed Account is greater than the Cash Value of that Guaranteed Period
Option, PFL will pay the Owner the amount of the Cash Value of that Guaranteed
Period Option. If no allocation instructions are given, the withdrawal will be
deducted from each Investment Option in the same proportion that the Owner's
interest in each
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Investment Option bears to the Policy's total Policy Value. PFL reserves the
right to defer payment of the Cash Value from the Fixed Account for up to six
months.
Beginning in the second Policy Year, an Owner may surrender up to 10% of the
Policy Value at the time of withdrawal without an Excess Interest Adjustment
if no withdrawal has been made in the current Policy Year ("10% Withdrawals").
Amounts withdrawn from the Policy in excess of the 10% Withdrawal or withdrawn
in the same Policy Year as a previous 10% Withdrawal (and all surrenders in
the first Policy Year) are subject to the Excess Interest Adjustment. An
Excess Interest Adjustment will not be assessed if the withdrawal is necessary
to meet the minimum distribution requirements for that Policy specified by the
IRS for tax qualified plans.
10% Withdrawals will reduce the Policy Value by the amount withdrawn.
Amounts requested in excess of the 10% Withdrawal are Excess Partial
Withdrawals. Excess Partial Withdrawals will reduce the Policy Value by an
amount equal to (X-Y) where:
X = Excess Partial Withdrawal
Y = Excess Interest Adjustment applicable to the Excess Partial
Withdrawal.
For a discussion of the Excess Interest Adjustment, see "DISTRIBUTIONS UNDER
THE POLICY--Excess Interest Adjustment," p. 41, and Appendix A.
Since the Owner assumes the investment risk with respect to Premium Payments
allocated to the Mutual Fund Account, and because Partial Withdrawals are
subject to an Excess Interest Adjustment, and possibly income taxes or premium
taxes, the total amount paid upon total surrender of the Cash Value (taking
any prior surrenders into account) may be more or less than the total Premium
Payments made. Following a surrender of the total Cash Value, or at any time
the Policy Value is zero, all rights of the Owner and Annuitant will
terminate.
In addition to the Excess Interest Adjustment and any applicable premium
taxes, surrenders may be subject to income taxes and, if prior to age 59 1/2,
a ten percent Federal penalty tax. (See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES," p. 53.)
NURSING CARE AND TERMINAL CONDITION WAIVER
If the Owner or Owner's spouse (Annuitant or Annuitant's spouse if the Owner
is not a natural person): (1) has been confined in a hospital or nursing
facility for 30 consecutive days, or (2) has been diagnosed as having a
terminal condition as defined in the Policy or endorsement (generally a life
expectancy of 12 months or less), then the Excess Interest Adjustment is not
imposed on surrenders or Partial Withdrawals. (This benefit may not be
available in all states or in all Policy forms--See the Policy or endorsement
for details.)
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EXCESS INTEREST ADJUSTMENT (EIA)
Surrenders, Partial Withdrawals, transfers, and amounts applied to a Payment
Option (prior to the end of a Guaranteed Period) from the Fixed Account
Guaranteed Period Options will be subject to an Excess Interest Adjustment
except as provided for under "Surrenders" or "Nursing Care and Terminal
Condition Withdrawal Option" above or "Systematic Payout Option," below. Prior
versions of the Policy or Policies offered in certain states may not be
subject to an Excess Interest Adjustment. (See Appendix B to this Prospectus.)
The Excess Interest Adjustment partially compensates PFL for the foregoing
early removal of funds from the Guaranteed Period Options where interest rates
have risen since the date of the guarantee. Conversely, the Excess Interest
Adjustment allows PFL to share the benefit of falling interest rates with the
Owner upon such withdrawals.
Generally, if interest rates declared by PFL have risen since the date of
the guarantee, the application of the Excess Interest Adjustment (a negative
Excess Interest Adjustment in this case) will result in a lower payment upon
surrender. Conversely, if interest rates have fallen since the date of the
guarantee, the application of the Excess Interest Adjustment (a positive
Excess Interest Adjustment in this case) will result in a higher payment upon
surrender.
Excess Interest Adjustments will not reduce the Adjusted Policy Value for a
Guaranteed Period Option below the Premium Payments and transfers to that
Guaranteed Period Option, 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%.
The formula for calculating the EIA and examples of the application of the
EIA are set forth in Appendix A to this Prospectus.
SYSTEMATIC PAYOUT OPTION
Under the Systematic Payout Option, Owners an instruct PFL to make automatic
payments to them monthly, quarterly, semi-annually or annually from a
specified Subaccount. Monthly and quarterly payments can only be sent by
electronic funds transfer directly to a checking or savings account. The
minimum payment is $50.00. The maximum payment is 10% of the Policy Value at
the time the Systematic Payout is elected divided by the number of payments
made per year (for example, 12 for monthly). If this requested amount is below
the minimum distribution requirements for that policy specified by the IRS for
tax qualified plans, the maximum payment will be increased to this minimum
required distribution amount. The "Request for Systematic Payout" form must
specify a date for the first payment, which must be at least 30 days but not
more than one year after the form is submitted (for example, Systematic
Payouts will start at the end of the payment mode selected, but not earlier
than 30 days from the date of request).
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The Excess Interest Adjustment will be waived for Owners under age 59 1/2 of
Qualified Policies if they take Systematic Payouts using one of the payout
methods described in I.R.S. Notice 89-25, Q&A-12 (the Life Expectancy
Recalculation Option, Amortization, or Annuity Factor) which generally require
payments for life or life expectancy. These payments must be continued until
the later of age 59 1/2 or five years from their commencement. No additional
withdrawals may be taken during this time. For Qualified Policies, when the
Owner is age 59 1/2 or older, the Excess Interest Adjustment will be waived if
payments are made using the Life Expectancy Recalculation Option.
In addition, for either Qualified or Nonqualified Policies, the Excess
Interest Adjustment will not be imposed on Systematic Payouts.
Qualified Policies are subject to complex rules with respect to restrictions
on and taxation of distributions, including the applicability of penalty
taxes. In addition, the tax treatment of systematic payouts from Nonqualified
Policies has had an unfavorable ruling regarding the ability to avoid the 10%
penalty tax. Therefore, the Owner should consult a qualified tax adviser
before requesting a Systematic Payout. In certain circumstances withdrawn
amounts may be included in the Owner's gross income. (See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES," p. 53.)
ANNUITY PAYMENTS
Annuity Commencement Date. Unless the Annuity Commencement Date is changed,
Annuity Payments under a Policy will begin on the Annuity Commencement Date
selected by the Owner at the time the Owner applies for the Policy. The
Annuity Commencement Date may be changed from time to time by the Owner by
Written Notice to PFL, provided that notice of each change is received by PFL
at its Administrative and Service Office at least thirty (30) days prior to
the then current Annuity Commencement Date. Except as otherwise permitted by
PFL, a new Annuity Commencement Date must be a date which is: (1) at least
thirty (30) days after the date notice of the change is received by PFL; and
(2) not later than the last day of the Policy month starting after the
Annuitant attains age 85. In no event will an Annuity Commencement Date be
permitted to be later than the last day of the month following the month in
which the Annuitant attains age 95. The Annuity Commencement Date may also be
changed by the Beneficiary's election of the Annuity Option after the
Annuitant's death.
Election of Payment Option. 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) Option 3, life income with level payments for 10 years certain,
using the existing Policy Value of the Fixed Account, or (ii) Option 3-V, life
income with
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variable payments for 10 years certain, using the existing Policy Value of the
Mutual Fund Account, or (iii) in a combination of (i) and (ii). If the Policy
Value on the Annuity Commencement Date is less than $2000, PFL reserves the
right to pay it in one lump sum in lieu of applying it under an Annuity
Payment Option.
Prior to the Annuity Commencement Date, the Beneficiary may elect to receive
the Death Benefit in a lump sum or under one of the Payment Options, to the
extent allowed by law and subject to the terms of any settlement agreement.
(See "Death Benefit," p. 47.) Subject to the restrictions of certain state
laws, Annuity Payments will be made on either a fixed basis or a variable
basis as selected by the Owner (or the Beneficiary, after the Annuitant's
death).
The person who elects a 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 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.
Unless the Owner specifies otherwise, the payee shall be the Annuitant, or,
after the Annuitant's death, the Beneficiary. PFL may require written proof of
the age of any person who has an annuity purchased under Option 3, 3-V, 5 or
5-V.
Premium Tax. PFL may be required by state law to pay premium tax: on the
amount applied to a Payment Option, or upon Surrender, or upon payment of
death proceeds. If so, PFL will deduct the premium tax before applying or
paying the proceeds.
Supplementary Policy. Once proceeds become payable and a choice has been
made, PFL will issue a Supplementary Policy in settlement of the option
elected under the Policy setting forth the terms of the option elected. The
Supplementary Policy will name the payees and will describe the payment
schedule.
ANNUITY PAYMENT OPTIONS
The Policy provides five Payment Options which are described below. Three of
these are offered as either "Fixed Payment Options" or "Variable Payment
Options," and two are only available as Fixed Payment Options. The Owner may
elect a Fixed Payment Option, a Variable Payment Option, or a combination of
both. If the Owner elects a combination, he must specify what part of the
Policy proceeds are to be applied to the Fixed and Variable Options (and he
must also specify which Subaccounts for the Variable Options).
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NOTE CAREFULLY: Under Payment Options 3(1) and 5 (including 3-V(1) and 5-V),
it would be possible for only one Annuity Payment to be made if the
Annuitant(s) were to die before the due date of the second Annuity Payment;
only two Annuity Payments if the Annuitant(s) were to die before the due date
of the third Annuity Payment; and so forth.
On the Annuity Commencement Date, the Policy's Adjusted Policy Value will be
applied to provide for Annuity Payments under the selected Annuity Option as
specified. The Adjusted Policy Value is the Policy Value (for the Valuation
Period which ends immediately preceding the Annuity Commencement Date),
increased or decreased by any applicable Excess Interest Adjustment.
The effect of choosing a Fixed Annuity Option is that the amount of each
payment will be set on the Annuity Commencement Date and will not change. If a
Fixed Annuity Option is selected, the Adjusted Policy Value will be
transferred to the general account of PFL, and the Annuity Payments will be
fixed in amount by the fixed annuity provisions selected and the age and sex
(if consideration of sex is allowed) of the Annuitant. For further
information, contact PFL at its Administrative and Service Office.
Guaranteed Values. There are five Fixed Annuity Options. Options 1, 2 and 4
are based on a guaranteed interest rate of 3%. Options 3 and 5 are based on a
guaranteed interest rate of 3% using the "1983 Table a" (male, female, and
unisex if required by law) mortality table improved to the year 2000 with
projection scale G. ("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.)
Option 1--Interest Payments. The policy proceeds may be left with PFL for
any term agreed to. PFL will pay the interest in equal payments or it may be
left to accumulate. Withdrawal rights will be agreed upon by the Owner and PFL
when the option is elected.
Option 2--Income for a Specified Period. Level payments of the proceeds with
interest are made for the fixed period elected, at which time the funds are
exhausted.
Option 3--Life Income. An election may be made between:
1. "No Period Certain"--Level payments will be made during the
lifetime of the Annuitant.
2. "10 Years Certain"--Level Payments will be made for the longer of
the Annuitant's lifetime or ten years.
3. "Guaranteed Return of Policy Proceeds"--Level payments will be
made for the longer of the Annuitant's lifetime or the number of
payments which, when added together, equals the proceeds applied
to the income option.
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Option 4--Income of a Specified Amount. Payments are made for any specified
amount until the proceeds with interest are exhausted.
Option 5--Joint and Survivor Annuity. Payments are made during the joint
lifetime of the payee and a joint payee of the Owner's selection. Payments
will be made as long as either person is living.
Other options may be arranged by agreement with PFL. Certain options may not
be available in some states.
Current immediate annuity rates for the same class of annuities will be used
if higher than the guaranteed amount (guaranteed amounts are based upon the
tables contained in the Policy). Current amounts may be obtained from PFL.
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 improved to the year
2000 with projection Scale G. ("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 every subsequent
Variable Annuity Payment will vary based on the investment performance of the
Subaccount of the Mutual Fund Account selected by the Annuitant or
Beneficiary. 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 payments would increase.
Conversely, if actual investment performance is worse than the Assumed
Investment Return, the amount of the payments would decrease.
Determination of the First Variable Payment. The amount of the first
variable payment depends upon the sex (if consideration of sex is allowed) and
adjusted age of the Annuitant. The adjusted age is the Annuitant's actual age
nearest birthday, at the Annuity Commencement Date, adjusted as follows:
<TABLE>
<CAPTION>
ANNUITY COMMENCEMENT DATE ADJUSTED AGE
------------------------- --------------------
<S> <C>
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
</TABLE>
This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.
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The following Variable Payment Options generally are available:
Option 3-V--Life Income. An election may be made between:
1. "No Period Certain"--Payments will be made during the lifetime of the
Annuitant.
2. "10 Years Certain"--Payments will be made for the longer of the
Annuitant's lifetime or ten years.
Option 5-V--Joint and Survivor Annuity. Payments are made as long as either
the Annuitant or the joint Annuitant is living.
Certain options may not be available in some states.
Determination of Subsequent 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 for the Annuity Commencement Date. The number of
Annuity Units of each particular Subaccount credited to the Policy then
remains fixed. 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.
Transfers. A Owner may transfer the value of the Annuity Units from one
Subaccount to another within the Mutual Fund Account or to the Fixed Account.
However, after the Annuity Commencement Date, no transfers may be made from
the Fixed Account to the Mutual Fund Account. The minimum amount which may be
transferred 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. The remaining Annuity Units in the Subaccount must provide at
least $10 of monthly income. If, after a transfer, the monthly income of the
remaining Annuity Units in a Subaccount would be less than $10, PFL reserves
the right to include those Annuity Units as part of the transfer. PFL reserves
the right to limit transfers between Subaccounts after the Annuity
Commencement Date to once per Policy Year.
* * *
Tax Withholding. A portion or the entire amount of the Annuity Payments may
be taxable as ordinary income. If, at the time the Annuity Payments begin, the
Owner has not provided PFL with a written election not to have federal income
taxes withheld, PFL must by law withhold such taxes from the taxable portion
of such Annuity Payments and remit that amount
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to the federal government. Withholding is mandatory for certain Qualified
Policies. (See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES," p. 53.)
Adjustment of Annuity Payments. Payments will be made at 1, 3, 6, or 12
month intervals. If the individual payments provided for would be or become
less than $50, PFL may change, at its discretion, the frequency of payments to
such intervals as will result in payments of at least $50. If the Adjusted
Policy Value on the Annuity Commencement Date is less than $2,000, PFL may pay
such value in one sum in lieu of the payments otherwise provided for.
DEATH BENEFIT
Death of Annuitant Prior to Annuity Commencement Date. A Death Benefit will
be paid to the Beneficiary if the Owner, who is the Annuitant, dies prior to
the Annuity Commencement Date. The amount of the Death Benefit is the greatest
of the Policy Value, the Cash Value, or the Guaranteed Minimum Death Benefit
selected. Prior versions of the Policy or Policies offered in certain states
may provide for a different definition or calculation of the Death Benefit.
See Appendix B and the Policy or endorsement for details. The Death Benefit is
not payable upon the death of the Annuitant if the Annuitant and Owner are not
the same person, unless the Owner makes a separate election to do so.
There are three Guaranteed Minimum Death Benefit Options available: (A) The
"5% Annually Compounding Death Benefit," (B) the "Annual Step-Up Death
Benefit," and (C) the "Return of Premium 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 payment or withdrawal date up to the date of death.
The "Annual Step-Up Guaranteed Minimum Death Benefit" is the highest Policy
Value on any Policy Anniversary prior to the earlier of the date of death or
the Owner's 81st birthday, plus Premium Payments less any Adjusted Partial
Withdrawals since that anniversary. For this purpose, the Policy Date will be
treated as a Policy Anniversary. Any applicable Excess Interest Adjustments on
transfers from the Fixed Account will affect the value of this Guaranteed
Minimum Death Benefit.
The "Return of Premium Death Benefit" is the total Premium Payments less any
Adjusted Partial Withdrawals (defined below) as of the date of death.
Under all three Death Benefit Options, if the surviving spouse elects to
continue the Policy in lieu of receiving the Death Benefit, an amount equal to
the excess, if any, of the Guaranteed Minimum Death Benefit over the Policy
Value, will then be added to the Policy Value. This amount will be added only
once, at the time of such election.
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The 5% Compound Death Benefit is not available if either the Annuitant or
the Owner is age 75 or higher on the Policy Date. The Annual Step-Up Death
Benefit is not available if either the Annuitant or the Owner is age 81 or
higher on the Policy Date. If no choice is made in the Policy application then
the Return of Premium Death Benefit will apply.
After the Policy Date, an election cannot be made and the Guaranteed Minimum
Death Benefit option cannot be changed.
The Death Benefit is based on values determined on the later of when PFL
receives due proof of death and an election of settlement option.
Adjusted Partial Withdrawal. The Adjusted Partial Withdrawal is the total
amount deducted from the Guaranteed Minimum Death Benefit following a Partial
Withdrawal of the Policy Value. Each Adjusted Partial Withdrawal is the sum of
(1) and (2), where
(1) The adjustment free withdrawal amount taken and,
(2) the product of (a) times (b) where:
(a) is the ratio of the amount of the Excess Partial Withdrawal to the
Policy Value on the date of (but prior to) the Excess Partial Withdrawal;
and
(b) is the Death Benefit on the date of (but prior to) the Excess Partial
Withdrawal.
If a Partial Withdrawal is taken when the Guaranteed Minimum Death Benefit
exceeds the Policy Value, then the amount deducted from the Guaranteed Minimum
Death Benefit as a result of the Partial Withdrawal (that is, the Adjusted
Partial Withdrawal) will exceed the Partial Withdrawal request. In that case,
the total proceeds of a Partial Withdrawal followed by a Death Benefit could
be less than total Premium Payments.
Due Proof of Death of the Annuitant is proof that the Annuitant who is the
Owner died prior to the commencement of Annuity Payments. 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 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.
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 a Payment Option
must begin within one year of the deceased Owner's death and must be made for
the Beneficiary's lifetime or for a period certain (so long as any certain
period does not exceed the Beneficiary's life
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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 "Federal Tax
Matters" in the Statement of Additional Information.)
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 Adjusted Policy Value. If the Successor Owner is not the deceased Owner's
surviving spouse, however, this amount must be distributed within five years
after the date of death of the Owner, or payments under a Payment Option must
begin within one year of the deceased Owner's death and must be made for the
Beneficiary's lifetime or for a period certain (so long as any certain period
does not exceed the Beneficiary's life expectancy).
Death On or After Annuity Commencement Date. The death benefit payable on or
after the Annuity Commencement Date depends on the Payment Option selected. If
any Owner dies on or after the Annuity Commencement Date, but before the
entire interest in the Policy is distributed, 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 that Owner's death.
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 consent is
required by law. (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 the 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 the 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
"Federal Tax Matters" in the Statement of Additional Information for a
detailed description of these rules. Other rules may apply to Qualified
Policies. (See also "DISTRIBUTIONS UNDER THE POLICY--Death Benefit" p. 47.)
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RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program (ORP) to withdraw their interest in a
variable annuity policy issued under the ORP only upon: (1) termination of
employment in the Texas public institutions of higher education; (2)
retirement; or (3) death. Accordingly, a participant in the ORP (or the
participant's estate if the participant has died) will be required to obtain a
certificate of termination from the employer or a certificate of death before
the account can be redeemed.
RESTRICTIONS UNDER SECTION 403(B) PLANS
Section 403(b) of the Internal Revenue Code provides for tax-deferred
retirement savings plans for employees of certain non-profit and educational
organizations. In accordance with the requirements of Section 403(b), any
Policy used for a 403(b) plan will prohibit distributions of elective
contributions and earnings on elective contributions except upon death of the
employee, attainment of age 59, separation from service, disability, or
financial hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.
RESTRICTIONS UNDER QUALIFIED POLICIES
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Policies or under the terms
of the plans in respect of which Qualified Policies are issued.
CHARGES AND DEDUCTIONS
No deductions are made from Premium Payments, so that the full amount of
each Premium Payment is invested in one or more of the Accounts. PFL will make
certain charges and deductions in connection with the Policy in order to
compensate it for bearing mortality and expense risks under the Policy and for
administrative and distribution expenses. Charges may also be made for premium
taxes, federal, state or local taxes, or for certain transfers or other
transactions. Charges and expenses are also deducted from the Underlying
Funds.
MORTALITY AND EXPENSE RISK CHARGE
PFL imposes a daily charge as compensation for bearing certain mortality and
expense risks in connection with the Policies. For the 5% Annually Compounding
Death Benefit and the Annual Step-Up Death Benefit, this charge is equal to an
effective annual rate of 1.25% of the daily net asset value of the Mutual Fund
Account. For the Return of Premium Death Benefit, the corresponding charge is
equal to an effective annual rate of 1.10% of the daily net asset value of the
Mutual Fund Account. The Mortality and Expense Risk Charge is reflected in the
Accumulation or Annuity Unit Values for the Policy for each Subaccount.
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Policy Values and Annuity Payments are not affected by changes in actual
mortality experience nor by actual expenses incurred by PFL. The mortality
risks assumed by PFL arise from its contractual obligations to make Annuity
Payments (determined in accordance with the Annuity tables and other
provisions contained in the Policy) and to pay Death Benefits prior to the
Annuity Commencement Date. Thus, Owners are assured that neither an
Annuitant's own longevity nor an unanticipated improvement in general life
expectancy will adversely affect the monthly Annuity payments that the
Annuitant will receive under the Policy.
PFL also bears substantial risk in connection with the Death Benefit
Guarantee since PFL will pay a Death Benefit equal to the Guaranteed Minimum
Guaranteed Death Benefit if that amount is higher than the Policy Value.
The expense risk assumed by PFL is the risk that PFL's actual expenses in
administering the Policy and the Accounts will exceed the amount recovered
through the Administrative Charges.
If the Mortality and Expense Risk Charge is insufficient to cover PFL's
actual costs, PFL will bear the loss; conversely, if the charge is more than
sufficient to cover costs, the excess will be profit to PFL. PFL expects a
profit from this charge. PFL's expenses for distributing the Policies will be
borne by the general assets of PFL which may include amounts, if any, derived
from the Distribution Financing Charge and, if necessary, the Mortality and
Expense Risk Fee. A Mortality and Expense Risk Fee is assessed during the
annuity phase for all Variable Payment Options, including those that do not
carry a life contingency.
ADMINISTRATIVE CHARGES
Service Charge. In order to cover the costs of administering the Policies,
PFL deducts a Service Charge from the Policy Value of each Policy. The annual
Service Charge is deducted from the Policy Value of each Policy on each Policy
Anniversary prior to the Annuity Commencement Date. The charge is not deducted
after the Annuity Commencement Date. The annual Service Charge is the lesser
of 2% of the Policy Value or $35, and it will not be increased in the future.
This charge is waived if either the Policy Value or the sum of all Premium
Payments, less the sum of all Partial Withdrawals, equals or exceeds $50,000
on a Policy Anniversary (or date of surrender). PFL also reserves the right to
charge up to $35 at the time of surrender during any Policy Year. The Service
Charge will be deducted from the Investment Option(s) in the same proportion
that the Owner's interest in each Investment Option bears to the Owner's total
Policy Value.
Administrative Charge. PFL also deducts a daily Administrative Expense
Charge from the net assets of the Mutual Fund Account to partially cover
expenses incurred by PFL in connection with the administration of the Account
and the Policies. The effective annual rate of this charge is .15% of the net
assets in the Mutual Fund Account. (See "CHARGES AND DEDUCTIONS--
Administrative Charges," p.51.)
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DISTRIBUTION FINANCING CHARGE
During the first ten Policy years PFL deducts a daily Distribution Financing
Charge equal to an effective annual rate of 0.25% of the daily net asset value
of the Mutual Fund Account. The cumulative amount of the charge will never
exceed 8.5% of the cumulative Premium Payments for a Policy. The Distribution
Financing Charge is paid to PFL and is designed to partially compensate PFL
for the cost of distributing the Policies. The Distribution Financing Charge
will be used to support marketing efforts, training of representatives and
reimbursement of expenses incurred by broker/dealers who sell the Policies.
The staff of the SEC deems such charge to constitute a deferred sales charge.
PREMIUM TAXES
PFL currently makes no deduction from the Premium Payments for any state
premium taxes PFL pays in connection with Premium Payments under the Policies.
However, PFL will deduct the aggregate premium taxes paid on behalf of a
particular Policy on (i) the Annuity Commencement Date, (ii) the total
surrender of a Policy, or (iii) payment of the death proceeds of a Policy.
Premium taxes currently range from 0% to 3.50% of Premium Payments.
FEDERAL, STATE AND LOCAL TAXES
No charges are currently made for federal, state, or local taxes other than
premium taxes. However, PFL reserves the right to deduct charges in the future
for any taxes or other economic burden resulting from the application of any
tax laws that PFL determines to be attributable to the Account or the
Policies.
TRANSFER CHARGE
PFL will not impose a transfer charge for the first 12 transfers between
Investment Options in each Policy Year. PFL reserves the right to impose a $10
charge for the thirteenth and each subsequent transfer request made by the
Owner during a single Policy Year. For the purpose of determining whether a
transfer charge is payable, Premium Payment allocations are not considered
transfers. All transfer requests made simultaneously will be treated as a
single request. No transfer charge will be imposed for any transfer which is
not at the Owner's request.
OTHER EXPENSES INCLUDING INVESTMENT ADVISORY FEES
Each of the Portfolios is responsible for all of its expenses. In addition,
charges will be made against each of the Portfolios of the Underlying Funds
for investment advisory services provided to the Portfolio. The net assets of
each Portfolio of the Underlying Funds will reflect deductions in connection
with the investment advisory fee and other expenses.
For more information concerning the investment advisory fee and other
charges against the Portfolios, see the prospectuses for the Underlying Funds,
current copies of which accompany this Prospectus.
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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 (the "Code"), 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.
At the time the initial Premium Payment is paid, a prospective purchaser
must specify whether he or she is purchasing a Nonqualified Policy or a
Qualified Policy. If the initial Premium Payment is derived from an exchange
or surrender of another annuity policy, PFL may require that the prospective
purchaser provide information with regard to the federal income tax status of
the previous annuity policy. PFL will require that persons purchase separate
Policies if they desire to invest monies qualifying for different annuity tax
treatment under the Code. Each such separate Policy would require the minimum
initial Premium Payment stated above. Subsequent Additional Premium Payments
under a Policy must qualify for the same federal income tax treatment as the
initial Premium Payment under the Policy; PFL will not accept a Subsequent
Additional Premium Payment under a Policy if the federal income tax treatment
of such Premium Payment would be different from that of the initial Premium
Payment.
The Qualified Policies were designed for use by retirement plans and
individual retirement accounts that qualify for special federal income tax
treatment under Sections 401(a), 403(b), 408(a), or 457 of the Code and
individuals purchasing individual retirement annuities that qualify for
special federal income tax treatment under Section 408(b) of the Code. Certain
requirements must be satisfied in purchasing a Qualified Policy in order for
the plan, account or annuity to retain its special tax treatment. This summary
is not intended to cover such requirements, and assumes that Qualified
Policies are purchased pursuant to retirement plans or individual retirement
accounts, or are individual retirement annuities, that qualify for such
special tax treatment. This summary was prepared by PFL after consultation
with tax counsel, but no opinion of tax counsel has been obtained.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. EACH
POTENTIAL PURCHASER IS URGED TO CONSULT HIS/HER OWN TAX ADVISER AS TO THE
CONSEQUENCES OF INVESTMENT IN A POLICY UNDER FEDERAL AND APPLICABLE STATE,
LOCAL AND FOREIGN TAX LAWS.
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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. The
Statement of Additional Information discusses the tax requirements for
qualifying as an annuity contract.
TAXATION OF ANNUITIES
The discussion below applies only to those Policies owned by natural
persons, and that qualify as annuity contracts for federal income tax
purposes. With respect to Owners who are natural persons, the Policy should be
treated as an annuity contract for federal income tax purposes.
In General. Except as described below with respect to Owners who are not
natural persons, an Owner who holds a Policy satisfying the diversification
and distribution requirements described in the Statement of Additional
Information should not be taxed on increases in the Policy Value until an
amount is received or deemed received, e.g., upon a partial or full surrender
or as Annuity Payments under the Annuity Option selected. Generally, any
amount received or deemed received under a Nonqualified Annuity Contract prior
to the Annuity Commencement Date is deemed to come first from any "Income on
the Contract" and then from the "Investment in the Contract." The "Investment
in the Contract" generally equals total premium payments less amounts received
which were not includable in gross income. To the extent that the Policy Value
(Cash Value in the event of a surrender) exceeds the "Investment in the
Contract," such excess constitutes the "Income on the Contract." For these
purposes such "Income on the Contract" shall be computed by reference to the
aggregation rules described below, and the amount includable in gross income
will be taxable as ordinary income. If at the time that any amount is received
or deemed received there is no "Income on the Contract" (e.g., because the
gross Policy Value does not exceed the "Investment in the Contract" and no
aggregation rule applies), then such amount received or deemed received will
not be includable in gross income, and will simply reduce the "Investment in
the Contract."
For this purpose, the assignment, pledge or agreement to assign or pledge
any portion of the Policy Value (including assignment of Owner's right to
receive Annuity Payments prior to the Annuity Commencement Date) generally
will be treated as a distribution in the amount of such portion of the Policy
Value. Additionally, if an Owner designates a new Owner prior to the Annuity
Commencement Date without receiving full and adequate consideration, the old
Owner generally will be treated as receiving a distribution under the Policy
in an amount equal to the Policy Value. A transfer of ownership or an
assignment of a Policy, or designation of a Beneficiary or Annuitant who is
not also the Owner as well as the selection of certain Annuity Commencement
Dates, may result in certain tax consequences to the Owner that are not
discussed herein. An Owner contemplating any such transfer, designation,
selection or assignment of a Policy should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.
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Aggregation Rules. Generally all nonqualified deferred annuity contracts
issued by the same company (or an affiliated company) to the same owner during
any calendar year shall be treated as one annuity contract, and "aggregated"
for purposes of determining the amount includable in gross income. In
addition, for such purposes, all individual retirement annuities and accounts
under Section 408 of the Code for an individual are aggregated, and generally
all distributions therefrom during a calendar year are treated as one
distribution made as of the end of such year.
Surrenders or Partial Withdrawals. In the case of a partial withdrawal
(including systematic Partial Withdrawals) under a Nonqualified Policy, the
amount received generally will be includable in gross income to the extent
that it does not exceed the "Income on the Contract," which is generally equal
to the excess of the Policy Value immediately before the partial surrender
over the "Investment in the Contract" at that time. However, for these
purposes the Policy Value immediately before a Partial Withdrawal may have to
be increased by any positive Excess Interest Adjustment which results from
such a partial withdrawal or which could result from a simultaneous surrender,
and may need further adjustments if the aggregation rules apply. 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 that may
apply in the case of a Non-Qualified Policy or a Qualified Policy. In the case
of a partial withdrawal (including systematic withdrawals) under a Qualified
Policy (other than one qualified under Section 457 of the Code), a ratable
portion of the amount received is generally excludable from gross income,
based on the ratio of the "Investment in the Contract" to the individual's
total account balance or accrued benefit under the retirement plan at the time
of each such payment. For a Qualified Policy, the "Investment in the Contract"
can be zero. Special tax rules may be available for certain distributions from
a Qualified Policy. In the case of a surrender under a Nonqualified Policy or
a Qualified Policy, the amount received generally will be taxable only to the
extent it exceeds the "Investment in the Contract," unless the aggregation
rules apply.
Annuity Payments. Although the tax consequences may vary depending on the
Annuity Payment Option elected under the Policy, in general only a portion of
the Annuity Payments received after the Annuity Commencement Date will be
includable in the gross income of the recipient.
For Fixed Annuity Payments, in general the excludable portion of each
payment is determined 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. 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.
-55-
<PAGE>
For Variable Annuity Payments, the includable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is excludable from gross income. This dollar amount is determined
by dividing the "Investment in the Contract" on the Annuity Commencement Date
by the total number of expected periodic payments. 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.
Where an Owner allocates a portion of the Adjusted Policy Value on the
Annuity Commencement Date to more than one annuity payment option (fixed or
variable), special rules govern the allocation of the Policy's entire
"Investment in the Contract" on such date to each such option, for purposes of
determining the excludable amount of each payment received under that option.
PFL makes no attempt to describe these allocation rules, because they would
prescribe a complex variety of results, depending on how the allocations were
made among the various types of options. Instead, any Owner is advised to
consult a competent tax adviser as to the potential tax effects of allocating
any amount of Adjusted Policy Value to any particular annuity payment option.
If, after the Annuity Commencement Date, Annuity Payments cease by reason of
the death of the Annuitant, the excess (if any) of the "Investment in the
Contract" as of the Annuity Commencement Date over the aggregate amount of
Annuity Payments received on or after the Annuity Commencement Date that was
excluded from gross income is allowable as a deduction for the last taxable
year of the Annuitant.
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 as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
surrender, as described above, or (2) if distributed under an Annuity Option,
they are taxed in the same manner as Annuity Payments, as described above. 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.
Penalty Taxes. In the case of any amount received or deemed received from
the Policy, e.g., upon a surrender of a Policy (including systematic
withdrawals) or a deemed distribution under a Policy resulting from a pledge,
assignment or agreement to pledge or assign or an Annuity Payment with respect
to a Policy, there may be imposed on the recipient a federal penalty tax equal
to 10% of the amount includable in gross income. The penalty tax generally
will not apply to any distribution: (i) made on or after the date on which the
taxpayer attains age 59 1/2; (ii) made as a result of the death of the holder
(generally the Owner); (iii) attributable to the disability of the taxpayer;
or (iv) which is part of a series of substantially equal periodic payments
made (not less frequently than annually) for the life
-56-
<PAGE>
(or life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of such taxpayer and his/her beneficiary. Other rules may apply
to Qualified Policies.
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. For certain Qualified Policies, certain distributions are
subject to mandatory withholding.
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; aggregate distributions
in excess of a specified annual amount; and in other specified circumstances.
Some retirement plans are subject to distribution and other requirements that
are not incorporated into our 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.
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 an 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
security; (iii) the total Premium Payments for any calendar year may not
exceed $2,000, except in the case of a rollover amount or contribution under
Section 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code; (iv) Annuity
Payments or 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 Option with a Period Certain that will guarantee Annuity
Payments beyond the life expectancy of the Annuitant and the Beneficiary may
not be selected; and (vi) certain payments of Death Benefits must be made in
the event the Annuitant dies prior to the distribution of the Policy Value.
Policies intended to qualify as individual retirement annuities under Section
408(b) of the Code contain such provisions.
-57-
<PAGE>
Section 408 of the Code also indicates that no part of the funds for an
individual retirement account or annuity ("IRA") should be invested in a life
insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity contract 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 under Section 408 of the Code. 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.
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. 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, and (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.
Deferred Compensation Plans. Section 457 of the Code, while not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The 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. All such investments, however,
are owned by, and are subject to, the claims of the general creditors of the
sponsoring employer. Depending on the terms of the particular plan, the
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.
-58-
<PAGE>
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 Policy 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
this paragraph, Section 72(u) of the Code does not apply to (i) a Policy the
nominal Owner of which 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
qualified under Section 457) or (iv) a single-payment annuity the Annuity
Commencement Date for which is no later than one year from the date of the
single Premium Payment; instead, such Policies are taxed as described above
under the heading "Taxation of Annuities."
Possible Changes in Taxation. In past years, legislation has been proposed
in the U.S. Congress that would have adversely modified the federal taxation
of certain annuities. For example, one such proposal would have changed the
tax treatment of non- qualified annuities that did not have "substantial life
contingencies" by taxing income as it is credited to the annuity. Although as
of the date of this Prospectus Congress was not actively considering any
legislation regarding the taxation of annuities, there is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any change could be retroactive
(that is, effective prior to the date of the change).
DISTRIBUTOR OF THE POLICIES
AEGON USA Securities, Inc., an affiliate of PFL, is the principal
underwriter of the Policies. AEGON USA Securities, Inc. has entered or will
enter into one or more contracts with various broker-dealers for the
distribution of the Policies. Commissions on Policy sales are paid to dealers.
Commissions payable to a broker-dealer will be up to 1% of Premium Payments
and .50% of Policy Values (on an annual basis). In addition, certain broker-
dealers may receive additional commissions of up to .25% of Premium Payments
and .25% of Policy Values and certain expense allowances based upon the
attainment of specific sales volume targets and other factors. These
commissions are not deducted from Premium Payments, they are paid by PFL.
-59-
<PAGE>
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
case, a bonus of 5% of each premium deposit may be credited to the Policy due
to lower acquisition costs PFL experiences on these purchases. The bonus will
be reported to the Internal Revenue Service as taxable income to the employee
or registered representative. Compensation to the registered representative
and broker/dealer will be reduced by the amount of such bonus.
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 the Underlying Funds do
not 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, the Owner holds the voting interest in
the selected Portfolios. The number of votes that an Owner has the right to
instruct will be calculated separately for each Subaccount. The number of
votes that an Owner has the right to instruct for a particular Subaccount will
be determined by dividing his or her 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 the Owner or 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 Owners
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 Owners 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.
-60-
<PAGE>
Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Mutual Fund Account is a party
or to which the assets of the Account are subject. PFL is not involved in any
litigation that is of material importance in relation to its total assets or
that relates to the Mutual Fund Account.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this Prospectus.
The following is the Table of Contents for that Statement:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Policy--General Provisions............................................. 3
Owner.................................................................... 3
Entire Policy............................................................ 3
Delay of Payment and Transfers........................................... 3
Misstatement of Age or Sex............................................... 4
Reallocation of Policy Values After the Annuity Commencement Date........ 4
Assignment............................................................... 4
Evidence of Survival..................................................... 4
Amendments............................................................... 4
Federal Tax Matters........................................................ 5
Tax Status of the Policy................................................. 5
Taxation of PFL.......................................................... 6
Investment Experience...................................................... 6
State Regulation of PFL.................................................... 10
Administration............................................................. 10
Records and Reports........................................................ 10
Distribution of the Policies............................................... 10
Custody of Assets.......................................................... 10
Historical Performance Data................................................ 11
Money Market Yields...................................................... 11
Other Subaccount Yields.................................................. 12
Total Returns............................................................ 12
Other Performance Data................................................... 13
Hypothetical Performance Data............................................ 14
Legal Matters.............................................................. 14
Independent Auditors....................................................... 14
Other Information.......................................................... 15
Financial Statements....................................................... 15
</TABLE>
-61-
<PAGE>
APPENDIX A
EXCESS INTEREST ADJUSTMENT(1)
The formula which will be used to determine the Excess Interest Adjustment
(EIA) is:
S* (G - C)* (M/12)
S= Gross amount being withdrawn that is subject to the EIA
G= Guaranteed Interest Rate in effect for the policy
C= Current Guaranteed Interest Rate then being offered on new premiums for
the next longer option period than "M". If this policy form or such an
option 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 option period, rounded up to
the next higher whole number of months.
EXAMPLE 1 (FULL SURRENDER, RATES INCREASE BY 3%):
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Surrender: Middle of Contract Year 3
Policy Value at middle of Contract
Year 3 = 50,000* (1.055) (caret) 2.5 =
57,161.18
Adjustment Free Amount at middle
of Contract Year 3 = 57,161.18* .10 = 5,716.12
Amount Subject to EIA = 57,161.18 - 5,716.12 = 51,445.06
EIA Floor = 50,000* (1.03) (caret) 2.5 = 53,834.80
Excess Interest Adjustment
G=.055
C=.085
M=30
Excess Interest Adjustment = S* (G - C)* (M/12)
= 51,445.06* (.055 - .085)* (30/12)
= -3,858.38, but Excess Interest
Adjustment cannot cause the Adjusted
APV to fall below the floor, so the
adjustment is limited to 53,834.80 -
57,161.18 = -3,326.38
Adjusted Policy Value ("APV") =
Net Surrender Value =APV + EIA = 57,161.18 + (-3,326.38)
=53,834.80
- ----------------------------------
(1) * represents multiplication;
(caret) represents e xponentiation.
A-1
<PAGE>
EXAMPLE 2 (SURRENDER, RATES DECREASE BY 1%):
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Surrender: Middle of Contract Year 3
Policy Value at middle of Contract
Year 3 =50,000* (1.055) (caret) 2.5 = 57,161.18
Adjustment Free Amount at middle
of Contract Year 3 =57,161.18* .10 = 5,716.12
Amount Subject to EIA =57,161.18 - 5,716.12 = 51,445.06
EIA Floor =50,000* (1.03) (caret) 2.5 = 53,834.80
Excess Interest Adjustment
G=.055
C=.045
M=30
Excess Interest Adjustment = S* (G - C)* (M/12)
= 51,445.06* (.055 - .045)* (30/12)
= 1,286.13
Adjusted PV = Net Surrender Value = 57,161.18 + 1,286.13 = 58,447.31
On a Partial Withdrawal, PFL will pay the policy holder the full amount of
withdrawal requested (as long as the Annuity Purchase Value is sufficient).
Adjustment free Partial Withdrawals will reduce the PV by the amount
withdrawn. Amounts withdrawn in excess of the adjustment free portion will
reduce the PV by an amount equal to:
X - Y
X= Excess Partial Withdrawal
Y= Excess Interest Adjustment = (X)* (G - C)* (M/12) where G, C, and M are
defined above.
A-2
<PAGE>
EXAMPLE 3 (PARTIAL WITHDRAWAL, RATES INCREASE BY 1%):
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Partial withdrawal: $20,000; Middle of Contract Year 3
Policy Value at middle of Contract
Year 3 = 50,000* (1.055) (caret) 2.5 =
57,161.18
Adjustment Free Amount at middle
of Contract Year 3 = 57,161.18* .10 = 5,716.12
Excess Interest Adjustment
X=20,000 - 5,716.12 = 14,283.88
G=.055
C=.065
M=30
Y=14,283.88* (.055 - .065)* (30/12) = -357.10
Reduction to APV for Excess
Withdrawal:
= X - Y
= 14,283.88 - (-357.10)
= 14,640.98
Remaining Policy Value at middle
of Contract Year 3 = 57,161.18 - 5,716.12 - 14,640.98
= 36,804.08
A-3
<PAGE>
EXAMPLE 4 (PARTIAL WITHDRAWAL, RATES DECREASE BY 1%):
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Partial Surrender: $20,000; Middle of Contract Year 3
Policy Value at middle of Contract
Year 3 = 50,000* (1.055) (caret) 2.5 =
57,161.18
Adjustment Free Amount at middle
of Contract Year 3 = 57,161.18* .10 = 5,716.12
Excess Interest Adjustment
X=20,000 - 5,716.12 = 14,283.88
G=.055
C=.045
M=30
Y=14.283.88* (.055 - .045)* (30/12) = 357.10
Reduction to PV for Excess
Withdrawal: = X - Y
= 14,283.88 - 357.10
= 13,926.78
Remaining Policy Value at middle
of Contract Year 3 = 57,161.18 - 5,716.12 - 13,926.78
= 37,518.28
A-4
<PAGE>
APPENDIX B
The dates shown below are the approximate first issue dates of the various
versions of the Policy. These dates will vary by state in many cases. This
Appendix describes certain of the more significant differences in features of
the various versions of the Policy. There may be additional variations. Please
see your actual policy and any attachments for determining your specific
coverage.
<TABLE>
- --------------------------------------------------------------------------
<S> <C>
Policy Form/Endorsement Approximate First Issue Date
- --------------------------------------------------------------------------
AV212 101 75 1292 (Policy Form) May 1993
- --------------------------------------------------------------------------
V829 & S831 (replacement pages for 1.65 M&E) January 1994
- --------------------------------------------------------------------------
AE872 395 (endorsement) May 1995
- --------------------------------------------------------------------------
AV265 101 89 396 (Policy Form) June 1996
- --------------------------------------------------------------------------
AE900 396 (endorsement) June 1996
- --------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Product Fea- AV212 101 75 1292 AV212 101 75 AV265 101 89 396 and AV339 101 101 497 and
ture 1292,V829 and S831 AE900 396 AE967 497
- ----------------------------------------------------------------------------------------------------------------------
Excess Interest N/A N/A yes yes
Adjustment
- ----------------------------------------------------------------------------------------------------------------------
Guaranteed Minimum Death Total Premiums Paid, Total Premiums Paid, 5% Annually 5% Annually
Benefit Option(s) less any Partial less any Partial Compounding (Option Compounding (Option
Withdrawals made Withdrawals made A) or Annual Step-Up A), Annual Step-Up
before death, before death, (Option B). Option A (Option B), or Return
accumulated at 5% to accumulated at 5% to is only available if of Premium (Option
the date we receive the date we receive Owner and Annuitant C). Option A is only
due proof of death or due proof of death or are both under age available if Owner
the Policy Value on the Policy Value on 75. and Annuitant are
the date we receive the date we receive both under age 75.
due proof of death, due proof of death, Option B is only
which ever is which ever is available if Owner
greater. greater. and Annuitant are
under age 81.
- ----------------------------------------------------------------------------------------------------------------------
Guaranteed Period N/A N/A 1, 3, and 5 year 1, 3, and 5 year
Options (available in Guaranteed Periods Guaranteed Periods
the Fixed Account) available available
- ----------------------------------------------------------------------------------------------------------------------
Minimum effective annual N/A N/A 3% 3%
interest rate applicable
to the fixed account
- ----------------------------------------------------------------------------------------------------------------------
Asset Rebalancing N/A N/A yes yes
- ----------------------------------------------------------------------------------------------------------------------
Death Proceeds Greater of 1) the Greater of 1) the Greatest of (a) Greatest of (a)
Policy Value on the Policy Value on the Policy Value, (b) Policy Value, (b)
date we receive due date we receive due Cash Value, and (c) Cash Value, and (c)
proof of death, or 2) proof of death, or 2) Guaranteed Minimum Guaranteed Minimum
the total premiums the total premiums Death Benefit. Death Benefit.
paid for this policy, paid for this policy,
less any partial less any Partial
withdrawals and any Withdrawals and any
surrender charges surrender charges
made before death, made before death,
accumulated at 5% accumulated at 5%
interest per annum to interest per annum to
the date we receive the date we receive
due proof of death due proof of death.
- ----------------------------------------------------------------------------------------------------------------------
Distribution Financing N/A Applicable Applicable Applicable
Charge
- ----------------------------------------------------------------------------------------------------------------------
Dollar Cost Averaging N/A N/A yes yes
Fixed Account Option
- ----------------------------------------------------------------------------------------------------------------------
Service Charge $35 assessed on each $35 assessed on each $35 assessed only on $35 assessed either
Policy Anniversary. Policy Anniversary. each Policy on a Policy
Anniversary; Waived Anniversary or on
if Sum of Premium Surrender; Waived if
Payments less Partial Sum of Premium
Withdrawals is at Payments less Partial
least $50,000 on the Withdrawals or the
Policy Anniversary. Policy Value is at
Not deducted from the least $50,000 on the
Fixed Account. Policy Anniversary or
at the time of
Surrender. The
Service Charge is
deducted pro-rata
from the Fixed
Account and the Sub-
Account of the Mutual
Fund.
- ----------------------------------------------------------------------------------------------------------------------
Nursing Care and N/A N/A yes yes
Terminal Condition
Withdrawal Option
</TABLE>
B-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR PLATINUM VARIABLE ANNUITY
Issued through
PFL ENDEAVOR VARIABLE
ANNUITY ACCOUNT
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 Endeavor Platinum Variable Annuity (the
"Policy") offered by PFL Life Insurance Company. You may obtain a copy of the
Prospectus dated May 1, 1997 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. Terms used in
the current Prospectus for the Policy are incorporated in this Statement of
Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR THE POLICY, ENDEAVOR SERIES
TRUST AND THE GROWTH PORTFOLIO OF THE WRL SERIES FUND, INC.
Dated: May 1, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
The Policy-General Provisions......................................... 3
Owner............................................................... 3
Entire Policy....................................................... 3
Delay of Payment and Transfers...................................... 3
Misstatement of Age or Sex.......................................... 4
Reallocation of Policy Values After 4
the Annuity Commencement Date......................................
Assignment.......................................................... 4
Evidence of Survival................................................ 4
Amendments.......................................................... 4
Federal Tax Matters (43).............................................. 5
Tax Status of the Policy............................................ 5
Taxation of PFL..................................................... 6
Investment Experience................................................. 6
State Regulation of PFL............................................... 10
Administration........................................................ 10
Records and Reports................................................... 10
Distribution of the Policies (50)..................................... 10
Custody of Assets..................................................... 10
Historical Performance Data (16)...................................... 11
Money Market Yields................................................. 11
Other Subaccount Yields............................................. 12
Total Returns....................................................... 12
Other Performance Data.............................................. 13
Hypothetical Performance Data....................................... 14
Legal Matters......................................................... 14
Independent Auditors.................................................. 14
Other Information..................................................... 15
Financial Statements (16)............................................. 15
(Numbers in parenthesis indicate corresponding pages of the Prospectus).
2
<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 an Owner.
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.
A Successor Owner can be named in the Policy application or in a Written
Notice. The Successor Owner will become the new Owner upon the Owner's death, if
the Owner predeceases the Annuitant. If no Successor Owner survives the Owner
and the Owner predeceases the Annuitant, the Owner's estate will become the
Owner.
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 adverse tax consequences.
When there is a change of Owner or Successor Owner, the change 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 Cash Value generally must be distributed to the
Successor Owner within five years of the Owner's death, or payments must be made
for a period certain or for the Successor Owner's lifetime so long as any period
certain does not exceed that Successor Owner's life expectancy, if the first
payment begins within one year of the Owner's death.
ENTIRE POLICY
The Policy and any endorsements thereon and the Policy application 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.
DELAY OF PAYMENT AND TRANSFERS
Payment of any amount due from the Mutual Fund Account in respect of a
surrender, the Death Benefit or the death of the Owner of a Nonqualified Policy
generally will occur within seven business days from the date the Written Notice
(and any other required documentation or information) is received, except that
PFL may be permitted to defer such payment from the Mutual Fund Account if: (1)
the New York Stock Exchange is closed for other than usual weekends or holidays
or trading on the Exchange is otherwise restricted; or (2) an emergency exists
as defined by the SEC or the SEC requires that trading be restricted; or (3) the
SEC permits a delay for the protection of Owners. In addition, transfers of
amounts from the Subaccounts may be deferred under these circumstances.
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<PAGE>
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.
REALLOCATION OF POLICY VALUES AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, the Policy Owner may reallocate the value
of a designated number of Annuity Units of a Subaccount of the Mutual Fund
Account then credited to a Policy into an equal value of Annuity Units of one or
more other Subaccounts of the Mutual Fund Account, or the Fixed Account. 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. PFL reserves the right to limit the number of
times a reallocation of Annuity Purchase Value may be made to one in any given
Policy Year.
ASSIGNMENT
During the lifetime of the Annuitant the Policy Owner may assign any rights or
benefits provided by the 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 Policy 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 the Policy Owner so directs 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.
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.
4
<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 Policies to meet the requirements of the
Internal Revenue Code, regulations or published rulings. A Policy Owner can
refuse such a change by giving Written Notice, but a refusal may result in
adverse tax consequences.
FEDERAL TAX MATTERS
TAX STATUS OF THE POLICY
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 Mutual Fund Account. The Mutual Fund 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
Endeavor Series Trust and WRL Series Fund, Inc. that requires the 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 accounts used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable contract owner's gross income. The IRS has stated in
published rulings that a variable contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. The Treasury Department has also announced, in connection with the
issuance of regulations concerning 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 (i.e., the
Owner), 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 the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that contract owners 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
a policyowner being treated as the owner of the assets of the Mutual Fund
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 Policy as
necessary to attempt to prevent an Owner from being considered the owner of a
pro rata share of the assets of the Mutual Fund 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
5
<PAGE>
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 "Designated Beneficiary" as defined in section 72(s) of the
Code. However, if upon such Owner's death prior to the Annuity Commencement
Date, such Owner's surviving spouse becomes the sole new Owner under the Policy,
then the Policy may be continued with the surviving spouse as the new Owner.
Under the Policy, the Beneficiary is the Designated Beneficiary of an
Owner/Annuitant and the Successor Owner is the Designated Beneficiary of an
Owner who is not the Annuitant. 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 the Owner. The Nonqualified Policies contain 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 may be modified
if necessary to maintain their compliance with the Code requirements when
clarified by regulation or otherwise.
TAXATION OF PFL
PFL at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The Mutual Fund 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 Mutual Fund 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 Mutual Fund Account for federal income taxes. If, in
future years, any federal income taxes are incurred by PFL with respect to the
Mutual Fund Account, PFL may make a charge to the Mutual Fund Account.
INVESTMENT EXPERIENCE
An "Investment Experience Factor" is used to determine the value of
Accumulation Units and Annuity Units, and to determine annuity payment rates.
ACCUMULATION UNITS
Upon allocation to the selected Subaccount of the Mutual Fund 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 Policy application is completed, whichever is later. The value
of an Accumulation Unit was arbitrarily established at $1 (except the WRL Growth
Subaccount which was established at $10) 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 and PFL's Administrative and
Service Office are open for business.
An index (the "Investment Experience 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
Investment Experience 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 Policy Owner bears this
investment risk. The Net Investment Performance of a Subaccount and deduction of
certain charges affects the Accumulation Unit Value.
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<PAGE>
The Investment Experience 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 charge or credit for any taxes determined by PFL to have
resulted from the investment operations of the Subaccount;
(b) is the net asset value per share of the shares held in the Subaccount
determined as of the end of the immediately preceding Valuation Period;
(c) is the charge for Mortality and Expense Risk during the Valuation
Period (equal on an annual basis to 1.25% for both the 5% Annually Compounding
Death Benefit and the Annual Step-Up Death Benefit and 1.10% for the Return of
Premium Death Benefit) of the daily net asset value of the Subaccount, plus
the .15% Administrative Charge, plus the Distribution Financing Charge of
.25%. The Distribution Financing Charge is assessed only during the first ten
Policy Years. The cumulative amount of the Distribution Financing Charge,
plus the Surrender Charge, will never exceed 8.5% of the cumulative Premium
Payments for a Policy.
ILLUSTRATION OF ACCUMULATION UNIT VALUE CALCULATIONS
FORMULA AND ILLUSTRATION FOR DETERMINING
THE INVESTMENT EXPERIENCE FACTOR
Investment Experience Factor = A+B-C - E
-----
D
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
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<PAGE>
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 the Mortality and Expense Risk Fee, the
Administrative Charge, and the Distribution Financing Charge, which
totals 1.65% on an annual basis for the first ten years and 1.40%
thereafter.
On a daily basis, F equals .0000448376 for the first ten years and
.0000380909 thereafter.
Then, the Investment Experience Factor = (11.57 + 0 - 0) - .0000448376 = Z =
--------------
1.0148674431 (11.40)
for the first ten years, and (11.57 + 0 - 0) - .0000380909 = 1.0148741898
--------------
thereafter. 11.40
FORMULA AND ILLUSTRATION FOR DETERMINING ACCUMULATION UNIT VALUE
Accumulation Unit Value = A x B
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
Then, the Accumulation Unit Value = $ X x Y = $ Z
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 $1.00 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 on the immediately preceding
Business Day;
(b) is the net investment factor of the valuation period; and
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<PAGE>
(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 the Mutual Fund Account
for 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 the Mutual Fund Account for that
Subaccount if the ex-dividend date occurs during the valuation period.
(ii) is the net asset value of a fund share held in the Mutual Fund Account
for that Subaccount determined as of the end of the immediately preceding
valuation period.
(iii) is a factor representing the Mortality and Expense Risk Fee, the
Administrative Charge and the Distribution Financing Charge (only applies
during the first ten policy years and only applies before the Annuity
Commencement Date). This factor is equal to, on an annual basis, 1.40% for
the 5% Annually Compounding Death Benefit and the Annual Step-Up Death Benefit
(1.25% for the Return of Premium Death Benefit) of the daily net asset value
of a fund share held in the Mutual Fund Account for 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 x B x 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
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<PAGE>
C =
A factor to neutralize the assumed interest rate of 5% built into the
Annuity Tables used.
Assume = Z
Then, the Annuity Unit Value is: $ X x Y x Z = $ Q
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT
OF FIRST MONTHLY VARIABLE ANNUITY PAYMENT
First Monthly Variable Annuity Payment = A x B
-----
$1000
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
Then, the first Monthly Variable Annuity
Payment = $ X 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
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
Then, the number of Annuity Units = $ X = Z
-----
$ Y
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
10
<PAGE>
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 Mutual Fund Account will be
maintained by PFL. As presently required by the Investment Company Act of 1940,
as amended, and regulations promulgated thereunder, PFL will mail to all Policy
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. Policy 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 discontinue the offering of the
Policies.
AEGON USA Securities, Inc., an affiliate of PFL, is the principal underwriter
of the Policies. AEGON USA Securities, Inc. has entered into agreements with
broker-dealers for the distribution of the Policies. During 1996, 1995, and 1994
the amount paid to AEGON USA Securities, Inc. and/or the broker-dealers for this
service was $3,124,677, $620,549 and $202,998 respectively.
CUSTODY OF ASSETS
The assets of each of the Subaccounts of the Mutual Fund Account are held by
PFL. The assets of each of the Subaccounts of the Mutual Fund 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 Mutual Fund 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.
HISTORICAL PERFORMANCE DATA
MONEY MARKET YIELDS
PFL may from time to time disclose the current annualized yield of the TCW
Money Market Subaccount, which invests in the TCW Money Market Portfolio, 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 TCW Money Market Portfolio or on its
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) at the end of the 7-day period in
the value of a hypothetical account having a balance of 1 unit of the TCW Money
Market Subaccount at the beginning of the 7-day period, dividing such net change
in account value by the value of the account at the
11
<PAGE>
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; (ii) the
Mortality and Expense Risk Fee, and (iii) the Distribution Financing Charge.
Current Yield will be calculated according to the following formula:
Current Yield = ((NCS - ES)/UV) x (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) 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 TCW Money Market Subaccount will be lower than the yield for the TCW Money
Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes that may be applicable to a particular Policy.
PFL may also disclose the effective yield of the TCW Money Market 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:
Effective Yield = (1 + ((NCS - ES)/UV))/3657/ - 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) 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 TCW Money Market 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 TCW Money Market Subaccount's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the TCW
Money Market Portfolio, the types and quality of portfolio securities held by
the TCW Money Market Portfolio and its operating expenses. For the seven days
ended December 31, 1996, the yield of the TCW Money Market Subaccount was 2.73%,
and the effective yield was 2.76%.
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 Mutual Fund Account (except the TCW
Money Market 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
12
<PAGE>
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, (iii) compounding that yield for a 6-month period, and (iv) multiplying
that result by 2. Expenses attributable to the Subaccount include (i) the
Administrative Charges; (ii) the Mortality and Expense Risk Fee; and (iii) the
Distribution Financing Charge. The 30-day yield is calculated according to the
following formula:
Yield = 2 x ((((NI - ES)/(U x 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 Mutual Fund Account, the
yield for a Subaccount of the Mutual Fund Account will be lower than the yield
for its corresponding Portfolio. The yield calculations do not reflect the
effect of any premium taxes that may be applicable to a particular Policy.
The yield on amounts held in the Subaccounts of the Mutual Fund 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 Mutual Fund 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.
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,
the Administrative Charges and the Distribution Financing Charges. The total
return will then be calculated according to the following formula:
P(1 + T)(caret) 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
13
<PAGE>
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.
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.
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-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
HYPOTHETICAL PERFORMANCE DATA
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date the Mutual Fund 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 were in effect at the
inception of the Subaccounts.
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
applicable to the issue and sale of the Policies has been provided to PFL by
Sutherland, Asbill & Brennan, L.L.P., of Washington D.C.
INDEPENDENT AUDITORS
The Financial Statements of PFL at December 31, 1996 and 1995, and for each of
the three years in the period ended December 31, 1996, and the Financial
Statements of The PFL Endeavor Platinum Variable Annuity Account (which
comprises a portion of the PFL Endeavor VA Separate Account) at December 31,
1996 and for each of the two years in the period then ended, included in this
Statement of Additional Information have been audited by Ernst & Young LLP,
Independent Auditors, 801 Grand Avenue, Suite 3400, Des Moines, Iowa, 50309-
2764.
14
<PAGE>
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Policies discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the Prospectus or this Statement of Additional
Information. Statements contained in the Prospectus and this Statement of
Additional Information 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
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The values of the interests of Policy Owners in the Mutual Fund Account
will be affected solely by the investment results of the selected Subaccount(s).
Financial Statements of The PFL Endeavor Platinum Variable Annuity Account
(which comprises a portion of the PFL Endeavor VA Separate Account) are
contained herein. The Financial Statements of PFL, which are included in this
Statement of Additional Information, 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
Mutual Fund Account.
15
<PAGE>
- --------------------------------------------------------------------------------
THE PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND CONTRACT OWNERS OF
THE PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT,
PFL LIFE INSURANCE COMPANY:
We have audited the accompanying balance sheet of The PFL Endeavor Platinum
Variable Annuity Account (comprising, respectively, the TCW Money Market, TCW
Managed Asset Allocation, T. Rowe Price International Stock, Value Equity,
Dreyfus Small Cap Value, Dreyfus U.S. Government Securities, T. Rowe Price
Equity Income, T. Rowe Price Growth Stock, Opportunity Value and Growth
subaccounts) as of December 31, 1996, and the related statements of operations
and changes in contract owners' equity for the periods indicated therein. These
financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund shares owned as of December 31,
1996 by correspondence with the mutual funds' transfer agent. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting The PFL Endeavor Platinum Variable Annuity Account at
December 31, 1996, and the results of their operations and changes in their
contract owners' equity for the periods indicated therein in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
January 31, 1997
16
<PAGE>
- --------------------------------------------------------------------------------
THE PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT
BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
TCW
TCW MANAGED
MONEY ASSET
MARKET ALLOCATION
TOTAL SUBACCT. SUBACCT.
----------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Cash......................................... $ 2,065 -- --
Investments in mutual funds, at current
market value (Note 2):
Endeavor Series Trust--TCW Money Market
Portfolio.................................. 10,235,948 10,235,948 --
Endeavor Series Trust--TCW Managed Asset
Allocation Portfolio....................... 8,956,773 -- 8,956,773
Endeavor Series Trust--T. Rowe Price
International Stock Portfolio.............. 9,990,722 -- --
Endeavor Series Trust--Value Equity
Portfolio.................................. 14,734,687 -- --
Endeavor Series Trust--Dreyfus Small Cap
Value Portfolio............................ 7,496,493 -- --
Endeavor Series Trust--Dreyfus U.S.
Government Securities Portfolio............ 4,235,107 -- --
Endeavor Series Trust--T. Rowe Price Equity
Income Portfolio........................... 11,226,704 -- --
Endeavor Series Trust--T. Rowe Price Growth
Stock Portfolio............................ 9,452,488 -- --
Endeavor Series Trust--Opportunity Value
Portfolio.................................. 206,135 -- --
WRL Series Fund, Inc.--Growth Portfolio..... 18,104,498 -- --
----------- ---------- ---------
Total Investments in Mutual Funds........... 94,639,555 10,235,948 8,956,773
----------- ---------- ---------
Total Assets................................ $94,641,620 10,235,948 8,956,773
=========== ========== =========
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Contract terminations payable............... $ 6,970 1,194 997
----------- ---------- ---------
Total Liabilities........................... 6,970 1,194 997
Contract Owners' Equity:
Deferred annuity contracts terminable by
owners (Notes 3 and 6)..................... 94,634,650 10,234,754 8,955,776
----------- ---------- ---------
$94,641,620 10,235,948 8,956,773
=========== ========== =========
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
T. ROWE DREYFUS T. ROWE T. ROWE
PRICE DREYFUS U.S. PRICE PRICE
INT'L . VALUE SMALL CAP GOV'T . EQUITY GROWTH OPPORTUNITY
STOCK EQUITY VALUE SECURITIES INCOME STOCK VALUE GROWTH
SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.
-------- ---------- --------- ---------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
-- 107 1,958 -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
9,990,722 -- -- -- -- -- -- --
-- 14,734,687 -- -- -- -- -- --
-- -- 7,496,493 -- -- -- -- --
-- -- -- 4,235,107 -- -- -- --
-- -- -- -- 11,226,704 -- -- --
-- -- -- -- -- 9,452,488 -- --
-- -- -- -- -- -- 206,135 --
-- -- -- -- -- -- -- 18,104,498
--------- ---------- --------- --------- ---------- --------- ------- ----------
9,990,722 14,734,687 7,496,493 4,235,107 11,226,704 9,452,488 206,135 18,104,498
--------- ---------- --------- --------- ---------- --------- ------- ----------
9,990,722 14,734,794 7,498,451 4,235,107 11,226,704 9,452,488 206,135 18,104,498
========= ========== ========= ========= ========== ========= ======= ==========
896 -- -- 246 793 984 -- 1,860
--------- ---------- --------- --------- ---------- --------- ------- ----------
896 -- -- 246 793 984 -- 1,860
9,989,826 14,734,794 7,498,451 4,234,861 11,225,911 9,451,504 206,135 18,102,638
--------- ---------- --------- --------- ---------- --------- ------- ----------
9,990,722 14,734,794 7,498,451 4,235,107 11,226,704 9,452,488 206,135 18,104,498
========= ========== ========= ========= ========== ========= ======= ==========
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
THE PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
Year Ended December 31, 1996, Except as Noted
<TABLE>
<CAPTION>
TCW
TCW MANAGED
MONEY ASSET
MARKET ALLOCATION
TOTAL SUBACCT. SUBACCT.
----------- --------- ----------
<S> <C> <C> <C>
NET INVESTMENT INCOME (LOSS)
Income:
Dividends.................................... $ 2,267,004 311,800 115,366
Expenses (Note 5):
Administrative fee........................... 13,930 1,008 1,743
Mortality and expense risk charge............ 1,024,752 107,186 116,172
----------- --------- ---------
Net investment income (loss)............... 1,228,322 203,606 (2,549)
----------- --------- ---------
NET REALIZED AND UNREALIZED CAPITAL GAIN
(LOSS) FROM INVESTMENTS
Net realized capital gain from sales of
investments:
Proceeds from sales.......................... 16,017,394 7,220,609 1,690,904
Cost of investments sold..................... 14,537,867 7,220,609 1,296,624
----------- --------- ---------
Net realized capital gain from sales of
investments.................................. 1,479,527 -- 394,280
----------- --------- ---------
Net change in unrealized
appreciation/depreciation of investments:
Beginning of the period...................... 2,391,915 -- 336,197
End of the period............................ 8,279,377 -- 973,369
----------- --------- ---------
Net change in unrealized
appreciation/depreciation of investments.. 5,887,462 -- 637,172
----------- --------- ---------
Net realized and unrealized capital gain
(loss) from investments................... 7,366,989 -- 1,031,452
----------- --------- ---------
INCREASE (DECREASE) FROM OPERATIONS........... $ 8,595,311 203,606 1,028,903
=========== ========= =========
</TABLE>
(1) Period from November 20, 1996 (commencement of operations) to December 31,
1996
See accompanying Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
T. ROWE DREYFUS T. ROWE T. ROWE
PRICE DREYFUS U.S. PRICE PRICE
INT'L. VALUE SMALL CAP GOV'T. EQUITY GROWTH OPPORTUNITY
STOCK EQUITY VALUE SECURITIES INCOME STOCK VALUE GROWTH
SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.(1) SUBACCT.
--------- --------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
41,629 194,811 207,541 112,934 59,266 96,649 -- 1,127,008
2,059 1,765 1,359 1,002 1,110 794 -- 3,090
109,907 144,632 81,660 64,545 104,495 94,580 171 201,404
--------- --------- --------- --------- --------- --------- ---- ---------
(70,337) 48,414 124,522 47,387 (46,339) 1,275 (171) 922,514
--------- --------- --------- --------- --------- --------- ---- ---------
628,563 952,492 565,981 2,687,562 349,409 704,019 382 1,217,473
580,857 655,099 469,981 2,662,994 257,215 550,331 379 843,778
--------- --------- --------- --------- --------- --------- ---- ---------
47,706 297,393 96,000 24,568 92,194 153,688 3 373,695
--------- --------- --------- --------- --------- --------- ---- ---------
187,288 455,486 220,590 127,706 223,319 178,431 -- 662,898
1,037,159 1,743,569 1,180,923 84,055 1,318,988 1,101,652 (224) 839,886
--------- --------- --------- --------- --------- --------- ---- ---------
849,871 1,288,083 960,333 (43,651) 1,095,669 923,221 (224) 176,988
--------- --------- --------- --------- --------- --------- ---- ---------
897,577 1,585,476 1,056,333 (19,083) 1,187,863 1,076,909 (221) 550,683
--------- --------- --------- --------- --------- --------- ---- ---------
827,240 1,633,890 1,180,855 28,304 1,141,524 1,078,184 (392) 1,473,197
========= ========= ========= ========= ========= ========= ==== =========
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
THE PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1996 and 1995, Except as Noted
<TABLE>
<CAPTION>
TCW
TCW MANAGED T. ROWE PRICE
MONEY ASSET INTERNATIONAL
MARKET ALLOCATION STOCK
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------------- ---------------------- -------------------- --------------------
1996 1995 1996 1995 1996 1995 1996 1995
----------- ---------- ---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss).................. $ 1,228,322 562,183 203,606 91,776 (2,549) (8,359) (70,337) 9,699
Net realized capital gain
(loss).................. 1,479,527 292,937 -- -- 394,280 59,673 47,706 (11,060)
Net change in unrealized
appreciation/depreciation
of investments.......... 5,887,462 2,491,222 -- -- 637,172 346,688 849,871 258,720
----------- ---------- ---------- ---------- --------- --------- --------- ---------
Increase (decrease) from
operations.............. 8,595,311 3,346,342 203,606 91,776 1,028,903 398,002 827,240 257,359
----------- ---------- ---------- ---------- --------- --------- --------- ---------
CONTRACT TRANSACTIONS
Net contract purchase
payments................ 58,144,984 21,662,505 12,486,650 4,526,586 4,146,429 1,883,952 4,419,338 1,936,013
Transfer payments from
(to) other subaccounts
or general account...... 1,107,663 263,239 (4,751,429) (1,773,778) 366,455 444,020 1,658,724 315,158
Contract terminations,
withdrawals, and other
deductions.............. (4,743,373) (1,557,372) (1,407,309) (686,618) (511,656) (103,076) (603,594) (178,543)
----------- ---------- ---------- ---------- --------- --------- --------- ---------
Increase from contract
transactions............ 54,509,274 20,368,372 6,327,912 2,066,190 4,001,228 2,224,896 5,474,468 2,072,628
----------- ---------- ---------- ---------- --------- --------- --------- ---------
Net increase in contract
owners' equity.......... 63,104,585 23,714,714 6,531,518 2,157,966 5,030,131 2,622,898 6,301,708 2,329,987
----------- ---------- ---------- ---------- --------- --------- --------- ---------
CONTRACT OWNERS' EQUITY
Beginning of period...... 31,530,065 7,815,351 3,703,236 1,545,270 3,925,645 1,302,747 3,688,118 1,358,131
----------- ---------- ---------- ---------- --------- --------- --------- ---------
End of period............ $94,634,650 31,530,065 10,234,754 3,703,236 8,955,776 3,925,645 9,989,826 3,688,118
=========== ========== ========== ========== ========= ========= ========= =========
</TABLE>
(1) Period from January 20, 1995 (commencement of operations) to December 31,
1995
(2) Period from January 5, 1995 (commencement of operations) to December 31,
1995
(3) Period from November 20, 1996 (commencement of operations) to December 31,
1996
See accompanying Notes to Financial Statements.
21
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS
DREYFUS U.S. T. ROWE PRICE T. ROWE PRICE
VALUE SMALL CAP GOVERNMENT EQUITY GROWTH OPPORTUNITY
EQUITY VALUE SECURITIES INCOME STOCK VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------- -------------------- --------------------- --------------------- -------------------- -----------
1996 1995 1996 1995 1996 1995 1996 1995(1) 1996 1995(2) 1996(3)
- ---------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
48,414 (17,648) 124,522 4,619 47,387 (15,291) (46,339) (11,349) 1,275 (10,228) (171)
297,393 42,935 96,000 7,989 24,568 86,546 92,194 6,240 153,688 13,014 3
1,288,083 455,646 960,333 210,301 (43,651) 128,530 1,095,669 223,319 923,221 178,431 (224)
- ---------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- -------
1,633,890 480,933 1,180,855 222,909 28,304 199,785 1,141,524 218,210 1,078,184 181,217 (392)
- ---------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- -------
8,377,444 1,938,053 2,938,609 1,954,060 3,807,839 3,283,653 6,076,641 1,621,945 5,785,559 1,584,777 170,126
1,260,305 735,365 695,054 135,312 (2,205,589) (883,538) 1,983,341 459,377 629,037 444,858 36,401
(288,622) (149,466) (221,919) (82,679) (372,974) (66,486) (269,143) (5,984) (217,543) (34,585) --
- ---------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- -------
9,349,127 2,523,952 3,411,744 2,006,693 1,229,276 2,333,629 7,790,839 2,075,338 6,197,053 1,995,050 206,527
- ---------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- -------
10,983,017 3,004,885 4,592,599 2,229,602 1,257,580 2,533,414 8,932,363 2,293,548 7,275,237 2,176,267 206,135
- ---------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- -------
3,751,777 746,892 2,905,852 676,250 2,977,281 443,867 2,293,548 -- 2,176,267 -- --
- ---------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- -------
14,734,794 3,751,777 7,498,451 2,905,852 4,234,861 2,977,281 11,225,911 2,293,548 9,451,504 2,176,267 206,135
========== ========= ========= ========= ========== ========= ========== ========= ========= ========= =======
<CAPTION>
GROWTH
SUBACCOUNT
- ---------------------
1996 1995
- ---------- ---------
<C> <C>
922,514 518,964
373,695 87,600
176,988 689,587
- ----------- ----------
1,473,197 1,296,151
- ----------- ----------
9,936,349 2,933,466
1,435,364 386,465
(850,613) (249,935)
- ----------- ----------
10,521,100 3,069,996
- ----------- ----------
11,994,297 4,366,147
- ----------- ----------
6,108,341 1,742,194
- ----------- ----------
18,102,638 6,108,341
=========== ==========
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
THE PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- The PFL Endeavor Platinum Variable Annuity Account ("Mutual
Fund Account") is a segregated investment account of PFL Life Insurance Company
("PFL Life"), an indirect, wholly-owned subsidiary of AEGON USA, Inc. ("AUSA"),
a holding company. AUSA is an indirect, wholly-owned subsidiary of AEGON nv, a
holding company organized under the laws of The Netherlands.
The Opportunity Value Subaccount commenced operations on November 20, 1996. The
T. Rowe Price Equity Income Subaccount commenced operations on January 20,
1995. The T. Rowe Price Growth Stock Subaccount commenced operations on January
5, 1995. Effective May 1, 1996, the names of the Money Market, Managed Asset
Allocation, Quest for Value Equity, Quest for Value Small Cap and U.S.
Government Securities Portfolios and Subaccounts were changed to TCW Money
Market, TCW Managed Asset Allocation, Value Equity, Value Small Cap and Dreyfus
U.S. Government Securities Portfolios and Subaccounts, respectively. Effective
October 29, 1996, the names of the Value Small Cap Portfolio and Subaccount
were changed to Dreyfus Small Cap Value Portfolio and Subaccount, respectively.
Effective March 24, 1995, the names of the Global Growth Portfolio and
Subaccount were changed to T. Rowe Price International Stock Portfolio and
Subaccount, respectively. The investment objective of the portfolio was changed
from an investment on a global basis to an investment on an international basis
(i.e. non-U.S. companies). The investment advisor of the Endeavor Series Trust
is Endeavor Investment Advisors, a general partnership between Endeavor
Management Co. and AUSA Financial Markets, Inc., an affiliate of PFL Life. The
investment advisor for the WRL Series Fund, Inc. is Western Reserve Life
Assurance Co. of Ohio, an affiliate of PFL Life.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940.
Investments -- Net purchase payments received by the Mutual Fund Account are
invested in the portfolios of the Endeavor Series Trust, and the Growth
Portfolio of the WRL Series Fund, Inc. (collectively the "Series Funds"), as
selected by the contract owner. Investments are stated at the closing net asset
values per share on December 31, 1996.
Realized capital gains and losses from sale of shares in the Series Funds are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the Series Funds are credited or charged to contract
owners' equity.
Dividend Income -- Dividends received from the Series Funds investments are
reinvested to purchase additional mutual fund shares.
23
<PAGE>
- --------------------------------------------------------------------------------
2. INVESTMENTS
A summary of the mutual fund investment at December 31, 1996 follows:
<TABLE>
<CAPTION>
NUMBER NET ASSET
OF SHARES VALUE MARKET
HELD PER SHARE VALUE COST
-------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Endeavor Series Trust
TCW Money Market Portfolio.. 10,235,948.440 $ 1.00 $10,235,948 $10,235,948
TCW Managed Asset Allocation
Portfolio.................. 475,412.589 18.84 8,956,773 7,983,404
T. Rowe Price International
Stock Portfolio............ 716,180.828 13.95 9,990,722 8,953,563
Value Equity Portfolio...... 856,170.090 17.21 14,734,687 12,991,118
Dreyfus Small Cap Value
Portfolio.................. 509,965.489 14.70 7,496,493 6,315,570
Dreyfus U.S. Government
Securities Portfolio....... 377,124.404 11.23 4,235,107 4,151,052
T. Rowe Price Equity Income
Portfolio.................. 724,771.104 15.49 11,226,704 9,907,716
T. Rowe Price Growth Stock
Portfolio.................. 580,263.203 16.29 9,452,488 8,350,836
Opportunity Value
Portfolio.................. 20,490.582 10.06 206,135 206,359
WRL Series Fund, Inc.
Growth Portfolio............ 517,252.436 35.001280 18,104,498 17,264,612
----------- -----------
$94,639,555 $86,360,178
=========== ===========
</TABLE>
3. CONTRACT OWNERS' EQUITY
A summary of deferred annuity contracts terminable by owners at December 31,
1996 follows:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION TOTAL
SUBACCOUNT UNITS OWNED UNIT VALUE CONTRACT VALUE
---------- ------------- ------------ --------------
<S> <C> <C> <C>
TCW Money Market...................... 9,416,706.021 $ 1.086872 $10,234,754
TCW Managed Asset Allocation.......... 6,522,822.306 1.372991 8,955,776
T. Rowe Price International Stock..... 8,619,163.798 1.159025 9,989,826
Value Equity.......................... 9,053,564.567 1.627513 14,734,794
Dreyfus Small Cap Value............... 5,378,653.976 1.394113 7,498,451
Dreyfus U.S. Government Securities.... 3,772,426.054 1.122583 4,234,861
T. Rowe Price Equity Income........... 7,413,620.068 1.514228 11,225,911
T. Rowe Price Growth Stock............ 5,893,560.949 1.603700 9,451,504
Opportunity Value..................... 205,301.400 1.004062 206,135
Growth................................ 1,130,886.988 16.007469 18,102,638
-----------
$94,634,650
===========
</TABLE>
24
<PAGE>
- --------------------------------------------------------------------------------
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
TCW T. ROWE DREYFUS DREYFUS T. ROWE T. ROWE
TCW MANAGED PRICE SMALL U.S. PRICE PRICE
MONEY ASSET INT'L. VALUE CAP GOV'T. EQUITY GROWTH OPPORTUNITY
MARKET ALLOCATION STOCK EQUITY VALUE SECURITIES INCOME STOCK VALUE GROWTH
SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.
---------- ---------- --------- --------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units
outstanding
at 1/1/95...... 1,522,675 1,329,673 1,444,711 740,211 673,043 450,510 -- -- -- 182,787
Units
purchased...... 4,371,335 1,693,308 2,026,680 1,603,267 1,864,220 3,076,825 1,404,730 1,288,344 -- 250,284
Units redeemed
and
transferred.... (2,377,852) 290,527 135,432 464,589 40,241 (871,235) 381,350 323,652 -- 9,701
---------- --------- --------- --------- --------- ---------- --------- --------- ------- ---------
Units
outstanding
at 12/31/95.... 3,516,158 3,313,508 3,606,823 2,808,067 2,577,504 2,656,100 1,786,080 1,611,996 -- 442,772
Units
purchased...... 11,639,898 3,329,342 4,053,495 5,604,895 2,428,344 3,476,212 4,402,218 4,001,244 168,864 650,022
Units redeemed
and
transferred.... (5,739,350) (120,028) 958,846 640,603 372,806 (2,359,886) 1,225,322 280,321 36,437 38,093
---------- --------- --------- --------- --------- ---------- --------- --------- ------- ---------
Units
outstanding
at 12/31/96.... 9,416,706 6,522,822 8,619,164 9,053,565 5,378,654 3,772,426 7,413,620 5,893,561 205,301 1,130,887
========== ========= ========= ========= ========= ========== ========= ========= ======= =========
</TABLE>
4. TAXES
Operations of the Mutual Fund Account form a part of PFL Life, which is taxed
as a life insurance company under Subchapter L of the Internal Revenue Code of
1986, as amended (the "Code"). The operations of the Mutual Fund Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Mutual Fund Account is not separately taxable as a
regulated investment company under Subchapter M of the Code and is not
otherwise taxable as an entity separate from PFL Life. Under existing federal
income tax laws, the income of the Mutual Fund Account, to the extent applied
to increase reserves under the variable annuity contracts, is not taxable to
PFL Life.
5. ADMINISTRATIVE, MORTALITY AND EXPENSE RISK CHARGES
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owner's account. For policies issued on or after
May 1, 1995, the fee is waived if the sum of the premium payments less the sum
of all partial withdrawals is at least $50,000 on the policy anniversary.
Charges for administrative fees to the variable annuity contracts are an
expense of the Mutual Fund Account.
PFL Life deducts a daily charge equal to an annual rate of 1.25% of the value
of the contract owners' individual account as a charge for assuming certain
mortality and expense risks. PFL Life also deducts a daily charge equal to an
annual rate of .15% of the contract owners' account for administrative
expenses. In addition, during the first ten policy years PFL Life imposes a
daily distribution financing charge equal to an annual rate of .25% of the
value of the contract owners' account.
25
<PAGE>
- --------------------------------------------------------------------------------
6. NET ASSETS
At December 31, 1996 contract owners' equity was comprised of:
<TABLE>
<CAPTION>
TCW T. ROWE DREYFUS DREYFUS T. ROWE T. ROWE
TCW MANAGED PRICE SMALL U.S. PRICE PRICE
MONEY ASSET INT'L. VALUE CAP GOV'T. EQUITY GROWTH OPPORTUNITY
MARKET ALLOCATION STOCK EQUITY VALUE SECURITIES INCOME STOCK VALUE
TOTAL SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.
----------- ---------- ---------- --------- ---------- --------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit
transactions,
accumulated net
investment
income and
realized
capital gains.. $86,355,273 10,234,754 7,982,407 8,952,667 12,991,225 6,317,528 4,150,806 9,906,923 8,349,852 206,359
Adjustment for
appreciation/
depreciation to
market value... 8,279,377 -- 973,369 1,037,159 1,743,569 1,180,923 84,055 1,318,988 1,101,652 (224)
----------- ---------- --------- --------- ---------- --------- --------- ---------- --------- -------
Total Contract
Owners'
Equity......... $94,634,650 10,234,754 8,955,776 9,989,826 14,734,794 7,498,451 4,234,861 11,225,911 9,451,504 206,135
=========== ========== ========= ========= ========== ========= ========= ========== ========= =======
<CAPTION>
GROWTH
SUBACCT.
----------
<S> <C>
Unit
transactions,
accumulated net
investment
income and
realized
capital gains.. 17,262,752
Adjustment for
appreciation/
depreciation to
market value... 839,886
----------
Total Contract
Owners'
Equity......... 18,102,638
==========
</TABLE>
7. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 OR
COMMENCEMENT OF OPERATIONS TO DECEMBER 31
-------------------------------------------
1996 1995
---------------------- --------------------
PURCHASES SALES PURCHASES SALES
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Endeavor Series Trust
TCW Money Market Portfolio........ $13,753,260 7,220,609 4,608,764 2,453,849
TCW Managed Asset Allocation Port-
folio............................ 5,690,383 1,690,904 2,731,032 515,801
T. Rowe Price International Stock
Portfolio........................ 6,033,498 628,563 2,367,406 284,815
Value Equity Portfolio............ 10,349,805 952,492 2,736,494 231,712
Dreyfus Small Cap Value Portfo-
lio.............................. 4,100,163 565,981 2,238,358 226,676
Dreyfus U.S. Government Securities
Portfolio........................ 3,964,363 2,687,562 3,503,308 1,185,517
T. Rowe Price Equity Income Port-
folio............................ 8,094,607 349,409 2,117,452 53,368
T. Rowe Price Growth Stock Portfo-
lio.............................. 6,903,228 704,019 2,057,525 72,600
Opportunity Value Portfolio....... 206,738 382 -- --
WRL Series Fund, Inc.
Growth Portfolio.................. 12,662,274 1,217,473 4,030,195 438,948
----------- ---------- ---------- ---------
$71,758,319 16,017,394 26,390,534 5,463,286
=========== ========== ========== =========
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1996 and 1995, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1996 and
1995, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1996.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young L.L.P.
Des Moines, Iowa
February 21, 1997
27
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 204,872 $ 114,704 $ 148,954
Annuity............................... 725,966 921,452 1,067,406
Accident and health................... 227,862 232,738 230,889
Net investment income................... 428,337 392,685 343,880
Amortization of interest maintenance
reserve................................ 2,434 4,341 2,871
Commissions and expense allowances on
reinsurance ceded...................... 73,931 77,071 94,635
---------- ---------- ----------
1,663,402 1,742,991 1,888,635
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health
benefits............................. 147,024 146,346 141,632
Surrender benefits.................... 512,810 498,626 392,064
Other benefits........................ 101,288 88,607 73,306
Increase in aggregate reserves for
policies and contracts:
Life................................ 140,126 50,071 82,062
Annuity............................. 188,002 528,330 569,341
Accident and health................. 26,790 17,694 22,144
Other............................... 19,969 16,017 11,223
---------- ---------- ----------
1,136,009 1,345,691 1,291,772
Insurance expenses:
Commissions........................... 177,466 200,706 215,635
General insurance expenses............ 57,282 57,623 52,166
Taxes, licenses and fees.............. 13,889 15,700 15,368
Transfer to separate account.......... 171,785 42,981 243,806
Other expenses........................ 526 760 1,014
---------- ---------- ----------
420,948 317,770 527,989
---------- ---------- ----------
1,556,957 1,663,461 1,819,761
---------- ---------- ----------
Gain from operations before federal income
taxes and net realized capital losses on
investments.............................. 106,445 79,530 68,874
Federal income tax expense................ 41,177 33,335 23,858
---------- ---------- ----------
Gain from operations before net realized
capital losses on investments............ 65,268 46,195 45,016
Net realized capital losses on investments
(net of related federal income taxes and
amounts transferred to interest
maintenance reserve)..................... (3,503) (18,096) (3,624)
---------- ---------- ----------
Net income................................ $ 61,765 $ 28,099 $ 41,392
========== ========== ==========
</TABLE>
See accompanying notes.
28
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments........................ $ 50,737 $ 79,852
Bonds.................................................. 4,773,433 4,613,334
Stocks:
Preferred............................................ 3,097 9,336
Common (cost: 1996--$23,212; 1995--$19,061).......... 32,038 24,866
Affiliated entities (cost: 1996--$14,893; 1995--
$14,661)............................................ 6,934 6,794
Mortgage loans on real estate.......................... 911,705 680,414
Real estate, at cost less accumulated depreciation
($11,338 in 1996; $12,493 in 1995):
Home office properties............................... 10,372 20,403
Properties acquired in satisfaction of debt.......... 12,260 2,648
Investment properties................................ 35,922 40,453
Policy loans........................................... 54,214 52,675
Other invested assets.................................. 16,343 13,557
---------- ----------
Total cash and invested assets......................... 5,907,055 5,544,332
Premiums deferred and uncollected........................ 16,345 17,026
Accrued investment income................................ 70,401 68,065
Receivable from affiliates............................... 53,900 79,913
Federal income taxes recoverable......................... 4,018 9,776
Transfers from separate accounts......................... 38,528 --
Other assets............................................. 31,215 32,803
Separate account assets.................................. 1,844,515 1,418,157
---------- ----------
Total admitted assets.................................. $7,965,977 $7,170,072
========== ==========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 736,100 $ 596,039
Annuity.............................................. 4,408,419 4,220,274
Accident and health.................................. 139,269 114,884
Policy and contract claim reserves:
Life................................................. 7,369 6,225
Accident and health.................................. 66,988 70,517
Other policyholders' funds............................. 126,672 105,371
Remittances and items not allocated.................... 64,064 123,710
Asset valuation reserve................................ 54,851 43,921
Interest maintenance reserve........................... 23,745 26,376
Other liabilities...................................... 70,663 67,070
Payable to affiliates.................................. 4,975 --
Separate account liabilities........................... 1,844,515 1,418,157
---------- ----------
Total liabilities...................................... 7,547,630 6,792,544
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding................................ 2,660 2,660
Paid-in surplus........................................ 154,129 154,129
Unassigned surplus..................................... 261,558 220,739
---------- ----------
Total capital and surplus.............................. 418,347 377,528
---------- ----------
Total liabilities and capital and surplus.............. $7,965,977 $7,170,072
========== ==========
</TABLE>
See accompanying notes.
29
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.............. $2,660 $ 99,129 $212,982 $314,771
Capital contribution.................. -- 15,000 -- 15,000
Net income for 1994................... -- -- 41,392 41,392
Net unrealized capital losses......... -- -- (25,350) (25,350)
Increase in non-admitted assets....... -- -- (248) (248)
Decrease in asset valuation reserve... -- -- 6,040 6,040
Dividend to stockholder............... -- -- (20,900) (20,900)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 184 184
Amendment of reinsurance agreement.... -- -- 391 391
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 505 505
Prior period adjustment............... -- -- (3,444) (3,444)
------ -------- -------- --------
Balance at December 31, 1994............ 2,660 114,129 211,552 328,341
Capital contribution.................. -- 40,000 -- 40,000
Net income for 1995................... -- -- 28,099 28,099
Net unrealized capital losses......... -- -- (7,574) (7,574)
Decrease in non-admitted assets....... -- -- 50 50
Increase in asset valuation reserve... -- -- (5,946) (5,946)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 35 35
Cancellation of reinsurance
agreement............................ -- -- 585 585
Amendment of reinsurance agreement.... -- -- 419 419
Transfer of subsidiary investment to
stockholder.......................... -- -- (3,250) (3,250)
Change in reserve valuation
methodology.......................... -- -- (501) (501)
Increase in liability for reinsurance
in unauthorized companies............ -- -- (2,730) (2,730)
------ -------- -------- --------
Balance at December 31, 1995............ 2,660 154,129 220,739 377,528
Net income for 1996................... -- -- 61,765 61,765
Net unrealized capital gains.......... -- -- 2,351 2,351
Increase in non-admitted assets....... -- -- (148) (148)
Increase in asset valuation reserve... -- -- (10,930) (10,930)
Dividend to stockholder............... -- -- (20,000) (20,000)
Prior period adjustment............... -- -- 5,025 5,025
Surplus effect of sale of a division.. -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 29 29
Amendment of reinsurance agreement.... -- -- 421 421
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 2,690 2,690
------ -------- -------- --------
Balance at December 31, 1996............ $2,660 $154,129 $261,558 $418,347
====== ======== ======== ========
</TABLE>
See accompanying notes.
30
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of
reinsurance.............................. $1,240,748 $1,353,407 $1,548,030
Net investment income..................... 431,456 398,051 339,856
---------- ---------- ----------
1,672,204 1,751,458 1,887,886
Life and accident and health claims....... (147,556) (140,798) (137,602)
Surrender benefits and other fund
withdrawals.............................. (512,810) (498,626) (392,064)
Other benefits to policyholders........... (101,254) (88,519) (73,237)
Commissions, other expenses and other
taxes.................................... (248,321) (278,241) (288,384)
Net transfers to separate accounts........ (210,312) (42,981) (243,806)
Dividends to policyholders................ (844) (940) (1,155)
Federal income taxes, excluding tax on
capital gains and IRS settlements........ (35,551) (32,905) (39,864)
---------- ---------- ----------
Net cash provided by operations........... 415,556 668,448 711,774
Proceeds from investments sold, matured or
repaid:
Bonds and preferred stocks.............. 2,112,831 1,757,229 1,430,339
Common stocks........................... 27,214 20,338 12,941
Mortgage loans on real estate........... 74,351 36,550 43,495
Real estate............................. 18,077 23,203 9,536
Other proceeds.......................... 22,567 381 189
---------- ---------- ----------
Total cash from investments............... 2,255,040 1,837,701 1,496,500
Capital contribution...................... -- 40,000 15,000
Dividend from subsidiary.................. -- -- 10,000
Cash received from ceding commissions
associated with the sale of a division... 45 55 284
Increase in remittances and items not
allocated................................ -- 88,295 16,177
Other sources............................. 19,381 12,758 24,855
---------- ---------- ----------
Total sources of cash..................... 2,690,022 2,647,257 2,274,590
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and preferred stocks.............. $2,270,105 $2,294,195 $2,043,615
Common stocks........................... 29,799 23,284 11,228
Mortgage loans on real estate........... 324,381 192,292 160,068
Net increase in policy loans............ 1,539 877 3,202
Real estate............................. 222 10,188 14,801
Other invested assets................... 5,169 2,670 664
---------- ---------- ----------
Total investments acquired................ 2,631,215 2,523,506 2,233,578
Dividends to stockholder.................. 20,000 -- 20,900
Cash paid associated with the sale of a
division................................. 539 -- --
Repayment of intercompany notes and
receivables, net......................... -- 48,070 365
Cash paid in conjunction with an amendment
of a reinsurance agreement............... 5,812 -- --
Decrease in remittances and items not
allocated................................ 59,646 -- --
Cash paid in conjunction with sales of a
division................................. 123 -- --
Other applications, net................... 1,802 29,887 3,820
---------- ---------- ----------
Total applications of cash................ 2,719,137 2,601,463 2,258,663
---------- ---------- ----------
Net change in cash and short-term
investments.............................. (29,115) 45,790 15,927
Cash and short-term investments at
beginning of year........................ 79,852 34,062 18,135
---------- ---------- ----------
Cash and short-term investments at end of
year..................................... $ 50,737 $ 79,852 $ 34,062
========== ========== ==========
</TABLE>
See accompanying notes.
31
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. Effective June 1, 1995, the
Company transferred the common stock of its wholly-owned subsidiary, Equity
National Life Insurance Company ("Equity National"), to its stockholder, First
AUSA. Equity National was then merged with Life Investors Insurance Company of
America, a subsidiary of First AUSA. The financial statements presented herein
are prepared on the statutory accounting principles basis for the Company
only; as such, the accounts of the Company's subsidiary, Equity National, are
not consolidated with those of the Company.
In connection with the sale of certain affiliated companies, the Company has
assumed various blocks of business from these former affiliates through
mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale, the
Company transferred $123 in assets, substantially all of which was cash,
and $70 of liabilities. The difference between the assets and liabilities
of $(53) plus a tax credit of $19 was charged directly to unassigned
surplus.
Effective December 31, 1995, the Company canceled a coinsurance agreement
with its parent, First AUSA. As a result of the cancellation, the Company
transferred $825 of assets and $1,712 of liabilities. The difference
between the assets and liabilities, net of a tax effect of $302 was
credited directly to unassigned surplus.
On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to increase the reinsurance ceded by 2 1/2% each year
(primarily group health business). As a result, the Company transferred
$3,881 in assets and $4,080 in liabilities during 1994. The difference
between the assets and liabilities of $199, plus a tax credit of $192, was
credited directly to unassigned surplus. During 1995, the Company
transferred $4,303 in assets and liabilities of $4,467. The difference
between the assets and liabilities of $164, plus a tax credit of $255, was
credited directly to unassigned surplus. During 1996, the Company
transferred $5,991 in assets, including $5,812 of cash and short-term
investments and liabilities of $6,146. The difference between the assets
and liabilities of $155, plus a tax credit of $266 was credited directly to
unassigned surplus.
During 1993, the Company sold the Oakbrook Division (primarily group
health business). The initial transfer of risk occurred through an
indemnity reinsurance agreement. The
32
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
policies will then be assumed by the reinsurer by novation as state
regulatory and policyholder approvals are received. In addition, the
Company will receive from the third party administrator a ceding commission
of one percent of the premiums collected between January 1, 1994 and
December 31, 1996. As a result of the sale, in 1994, the Company received
$284 for ceding commissions; the commissions net of the related tax effect
of $100 was credited directly to unassigned surplus. During 1995, the
Company received $55 for ceding commissions; the commissions net of the
related tax effect of $20 was credited directly to unassigned surplus.
During 1996, the Company received $45 for ceding commissions; the
commissions net of the related tax effect of $(16) was charged directly to
unassigned surplus. During 1996, the Company paid $539 in association with
this sale; the proceeds, net of a tax credit of $189, were charged directly
to unassigned surplus.
Nature of Business
The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through an independent insurance agency of The Insurance Center, the
Company's agents, and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant
of these differences are as follows: (a) bonds are generally reported at
amortized cost rather than segregating the portfolio into held-to-maturity
(reported at amortized cost), available-for-sale (reported at fair value), and
trading (reported at fair value) classifications; (b) acquisition costs of
acquiring new business are charged to current operations as incurred rather
than deferred and amortized over the life of the policies; (c) policy reserves
on traditional life products are based on statutory mortality rates and
interest which may differ from reserves based on reasonable assumptions of
expected mortality, interest, and withdrawals which include a provision for
possible unfavorable deviation from such assumptions; (d) policy reserves on
certain investment products use discounting methodologies utilizing statutory
interest rates rather than full account values; (e) reinsurance amounts are
netted against the corresponding asset or liability rather than shown as gross
amounts on the balance sheet; (f) deferred income taxes are not provided for
the difference between the financial statement and income tax bases of assets
and liabilities; (g) net realized gains or losses attributed to changes in the
level of interest
33
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
rates in the market are deferred and amortized over the remaining life of the
bond or mortgage loan, rather than recognized as gains or losses in the
statement of operations when the sale is completed; (h) declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (carried as
a liability) changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; and (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus. The effects
of these variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in
the process of recodifying statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1997, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.
Investments
Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the security. The Company reviews
its prepayment assumptions on mortgage and other asset backed securities at
regular intervals and adjusts amortization rates prospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of affiliated and unaffiliated companies,
which may include shares of mutual funds (money market and other), are carried
at market. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as
required or permitted by Iowa Insurance Laws.
34
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses, net of amounts
attributed to changes in the general level of interest rates. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve (IMR), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1996, 1995 and 1994,
the Company excluded investment income due and accrued of $1,541, $2,272 and
$4,622, respectively, with respect to such practices.
The Company entered into an interest-rate cap agreement on Five Year
Constant Maturities Treasury futures to hedge the exposure of increasing
interest rates. The cash flows from the interest rate cap will help offset
losses that might occur from disintermediation resulting from a rise in
interest rates. The Company paid a one-time premium to receive the difference
between the reference rate and the strike rate after a two-year delay. The
cost is included in interest expense ratably during the life of the agreement.
Income received as a result of the cap agreement will be recognized in
investment income as earned. Unamortized cost of the agreements is included in
other assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with and without life
contingencies are equal to the present value of future payments assuming
interest rates ranging from 2.50 to 11.25 percent and mortality rates, where
appropriate, from a variety of tables.
35
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Account
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate account are valued at
market. Income and gains and losses with respect to the assets in the separate
account accrue to the benefit of the policyholders. The Company received
variable contract premiums of $227,864, $133,386 and $308,305 in 1996, 1995
and 1994, respectively. All variable account contracts are subject to
discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. SFAS No.
119, Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments, requires additional disclosure about derivatives. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparisons to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. Statement of Financial Accounting Standards No. 107 and No. 119
exclude certain financial instruments and all nonfinancial instruments from
their disclosure requirements and allow companies to forego the disclosures
when those estimates can only be made at excessive cost. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
36
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities other than insurance subsidiaries are
based on quoted market prices. Fair value for the Company's insurance
subsidiary is the statutory net book value of that subsidiary.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Interest rate cap: Estimated fair value of the interest rate cap is based
upon the latest quoted market price.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of Statement
of Financial Accounting Standards No. 107 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds.......................... $4,773,433 $4,867,770 $4,613,334 $4,824,635
Preferred stocks............... 3,097 7,133 9,336 12,275
Common stocks.................. 32,038 32,038 24,866 24,866
Affiliated common and preferred
stock......................... 6,934 6,934 6,794 6,794
Mortgage loans on real estate.. 911,705 922,010 680,414 714,399
Policy loans................... 54,214 54,214 52,675 52,675
Cash and short-term
investments................... 50,737 50,737 79,852 79,852
Interest rate cap.............. 6,797 6,975 7,971 7,250
Separate account assets........ 1,844,515 1,844,515 1,418,157 1,418,157
LIABILITIES
Investment contract
liabilities................... 4,532,568 4,398,630 4,323,188 4,310,505
Separate account annuities..... 1,803,057 1,803,057 1,417,842 1,417,842
</TABLE>
37
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and
agencies.................... $ 136,450 $ 3,301 $ 180 $ 139,571
State, municipal and other
government.................. 59,644 1,906 177 61,373
Public utilities............. 147,918 5,616 1,020 152,514
Industrial and
miscellaneous............... 1,958,681 64,710 8,105 2,015,286
Mortgage-backed securities... 2,470,740 43,896 15,610 2,499,026
---------- -------- ------- ----------
4,773,433 119,429 25,092 4,867,770
Preferred stocks............... 3,097 4,036 -- 7,133
---------- -------- ------- ----------
$4,776,530 $123,465 $25,092 $4,874,903
========== ======== ======= ==========
DECEMBER 31, 1995
Bonds:
United States Government and
agencies.................... $ 117,054 $ 5,808 $ 135 $ 122,727
State, municipal and other
government.................. 46,236 3,109 2 49,343
Public utilities............. 156,342 9,578 1,092 164,828
Industrial and
miscellaneous............... 1,781,149 112,074 7,146 1,886,077
Mortgage-backed securities... 2,512,553 93,420 4,313 2,601,660
---------- -------- ------- ----------
4,613,334 223,989 12,688 4,824,635
Preferred stocks............... 9,336 3,348 409 12,275
---------- -------- ------- ----------
$4,622,670 $227,337 $13,097 $4,836,910
========== ======== ======= ==========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1996,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED FAIR
VALUE VALUE
---------- --------------
<S> <C> <C>
Due in one year or less............................ $ 202,775 $ 204,980
Due after one year through five years.............. 896,912 921,711
Due after five years through ten years............. 954,555 977,421
Due after ten years................................ 248,451 264,632
---------- ----------
2,302,693 2,368,744
Mortgage and other asset-backed securities......... 2,470,740 2,499,026
---------- ----------
$4,773,433 $4,867,770
========== ==========
</TABLE>
38
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes...................... $364,356 $342,182 $294,145
Dividends on equity investments.................. 1,436 1,822 12,091
Interest on mortgage loans....................... 69,418 52,702 42,385
Rental income on real estate..................... 9,526 10,443 9,360
Interest on policy loans......................... 3,273 3,112 3,182
Other investment income.......................... 1,799 1,803 282
-------- -------- --------
Gross investment income.......................... 449,808 412,064 361,445
Investment expenses.............................. 21,471 19,379 17,565
-------- -------- --------
Net investment income............................ $428,337 $392,685 $343,880
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds................................ $2,112,831 $1,757,229 $1,430,339
========== ========== ==========
Gross realized gains.................... $ 19,876 $ 19,721 $ 15,411
Gross realized losses................... (19,634) (34,399) (33,044)
---------- ---------- ----------
Net realized gains (losses)............. $ 242 $ (14,678) $ (17,633)
========== ========== ==========
</TABLE>
At December 31, 1996, investments with an aggregate carrying value of
$5,825,802 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
---------------------------
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Debt securities................................ $ 242 $(14,678) $(17,633)
Short-term investments......................... (197) 24 (309)
Equity securities.............................. 1,798 504 1,322
Mortgage loans on real estate.................. (5,530) (1,053) (2,186)
Real estate.................................... 1,210 (1,908) (2,858)
Other invested assets.......................... 12 (970) 14
------- -------- --------
(2,465) (18,081) (21,650)
Tax effect..................................... (1,235) 7,878 7,236
Transfer to interest maintenance reserve....... 197 (7,891) 10,790
------- -------- --------
Net realized losses............................ $(3,503) $(18,096) $ (3,624)
======= ======== ========
</TABLE>
39
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Debt securities............................ $(115,867) $355,560 $(322,346)
Equity securities.......................... 2,929 (16,379) (23,202)
--------- -------- ---------
Change in unrealized appreciation
(depreciation)............................ $(112,938) $339,181 $(345,548)
========= ======== =========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Unrealized gains.................................. $ 9,590 $ 6,833 $20,244
Unrealized losses................................. (8,723) (8,895) (5,927)
------- ------- -------
Net unrealized gains (losses)..................... $ 867 $(2,062) $14,317
======= ======= =======
</TABLE>
During 1996, the Company issued mortgage loans with interest rates ranging
from 6.83% to 8.75%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 85%. Mortgage loans
with a carrying value of $4,027 were non-income producing for the previous
twelve months. Accrued interest of $852 related to these mortgage loans was
excluded from investment income. The Company requires all mortgage loans to
carry fire insurance equal to the value of the underlying property.
During 1996, 1995 and 1994, mortgage loans of $13,163, $1,644 and $799,
respectively, were foreclosed and transferred to real estate. At December 31,
1996 and 1995, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $5,432 and $6,168, respectively. The mortgage loan
portfolio is diversified by geographic region and specific collateral property
type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
- -------------------------------------
DECEMBER 31
------------
1996 1995
----- -----
<S> <C> <C>
South Atlantic.......... 26% 26%
Mountain................ 10 12
W. South Central........ 12 14
Pacific................. 13 17
E. North Central........ 15 13
E. South Central........ 9 5
W. North Central........ 6 6
Middle Atlantic......... 6 3
New England............. 3 4
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION
- -------------------------------------
DECEMBER 31
------------
1996 1995
----- -----
<S> <C> <C>
Retail.................. 37% 31%
Apartment............... 14 20
Office.................. 34 29
Industrial.............. 3 4
Other................... 12 16
</TABLE>
40
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
At December 31, 1996, the Company had the following investments (excluding
U. S. Government guaranteed or insured issues) which individually represented
more than ten percent of capital and surplus and the asset valuation reserve:
<TABLE>
<CAPTION>
DESCRIPTION OF SECURITY OR ISSUER CARRYING VALUE
--------------------------------- --------------
<S> <C>
Bonds:
Citibank.................................................... 70,661
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,457,450 $1,591,531 $1,857,446
Reinsurance assumed...................... 1,796 2,356 1,832
Reinsurance ceded........................ (300,546) (324,993) (412,029)
---------- ---------- ----------
Net premiums earned...................... $1,158,700 $1,268,894 $1,447,249
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $168,155,
$167,287 and $148,414 during 1996, 1995 and 1994, respectively. At December
31, 1996 and 1995, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $63,226 and
$65,503, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1996 and
1995 of $2,737,441 and $2,920,034, respectively.
At December 31, 1996, amounts recoverable from unauthorized reinsurers of
$73,434 (1995--$70,516) and reserve credits for reinsurance ceded of $55,035
(1995--$48,992) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $120,477 at December 31, 1996 that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
41
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital losses for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $37,256 $27,835 $24,106
Tax reserve adjustment........................... 2,211 2,405 1,150
Excess tax depreciation.......................... (384) (365) (406)
Deferred acquisition costs--tax basis............ 5,583 4,581 7,378
Prior year over accrual.......................... (499) (306) (644)
Dividend received deduction...................... (454) (56) (3,513)
Charitable contribution.......................... -- -- (3,935)
Other items--net................................. (2,536) (759) (278)
------- ------- -------
Federal income tax expense....................... $41,177 $33,335 $23,858
======= ======= =======
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1996). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984-1986 and related
interest of $1,686, net of a tax effect of $590. An examination is underway
for years 1988 through 1995.
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which
entitle policyholders to a share in the earnings of the participating
policies, provided that a dividend distribution, which is determined annually
based on mortality and persistency experience of the participating policies,
is authorized by the Company. Participating insurance constituted
approximately 1.0% and 1.2% of ordinary life insurance in force at December
31, 1996 and 1995, respectively.
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics are summarized as
follows:
42
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1996 1995
------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment....... $ 20,800 0% $ 699 --%
Subject to discretionary withdrawal
at book value less surrender
charge............................. 794,881 9 733,796 8%
Subject to discretionary withdrawal
at market value.................... 1,803,057 20 1,390,156 16%
Subject to discretionary withdrawal
at book value (minimal or no
charges or adjustments)............ 6,284,876 69 6,395,719 74%
Not subject to discretionary
withdrawal provision............... 174,416 2 139,330 2%
---------- --- ---------- ---
9,078,030 100 8,659,700 100%
Less reinsurance ceded.............. 2,677,432 2,866,160
---------- ----------
Total policy reserves on annuities
and deposit fund liabilities....... $6,400,598 $5,793,540
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts................. $227,864 $133,386 $308,305
Transfers from separate accounts............... 75,172 104,219 76,133
-------- -------- --------
Net transfers to separate accounts............... 152,692 29,167 232,172
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees...................................... 19,093 13,814 11,634
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $171,785 $ 42,981 $243,806
======== ======== ========
</TABLE>
43
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1996 and 1995, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
------- ------- -------
<S> <C> <C> <C>
DECEMBER 31, 1996
Life and annuity:
Ordinary direct first year business............. $ 2,657 $ 1,865 $ 792
Ordinary direct renewal business................ 23,307 7,180 16,127
Group life direct business...................... 1,788 1,195 593
Reinsurance ceded............................... (1,706) (438) (1,268)
------- ------- -------
26,046 9,802 16,244
Accident and health:
Direct.......................................... 104 -- 104
Reinsurance ceded............................... (3) -- (3)
------- ------- -------
Total accident and health......................... 101 -- 101
------- ------- -------
$26,147 $ 9,802 $16,345
======= ======= =======
DECEMBER 31, 1995
Life and annuity:
Ordinary direct first year business............. $ 3,151 $ 2,223 $ 928
Ordinary direct renewal business................ 24,250 7,792 16,458
Group life direct business...................... 1,537 779 758
Reinsurance ceded............................... (1,362) (141) (1,221)
------- ------- -------
27,576 10,653 16,923
Accident and health:
Direct.......................................... 1,296 -- 1,296
Reinsurance ceded............................... (1,193) -- (1,193)
------- ------- -------
Total accident and health......................... 103 -- 103
------- ------- -------
$27,679 $10,653 $17,026
======= ======= =======
</TABLE>
At December 31, 1996 and 1995, the Company had insurance in force
aggregating $69,251 and $87,010, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $1,252 and $1,417 to cover
these deficiencies at December 31, 1996 and 1995, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $501
was made for the year ended December 31, 1995, related to the change in
reserve methodology.
44
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
The Company paid dividends to its parent of $20,000 and $20,900 in 1996 and
1994, respectively. No dividends were paid in 1995.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $1,056, $942 and $966 for the
years ended December 31, 1996, 1995 and 1994, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $297, $465 and $411 for
the years ended December 31, 1996, 1995 and 1994, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $184, $164 and $169 for the years ended December 31, 1996,
1995 and 1994, respectively.
45
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1996,
1995 and 1994, the Company paid $17,028, $14,214 and $11,820, respectively,
for these services, which approximates their costs to the affiliates.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.5% at December 31, 1996. During 1996,
1995 and 1994, the Company paid net interest of $174, $71 and $23,
respectively, to affiliates.
During 1995 and 1994, the Company received capital contributions of $40,000
and $15,000, respectively, in cash from its parent and during 1994 received a
dividend of $10,000 from its subsidiary, Equity National, which was included
in net investment income.
During 1995, the Company sold real estate with a book value of approximately
$13,270 to an affiliated entity in exchange for a short-term note receivable.
No gain was recognized on this sale. This note accrued interest at 5.65% and
matured during 1996.
During the year ended December 31, 1995, the Company restructured demand
notes and accrued interest of $13,250 and $745, respectively, related to an
affiliate. The Company received 9,750 shares of preferred stock from the
affiliate for satisfaction of debt. The Company realized a loss of $8,695
related to this transaction. At December 31, 1996 and 1995, the preferred
stock related to this affiliate was deemed to have no value and an unrealized
loss of $4,555 was recognized in 1995.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations
(NOLHGA). The Company has established a reserve of $21,774 and $21,747 and an
offsetting premium tax benefit of $8,752 and $9,457 at December 31, 1996 and
1995, respectively, for its estimated share of future guaranty fund
assessments related to several major insurer insolvencies. During 1994, $3,444
was charged to surplus as prior period adjustments to provide for this net
reserve plus certain assessments paid that related to several major insurer
insolvencies prior to 1992. The guaranty fund expense was $2,617, $5,859 and
$4,054 for December 31, 1996, 1995 and 1994, respectively.
46
<PAGE>
SCHEDULE I
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET (2)
------------------ ---------- ---------- -----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and
government agencies and
authorities......................... $1,533,581 $1,554,339 $1,533,510
States, municipalities and political
subdivisions........................ 4,918 5,360 4,919
Foreign governments.................. 55,633 56,013 54,725
Public utilities..................... 150,346 152,514 147,918
All other corporate bonds............ 3,046,090 3,099,544 3,032,361
Redeemable preferred stock............. 3,097 7,133 3,097
---------- ---------- ----------
Total fixed maturities................. 4,793,665 4,874,903 4,776,530
EQUITY SECURITIES
Common stocks:
Banks, trust and insurance........... 7,120 9,777 9,777
Industrial, miscellaneous and all
other............................... 16,092 22,261 22,261
---------- ---------- ----------
Total equity securities................ 23,212 32,038 32,038
Mortgage loans on real estate.......... 911,705 911,705
Real estate............................ 46,294 46,294
Real estate acquired in satisfaction of
debt.................................. 12,260 12,260
Policy loans........................... 54,214 54,214
Other long-term investments............ 9,546 9,546
Cash and short-term investments........ 50,737 50,737
---------- ----------
Total investments...................... $5,901,633 $5,893,324
========== ==========
</TABLE>
- --------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
(2) Amount differs from cost as certain bonds have been adjusted to reflect
other than temporary decline in value charged to surplus, as prescribed by
the NAIC.
47
<PAGE>
SCHEDULE III
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
------------- -------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Individual life.............................. $ 734,350 $ -- $ 7,240
Individual health............................ 39,219 8,680 13,631
Group life and health........................ 78,418 14,702 53,486
Annuity...................................... 4,408,419 -- --
---------- ------- -------
$5,260,406 $23,382 $74,357
========== ======= =======
YEAR ENDED DECEMBER 31, 1995
Individual life.............................. $ 594,274 $ -- $ 6,066
Individual health............................ 24,225 7,768 11,863
Group life and health........................ 67,994 16,662 58,813
Annuity...................................... 4,220,274 -- --
---------- ------- -------
$4,906,767 $24,430 $76,742
========== ======= =======
YEAR ENDED DECEMBER 31, 1994
Individual life.............................. $ 544,087 $ -- $ 7,298
Individual health............................ 16,649 6,487 8,643
Group life and health........................ 60,207 17,680 57,959
Annuity...................................... 3,693,388 -- --
---------- ------- -------
$4,314,331 $24,167 $73,900
========== ======= =======
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
NET INVESTMENT BENEFITS, CLAIMS LOSSES OTHER OPERATING
PREMIUM REVENUE INCOME* AND SETTLEMENT EXPENSES EXPENSES* PREMIUMS WRITTEN
- --------------- -------------- ----------------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 202,082 $ 66,538 $ 197,526 $ 38,067 --
55,871 5,263 32,903 29,511 $ 55,678
174,781 12,877 105,459 122,953 171,320
725,966 343,659 800,121 230,417 --
- ---------- -------- ---------- --------
$1,158,700 $428,337 $1,136,009 $420,948
========== ======== ========== ========
$111,918 $ 49,929 $ 97,065 $ 37,933 --
47,692 4,091 25,793 26,033 $ 47,690
187,832 11,665 106,065 139,640 184,545
921,452 327,000 1,116,768 114,164 --
- ---------- -------- ---------- --------
$1,268,894 $392,685 $1,345,691 $317,770
========== ======== ========== ========
$146,328 $ 43,025 $ 124,736 $ 42,309 --
38,811 3,983 22,323 22,707 $ 38,797
194,704 10,531 108,400 143,645 192,034
1,067,406 286,341 1,036,313 319,328 --
- ---------- -------- ---------- --------
$1,447,249 $343,880 $1,291,772 $527,989
========== ======== ========== ========
</TABLE>
- --------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
49
<PAGE>
SCHEDULE IV
PFL LIFE INSURANCE COMPANY
REINSURANCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996
Life insurance in force.. $4,863,416 $477,112 $ 30,685 $4,416,989 .7%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health...... 68,699 12,828 -- 55,871 --
Group life and health.. 390,296 215,515 -- 174,781 --
Annuity................ 794,311 68,345 -- 725,966 --
---------- -------- -------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1995
Life insurance in force.. $4,594,434 $468,811 $ 22,936 $4,148,559 .6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 113,934 $ 3,841 $ 1,825 $ 111,918 1.6%
Individual health...... 60,309 12,617 -- 47,692 --
Group life and health.. 408,097 220,265 -- 187,832 --
Annuity................ 1,009,191 88,270 531 921,452 .05%
---------- -------- -------- ---------- ---
$1,591,531 $324,993 $ 2,356 $1,268,894 .2%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1994
Life insurance in force.. $4,713,817 $468,811 $112,054 $4,357,060 2.6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 148,702 $ 3,639 $ 1,265 $ 146,328 .9%
Individual health...... 50,303 11,492 -- 38,811 --
Group life and health.. 412,200 217,496 -- 194,704 --
Annuity................ 1,246,241 179,402 567 1,067,406 .05%
---------- -------- -------- ---------- ---
$1,857,446 $412,029 $ 1,832 $1,447,249 .1%
========== ======== ======== ========== ===
</TABLE>
50
<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: The following exhibits are filed herewith:
(1) (a) Resolution of the Board of Directors of PFL
Life Insurance Company authorizing
establishment of the Mutual Fund Account.
Note 1.
(b) Authorization Changing Name of the Mutual Fund
Account. Note 11.
(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 AEGON USA Securities, Inc. Note 6.
(b) Form of Broker/Dealer Supervision and Sales
Agreement by and between AEGON USA Securities,
Inc. and the Broker/Dealer. Note 6.
(4) (a) Form of Policy for the Endeavor Platinum
Variable Annuity. Note 7.
(b) Amended pages to Form of Policy for Endeavor
Platinum Variable Annuity. Note 8.
(c) Form of Policy Endorsement (Death Benefits).
Note 10.
(d) Form of Policy for the Endeavor Platinum
Variable Annuity. Note 12
(e) Form of Policy Endorsement (Nursing Care).
Note 12
(5) Form of Application for the Endeavor Platinum
Variable Annuity. Note 12.
(6) (a) Articles of Incorporation of PFL Life Insurance
Company. Note 2.
(b) ByLaws of PFL Life Insurance Company. Note 2.
(7) Not Applicable.
(8) (a) Participation Agreement by and between PFL Life
Insurance Company and Endeavor Series Trust.
1
<PAGE>
Note 3.
(b) Participation Agreement by and between PFL Life
Insurance Company and the WRL Growth
Portfolio of WRL Series Fund, Inc. Note 4.
(c) Administrative Services Agreement by and
between PFL Life Insurance Company and State
Street Bank and Trust Company (assigned to
Vantage Computer Systems, Inc.). Note 3.
(d) Amendment and Assignment of Administrative
Services Agreement. Note 4.
(e) Second Amendment to Administrative Services
Agreement. Note 5.
(f) Amendment to Participation Agreement by and
between PFL Life Insurance Company and
Endeavor Series Trust. Note 12.
(9) (a) Opinion and Consent of Counsel. Note 7.
(b) Consent of Counsel. Note 7.
(10) (a) Consent of Independent Auditors. Note 12.
(b) Opinion and Consent of Actuary. Note 12.
(11) Not Applicable.
(12) Not Applicable.
(13) Performance Data. Note 9.
(14) Powers of Attorney (P.S. Baird, W.L. Busler, P.E.
Falconio, D.C. Kolsrud, R.J. Kontz). Note 7.
(Craig D. Vermie) Note 11 (Brenda K. Clancy)
Note 12
Note 1. Filed with the initial filing of this Form N-4 Registration
Statement (File No. 33-56908, 811-06032) on January 8, 1993.
Note 2. Filed with the initial filing of Form N-4 Registration Statement
(File No. 33-33085 on January 23, 1990.
Note 3. Filed with Pre-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 33-33085) on April 9, 1990.
Note 4. Filed with Post-Effective Amendment No. 2 to Form N-4
Registration Statement (File No. 33-33085) on April 1, 1991.
Note 5. Filed with Post-Effective Amendment No. 3 to Form N-4
Registration Statement (File No. 33-33085) on May 1, 1992.
Note 6. Filed with Post-Effective Amendment No. 5 to Form
2
<PAGE>
N-4 Registration Statement (File No. 33-33085) on April 30, 1993.
Note 7. Filed with Post-Effective Amendment No. 8 to this Form N-4
Registration Statement (File No. 33-56908) on December 6, 1993.
Note 8. Filed with Post-Effective Amendment No. 10 to this Form N-4
Registration Statement (File No. 33-56908) on February 28, 1994.
Note 9. Filed with Post-Effective Amendment No. 12 to this Form N-4
Registration Statement (File No. 33-56908) on April 29, 1994.
Note 10. Filed with Post-Effective Amendment No. 5 to this Form N-4
Registration Statement (File No. 33-56908) on April 27, 1995.
Note 11. Filed with Post-Effective Amendment No. 6 to this Form N-4
Registration Statement (File No. 33-56908) on April 24, 1996.
Note 12. Filed Herewith.
3
<PAGE>
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal Positions and
Business Address Offices with Depositor
- ---------------- ----------------------
<S> <C>
William L. Busler Director, Chairman of
4333 Edgewood Road, N.E. the Board and President
Cedar Rapids, IA 52499
Patrick S. Baird Director, Senior Vice President
4333 Edgewood Road, N.E. and Chief Financial Officer
Cedar Rapids, IA 52499
Craig D. Vermie Director, Vice
4333 Edgewood Road, N.E. President, Secretary and
Cedar Rapids, IA 52499 Corporate Counsel
Douglas C. Kolsrud Director, Vice President
4333 Edgewood Road, N.E. and Corporate Actuary
Cedar Rapids, IA 52499
Robert J. Kontz Vice President and
4333 Edgewood Road, N.E. Controller
Cedar Rapids, IA 52499
Patrick E. Falconio Director, Senior Vice
4333 Edgewood Road, N.E. President, and Chief
Cedar Rapids, IA 52499 Investment Officer
Brenda K. Clancy Vice President, Treasurer,
4333 Edgewood Road, N.E. and Chief Financial Officer
Cedar Rapids, IA 52499
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the
Depositor or Registrant
<TABLE>
<S> <C> <C> <C> <C> <C>
---------------------------
VERENIGING AEGON
NETHERLANDS MEMBERSHIP
ASSOCIATION
---------------------------
+
53.00%
---------------------------
AEGON N.V.
NETHERLANDS CORPORATION
----------------------------
+
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + + +
100% 100% 100% 100%
---------------------- ------------------------ ------------------------ -----------------------------
AEGON Netherland N.V. AEGON INTERNATIONAL N.V. AEGON NEWAK HOLDING S.V. GRONINGER FINANCIERINGEN B.V.
Netherlands Corporation Netherlands Corporation Netherlands Corporation Netherlands Corporation
---------------------- ------------------------ ------------------------ -----------------------------
+
DE
-------------------
VOTING TRUST
Trustees: K.J. Storm
Donald J. Sheperd
H.B. Van Wild
Dennis Hersch
-------------------
+
DE 100%
-------------------
AEGON U.S. HOLDING
CORPORATION
-------------------
+ +
++++++++++++++++++++++++++++++++++++ +
+ IA 100%(1)
+ -------------------
+ AEGON USA, INC.
+ -------------------
+ +
+ +++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + +
+ MD 100% MD
+ ----------------- ------------
+ FIRST AUSA LIFE AUSA HOLDING
+ INSURANCE COMPANY COMPANY
+ ----------------- ------------
+ + +
+ + ++++++++++++++++++++++++++++++++++++++++++++++
+ + + ++
+ + MD 100% IA 100% DE
+ + -------------------- ------------- ++ ----------------------
+ + MONUMENTAL GENERAL AUSA FINACIAL +++ DIVERSIFIED INVESTMENT
+ + INSURANCE GROUP, INC ++ MARKETS, INC. ++ ADVISORS, INC.
+ + -------------------- + ------------- ++ ----------------------
NJ 100% + NY + MD 100% + ++
- ----------------- + ------------------- + ----------------- + ++
SHORT HILLS + AUSA LIFE INSURANCE +++ MONUMENTAL LIFE + IA 100% ++ DE 100%
MANAGEMENT COMPANY+ COMPANY, INC + INSURANCE COMPANY++ MD 100% + ----------- ++ ---------------------
- ----------------- + ------------------- + ----------------- + ------------------- + UNIVERSAL ++ DIVERSIFIED INVESTORS
+ + + MONUMENTAL GENERAL + BENEFITS +++++++ SECURITIES CORP.
+ + + ADMINISTRATORS, INC.+ CORPORATION ++ --------------------
+ + MD 100% + ------------------- + ++
NY + ----------------- + ----------------- + + ----------- ++
- ---------------- + LIFE INVESTORS + MONUMENTAL GENERAL+ + + ++ IA 100%
CORPA REINSURANCE + INSURANCE COMPANY + CASUALTY COMPANY + + IA 100% ++ ----------------
COMPANY ++ ++ OF AMERICA ++ ----------------- + MD 100% + ---------- ++++++++ AEGON USA
- ---------------- ++ ----------------- + MD 100% + ----------------- + INVESTORS ++ +++ SECURITIES, INC.
++ + --------------- + EXECUTIVE MANAGE- + WARRANTY ++ + ----------------
IN 100% ++ ------------------- + UNITED FINACIAL + MENT AND CONSULT- + OF AMERICA, ++ +
- ---------------- +++BANKERS UNITED LIFE + SERVICES, INC. +++ ANT SERVICES, INC.+ + INC. ++ +
AEGON MANAGEMENT ++ ASSURANCE COMPANY +++ --------------- + ----------------- + ---------- ++ + MD
COMPANY + ------------------- + + MD 100% + IA 100% ++ + -----------------
- ---------------- + + AZ (*) + ------------------ + ------------- ++ +++ AEGON USA MANAGED
+ ----------------- + ---------------- + MONUMENTAL GENERAL+ + MASSACHUSETTS ++ PORTFOLIOS INC.
DE 100% + PFL LIFE ++++ BANKERS FINACIAL + MASS MARKETING INC. FIDELTY TRUST +++ -----------------
- ----------------- + INSURANCE COMPANY + LIFE INSURANCE +++ ------------------- COMPANY ++
RCC NORTH AMERICA + ----------------- + COMPANY + ------------ ++
INC. ++ AZ 100% VOTING + ---------------- + DE 100% ++ IA 100%
- ----------------- + CHAIRMAN MD 100% + ------------------ ++ ------------------
---------------------+ -------------- + MONEY SERVICES, INC.++++ AMERICAN FORUM FOR
SOUTHWEST EQUITY LIFE+ THE WHITESTONE + ------------------- ++ FISCAL FITNESS, INC.
INSURANCE COMPANY+++ CORPORATION +++++ CA 100% -------------------
---------------------+ -------------- ------------------- ++ IN 100%
AZ 100% Voting Chairman (2) + IA 100% ZAHORIK COMPANY INC+++ --------------
----------------------- + ------------------ --------------------++ SUPPLEMENTAL
IOWA FIDELITY LIFE +++ CADET HOLDING CORP + ++ INSURANCE
INSURANCE COMPANY + ------------------ AL 100% ++ DIVISION INC.
----------------------- + ---------- +++++++ --------------
OH 100% + ZCI, INC. ++ MI 100%
--------------------- --------- +++++++ ------------------
WESTERN RESERVE LIFE + +++++++++++++++++++++++++++++++++++++ CREDITOR RESOURCES
++++ ASSURANCE CO. OF OHIO+++ DE + ++ INC.
+ --------------------- --------------- + ++ ------------------
+ --------------- INTERSECURITIES+++++++++++++ ++ +
++++++++ WRL SERIES FUND ++++++ INC. +++++ + ++ CN 100%
INC. + --------------- + + ++ -------------------
--------------- + + + ++ CRC CREDITOR
MA + CA 100% + + MN 100% RESOURCES CANADIAN
--------- + ---------------- + + ------------------------ ++ DEALER NETWORK, INC.
IDEX FUND++++++ ISI INSURANCE + + AUSA INSTITUTIONAL ++++++++++ -------------------
--------- + AGENCY INC. AND+++++ + MARKETING PARTNERS, INC. ++
+ ITS SUBSIDIARIES + + ------------------------ ++ IA 100%
MA + ---------------- + + MN 100% ++ --------------------
----------- + MN 100% + + ---------------- ++++ AEGON USA INVEST-
IDEX II +++++++ ------------------- + + COLORADO ANNUITY+++++++++++++++ MENT MANAGEMENT, INC.
SERIES FUND + ASSOCIATED MARINER ++ + AGENCY INC. + ---------------------
----------- + FINANCIAL GROUP, INC.+++ + ---------------- + IA 100%(12)
MA + ------------------- + + + -----------------
----------- + MI 100% + +++++ AEGON USA REALTY
IDEX FUND 3 +++++ ----------------- + + ++++ ADVISORS, INC.
----------- + MARINER FINANCIAL+++++ + + -----------------
+ SERVICES, INC. + + + DE 100%
+ ----------------- + + + -----------
+ + + +++++++ QUANTRA
+ MI 100% + + + CORPORATION
+ ------------------ + + + -----------
+ MARINER'S PLANNING + + + +
+ CORPORATION + + + DE 100%
+ ------------------ + + + ----------------
+ + + + QUANTRA SOFTWARE
+ MI 100%(10) + + + CORPORATION
+ ------------------- + + + ----------------
+ ASSOCIATED MARINER + + + IA 100%
+ AGENCY INC. AND ITS++++ + + ---------------
+ SUBSIDIARIES + + ++++LANDAUER REALTY
+ ------------------- + + + ADVISORS, INC.
+ MI 100% + + + ---------------
+ ---------------- + + + DE 100%
+ MARINER MORTGAGE + + + ----------------
+ CORP. ++++++ + ++++++ LANDAUER
+ ---------------- + + ASSOCIATES, INC.
+ + + ----------------
+ FL 100% + + IA 100%
+ -------------- + + ----------------
+ IDEX INVESTOR +++++++++++++ ++++++ AEGON USA REALTY
+++++SERVICES, INC. + + MANAGEMENT, INC
+ -------------- + + ----------------
+ DE 50%(7) + + IA 100%(11)
+ --------------- + + ------------------
+ IDEX MANAGEMENT,+++++++++++ +++++ REALTY INFORMATION
++++ INC. SYSTEMS, INC.
--------------- ------------------
IA (4)
----------------
USP REAL ESTATE++++
INVESTMENT TRUST +
---------------- +
(5) +
----------------- +
CEDAR INCOME FUND+++
LTD.
-----------------
</TABLE>
See Footnotes Page 2
Effective January 1, 1997
Page 2
Footnotes
(1) 150,000 shares of Class B Non-Voting Common Stock owned by Ennia
Reinsurance Antilles N.V.
(2) Ordinary common stock is allowed 60% of total cumulative vote.
Participating common stock is allowed 40% of total cumulative vote.
(3) Denotes relationships as advisor, administrator, sponsor, underwriter or
general partner.
(4) First AUSA Life Insurance Company owns 12.89%. PFL Life Insurance Company
owns 13.11%. Bankers United Life Assurance Company owns 4.86%.
(5) PFL Life Insurance Company owns 16.73%. Bankers United Life Assurance
Company owns 3.77%. Life Investors Insurance Company of America owns
3.38%. AEGON USA Realty Advisors, Inc. owns 1.97%. First AUSA Life
Insurance Company owns .18%.
(6) Class B Common stock is allocated 75% of total cumulative vote. Class A
Common stock is allocated 25% of total cumulative vote.
(7) 50% of Idex Management, Inc. is owned by Janus Capital Corporation, a
Colorado corporation.
(8) RCC Group: FGH Realty Credit Corp., FGH USA, Inc., RCC North America,
Inc., FGH USA Realty, Inc., FGH Eastern Region, Inc., FGH Appraisal
Services, Inc., FGH Western Region, Inc., ALH Properties, Inc., First FGP,
Inc., Second FGP, Inc., Third FGP, Inc., Fourth FGP, Inc., Fifth FGP, Inc.,
Sixth FGP, Inc., Seventh FGP, Inc., FGP Midwood, Inc., FGP Parsippany,
Inc., ALH Properties Two, Inc., ALH Properties Three, Inc., ALH Properties
Four, Inc., ALH Properties Five, Inc., ALH Properties Six, Inc., ALH
Properties Seven, Inc., ALH Properties Eight, Inc., ALH Properties Nine,
Inc., ALH Properties Ten, Inc., ALH Properties Eleven, Inc., ALH Properties
Twelve, Inc., ALH Properties Thirteen, Inc., ALH Properties Fourteen, Inc.,
ALH Properties Fifteen, Inc., ALH Properties Sixteen, Inc., ALH Properties
Seventeen, Inc., FGP Keene, Inc., FGP Broadway, Inc., FGP West Street,
Inc., FGP West Street Two, Inc., FGP 90 West Street, Inc., FGP Branford,
Inc., FGP Franklin, Inc., FGP Bala, Inc., FGP Twenty-One, Inc., FGP Twenty-
Two, Inc., FGP Twenty-Five, Inc., FGP Schenectady, Inc., FGP Country
Estates, Inc., FGP Eleventh Street, Inc., FGP 109th Street, Inc., FGP
Seventy-Second Street, Inc., FGP Gaithersburg, Inc., FGP West 32nd Street,
Inc., FGP Beekman, Inc., Dutch Hotel Management, Inc., FGP Landmark, Inc.,
FGP Islandia, Inc., FGP Bridgeport, Inc., FGP Varick, Inc., The RCC Group,
Inc., FGP Union Gardens, Inc., FGP Burkewood, Inc., FGP Stamford, Inc., FGP
Meadow Lane, Inc., FGP Main Street, Inc., FGP Property Services, Inc., FGP
Merrick, Inc., FGP West 14th Street, Inc., FGP 106 Fulton, Inc., FGP Bush
Terminal, Inc., FGP Northern Boulevard, Inc., FGP Seventh Avenue, Inc., FGP
Parsons, Inc., FGP City Hall, Inc., FGP West 88th Street, Inc., FGP
Lincoln, Inc., FGP Emerson, Inc., FGP Brooke, Inc., FGP 86th Street, Inc.,
FGP Edison, Inc., FGP Rider Avenue, Inc., FGP Remsen, Inc., FGP Rockbeach,
Inc., FGP Carter Drive, Inc., FGP Centereach, Inc., FGP Colonial Plaza,
Inc., FGP Coram, Inc., FGP Herald Center, Inc., Eighty Six Yorkville, Inc.
(9) Subsidiaries of ISI Insurance Agency, Inc. are: ISI Insurance Agency of
Ohio, Inc., ISI Insurance Agency of Massachusetts, Inc., and ISI Insurance
Agency of Texas, Inc.
(10) Subsidiaries of Associated Mariner Agency, Inc. are Associated Mariner
Agency of Hawaii, Inc., Associated Mariner Insurance Agency of
Massachusetts, Inc., Associated Mariner Agency Ohio, Inc., Associated
Mariner Agency Texas, Inc., and Associated Mariner Agency New Mexico, Inc.
(11) Owns 50% interest in DJA Partners (a.k.a. "Teleres"), a Delaware general
partnership. Also owns 10% interest in Datalytics, Inc., an Ohio
corporation.
(12) Owns 49% of Quantra Consulting, Inc., a Delaware corporation.
AEGON USA, Inc. - Holding Company
Life Investors Insurance Company of America - Insurance
International Life Investors Insurance Company - Insurance
Transunion Casualty Company - Insurance
Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts
Supplemental Insurance Division, Inc. - Insurance
Creditor Resources, Inc. - Credit Insurance
AEGON USA Investment Management, Inc. - Investment Advisor
4
<PAGE>
AEGON USA Realty Advisors, Inc. - Provides real estate administrative
and real estate investment services
AEGON USA Realty Management, Inc. - Real Estate Management
AEGON USA Securities, Inc. - Broker-Dealer
AEGON USA Managed Portfolios, Inc. - Mutual Fund
USP Real Estate Investment Trust - Real Estate Investment Trust
Cedar Income Fund, Ltd. - Real Estate Investment Trust
First AUSA Life Insurance Company - Insurance
Bankers United Life Assurance Company - Insurance
Universal Benefits Corporation - Third party administrator
Massachusetts Fidelity Trust Company - Trust company
Money Services, Inc. - Provides financial counseling for employees and
agents of affiliated companies
Zahorik Company, Inc. - Broker-Dealer
Cadet Holding Corp. - Holding company
ISI Insurance Agency, Inc. - an insurance agency
Southwest Equity Life Insurance Company - Insurance
Iowa Fidelity Life Insurance Company - Insurance
The Whitestone Corporation - Insurance agency
Monumental Life Insurance Company - Insurance
United Financial Services, Inc. - General agency
5
<PAGE>
Monumental General Insurance Group, Inc. - Holding company
Monumental General Administrators, Inc. - Provides management services
to unaffiliated third party administrator
Executive Management and Consultant Services, Inc. - Provides
actuarial consulting services
Monumental General Mass Marketing, Inc. - Marketing arm for sale of
mass marketed insurance coverages
Bankers Financial Life Insurance Company - Insurance
Monumental General Casualty Company - Insurance
AUSA Holding Company - Holding company
JLW Financial Management Systems, Inc. - Management and Administrative
Services
ZCI, Inc. - Insurance agency
AUSA Financial Markets, Inc. - Marketing
CRC Creditor Resources Canadian Dealer Network Inc. - Insurance agency
American Forum For Fiscal Fitness, Inc. - Marketing
Western Reserve Life Assurance Co. of Ohio - Insurance
Landauer Realty Advisors, Inc. - Real estate counseling
Landauer Associates, Inc. - Real estate counseling
WRL Series Fund, Inc. - Mutual fund
Intersecurities, Inc. - Broker-dealer
Idex Investor Services, Inc. - Shareholder services
Idex Management, Inc. - Investment advisor
Idex Total Income Trust - Mutual fund
Idex Fund - Mutual fund
Idex II Series Fund - Mutual fund
Idex Fund 3 - Mutual fund
AUSA Life Insurance Company, Inc. - Insurance
6
<PAGE>
Diversified Investment Advisors, Inc. - Registered investment adviser
Diversified Investors Securities Corp. - Broker-dealer
Associated Mariner Financial Group, Inc. - Holding company management
services
Mariner Financial Services, Inc. - Broker/Dealer
Mariner/ISI Planning Corporation - Financial planning
Associated Mariner Agency, Inc. - Insurance agency
Mariner Mortgage Corp. - Mortgage origination
AUSA Institutional marketing Group, Inc. - Insurance agency
Colorado Annuity Agency, Inc. - Insurance agency
Realty Information Systems, Inc. - Information Systems for real estate
investment management
Melson and Associates, Inc. - Real estate financial management consulting
7
<PAGE>
Item 27. Number of Policyowners
As of December 31, 1996, there were 1,802 Owners of the Policies.
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 procedures 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.
8
<PAGE>
Item 29. Principal Underwriter
AEGON USA Securities, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
The directors and officers of AEGON USA Securities, Inc. are as follows:/5/
Patrick E. Falconio Lisa Wachendorf
Director Vice President
William L. Busier Linda Gilmer
Director Vice President and Treasurer
Brenda K. Clancy Donna M. Craft
Director Vice President
Robert A. Thelen Frank A. Camp
Senior Vice-President Secretary
Lorri E. Mehaffey Shelley Davenport
President Assistant Vice President
Billy J. Berger
Vice President and Assistant Treasurer
- ---------------------
/5/ The principal business address of each person listed is AEGON USA
Securities, Inc., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499.
9
<PAGE>
Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------
AEGON USA Securities, Inc. and/or the broker-dealers received $3,186,930 from
the Registrant during the last fiscal year for its services in distributing the
Policies. No other commission or compensation was received by the principal
underwriter, directly or indirectly, from the Registrant for distributing the
Policies during the fiscal year.
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.
Item 31. Management Services.
All management policies 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 Policy 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 policies, in the Aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by PFL Life Insurance Company.
Section 403(b) Representations
- ------------------------------
10
<PAGE>
PFL represents that it is relying on a no-action letter dated November 28,
1988, to the American Council of Life Insurance (Ref. No. IP-6-88),
regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act
of 1940, in connection with redeemability restrictions on Section 403(b)
Policies, and that paragraphs numbered (1) through (4) of that letter will
be complied with.
Statement Pursuant to Rule 6c-7: Texas Optional Retirement Program
- -------------------------------------------------------------------
PFL and the Mutual Fund Account rely on 17 C.F.R. Sec. 270.6c-7, and
represent that the provisions of that Rule have been or will be complied
with.
11
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 28th day of April, 1997.
PFL ENDEAVOR VA SEPARATE
ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler
----------------------------
William L. Busler
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/ Patrick S. Baird
- ----------------------- Director April 28, 1997
Patrick S. Baird
/s/ Craig D. Vermie
- ----------------------- Director April 28, 1997
Craig D. Vermie
/s/ William L. Busler
- ----------------------- Director April 28, 1997
William L. Busler (Principal Executive Officer)
/s/ Patrick E. Falconio
- ----------------------- Director April 28, 1997
Patrick E. Falconio
/s/ Douglas C. Kolsrud
- ----------------------- Director April 28, 1997
Douglas C. Kolsrud
/s/ Robert J. Kontz
- ----------------------- Vice President and April 28, 1997
Robert J. Kontz Corporate Controller
/s/ Brenda K. Clancy Treasurer April 28, 1997
- -----------------------
Brenda K. Clancy
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.*
------- ---------------------- ----
<S> <C> <C>
(4)(d) Form of Policy for the Endeaver
Platinum Variable Annuity
(4)(e) Form of Policy Endorsement.
(Nursing Care)
(5) Form of Application
(8) (f) Amendment to Participation Agreement
by and between PFL Life Insurance
Company and Endeavor Series Trust.
(10)(a) Consent of Independent Auditors
(10)(b) Opinion and Consent of Actuary
(14) Powers of Attorney
</TABLE>
_________________________________________________________
*Page numbers included only in manually executed original.
<PAGE>
REGISTRATION NO.
33-56908
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT
_______________
<PAGE>
EXHIBIT (4)(d)
--------------
FORM OF POLICY FOR THE
ENDEAVOR PLATINUM VARIABLE ANNUITY
<PAGE>
PFL LIFE INSURANCE COMPANY
PFL A Stock Company
L I F E Home Office located at 4333 Edgewood Road NE.,
Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
ANNUITANT: JOHN DOE
OWNER(S): JOHN DOE
POLICY NUMBER: 7 -0123
POLICY DATE: December 15, 1996
WE AGREE
*To provide annuity payments as set forth in this policy;
*Or to pay withdrawal benefits in accordance with Section 5 of this policy;
*Or to pay death proceeds in accordance with Section 9 of this policy.
Withdrawals may be subject to an Excess Interest Adjustment reflecting changes
in interest rates in accordance with Section 5 of this policy.
These agreements are subject to the provisions of this policy. This policy is
issued in consideration of any application and payment of the initial premium
This policy may be applied for and issued to qualify as a tax-qualified annuity
under the applicable sections of the Internal Revenue Code.
/s/ Craig D. Vermie
SECRETARY
20 DAY RIGHT TO CANCEL
You may cancel this policy by delivering or mailing a written notice or sending
a telegram to us. You must return the policy before midnight of the twentieth
day after the day you receive it. Notice given by mail and return of the policy
by mail are effective on being postmarked, properly addressed and postage
prepaid. We will pay you an amount equal to the sum of:
* the premiums paid; and
* the accumulated gains or losses, if any, in the Separate Account
on the date of cancellation;
unless otherwise required by law.
/s/ William L. Busler
PRESIDENT
This policy is a legal contract between the policyowner and the company.
READ YOUR POLICY CAREFULLY
FLEXIBLE PREMIUM VARIABLE ANNUITY
INCOME PAYABLE AT ANNUITY COMMENCEMENT DATE
BENEFITS BASED ON THE PERFORMANCE OF THE SEPARATE ACCOUNT
ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT (SEE SECTIONS 6 AND 10C)
NON-PARTICIPATING
AV339 101 101 497
<PAGE>
SECTION 1
DEFINITIONS
ANNUITANT
The person to whom annuity payments will be made, unless another payee is named.
ANNUITY COMMENCEMENT DATE
Date the annuitant will begin receiving payments from this policy, which may not
be later than the last day of the policy month starting after the Annuitant
attains age 85, except as expressly allowed by us, but in no event later than
the last day of the month following the month in which the Annuitant attains age
95.
ADJUSTED POLICY VALUE
Amount, defined in Section 4, that can be used to fund one of the Payment
Options.
CASH VALUE
Amount, defined in Section 5, that can be withdrawn if the annuity is
surrendered.
DISTRIBUTION
A withdrawal or disbursement of funds from the Policy Value or Cash Value.
PAYEE
The person to whom annuity payments will be made.
PAYMENT OPTIONS
Options through which the distribution of the Adjusted Policy Value can be
directed.
POLICY ANNIVERSARY
The anniversary of the Policy Date for each year the policy remains in force.
POLICY DATE
The date shown on page 3 of this policy and the date on which this policy
becomes effective.
POLICY YEAR
The 12 month periods following the Policy Date shown on the Policy Data page.
The first Policy Year starts on the Policy Date. Each subsequent year starts on
the anniversary of the Policy Date.
SUBACCOUNT
A division of the Separate Account, as described in Section 6.
SURRENDER
A partial or full withdrawal of funds from the Policy Value or Cash Value.
WITHDRAWAL
A distribution of funds from the Policy Value or Cash Value.
YIELD
The effective annual interest rate applicable to the Fixed Account.
YOU, YOUR
The owner of this policy. Unless otherwise specified on the Policy Data page,
the annuitant and the owner shall be one and the same PERSON.
AVB339 PAGE 2
<PAGE>
SECTION 2 - POLICY DATA
POLICY NUMBER: ANNUITANT:
INITIAL PREMIUM
PAYMENT: ISSUE AGE/SEX:
POLICY DATE: OWNER(S):
ANNUITY
COMMENCEMENT DEATH BENEFIT
DATE: OPTION:
Distribution Financing Charge: .25% (deducted during the first 10 policy
years only)
Death Benefit Option A or B -
Mortality and Expense Risk Fee and Administrative Charge: 1.40%
Death Benefit Option C -
Mortality and Expense Risk Fee and Administrative Charge: 1.25%
AV339 101 101 497 SP PAGE 3
<PAGE>
SECTION 3 - PREMIUM PAYMENTS
PAYMENT OF PREMIUMS
Premium payments may be made any time while this policy is in force before the
Annuity Commencement Date. You may start or stop, increase or decrease, or skip
any premium payments.
MAXIMUM AND MINIMUM PREMIUM PAYMENT
The premium payments may not be more than the amount permitted by law if this is
a tax-qualified annuity. The minimum initial premium payment is $5,000. If
this policy is being used as a tax-qualified annuity, the minimum initial
premium is $1,000, except that no minimum initial premium payment will be
required for 403(b) annuities. The minimum subsequent premium payment we will
accept is $50. The maximum total premium payments which we will accept without
prior Company approval is $1,000,000.
PREMIUM PAYMENT DATE
The premium payment date is the date on which the premium payment is credited to
the policy. The initial premium payment less any applicable premium taxes will
be credited to the policy within two business days of receipt of the premium
payment and the information needed. Subsequent additional premium payments will
be credited to the policy as of the business day when the premium payment and
required information are received. A business day is any day on which the New
York Stock Exchange is open for trading.
ALLOCATION OF PREMIUM PAYMENTS
Premium payments may be applied to various Guaranteed Period Options of the
Fixed Account and/or to one or more of the Subaccounts which we make available.
You must indicate what percent of each premium payment to allocate to various
Guaranteed Period Options of the Fixed Account, the Dollar Cost Averaging Option
of the Fixed Account and/or among one or more of the Subaccounts. Each percent
may be either zero or any whole number, however, the allocation among all
accounts must total 100%.
CHANGE OF ALLOCATION
You may change the allocation of premium payments to various Guaranteed Period
Options of the Fixed Account and/or among the Subaccounts. You must tell us in
a notice you sign which gives us the facts that we need. Premium payments
received after the date on which we receive your notice will be applied on the
basis of the new allocation.
PREMIUM TAXES
Your state may impose a premium tax. It may be imposed either when a premium
payment is made, on the Annuity Commencement Date, on the date of death, or on
the date of full surrender. When permitted by state law, we will not deduct the
tax until the Annuity Commencement Date, date of death, or date of full
surrender.
SECTION 4 - POLICY VALUE
POLICY VALUE
On or before the Annuity Commencement Date, the Policy Value is equal to your:
(a) premium payments; minus
(b) partial withdrawals; plus
(c) interest credited in the Fixed Account; plus
(d) accumulated gains or losses in the Separate Account; minus
(e) service charges, premium taxes and transfer fees, if any.
ADJUSTED POLICY VALUE
The Adjusted Policy Value is the Policy Value increased or decreased by any
Excess Interest Adjustment
You may use the Adjusted Policy Value on the Annuity Commencement Date to
provide lifetime income or income for a period of no less than 60 months under
the Payment Options in Section 10.
SERVICE CHARGE
On each Policy Anniversary and at the time of surrender during any Policy Year
before the Annuity Commencement Date, we reserve the right to charge up to $35
for policy administration expenses. It will be deducted from each Subaccount,
Guaranteed Period Option (GPO) and/or Dollar Cost Averaging (DCA) Fixed Account
Option in proportion to the portion of Policy Value (prior to such charge) in
each Subaccount, GPO or DCA on the Policy Anniversary. In no event will the
Service Charge exceed 2% of the Policy Value on the Policy Anniversary or at the
time of surrender.
The Service Charge will not be deducted on a Policy Anniversary or at the time
of surrender if either (1) or (2) equals or exceeds $50,000 on the Policy
Anniversary or at the time of surrender where (1) equals the sum of all premium
payments made less the sum of all withdrawals taken and (2) equals the Policy
Value.
M783 PAGE 4
<PAGE>
SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS
CASH VALUE
The Cash Value may be partially withdrawn or will be paid in the event of a full
surrender of the policy. We must receive your written withdrawal or surrender
request before the Annuity Commencement Date.
The current amount of your policy's Cash Value is available upon request. On or
before the Annuity Commencement Date, the Cash Value is equal to the Adjusted
Policy Value. Upon full Surrender, the Owner will always receive at least the
premium payments applied to the Fixed Account, less prior partial withdrawals
and transfers from, the Fixed Account plus interest at the effective annual
interest rate of 3%. There is no Cash Value after annuity payments have
commenced.
EXCESS INTEREST ADJUSTMENT
Full Surrenders, Partial Withdrawals, transfers and amounts applied to a Payment
Option (prior to the end of any Guaranteed Period) from the Fixed Account
Guaranteed Period Options described in Section 7, will be subject to an Excess
Interest Adjustment (EIA) except as provided for in the Partial Withdrawals
provision below.
Excess Interest Adjustment = S x (G-C) x (M/12)
where: S is the gross (i.e. before premium taxes, if any) amount being
surrendered, withdrawn, transferred or applied to a Payment Option that
is subject to the Excess Interest Adjustment.
G is the guaranteed interest rate applicable to S.
C is the 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 is the number of months remaining in the Guaranteed Period for S,
rounded up to the next higher whole number of months.
Upon transfer from any Guaranteed Period or partial or full surrender, the
Excess Interest Adjustment (EIA) for each Guaranteed Period Option will not
reduce the Adjusted Policy Value for that Guaranteed Period Option below the
amount paid into, less any prior withdrawals and transfers from that Guaranteed
Period Option, plus interest at the 3% guaranteed effective annual interest
rate.
PARTIAL WITHDRAWALS
You may withdraw all or any portion of the Cash Value provided we receive your
written request while the policy is in effect and before the Annuity
Commencement Date. When you request a Partial Withdrawal you must tell us how
it is to be allocated among the various Guaranteed Period Options of the Fixed
Account and/or the Subaccounts. If your request for a Partial Withdrawal from
any Guaranteed Period Option of the Fixed Account and/or a Subaccount is greater
than the Cash Value in that account, we will pay you the Cash Value of that
account
Partial Withdrawals may be made free of Excess Interest Adjustment in three
different ways:
1. LUMP SUM
After the first Policy Year, amounts ($500 minimum) up to 10% of the Policy
Value at the time of withdrawal are available as a lump sum distribution
once per Policy Year with no Excess Interest Adjustment.
2. SYSTEMATIC PAYOUT OPTION
During any Policy Year, including the first, a Systematic Payout Option
(SPO) is available on a monthly, quarterly, semi-annual or annual basis.
SPO payouts must be at least $50 and may not exceed 10% of the Policy Value
at the time a SPO payout is made divided by the number of payouts made per
year (e.g. 12 for monthly). No Excess Interest Adjustment will apply to
the SPO payout. Monthly and quarterly payouts must be sent through
electronic funds transfer directly to your checking or savings account.
You may start or stop SPO payouts at any time; however, 30 days written
notice is required to stop SPO payouts.
Once you have elected a SPO, you must wait a minimum time before the first
SPO payment: one month for a monthly SPO, three months for quarterly, six
months for semi-annual, or twelve months for annual.
U783 PAGE 5
<PAGE>
SECTION 5 - CONT
3. MINIMUM REQUIRED DISTRIBUTION
For tax-qualified plans, Partial Withdrawals taken to satisfy minimum
distribution requirements under Section 401(a)(9) of the Internal Revenue
Code (IRC) are available with no EIA. The amount available from this
policy with respect to the minimum distribution requirement is based solely
on this policy.
The owner must be at least 70 1/2 years old in the calendar year of
distribution, must submit a written request to us and must take the
distribution before year end. If the owner attains age 70 1/2 in the
calendar year of distribution, a written request which is postmarked no
later than the end of the current calendar year must be submitted to us.
Systematic minimum distributions must be at least $50 or a lump sum
distribution is available if minimum required distributions are less than
$50.
Any amount requested in excess of the IRC minimum required distribution
will have the appropriate EIA applied, unless the excess distribution
qualifies as EIA-free under 1. or 2. above.
Surrender Charge-free / EIA-free withdrawals will reduce the Policy Value by the
amounts withdrawn.
Excess Partial Withdrawals are withdrawal amounts in excess of the EIA-free
portion. Excess Partial Withdrawals will reduce the Policy Value by an amount
equal to (X-Y) where:
X = Excess Partial Withdrawal
Y = Excess Interest Adjustment = (X) x (G-C) x (M/12) where G, C and M are
defined in the Excess Interest Adjustment provision above.
Thus, each Partial Withdrawal request may consist of a portion that is free from
Excess Interest Adjustments, and a portion that is subject to those charges and
adjustments.
However, the total amount deducted from the Policy Value as a result of each
Partial Withdrawal is an amount equal to the withdrawal plus (X-Y), as defined
above. (X-Y) represents the amount deducted from the Policy Value due to Excess
Partial Withdrawal, including the effect of any Excess Interest Adjustment. The
total amount deducted from the Policy Value may be more or less than the actual
amount you receive (i.e., your requested Partial Withdrawal) depending on
whether an Excess Interest Adjustment(s) is applicable at the time you request a
Partial Withdrawal.
If any Partial Withdrawal reduces the Cash Value below $500, we reserve the
right to pay the full Cash Value and terminate this policy.
We may delay payment of the Cash Value from the Fixed Account for up to 6 months
after we receive your request. If the Owner dies after the request is received,
but before the request is processed, the request will be processed before the
death proceeds are determined.
GUARANTEED RETURN OF FIXED ACCOUNT PREMIUM PAYMENTS
Upon full surrender of the policy, you will always receive at least the premium
payments made to, less prior withdrawals and transfers from, the Fixed Account.
MINIMUM VALUES
Benefits available under this policy are not less than those required by any
statute of the state in which the policy is delivered.
P918 PAGE 6
<PAGE>
SECTION 6 - SEPARATE ACCOUNT
SEPARATE ACCOUNT
We have established and will maintain a Separate Account under the laws of the
state of Iowa. Any realized or unrealized income, net gains and losses from the
assets of the Separate Account are credited to or charged against it without
regard to our other income, gains or losses. Assets are put in the Separate
Account for this policy, as well as for other variable life insurance and
annuity policies. The Separate Account may invest assets in shares of one or
more mutual funds. Fund shares are purchased, redeemed and valued on behalf of
the Separate Account.
The Separate Account is divided into Subaccounts. Each Subaccount invests
exclusively in shares of one of the portfolios of an underlying fund. We
reserve the right to add or remove any Subaccount of the Separate Account.
The assets of the Separate Account are our property. These assets will equal or
exceed the reserves and other contract liabilities of the Separate Account.
These assets will not be chargeable with liabilities arising out of any other
business we conduct. We reserve the right to transfer assets of a Subaccount,
in excess of the reserves and other contract liabilities with respect to that
Subaccount, to another Subaccount or to our General Account.
We will determine the fair market value of the assets of the Separate Account in
accordance with a method of valuation which we establish in good faith.
Valuation Period means the period of time from one determination of the value of
each Subaccount to the next. Such determinations are made when the value of the
assets and liabilities of each Subaccount is calculated. This is generally each
day on which the New York Stock Exchange is open.
We also reserve the right to transfer assets of the Separate Account, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account. If this type of transfer is made, the
term "Separate Account", as used in this policy, shall then mean the separate
account to which the assets were transferred.
We also reserve the right, when permitted by law, to:
(a) deregister the Separate Account under the Investment Company Act of 1940;
(b) manage the Separate Account under the direction of a committee at any time;
(c) restrict or eliminate any voting rights of policyowners or other persons who
have voting rights as to the Separate Account; and
(d) combine the Separate Account with one or more other separate accounts;
(e) create new Separate Accounts;
(f) add new Subaccounts to or remove existing Subaccounts from the Separate
Account, or combine Subaccounts;
(g) add new underlying mutual funds, remove existing mutual funds, or
substitute a new fund for an existing fund.
CHANGE IN INVESTMENT OBJECTIVE OR POLICY OF A MUTUAL FUND
If required by law or regulation, an investment policy of the Separate Account
will only be changed if approved by the appropriate insurance official of the
state of Iowa or deemed approved in accordance with such law or regulation. If
so required, the process for obtaining such approval is filed with the insurance
official of the state or district in which this policy is delivered.
CHARGES AND DEDUCTIONS
The Mortality and Expense Risk Fee and the Administrative Charge are each
deducted during the accumulation phase and during the annuitization phase to
compensate for increased mortality and expenses not anticipated by the mortality
and maintenance charges guaranteed in the contract.
The Service Charge is deducted during the accumulation phase only. In addition,
a Distribution Financing Charge is deducted (during the first ten policy years
of the accumulation phase only) to compensate for costs of distributing the
policy.
If the Mortality and Expense Risk Fee(s) and/or Distribution Financing Charge(s)
are more than sufficient, the Company will retain the balance as profit.
ACCUMULATION UNITS
The Policy Value in the Separate Account before the Annuity Commencement Date is
represented by accumulation units. The dollar value of accumulation units for
each Subaccount may change from day to day reflecting the investment experience
of the Subaccount.
Premium payments allocated to and any amounts transferred to the Subaccounts
will be applied to provide accumulation units in those Subaccounts. The number
of accumulation units purchased in a Subaccount will be determined by dividing
the premium payment allocated to or any amount transferred to that Subaccount,
by the value of an accumulation unit for that Subaccount on the premium payment
or transfer date.
The number of accumulation units withdrawn or transferred from the Subaccounts
will be determined by dividing the amount withdrawn or transferred by the value
of an accumulation unit for that Subaccount on the withdrawal or transfer date.
PB918 PAGE 7
<PAGE>
SECTION 6 - SEPARATE ACCOUNT - CONT
The value of an accumulation unit on any business day is determined by
multiplying the value of that unit at the end of the immediately preceding
valuation period by the net investment factor for the valuation period.
The net investment factor used to calculate the value of an accumulation unit in
each Subaccount for the Valuation Period is determined by dividing (a) by (b)
and subtracting (c) from the result, where:
(a) is the result of:
(1) the net asset value of a fund share held in that Subaccount determined
as of 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 we
determine to have resulted from the investment operations of that
Subaccount.
(b) is the net asset value of a fund share held in that Subaccount determined as
of the end of the immediately preceding valuation period.
(c) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge and Distribution Financing Charge. This factor is
less than or equal to, on an annual basis, the sum of the percentages shown
on page 3 of the daily net asset value of a fund share held in that
Subaccount.
Since the net investment factor may be greater or less than one, the
accumulation unit value may increase or decrease.
SECTION 7 - FIXED ACCOUNT
FIXED ACCOUNT
Premium payments applied to and any amounts transferred to the Fixed Account
will reflect a fixed interest rate. The interest rates we set will be credited
for increments of at least one year measured from each premium payment or
transfer date. These rates will never be less than an effective annual interest
rate of 3%.
GUARANTEED PERIODS
We may offer optional Guaranteed Periods, i.e. Guaranteed Period Option(s), into
which premium payments may be paid or amounts transferred. The current interest
rate we set for funds entering each Guaranteed Period Option (GPO) is guaranteed
until the end of that option's Guaranteed Period. At that time, the premium
payment made or amount transferred into the GPO less any withdrawals or
transfers from that GPO, plus interest, will be rolled into a new GPO or may be
transferred to any Subaccount(s) within the Separate Account.
You may choose the GPO(S) or Subaccount(s) you want the funds rolled into by
giving us notice within 30 days before the end of the expiring option's
Guaranteed Period. However, any Guaranteed Period elected may not extend beyond
the maximum Annuity Commencement Date defined in Section 11. In the absence of
such election, the funds will be rolled into a new GPO which is the same as the
expiring GPO unless that GPO is no longer offered, in which case, the next
shorter GPO offered will be used. We reserve the right for new premium
payments, transfers, or rollovers to offer or not to offer any GPO, except that
we will always offer at least a one year GPO.
For purposes of crediting interest when funds are withdrawn from or transferred
into a Guaranteed Period Option, the amount of the oldest premium payment or
rollover into that Guaranteed Period Option is considered to be withdrawn first.
If the amount withdrawn exceeds this amount, the next oldest premium payment or
rollover is considered to be withdrawn next, and so on until the most recent
premium payment or rollover is considered to be withdrawn (this is a "First-in,
First-Out' or FIFO procedure). Premium payment(s) or rollover(s) are deemed to
be withdrawn first, then interest credited.
Partial withdrawals, full Surrenders and transfers from a Guaranteed Period
Option which occur prior to the end of that option's Guaranteed Period are
subject to an Excess Interest Adjustment, as described in Section 5.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
We may offer a Dollar Cost Averaging (DCA) Fixed Account Option separate from
the Guaranteed Period Options (GPO's). This option will have a one year
interest rate guarantee. The current interest rate we set for the DCA Fixed
Account may differ from the rates credited on other GPO(S) in the Fixed Account
In addition, the rate we credit may differ on the portion of the DCA Fixed
Account that is currently making transfers than on the portion of the DCA Fixed
Account which is not making transfers. The credited interest rate will never be
less than the minimum effective annual interest rate of 3%. The DCA Fixed
Account Option will only be available under a Dollar Cost Averaging program as
described in Section 8.
V945 PAGE 8
<PAGE>
SECTION 8 - TRANSFERS
A. TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE
Prior to the Annuity Commencement Date, you may transfer the value of the
accumulation units from one Subaccount to another within the Separate Account or
to any Guaranteed Period Option (GPO) of the Fixed Account, or from the
Guaranteed Periods of the Fixed Account to the Separate Account. If you want to
transfer, you must tell us in a notice you sign or through an electronic notice
which gives us the facts that we need.
You may choose which Guaranteed Period to transfer to or from, however, any
Guaranteed Period elected may not extend beyond the maximum Annuity Commencement
Date defined in Section 11. Transfers from a Guaranteed Period prior to the end
of that Guaranteed Period are subject to the Excess Interest Adjustment
described in Section 5. If the Excess Interest Adjustment at the time of a
transfer request from any Guaranteed Period is a negative adjustment, then the
maximum amount that can be transferred is 25% of that Guaranteed Period's Policy
Value, less amounts previously transferred out of that Guaranteed Period during
the current policy year. No maximum will apply to amounts transferred from any
Guaranteed Period if the Excess Interest Adjustment is a positive adjustment at
the time of transfer. We may, at our discretion, offer you the option to
transfer an amount equal to the interest credited in the Guaranteed Period
Options to any Subaccount(s) of the Separate Account on a "FIRST-IN, FIRST-OUT"
BASIS. EACH TRANSFER WILL BE SUBJECT TO A MINIMUM AMOUNT OF $50. NO EXCESS
INTEREST ADJUSTMENT WILL APPLY TO SUCH TRANSFERS OF INTEREST
No transfers will be allowed out of the Dollar Cost Averaging Fixed Account
Option except through dollar cost averaging.
The minimum amount which may be transferred is the lesser of $500 or the entire
Subaccount or Guaranteed Period Option value(s). However, if the remaining
Subaccount or Guaranteed Period Option value(s) is less than $500, we have the
right to include that amount as part of the transfer.
We reserve the right to limit transfers to no more than 12 in any one policy
year. Any transfers in excess of 12 per policy year may be charged a $10 fee
per transfer.
DOLLAR COST AVERAGING OPTION
Prior to the Annuity Commencement Date, you may instruct us to automatically
transfer a specified amount from the Money Market Subaccount, the Dollar Cost
Averaging (DCA) Fixed Account Option, or the U.S. Government Securities
Subaccount to any other Subaccount(s) of the Separate Account. The automatic
transfers can occur monthly or quarterly. If the Dollar Cost Averaging request
is received prior to the 28th day of any month, the first transfer will occur on
the 28th day of that month. If the Dollar Cost Averaging request is received on
or after the 28th day of any month, the first transfer will occur on the 28th
day of the following month.
Prior to the Annuity Commencement Date, no transfers (except through Dollar Cost
Averaging) will be allowed from the DCA Fixed Account.
Transfers will continue until the elected Subaccount or DCA Fixed Account value
is depleted. The amount transferred each time must be at least $500. No
changes to the amount transferred will be allowed but changes can be made to the
Subaccounts to which these transfers are allocated. Transfers must be scheduled
for at least 6, but not more than 24 months or for at least 4, but not more than
8 quarters each time the Dollar Cost Averaging program is started or restarted
following termination of the program for any reason. Dollar Cost Averaging
transfers from the elected Subaccount or DCA Fixed Account will not be subject
to an Excess Interest Adjustment.
You may discontinue Dollar Cost Averaging after satisfying the minimum number of
required transfers by sending written notice to us.
ASSET REBALANCING
Prior to the Annuity Commencement Date, you may instruct us to automatically
transfer amounts among the Subaccounts of the Separate Account on a regular
basis to maintain a desired allocation of the Policy Value among the various
Subaccounts offered. Rebalancing will occur on a monthly, quarterly, semi-
annual or annual basis, beginning on a date you select. You must select the
percentage of the Policy Value you desire in each of the various Subaccounts
offered (totaling 100%). Any amounts in the Fixed Account are ignored for the
purposes of asset rebalancing. Rebalancing can be started, stopped or changed
at any time, except that rebalancing will not be available when:
1) Dollar Cost Averaging is in effect, or
2) any other transfer is requested.
B. TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, you may transfer the value of the variable
annuity units from one Subaccount to another within the Separate Account or to
the Guaranteed Period Options of the Fixed Account. If you want to transfer the
value of the variable annuity units, you must tell us in a notice you sign or
through an electronic notice which gives us the facts that we need.
The minimum amount which may be transferred is the lesser of $10 monthly income
or the entire monthly income of the variable annuity units in the Subaccount
from which the transfer is being made. If the monthly income of the remaining
units in a Subaccount is less than $10, we have the right to include the value
of those variable annuity units as part of the transfer.
After the Annuity Commencement Date, no transfers may be made from the Fixed
Account to the Separate Account.
We reserve the right to limit transfers between the Subaccounts or to the Fixed
Account to once per Policy Year except under the Dollar Cost Averaging Option.
VB945 PAGE 9
<PAGE>
SECTION 9 - DEATH PROCEEDS
A. DEATH PROCEEDS PRIOR TO ANNUITY COMMENCEMENT DATE
The amount of death proceeds will be the greatest of (a), (b) or (c) where:
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an election
of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional premium
payments received, less any withdrawals from the date of death to the date
of payment of death proceeds.
If you have not selected a payment option by the date of death, the beneficiary
may make such election within one year of the date we receive due proof of the
Owner's or Annuitant's death as described in C. below. The beneficiary may
elect to receive the death proceeds as a lump sum payment or may use the death
proceeds to provide any of the annuity payment options described in Section 10.
Interest on death proceeds will be paid as required by law..
B. GUARANTEED MINIMUM DEATH BENEFIT
The amount of the Guaranteed Minimum Death Benefit (GMDB) depends on the option
shown on page 3. You may not change the GMDB option after the policy is issued.
Option A: 5% Annually Compounding Death Benefit
The GMDB is equal to the total premiums paid for this policy, less any
partial withdrawals, accumulated at 5% interest per annum from the payment
or withdrawal date to the date of death.
Option B: Annual Step-Up Death Benefit
The GMDB is equal to the largest Policy Value on the issue date or on any
Policy Anniversary prior to the earlier of the date of death or prior to the
owner's 81st birthday plus any premiums paid, less any partial withdrawals
taken, subsequent to the date of the largest anniversary Policy Value.
Option C: Return of Premium Death Benefit
The GMDB is equal to the total premiums paid for this policy, less any
partial withdrawals, as of the date of death.
The total amount deducted from the GMDB as a result of a Partial Withdrawal as
used in each the above GMDB definitions, is the sum of (1) and (2) where:
(1) = The Excess Interest Adjustment-free withdrawal, as described in Section 5
(Partial Withdrawals), and
(2) = (X-Y) as defined in Section 5, times (a) divided by (b) where:
(a) = death proceeds prior to the Partial Withdrawal, less the EIA-
free portion of the Partial Withdrawal.
(b) = Policy Value prior to the Partial Withdrawal, less the EIA-free
portion of the Partial Withdrawal.
(X-Y) represents the amount deducted from the Policy Value due to the
Excess Partial Withdrawal, including the effect of any Excess Interest
Adjustment.
C. DEATH PRIOR TO ANNUITY COMMENCEMENT DATE
Death proceeds are payable contingent upon the relationships between the owner,
annuitant, successor owner and beneficiary as outlined below. The policy must
be surrendered upon settlement or on proof of death.
1. Annuitant and owner are the same.
When we have due proof that the owner died before the Annuity Commencement
Date, we will provide the death proceeds to the beneficiary.
a) Beneficiary is the deceased owner's surviving spouse. The beneficiary
may elect to continue this policy rather than receiving the death
proceeds. If the policy is continued, an amount equal to the excess,
if any, of the Guaranteed Minimum Death Benefit over the Policy Value
will then be added to the Policy Value. This amount will be added only
once, at the time of such election.
If this beneficiary elects to have the death proceeds paid, the death
proceeds must be distributed:
(1) by the end of 5 years after the date of the deceased owner's
death, or
(2) payments must begin no later than one year after the deceased
owner's death and must be made for a period certain or for this
beneficiary's lifetime, so long as any period certain does not exceed
this beneficiary's life expectancy.
S897 PAGE 10
<PAGE>
SECTION 9 - CONT
b) Beneficiary is not the deceased owner's surviving spouse. The death
proceeds must be distributed as provided in I.a)(1) or I.a)(2) above.
c) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
deceased owner's death.
II. Annuitant and owner are different and the annuitant dies.
When we have due proof that the annuitant died prior to the Annuity
Commencement Date, the owner will become the new annuitant and no death
proceeds are payable. If the owner is also the deceased annuitant's
surviving spouse, an amount equal to the excess, if any, of the Guaranteed
Minimum Death Benefit over the Policy Value will then be added to the
Policy Value. This amount will be added only once.
However, the owner may elect to have the death proceeds paid upon the
annuitants death if the election is made prior to the annuitant's death and
we agree to such an election. In such case, when we have due proof that the
annuitant died prior to the Annuity Commencement Date, we will provide the
death proceeds to the beneficiary.
a) If the owner has elected to have the death proceeds paid as a lump
sum, the beneficiary must, within 60 days of our receipt of due proof
of the annuitant's death, either:
1) receive the lump sum proceeds; or
2) elect to receive annuity payments. Such payments must begin within
one year of our receipt of due proof of the annuitant's death and
must be made for a period certain or for this beneficiary's
lifetime, so long as any period certain does not exceed this
beneficiary's life expectancy.
c) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
annuitant's death.
III. Annuitant and owner are different and the owner dies.
If the owner dies prior to the Annuity Commencement Date and before the
entire interest in the policy is distributed, the successor owner will
become the new owner. The remaining portion of any interest in the policy
must be distributed to the extent provided below in III.a), III.b),
III.c), or III.d).
a) Successor owner is the deceased owner's surviving spouse. The
successor owner may elect to continue this policy rather than receive
the Adjusted Policy Value. If the successor owner elects to receive
the Adjusted Policy Value, the Adjusted Policy Value must be
distributed:
(1) by the end of 5 years after the date of the deceased owner's
death, or
(2) payments must begin no later than one year after the deceased
owner's death and must be made for a period certain or for the
successor owner's lifetime, so long as any period certain does not
exceed the successor owner's life expectancy.
b) Successor owner is not the deceased owner's surviving spouse. The
Adjusted Policy Value must be distributed as provided in III.a)(1) or
III.a)(2) above.
c) Successor owner is not a natural person. The Adjusted Policy Value
must be distributed as provided in III.a)(1) above.
d) No successor owner survives the deceased owner. The deceased owner's
estate will become the new owner (or the estate may name a new owner).
The executor or Administrator must be named in a form acceptable to
us. The Adjusted Policy Value must be distributed by the end of 5
years after the date of the deceased owner's death.
IV. More than one Owner.
If there is more than one owner, then the death of any owner will be
treated the same as the death of the owner.
D. DEATH ON OR AFTER THE ANNUITY COMMENCEMENT DATE
The death proceeds on or after the Annuity Commencement Date depend on the
payment option selected. If any owner dies on or after the Annuity Commencement
Date, but before the entire interest in the policy is distributed, the remaining
portion of such interest in the policy will be distributed to the beneficiary at
least as rapidly as under the method of distribution being used as of the date
of that owner's death.
E. AN OWNER IS NOT AN INDIVIDUAL
In the case of a non tax-qualified annuity, if any owner or beneficial owner, is
not an individual, then for purposes of the federal income tax mandatory
distribution provisions in subsection C or D above, (1) the primary annuitant
will be treated as the owner of the policy, and (2) if there is any change in
the primary annuitant, such a change will be treated as the death of the owner.
SB897 PAGE 11
<PAGE>
SECTION 10 - ANNUITY PAYMENTS
A. GENERAL PAYMENT PROVISIONS
PAYMENT
If this policy is in force on the Annuity Commencement Date, we will use the
Fixed Account portion and/or the Separate Account portion of the Adjusted Policy
Value to make annuity payments to the Payee under Option 3 and/or 3-V,
respectively, with 1 0 years certain, or if elected, under one or more of the
other options described in this section. However, the option(s) elected must
provide for lifetime income or income for a period of at least 60 MONTHS. YOU
WILL BECOME THE ANNUITANT AT THE ANNUITY COMMENCEMENT DATE. PAYMENTS WILL BE
MADE AT 1, 3, 6 OR 12 MONTH INTERVALS. WE RESERVE THE RIGHT TO CHANGE THE
FREQUENCY OF PAYMENTS TO AVOID MAKING PAYMENTS OF LESS THAN $50.00.
Before the Annuity Commencement Date, if the death proceeds become payable or if
you surrender this policy, we will pay any proceeds in one sum, or if elected,
all or part of these proceeds may be placed under one or more of the options
described in this section. If we agree, the proceeds may be placed under some
other method of payment instead.
ELECTION OF OPTIONAL METHOD OF PAYMENT
Before the Annuity Commencement Date you can elect or change a payment option.
You may elect, in a notice you sign which gives us the facts that we need,
annuity payments that may be either variable, fixed, or a combination of both.
If you elect a combination, you must also tell us what part of the policy
proceeds on the Annuity Commencement Date are to be applied to provide each type
of payment. (You must also specify which Subaccounts.) The amount of a combined
payment will be the sum of the variable and fixed payments. Payments under a
variable payment option will reflect the investment performance of the selected
Subaccount of the Separate Account.
PAYEE
Unless you specify otherwise, the payee shall be the annuitant, or the
beneficiary as defined in the Beneficiary provision.
PROOF OF AGE
We may require proof of the age of any person who has an annuity purchased under
Options 3, 3-V, 5 AND 5-V OF THIS SECTION BEFORE WE MAKE THE FIRST PAYMENT
MINIMUM PROCEEDS
If the proceeds are less than $2,000, we reserve the right to pay them out as a
lump sum instead of applying them to a payment option.
PREMIUM TAX
We may be required by law to pay premium tax on the amount applied to a payment
option. If so, we will deduct the premium tax before applying the proceeds.
SUPPLEMENTARY CONTRACT
Once proceeds become payable and a payment option has been selected, this policy
will terminate and we will issue a supplementary contract to reflect the terms
of the selected option. The contract will name the payees and will describe the
payment schedule.
B. FIXED ACCOUNT PAYMENTS
GUARANTEED PAYMENT OPTIONS
The fixed account payment is determined by multiplying each $ 1,000 of policy
proceeds allocated to a fixed payment option by the amounts shown on page 12 for
the option you select Options 1, 2 and 4 are based on a guaranteed interest rate
of 3%. Options 3 and 5 are based on a guaranteed interest rate of 3% and the
"1983 Table a" (male, female, and unisex if required by law) mortality table
improved to the year 2000 with projection scale G. (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.)
Option 1 - Interest Payments
The policy proceeds may be left with us for any term agreed to. We will pay the
interest in periodic payments or it may be left to accumulate. Withdrawal
rights will be agreed upon by you and us when the option is elected. The
interest rate we declare for this option may be different than the interest
rate(s) credited prior to the Annuity Commencement Date.
Option 2 - Income for a Specified Period
Payments are made for the fixed period elected. In the event of the death of
the person receiving payments prior to the end of the guaranteed period,
payments will be continued to that person's beneficiary or their present value
may be paid in a single sum.
Option 3 - Life Income
An election may be made between "No Period Certain", " 1 0 Years Certain" or
"Guaranteed Return of Policy Proceeds". In the event of the death of the person
receiving payments prior to the end of the guaranteed period, payments will be
continued to that person's beneficiary or their present value may be paid in a
single sum.
Option 4 - Income of a Specified Amount
Payments are made for any specified amount until the proceeds with interest are
exhausted. In the event of the death of the person receiving payments prior to
the time proceeds with interest are exhausted, payments will be continued to
that person's beneficiary or their present value may be paid in a single sum.
Option 5 - Joint and Survivor Annuity
Payments are made during the joint lifetime of the payee and a nominee of your
selection. Payments will be made as long as either person is living.
S898 PAGE 11(A)
<PAGE>
SECTION 10 - CONT
CURRENT PAYMENT OPTIONS
The amounts shown in the tables on page 12 are the guaranteed amounts. Current
amounts may be obtained from us.
C. VARIABLE ACCOUNT PAYMENT OPTIONS
VARIABLE ANNUITY UNITS
The policy proceeds you tell us to apply to a variable payment option will be
used to purchase variable annuity units in your chosen Subaccounts. The dollar
value of variable annuity units in your chosen Subaccounts will increase or
decrease reflecting the investment experience of your chosen Subaccounts. The
value of a variable annuity unit in a particular Subaccount on any 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 Assumed Investment Return adjustment factor for the Valuation Period.
The Assumed Investment Return adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5.0% effective
annual Assumed Investment Return.
The net investment factor used to calculate the value of a variable annuity unit
in each Subaccount for the 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 of a fund share held in that Subaccount determined
as of 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 we
determine to have resulted from the investment operations of the
Subaccount.
(b) is the net asset value of a fund share held in that Subaccount determined as
of the end of the immediately preceding Valuation Period.
(c) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge. This factor is less than or equal to, on an annual
basis, the percentage shown on page 3 of the daily net asset value of a fund
share held in the Separate Account for that Subaccount.
DETERMINATION OF THE FIRST VARIABLE PAYMENT
The amount of the first variable payment is determined by multiplying each
$1,000 of policy proceeds allocated to a variable payment option by the amounts
shown on page 13 for the variable option you select. 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 improved to the year 2000
with projection scale G. (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 amount of the first payment depends upon the adjusted age of the annuitant.
The adjusted age is the annuitant's actual age on the annuitant's nearest
birthday, at the Annuity Commencement Date, adjusted as follows:
<TABLE>
<CAPTION>
ANNUITY
COMMENCEMENT DATE ADJUSTED AGE
- ----------------- ------------
<S> <C>
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 us.
</TABLE>
Option 3-V - Life Income
An election may be made between:
1. "No Period Certain" - Payments will be made during the lifetime of the
annuitant
2. "10 Years Certain" - Payments will be made for the longer of the annuitants
lifetime or 1 0 years.
Option 5-V - Joint and Survivor Annuity
Payments are made as long as either the annuitant or the joint annuitant is
living.
DETERMINATION OF SUBSEQUENT VARIABLE PAYMENTS
The amount of each variable annuity payment after the first will increase or
decrease according to the value of the variable annuity units which reflect the
investment experience of the selected Subaccounts. Each variable annuity
payment after the first will be equal to the number of variable annuity units in
the selected Subaccounts multiplied by the variable annuity unit value on the
date the payment is made. The number of variable annuity units in each selected
Subaccount is determined by dividing the first variable annuity payment
allocated to the Subaccount by the variable annuity unit value of that
Subaccount on the Annuity Commencement Date.
SB898 PAGE 11(B)
<PAGE>
GUARANTEED FIXED ACCOUNT PAYMENT OPTIONS
The amounts shown in these tables are the guaranteed amounts for each $1,000 of
the policy proceeds. Higher current amounts may be available at the time of
settlement.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Option 2, Table 1 Option 3, Table II Option 3, Table III Option 3, Table IV
- ---------------------------------------------------------------------------------------------------------------------
Number Amount Monthly Installment Monthly Installment For Life
of Years of Monthly For Life Monthly Installment for Life Guaranteed Return Of Policy
Payable Installment No Period Certain 10 Years Certain Proceeds
- ---------------------------------------------------------------------------------------------------------------------
Age Male Female Unisex Male Female Unisex Male Female Unisex
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70 $3.73 $3.49 $3.61
51 3.93 3.60 3.77 3.90 3.59 3.75 3.79 3.53 3.66
52 4.00 3.65 3.83 3.97 3.64 3.81 3.84 3.58 3.71
53 4.07 3.71 3.90 4.04 3.70 3.87 3.90 3.63 3.76
5 $17.91 54 4.15 3.77 3.97 4.11 3.75 3.94 3.96 3.68 3.82
6 15.14 55 4.23 3.83 4.04 4.19 3.82 4.01 4.03 3.73 3.88
7 13.16 56 4.32 3.90 4.11 4.27 3.88 4.08 4.10 3.79 3.94
8 11.68 57 4.41 3.97 4.19 4.35 3.95 4.15 4.17 3.85 4.00
9 10.53 58 4.50 4.05 4.28 4.44 4.02 4.24 4.24 3.91 4.07
10 9.61 59 4.61 4.13 4.37 4.53 4.10 4.32 4.32 3.97 4.14
11 8.86 60 4.72 4.21 4.47 4.63 4.18 4.41 4.40 4.04 4.22
12 8.24 61 4.84 4.30 4.57 4.74 4.26 4.51 4.49 4.12 4.30
13 7.71 62 4.96 4.40 4.68 4.85 4.35 4.61 4.58 4.19 4.38
14 7.26 63 5.10 4.50 4.80 4.97 4.45 4.71 4.68 4.28 4.47
15 6.87 64 5.24 4.61 4.93 5.09 4.55 4.83 4.78 4.36 4.56
16 6.53 65 5.40 4.73 5.06 5.22 4.66 4.95 4.88 4.45 4.66
17 6.23 66 5.56 4.85 5.21 5.36 4.77 5.07 4.99 4.55 4.76
18 5.96 67 5.74 4.99 5.36 5.50 4.89 5.20 5.11 4.65 4.87
19 5.73 68 5.93 5.13 5.53 5.65 5.02 5.34 5.24 4.76 4.98
20 5.51 69 6.13 5.29 5.71 5.80 5.15 5.49 5.37 4.87 5.10
70 6.34 5.45 5.90 5.96 5.30 5.64 5.51 4.99 5.23
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPTION 5, TABLE V
- ---------------------------------------------------------------------------------------------------------------------
MONTHLY INSTALLMENT FOR JOINT AND FULL SURVIVOR
- ---------------------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant
Male --------------------------------------------------------------------------------------------------------
Annuitant 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less Than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONTHLY INSTALLMENT FOR UNISEX JOINT AND FULL SURVIVOR
- ---------------------------------------------------------------------------------------------------------------------
Age of Age of Joint Annuitant *
First --------------------------------------------------------------------------------------------------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less Than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $3.04 $3.09 $3.15 $3.21 $3.27 $3.33 $3.39
55 3.17 3.24 3.32 3.40 3.48 3.56 3.63
60 3.34 3.44 3.54 3.64 3.75 3.85 3.95
65 3.57 3.70 3.83 3.97 4.11 4.26 4.39
70 3.87 4.04 4.22 4.42 4.62 4.82 5.01
- ---------------------------------------------------------------------------------------------------------------------
* Age nearest birthday
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual, semi-annual or quarterly installments under Option 2 shall be the
monthly installment shown multiplied by 11.84, 5.96 or 2.99 respectively, and
for Options 3 and 5 the monthly installment shown multiplied by 11.80, 5.95 or
2.99 respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
T819 PAGE 12
<PAGE>
VARIABLE PAYMENT OPTIONS
BASED ON ASSUMED INVESTMENT RETURN
The amounts shown in these tables are the initial payment amounts based on a
5.0% Assumed Investment Return for each $1,000 of the policy proceeds.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Option 3 - V, Table II Option 3 - V, Table III
- -------------------------------------------------------------------
Monthly Installment for Life Monthly Installment For Life
No Period Certain 10 Years Certain
- -------------------------------------------------------------------
Age Male Female Unisex Male Female Unisex
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $5.11 $4.81 $4.96 $5.07 $4.79 $4.94
51 5.17 4.85 5.02 5.13 4.83 4.99
52 5.24 4.90 5.07 5.19 4.88 5.04
53 5.31 4.95 5.13 5.25 4.93 5.10
54 5.38 5.01 5.20 5.32 4.98 5.16
55 5.46 5.06 5.26 5.39 5.04 5.22
56 5.54 5.12 5.34 5.47 5.09 5.28
57 5.63 5.19 5.41 5.54 5.16 5.36
58 5.72 5.26 5.49 5.63 5.22 5.43
59 5.82 5.34 5.58 5.72 5.29 5.51
60 5.93 5.42 5.68 5.81 5.37 5.60
61 6.04 5.50 5.78 5.91 5.44 5.69
62 6.17 5.60 5.89 6.02 5.53 5.78
63 6.30 5.69 6.00 6.13 5.62 5.88
64 6.44 5.80 6.13 6.25 5.71 5.99
65 6.60 5.91 6.26 6.37 5.82 6.10
66 6.76 6.04 6.40 6.50 5.92 6.22
67 6.94 6.17 6.56 6.63 6.04 6.35
68 7.13 6.31 6.72 6.77 6.16 6.48
69 7.33 6.46 6.90 6.92 6.29 6.62
70 7.55 6.63 7.09 7.07 6.43 6.76
- -------------------------------------------------------------------
<CAPTION>
Option 5V, Table V
- -------------------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- -------------------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant
Male --------------------------------------------------------------------------------------------------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less Than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.32 $4.36 $4.41 $4.46 $4.51 $4.57 $4.62
55 4.42 4.47 4.53 4.60 4.67 4.75 4.83
60 4.54 4.62 4.70 4.80 4.90 5.01 5.12
65 4.72 4.82 4.94 5.07 5.22 5.37 5.53
70 4.95 5.10 5.27 5.46 5.67 5.89 6.13
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONTHLY INSTALLMENT FOR UNISEX JOINT AND FULL SURVIVOR
- -------------------------------------------------------------------------------------------------------------------
Age of Age of Joint Annuitant *
First --------------------------------------------------------------------------------------------------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less Than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.40 $4.45 $4.50 $4.55 $4.61 $4.67 $4.72
55 4.52 4.59 4.66 4.73 4.81 4.89 4.96
60 4.69 4.78 4.87 4.97 5.08 5.19 5.29
65 4.91 5.04 5.17 5.31 5.46 5.62 5.77
70 5.22 5.40 5.59 5.79 6.02 6.24 6.47
- -------------------------------------------------------------------------------------------------------------------
* Age nearest birthday
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual, semi-annual or quarterly installments under Option 2 shall be the
monthly installment shown multiplied by 11.84, 5.96 or 2.99 respectively, and
for Options 3-V and 5-V the monthly installment shown multiplied by 11.80, 5.95
or 2.99 respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
TB819 PAGE 13
<PAGE>
SECTION 11 - GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of this policy, endorsements, if any, and any
application signed by you.
MODIFICATION OF POLICY
No change in this policy is valid unless made in writing by us and approved by
one of our officers. No Registered Representative has authority to change or
waive any provision of your policy.
TAX QUALIFICATION
This policy is intended to qualify as an annuity contract for federal income tax
purposes. The provisions of this policy are to be interpreted to maintain such
qualification, notwithstanding any other provisions to the contrary. To
maintain such tax qualification, we reserve the right to amend this policy to
reflect any clarifications that may be needed or are appropriate to maintain
such tax qualification or to conform this policy to any applicable changes in
the tax qualification requirements. We will send you a copy in the event of any
such amendment. If you refuse such an amendment it must be by giving us written
notice, and your refusal may result in adverse tax consequences.
NON-PARTICIPATING
This policy will not share in our surplus earnings.
AGE OR SEX CORRECTIONS
If the age or sex of the annuitant has been misstated, the benefits will be
those which the premiums paid would have purchased for the correct age and sex.
If required by law to ignore differences in the sex of the annuitant, the
payment options will be determined using the unisex factors in Section 10.
Any underpayment made by us will be paid with the next payment Any overpayment
made by us will be deducted from future payments. Any underpayment or
overpayment, will include interest at 5% per year, from the date of the wrong
payment to the date of the adjustment.
INCONTESTABILITY
This policy shall be incontestable from the Policy Date.
EVIDENCE OF SURVIVAL
We have the right to require satisfactory evidence that a person was alive if a
payment is based on that person being alive. No payment will be made until we
receive the evidence.
SETTLEMENT
Any payment by us under this policy is payable at our Home Office.
RIGHTS OF OWNER
The owner may, while the annuitant is living:
1. Assign this policy.
2. Surrender the policy to us.
3. Amend or modify the policy with our consent.
4. Receive annuity payments or name a Payee to receive the payments.
5. Exercise, receive and enjoy every other right and benefit contained in the
policy.
The use of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the spouse in a community or marital property
state.
SUCCESSOR OWNER
A successor owner can be named in any application, or in a notice you sign which
gives us the facts that we need. The successor owner will become the new owner
when you die, if you die before the annuitant. If no successor owner survives
you and you die before the annuitant, your estate will become the new owner.
CHANGE OF OWNERSHIP
In the case of a non-tax qualified annuity, you can change the owner of this
policy, from yourself to a new owner, in a notice you sign which gives us the
facts that we need. When this change takes effect, all rights of ownership in
this policy will pass to the new owner.
A change of owner or successor owner will not be effective until it is recorded
in our records. After it has been so recorded, the change will take effect as
of the date you signed the notice. However, if the annuitant dies before the
notice has been so recorded, it will not be effective as to those proceeds we
have paid before the change was recorded in our records. We may require that
the change be endorsed in the policy. Changing the owner or naming a new
successor owner cancels any prior choice of successor owner, but does not change
the beneficiary or the annuitant
A change of ownership may result in adverse tax consequences.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date annuity payments begin. This 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 us, but in no event later than
the last day of the policy month following the month in which the Annuitant
attains age 95. You may change the Annuity Commencement Date at any time before
the Annuity Commencement Date by giving us 30 days' written notice.
H581 PAGE 14
<PAGE>
SECTION 11 - CONT
ASSIGNMENT
(a) In the case of a non tax-qualified annuity, this policy may be assigned.
The assignment must be in writing and filed with us.
(b) We assume no responsibility for the validity of any assignment. Any claim
made under an assignment shall be subject to proof of interest and the
extent of the assignment.
(c) This policy may be applied for and issued to qualify as a tax-qualified
annuity under certain sections of the Internal Revenue Code. Ownership of
this policy then is restricted so that it will comply with provisions of the
Internal Revenue Code.
Assignment of this policy may result in adverse tax consequences.
BENEFICIARY
Death proceeds, when payable in accordance with Section 9, are payable to the
designated beneficiary or beneficiaries. Such beneficiary(ies) must be named in
any application and may be changed without consent (unless irrevocably
designated or required by law) by notifying us in writing on a form acceptable
to us. The change will take effect upon the date you sign it, whether or not
you are living when we receive it. The notice must have been postmarked (or show
other evidence of delivery that is acceptable to us) on or before the date of
death. Your most recent change of beneficiary notice will replace any prior
beneficiary designations. No change will apply to any payment we made before
the written notice was received. If an irrevocable beneficiary dies, you may
designate a new beneficiary.
You may direct that the beneficiary shall not have the right to withdraw, assign
or commute any sum payable under an option. In the absence of such election or
direction, the beneficiary may change the manner of payment or make an election
of any option.
If any primary or contingent beneficiary dies before the annuitant, that
beneficiary's interest in this policy ends with that beneficiary's death. Only
those beneficiaries living at the time of the annuitant's death will be eligible
to receive their share of the Death Proceeds. In the event no contingent
beneficiaries have been named and all primary beneficiaries have died before the
death proceeds become payable, the owner(s) will become the beneficiary(ies)
unless elected otherwise in accordance with Section 9. If both primary and
contingent beneficiaries have been named, payment will be made to the named
primary beneficiaries living at the time the death proceeds become payable. If
there is more than one beneficiary and you failed to specify their interest,
they will share equally. Payment will be made to the named contingent
beneficiary(ies) only if all primary beneficiaries have died before the death
proceeds become payable. If any primary beneficiary is alive at the time the
death proceeds become payable, but dies before receiving their payment, their
share will be paid to their estate.
In cases where the annuitant dies and the owner (who is not the annuitant)
elected to receive the death benefit in accordance with Section 9, if the
annuitant's estate has been named as beneficiary, then payment will be made to
the owner.
PROTECTION OF PROCEEDS
Unless you so direct by filing written notice with us, no beneficiary may assign
any payments under this policy before the same are due. To the extent permitted
by law, no payments under this policy will be subject to the claims of creditors
of any beneficiary.
DEFERMENT
We will pay any partial withdrawals or surrender proceeds within 7 days after we
receive all requirements that we need. However, it may happen that the New York
Stock Exchange is closed for trading (other than the usual weekend or holiday
closings), or the Securities and Exchange Commission restricts trading or
determines that an emergency exists. If so, it may not be practical for us to
determine the investment experience of the Separate Account. In that case, we
may defer transfers among the Subaccounts and to the Fixed Account, and
determination or payment of partial withdrawals or surrender proceeds.
When permitted by law, we may defer paying any partial withdrawals or surrender
proceeds from the Fixed Account for up to 6 months from the date we receive your
request. If the Owner dies after the request is received, but before the request
is processed, the request will be processed before the death proceeds are
determined. Interest will be paid on any amount deferred for 30 days or more.
This rate will be 3% per year unless otherwise required by law.
REPORTS TO OWNER
We will give you an annual report at least once each Policy Year. This report
will show the number and value of the accumulation units held in each of the
Subaccounts as well as the value of the Fixed Account. It will also give you any
other facts required by law or regulation.
J581 PAGE 15
<PAGE>
PFL Life Insurance Company
Home Office located at 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
[LOGO OF PFL LIFE APPEARS HERE]
Flexible Premium Variable Annuity
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount
(See Sections 6 and 10C.)
Non-Participating
INDEX
Page
Accumulation Units................................................. 7
Age or Sex Corrections............................................. 14
Annuity Commencement Date.......................................... 14
Annuity Payments................................................... 11(A)
Adjusted Policy Value.............................................. 2, 4
Assignment......................................................... 15
Beneficiary........................................................ 15
Cash Value......................................................... 5
Contract........................................................... 14
Death Proceeds..................................................... 10
Definitions........................................................ 2
Dollar Cost Averaging.............................................. 9
Evidence of Survival............................................... 14
Excess Interest Adjustment......................................... 5, 6
Fixed Account...................................................... 8
Guaranteed Minimum Death Benefit................................... 10
Guaranteed Periods................................................. 8
Guaranteed Return of Fixed Account
Premium Payments................................................... 6
Incontestability................................................... 14
Modification of Policy............................................. 14
Nonparticipation................................................... 14
Owner.............................................................. 14
Partial Withdrawals................................................ 5, 6
Payee.............................................................. 11(A)
Payment Option Tables.............................................. 12, 13
Policy Data Page................................................... 3
Policy Value....................................................... 4
Premium Payments................................................... 4
Proof of Age....................................................... 1l(A)
Protection of Proceeds............................................. 15
Right to Cancel.................................................... 1
Separate Account................................................... 7
Service Charge .................................................... 4
Settlement......................................................... 14
Transfers.......................................................... 9
Y498
<PAGE>
EXHIBIT (4)(e)
--------------
FORM OF POLICY ENDORSEMENT.
(NURSING CARE)
<PAGE>
[LOGO OF PFL LIFE INSURANCE COMPANY APPEARS HERE]
PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us)
AMENDATORY ENDORSEMENT
The Policy to which this Amendatory Endorsement is attached is amended by the
addition of the following language:
DEFINITIONS
CUSTODIAL CARE - Care designed essentially to help a person with the activities
of daily living which does not require the continuous attention of trained
medical or paramedical personnel.
HOSPITAL - An institution which 1) is operated pursuant to the laws of the
jurisdiction in which it is located, 2) operates primarily for the care and
treatment of sick and injured persons on an inpatient basis, 3) provides 24-hour
a day nursing service by or under the supervision of registered graduate
professional nurses, 4) is supervised by a staff of one or more licensed
physicians, and 5) has medical, surgical and diagnostic facilities or access to
such facilities.
NURSING FACILITY - A facility which 1) is operated pursuant to the laws of the
jurisdiction in which it is located, 2) provides Nursing Care or Custodial Care,
3) primarily provides nursing care under the direction of a licensed physician,
registered graduate professional nurse, or licensed vocational nurse, except
when receiving custodial care, and 4), is not other than incidentally a
hospital, a home for the aged, a retirement home, a rest home, a community
living center or a place mainly for the treatment of alcoholism, mental illness
or drug abuse.
NURSING CARE - Nursing care prescribed by a physician and performed or
supervised by a registered graduate nurse. Such care includes nursing and
rehabilitation services available 24 hours a day.
PHYSICIAN - Doctor of Medicine or Doctor of Osteopathy who is licensed as such
and operating within the scope of the license.
TERMINAL CONDITION - A condition resulting from an accident or illness which, as
determined by a physician, has reduced life expectancy to not more than 12
months, despite appropriate medical care.
NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION
If the owner or owner's spouse (annuitant or annuitants spouse if the owner is
not a natural person) has been 1) confined in a hospital or Nursing Facility for
30 consecutive days or 2) diagnosed as having a Terminal Condition, you may
elect to withdraw all or a portion of the Policy Value without Excess Interest
Adjustments.
For Nursing Care, we must receive each withdrawal request and proof of
eligibility with each request no later than 90 days following the date that
confinement has ceased, unless it can be shown that it was not reasonably
possible to provide the notice and proof within the above time period and that
the notice and proof were given as soon as reasonably possible. However, in no
event, except the absence of legal capacity, shall the notice and proof be
provided later than one year following the date that confinement has ceased.
For a Terminal Condition, we must receive each withdrawal request and the
applicable proof of eligibility no later than one year following diagnosis of
the Terminal Condition. Proof of a Terminal Condition is required only with the
initial withdrawal request and must be furnished by the owner's or the owner's
spouse's physician. Proof of confinement may be a physician's statement or a
statement from a hospital or nursing facility administrator.
The minimum withdrawal under this option is $1000. The withdrawal will reduce
the Policy Value by the amount withdrawn. A partial withdrawal taken in
accordance with this provision will not affect the Excess Interest Adjustment-
free withdrawals, available under the Partial Withdrawals Provision.
We may terminate the policy and pay you the full Cash Value if the withdrawal
reduces the Cash Value below $500.
This Amendatory Endorsement takes effect and expires concurrently with the
Policy to which it is attached and is subject to all the terms and conditions of
the Policy not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. Vermie /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
EXHIBIT 5
---------
FORM OF APPLICATION.
<PAGE>
PFL Life Insurance Company
[LOGO] 4333 EDGEWOOD ROAD NE
CEDAR RAPIDS, IOWA 52499
APPLICATION FOR VARIABLE ANNUITY POLICY
1. DESIGNATED ANNUITANT
NAME:
ADDRESS:
CITY, STATE:
ZIP: TELEPHONE: ( ) -
DATE OF BIRTH: AGE: SEX: [_] FEMALE [_] MALE
SS#: CITIZENSHIP: [_] U.S. [_] OTHER
2. POLICY OWNER (IF OTHER THAN ABOVE)
In the event the owner is a trust, please provide verification of trustees.
NAME:
ADDRESS:
CITY, STATE:
ZIP: TELEPHONE: ( ) -
DATE OF BIRTH: AGE: SEX: [_] FEMALE [_] MALE
SS#: CITIZENSHIP: [_] U.S. [_] OTHER
3. [_] JOINT POLICY OWNER [_] SUCCESSOR POLICY OWNER
In the event the owner is a trust, please provide verification of trustees.
NAME:
ADDRESS:
CITY, STATE:
ZIP: TELEPHONE: ( ) -
DATE OF BIRTH: AGE: SEX: [_] FEMALE [_] MALE
SS#: CITIZENSHIP: [_] U.S. [_] OTHER
4. BENEFICIARY DESIGNATION (INCLUDE RELATIONSHIP TO ANNUITANT)
PRIMARY: _________________________ / ___________________
Relationship
PRIMARY: _________________________ / ___________________
Relationship
CONTINGENT: _____________________ / ___________________
Relationship
CONTINGENT: _____________________ / ___________________
Relationship
5. TYPE OF ANNUITY
[_] NON-QUALIFIED [_] IRA (ALSO COMPLETE BOX 6)
[_] HR - 10 [_] SEP (ALSO COMPLETE BOX 6)
[_] 403 (B) [_] OTHER ____________________________
6. IRA/SEP INFORMATION
$ __________ CONTRIBUTION FOR TAX YEAR ________________
$ __________ TRUSTEE TO TRUSTEE TRANSFER
$ __________ ROLLOVER FROM: (Check one) [_] 403(b) [_] Pension
[_] HR - 10 [_] Other: _____________________________________
<PAGE>
7. WILL THIS ANNUITY REPLACE ANY EXISTING ANNUITY OR
LIFE INSURANCE?
[_] NO [_] YES - PLEASE STATE POLICY NO. AND COMPANY
Name:
__________________________________________________
8. MINIMUM DEATH BENEFIT OPTION (SELECT ONLY ONE)
This selection cannot be changed after the policy has been issued. If no option
has been specified, the policy will be issued with the Return of Premium Death
Benefit (Option C below).
[_] OPTION A: 5% Annually Compounding Death Benefit: (Only available if owner(s)
and the annuitant are under Age 75 at time of purchase.)
[_] OPTION B: annual Step-Up Death Benefit: (Only available if owner(s) and the
annuitant are under age 81 at time of purchase.) Annual M & E Risk Fee and
Admin. Charge 1.40%
[_] OPTION C: Return of Premium Death Benefit:
Annual M & E Risk Fee and Admin. Charge 1.25%
9. PURCHASE PAYMENT (MAKE CHECK PAYABLE TO PFL LIFE INSURANCE COMPANY)
INITIAL PREMIUM AMOUNT $______________________________
10. ALLOCATION OF PREMIUM PAYMENTS (WHOLE PERCENTAGES ONLY)
[_] CHECK THIS BOX ONLY IF YOU WANT TO ALLOCATE THE PREMIUM PAYMENTS EQUALLY TO
EACH OF THE PORTFOLIOS LISTED BELOW. No funds will be allocated to the TCW
Money Market Portfolio, nor the PFL Life Fixed Accounts. If this box is
checked, any allocations below will be disregarded. DO NOT check this box if
you intend to elect Dollar Cost Averaging (DCA).
T. ROWE PRICE ASSOCIATES, INC.
EQUITY INCOME PORTFOLIO ___________.0%
GROWTH STOCK PORTFOLIO ___________.0%
ROWE PRICE-FLEMING
INTERNATIONAL, INC.
INTERNATIONAL STOCK ___________.0%
PORTFOLIO
TCW FUNDS MANAGEMENT, INC.
MANAGED ASSET ALLOCATION ___________.0%
PORTFOLIO
MONEY MARKET PORTFOLIO ___________.0%
OPCAP ADVISORS
OPPORTUNITY VALUE PORTFOLIO ___________.0%
VALUE EQUITY PORTFOLIO ___________.0%
THE DREYFUS CORPORATION
<PAGE>
U.S. GOVERNMENT SECURITIES ___________.0%
PORTFOLIO
SMALL CAP VALUE PORTFOLIO ___________.0%
JANUS
GROWTH PORTFOLIO (WRL ___________.0%
SERIES FUND)
JP MORGAN INVESTMENT
MANAGEMENT, INC.
ENHANCED INDEX PORTFOLIO ___________.0%
PFL LIFE INSURANCE COMPANY - FIXED ACCOUNT OPTIONS
Dollar Cost Averaging (DCA) Fixed Account:
Guaranteed Periods (with Excess Interest Adjustment):
1 YEAR ___.0% 5 YEARS ___.0% 8 YEARS __.0%
2 YEARS ___.0% 6 YEARS ___.0% 9 YEARS __.0%
3 YEARS ___.0% 7 YEARS ___.0% 10 YEARS __.0%
4 YEARS ___.0%
Additional:
______________________________________________________.0%
______________________________________________________.0%
______________________________________________________.0%
______________________________________________________.0%
______________________________________________________.0%
______________________________________________________.0%
INVESTMENT ALLOCATIONS MUST TOTAL 100%
11. TELEPHONE TRANSFER/REALLOCATION AUTHORIZATION
BY CHECKING ONE OF THE FOLLOWING BOXES, I AUTHORIZE THE COMPANY TO ACCEPT
TELEPHONE TRANSFERS/REALLOCATION INSTRUCTIONS FROM:
ONLY MYSELF [_] MYSELF & MY ACCOUNT EXECUTIVE [_]
TO CHANGE THE ALLOCATION OF ANY PURCHASE PAYMENTS AND/OR TO TRANSFER FUNDS AMONG
MY INVESTMENT CHOICES BASED ON MY TELEPHONE INSTRUCTIONS AND/OR THE TELEPHONE
INSTRUCTIONS OF MY ACCOUNT EXECUTIVE (IF INDICATED ABOVE), I AGREE TO THE
ESTABLISHED CONDITIONS AND REQUIREMENTS STATED IN THE PROSPECTUS.
I AM AWARE THAT TELEPHONE INSTRUCTIONS WILL BE RECORDED TO PROTECT ME AND THE
COMPANY AND WILL BE PUT INTO EFFECT WHEN PROPER IDENTIFICATION IS PROVIDED.
VA-APP 497 (CONTINUED ON THE BACK PAGE)
<PAGE>
YOUR SIGNATURE IS REQUIRED ON THE BACK PAGE
<PAGE>
APPLICATION FOR VARIABLE ANNUITY POLICY
12. DOLLAR COST AVERAGING
By signing below I (We) authorize PFL Life Insurance Company to transfer funds
from my selected account to invest in the portfolio(s), in the amount indicated
below. Transfers ill be made monthly, unless indicated differently below. I
understand that the transfers will continue until I terminate the program in
writing, or until my balance under the program falls below the minimum transfer
amount. If this happens, the balance will be transferred as indicated below, but
on a pro-rata basis. I also understand that PFL Life's Dollar Cost Averaging
program is subject to the rules and restrictions associated with the PFL Life
policy and at the time the program begins there must be sufficient Policy Value
to cover six month's transfers.
TRANSFER [_] DCA FIXED ACCOUNT; OR
FROM: [_] MONEY MARKET PORTFOLIO; OR
[_] U.S. GOVT. SECURITIES PORTFOLIO
PLEASE
INVEST: $ ______________ ($500 min.)
Monthly Transfers (6 min.)
Quarterly Transfers (4 min)
PLEASE INVEST IN FOLLOWING ACCOUNTS FOR EACH TRANSFER
(ALLOCATION MUST TOTAL 100%):
TCW Managed Asset Allocation _____.0% Dreyfus U.S. Govt. Sec. _____.0%
Janus WRL Series Fund Growth _____.0% Dreyfus Small Cap Value _____.0%
T. Rowe Price Growth _____.0% JP Morgan Investment _____.0%
T. Rowe Price Equity Income _____.0% Additional:
OpCap Opportunity Value _____.0% _________________________ _____.0%
OpCap Value Equity _____.0% _________________________ _____.0%
Rowe Price Fleming Int'l _____.0% _________________________ _____.0%
13. ASSET REBALANCING...NOT AVAILABLE WHEN DOLLAR COST AVERAGING IS IN EFFECT OR
WHEN ANY OTHER TRANSFER IS REQUESTED.
[_] Yes, by checking this box I am authorizing PFL Life Insurance Company to
automatically transfer amounts among the sub-accounts (as indicated below) on a
regular basis to maintain a desired allocation of the Policy Value among the
various sub-accounts offered. ASSET REBALANCING IS NOT AVAILABLE FOR ANY
AMOUNTS IN THE FIXED ACCOUNT NOR WHEN DOLLAR COST AVERAGING IS IN EFFECT.
REBALANCE:
[_] Monthly
[_] Quarterly
[_] Semi-Annual
[_] Annual
REBALANCE IN FOLLOWING ACCOUNTS (ALLOCATION MUST EQUAL 100%)
TCW Managed Asset Allocation OpCap Value Equity Additional:
_____.0% _____.0%
TCW Money Market Rowe Price-Fleming Int'l ___________.0%
_____.0% _____.0%
Janus WRL Series Fund Growth Dreyfus U.S. Govt. Sec. ___________.0%
_____.0% _____.0%
T. Rowe Price Growth Dreyfus Small Cap Value ___________.0%
_____.0% _____.0%
T. Rowe Price Equity Income JP Morgan Investment
_____.0% _____.0%
OpCap Opportunity Value TOTAL
_____.0% 100.0%
-----
Date to Begin:
____/____/____
14. If you have chosen to name someone other than yourself as the Annuitant,
please select one of the following regarding payment of the death benefit. IF
NEITHER IS SELECTED, THE FIRST OPTION WILL BE UTILIZED.
[_] At the Annuitant's death, i wish to become the
annuitant and deer payout of the death benefit
until my death.
-----------------------------------------
Signature of Policy Owner
[_] At the Annuitant's death, I wish to have the
death benefit paid to the named beneficiary.
(Policy Owner Signature required for this option)
-----------------------------------------
Signature of Joint/Successor Policy Owner
To the best of my knowledge and belief, my answers to the questions on this
application are correct and true, and I agree that this application shall be a
part of any annuity policy issued to me. I also understand that the Company
reserves the right to reject any application or purchase payment. If this
application is declined, there shall be not liability on the part of the Company
and any purchase payments submitted shall be returned.
I UNDERSTAND THAT ANNUITY PAYMENTS AND TERMINATION VALUES, WHEN BASED ON
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT OF THE COMPANY, ARE VARIABLE AND ARE
NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT.
Receipt of a current prospectus of the PFL Endeavor Variable annuity Account,
Endeavor Series Trust and WRL Series Fund, Inc. is hereby acknowledged.
[_] Please check if you wish to receive the Statement of Additional Information.
<PAGE>
I HAVE REVIEWED MY EXISTING ANNUITY COVERAGE AND FIND THIS POLICY IS SUITABLE
FOR MY NEEDS.
WHEN FUNDS ARE ALLOCATED TO THE GUARANTEED PERIODS OF THE FIXED ACCOUNT, CASH
VALUES UNDER THE POLICY MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE EXCESS
INTEREST ADJUSTMENT PRIOR TO THE END OF ANY GUARANTEED PERIOD.
ADDITIONAL FORMS ARE REQUIRED FOR SYSTEMATIC PAYOUT OPTION.
15a. BE SURE TO COMPLETE |UNDER PENALTIES OF PERJURY, I HEREBY CERTIFY (1)
THIS SECTION |THAT THE SOCIAL SECURITY OR TAX ID NUMBER LISTED
|ABOVE IS CORRECT AND (2) THAT I AM CURRENTLY NOT
|SUBJECT TO BACKUP WITHHOLDING [CROSS OUT (2) IF
|NOT CORRECT] (SEE BELOW). THE INTERNAL REVENUE
|SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
|PROVISION OF THIS APPLICATION OTHER THAN THE
|CERTIFICATIONS REQUIRED TO AVOID BACKUP
|WITHHOLDING.
-------------------------------------------------
Signed at ___________(City, State)____________________ this ________ day of
______________________, 19_______
- -------------------------- ------------------------- ----------------------
Annuitant Signature Owner Signature (if Joint Owner (successor
different from Annuitant) owner signature)
15b. Spousal consent is required when spouse is not designated a Policy Owner
and/or a Primary Beneficiary if the policy is purchased in or the Owner(s)
reside in a community property or marital property state (AZ, CA, ID, LA, MN,
NV, TX, WA and WI). By signing below, I (consenting spouse) hereby give my
consent to the designation of any person or entity as primary beneficiary or
owner of the policy being applied for. I understand that such designation may
change the community property or marital property rights I may have in the
policy. If there is not spouse, please indicate marital status by checking
applicable box.
[_] NEVER MARRIED; OR [_] SPOUSE DECEASED; OR [_] I AM DIVORCED
, 19__
-------------------------- -----------
Signature of Spouse Date Signed
16a. SELLING AGENT USE ONLY - NOT TO BE FILLED IN BY APPLICANT
I HAVE REVIEWED THE APPLICANT'S EXISTING ANNUITY COVERAGE AND FIND THIS POLICY
IS SUITABLE FOR HIS/HER NEEDS.
_________________________ (___)___-_____ ________________________ _________
Agent Name (Please Print) Agent Telephone Licensed Agent Signature Date
[_] No Trail [_]m Trail
________________________________________________________ _____________________
Agent Address Broker/Dealer Client
Account No.
__________________________________________ ____________ _____________________
Agent Firm PFL Life (If Applicable)
Agent No. Florida Agent License
I.D. No.
16b. DO YOU HAVE REASON TO BELIEVE THE POLICY APPLIED FOR IS TO REPLACE ANY
EXISTING ANNUITY OR INSURANCE OWNED BY APPLICANT?
[_] NO [_] YES, COMPANY NAME ______________________________________________
PLEASE MAKE CHECK PAYABLE TO PFL LIFE INSURANCE COMPANY (Use following address
for mail, Fed. Express, etc.)
SEND CHECK WITH APPLICATION TO PFL Life Insurance Company, Attn: Annuity
Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499-0001
** PURPOSE OF STATEMENT. This statement is for the payer (Insurance Company) of
interest, dividends, and certain other payments so that you will not be subject
to the 20% backup withholding that became effective January 1, 1984. This
statement is used to report and certify your taxpayer identification number
(TIN) to the payer, to certify that you are not subject to backup withholding
because of underreporting interest and dividends on your tax return, and to
claim
<PAGE>
exemption from backup withholding if you are an exempt payee.
If you do not certify your TIN, the payer may be required to withhold 20% of
payments made to you.
WHAT IS BACKUP WITHHOLDING. The Interest and Dividend Tax Compliance Act of 1983
required payers to withhold and pay to IRS 20% of payments of Interest,
dividends, and certain other payments under certain conditions. This is called
"backup withholding." If you give your correct TIN, certify your TIN when
required, and report all of your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
1) You do no furnish your TIN to the payer, or; (2) IRS notifies the payer that
you furnished an incorrect TIN, or; (3) You are notified by IRS that you are
subject to backup withholding because you failed to report all your interest and
dividends on your tax return (for interest and dividend accounts only), or; (4)
You fail to certify to the payer that you are not subject to backup withholding
under (3) above (for interest and dividend accounts opened after 1983 only), or;
(5) You fail to certify your TIN. This applies only to interest, dividend
broker, or barter exchange accounts opened after 1983, or broker accounts
considered inactive in 1983.
For other payments, you are subject to backup withholding only if (1) or (2)
above applies.
VA-APP 497 B
PLEASE FILL OUT THE FRONT PAGE
<PAGE>
EXHIBIT (8) (F)
---------------
Amendment to Participation Agreement by and between PFL Life Insurance Company
and Endeavor Series Trust. Note 12.
<PAGE>
AMENDED
SCHEDULE A
EFFECTIVE MARCH 13, 1997
ACCOUNT(S), POLICY(IES) AND PORTFOLIO(S)
SUBJECT TO THE PARTICIPATION AGREEMENT
------------------------------------------
Account PFL Endeavor Variable Annuity Account
- ------- AUSA Endeavor Variable Annuity Account
PFL Life Variable Annuity Account A
Policies The Endeavor Variable Annuity
- -------- The Endeavor Platinum Variable Annuity
The AUSA Endeavor Variable Annuity
The Atlas Portfolio Builder Variable Annuity
Portfolios TCW Managed Asset Allocation
- ---------- TCW Money Market
T. Rowe Price International Stock
Value Equity
Dreyfus Small Cap Value
Dreyfus U.S. Government Securities
T. Rowe Price Equity Income
T. Rowe Price Growth Stock
Opportunity Value
Enhanced Index
Approved:
ENDEAVOR MANAGEMENT CO. PFL LIFE INSURANCE COMPANY
By: /s/ Vincent J. McGuinness, Sr. By: /s/ William L. Busler
------------------------------- ----------------------------
Vincent J. McGuinness, Sr. William L. Busler
Title: CEO Title: President
---------------------------- -------------------------
Date: March 13, 1997 Date: March 13, 1997
----------------------------- --------------------------
AUSA LIFE INSURANCE COMPANY ENDEAVOR SERIES TRUST
By: /s/ William L. Busler By: /s/ James R. McInnis
------------------------------- ----------------------------
William L. Busler James R. McInnis
Title: Vice President Title: President
---------------------------- -------------------------
Date: March 13, 1997 Date: March 13, 1997
----------------------------- --------------------------
<PAGE>
EXHIBIT (10)(a)
---------------
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the use of our report dated January 31, 1997 with
respect to the financial statements of The PFL Endeavor Platinum Variable
Annuity Account, and to the use of our report dated February 21, 1997 with
respect to the statutory-basis financial statements and schedules of PFL Life
Insurance Company, included in Post-Effective Amendment No. 7 to the
Registration Statement (Form N-4 No. 33-56908) and related Prospectus of PFL
Endeavor Platinum Variable Annuity.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Des Moines, Iowa
April 25, 1997
<PAGE>
EXHIBIT (10)(b)
---------------
OPINION AND CONSENT OF ACTUARY
<PAGE>
April 10, 1997
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
RE: PFL ENDEAVOR PLATINUM VARIABLE ANNUITY ACCOUNT REGISTRATION ON FORM N-4
SEC FILE NO. 33-56908
Dear Sir/Madam:
With regard to the above registration statement, I have examined such documents
and made such inquiries as I have deemed necessary and appropriate, and on the
basis of such examination, have the following opinions:
Fees and charges deducted under the Endeavor Platinum Variable Annuity policies
are those deemed necessary to appropriately reflect:
(1) the expenses incurred in the acquisition and distribution of the Policies,
(2) the expenses associated with the development and servicing of the policies,
(3) the assumption of certain risks arising from the operation and management
of the Policies and that provides for a reasonable margin of profit.
Fees and charges assessed against the policy values in the Variable Account
include:
(i) Service Charge and Administrative Charge
(ii) Mortality and Expense Risk Fee (M&E)
(iii) Distribution Financing Charge
(iv) Taxes (including Premium and other Taxes if applicable)
The magnitude of each of the individual charges listed above in (i) through (iv)
is established in the pricing of the Endeavor Platinum Variable Annuity, to
achieve a reasonable Return on Investment (ROI), which is within the range of
industry practice with respect to comparable variable annuity products.
In the process of determining the reasonable ROI, each individual charge is also
established within the reasonable range of industry practice. For example, in
conjunction with the pricing process the company has analyzed publicly available
information pertaining to similar industry products, taking into consideration
such factors as current charge levels, the existence of charge level
<PAGE>
PFL Life Insurance Company
April 10, 1997
Page 2
guarantees, guaranteed death benefits, and guaranteed annuity rates. The
methodology and results of the comparative surveys included in this analysis are
maintained at the company's administrative offices.
Except by coincidence, it is not expected that actual charges assessed in a
given year would exactly offset actual expenses incurred. Acquisition expenses
(as well as major product and/or systems development expenses) are incurred "up
front" and recovered, with a reasonable profit margin, through future years'
charges. In addition, the company cannot increase certain charges under the
Policies in the pricing process.
Therefore, in my opinion, the fees and charges deducted under the Policies, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the company.
I hereby consent to the use of this opinion, which is included as an Exhibit to
the Registration Statement.
/s/ Calvin R. Birkey
- --------------------
Calvin R. Birkey, FSA, MAAA
Managing Actuary
PFL Life Insurance Company
<PAGE>
EXHIBIT (14)
------------
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL ENDEAVOR PLATINUM VARIABLE ANNUITY
Know all men by these presents that BRENDA K. CLANCY, whose signature appears
below, constitutes and appoints Brenda K. Clancy and Craig D. Vermie, and each
of them, her attorneys-in-fact, each with the power of substitution, for her in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Endeavor Platinum Variable Annuity, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their substitutes, may do or cause to be done
by virtue hereof.
/s/ Brenday K. Clancy
----------------------
Brenda K. Clancy
Treasurer
PFL Life Insurance Company
April 28, 1997
- -------------------------------
Date
