<PAGE>
As filed with the Securities and Exchange Commission on January 25, 1999
Registration No. 33- 33085
811-06032
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___
Post-Effective Amendment No. 17 X
---- -
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 24 X
---- -
PFL ENDEAVOR VA SEPARATE ACCOUNT
-------------------------------------
(Exact Name of Registrant)
PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
-----------------------------------------
(Former Name of Registrant)
PFL LIFE INSURANCE COMPANY
--------------------------
(Name of Depositor)
4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499
--------------------------------------------------
(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
1
<PAGE>
Title of Securities Being Registered:
Flexible Premium Variable Annuity Policies
It is proposed that this filing will become effective:
------- immediately upon filing pursuant to paragraph (b) of
Rule 485
on ___________ pursuant to paragraph (b) of Rule 485
-------
60 days after filing pursuant to paragraph (a) (i) of
------- Rule 485
X on May 1, 1999 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:
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
2
<PAGE>
This filing incorporates by reference the Prospectus and Statement of Additional
Information of the Post-Effective Amendment No. 16 filed on September 28, 1998
<PAGE>
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
-------------------------------------------------------------
<TABLE>
<CAPTION>
PART A
------
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C>
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......... Underlying Funds
(d) Fund Prospectus........... Underlying Funds
(e) Voting Rights............. Voting Rights
6. Deductions and Expenses
(a) General................... Charges and Deductions
(b) Sales Load %.............. Surrender Charge
(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
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
(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
<CAPTION>
PART B
------
Item of Form N-4 Statement of Additional
- ---------------- Information Caption
-------------------
<S> <C>
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
(d) Assets of Registrant...... Custody of Assets
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
(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
---------------------------
Item of Form N-4 Part C Caption
- ---------------- --------------
<S> <C>
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
</TABLE>
______________________________
5
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR VARIABLE ANNUITY
Issued through
PFL ENDEAVOR VA SEPARATE ACCOUNT
and
PFL ENDEAVOR TARGET 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 Variable Annuity offered by PFL Life
Insurance Company. You may obtain a copy of the prospectus dated May 1, 1999 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 prospectus for the policy and target account,
Endeavor Series Trust, and the Growth Portfolio of the WRL Series Fund, Inc.
Dated: May 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
GLOSSARY OF TERMS.............................................................................................
THE POLICY--GENERAL PROVISIONS................................................................................
Owner.....................................................................................................
Entire Policy.............................................................................................
Misstatement of Age or Sex................................................................................
Addition, Deletion or Substitution of Investments.........................................................
Excess Interest Adjustment................................................................................
Reallocation of Policy Values After the Annuity Commencement Date.........................................
Annuity Payment Options...................................................................................
Death Benefit.............................................................................................
Death of Owner............................................................................................
Assignment................................................................................................
Evidence of Survival......................................................................................
Non-Participating.........................................................................................
Amendments................................................................................................
Employee and Agent Purchases..............................................................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................................................
Tax Status of the Policy..................................................................................
Taxation of PFL...........................................................................................
INVESTMENT EXPERIENCE.........................................................................................
Accumulation Units........................................................................................
Annuity Unit Value and Annuity Payment Rates..............................................................
FAMILY INCOME PROTECTOR - HYPOTHETICAL ILLUSTRATION...........................................................
HISTORICAL PERFORMANCE DATA...................................................................................
Money Market Yields.......................................................................................
Other Subaccount Yields...................................................................................
Total Returns.............................................................................................
Other Performance Data....................................................................................
Adjusted Historical Performance Data - The Mutual Fund Account............................................
THE TARGET ACCOUNT............................................................................................
What is the Investment Strategy?..........................................................................
Determination of Unit Value; Valuation of Securities......................................................
The Board of Managers.....................................................................................
The Investment Advisory Services..........................................................................
The Manager...............................................................................................
Operating Expenses........................................................................................
Transfer Agent and Custodian..............................................................................
Brokerage Allocation......................................................................................
Investment Restrictions...................................................................................
Fundamental Policies......................................................................................
Operating Policies........................................................................................
Options and Futures Strategies............................................................................
Securities Lending........................................................................................
Tax Limitation............................................................................................
PUBLISHED RATINGS.............................................................................................
STATE REGULATION OF PFL.......................................................................................
ADMINISTRATION................................................................................................
RECORDS AND REPORTS...........................................................................................
DISTRIBUTION OF THE POLICIES..................................................................................
VOTING RIGHTS.................................................................................................
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
OTHER PRODUCTS................................................................................................
CUSTODY OF ASSETS.............................................................................................
LEGAL MATTERS.................................................................................................
INDEPENDENT AUDITORS..........................................................................................
OTHER INFORMATION.............................................................................................
FINANCIAL STATEMENTS..........................................................................................
</TABLE>
-3-
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the mutual fund account and the target 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.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
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 be any date at least thirty days after the policy date and may not
be later than the last day of the policy month starting after the annuitant
attains age 85, except as expressly allowed by PFL. In no event will this date
be later than the last day of the month following the month in which the
annuitant attains age 95.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the surrender charge, if any.
Code--The Internal Revenue Code of 1986, as amended.
DJIA--The Dow Jones Industrial Average/SM/. Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of American
industry.
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.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals or full surrenders, from the guaranteed
period options, or to amounts applied to annuity payment options. The adjustment
reflects changes in the interest rates declared by PFL since the date any
payment was received by, or an amount was transferred to, the guaranteed period
option. The excess interest adjustment can either decrease or increase the
amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and which are not in the separate accounts.
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<PAGE>
Guaranteed Period Options--The various guaranteed interest rate periods which
may be offered by PFL under the fixed account into which premiums may be paid or
amounts may be transferred.
Initial Stock Selection Date--The date is June 30, 1998 for the July Series.
The date is December 31, 1998 for the January Series.
Investment Choices--Any of the guaranteed period options of the fixed account,
the dollar cost averaging fixed account option, and any of the subaccounts of
the mutual fund account or the target account.
Mutual Fund 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
WRL Growth Portfolio of the WRL Series Fund, Inc., designated portfolios of the
Endeavor Series Trust and such other mutual funds as PFL may determine from time
to time.
Mutual Fund Subaccount--A subdivision within the mutual fund account, the assets
of which are invested in a specified portfolio of the underlying funds.
Nonqualified Policy--A policy other than a qualified policy.
Owner or Owner--The person who may exercise all rights and privileges under the
policy. The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the application.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
(1) premium payments; minus
(2) partial withdrawals (including any applicable excess interest adjustments
and/or surrender charges on such withdrawals); plus
(3) interest credited in the fixed account; plus
(4) accumulated gains or losses in the mutual fund account and the target
account; minus
(5) service charges, premium taxes, and transfer fees, if any.
Policy Year-- A policy year begins on the policy date and on each policy
anniversary.
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 $35, but will not exceed 2% of
the policy value.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--A percentage of each premium payment in an amount from 7% to
0% depending upon the length of time from the date of each premium payment. The
surrender charge is assessed on surrenders of, or partial withdrawals from, the
policy. A surrender charge may also be referred to as a "contingent deferred
sales charge."
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<PAGE>
Target Account--A separate account established and registered as a management
investment company under the 1940 Act to which premium payments under the
policies may be allocated.
Target Series Subaccount--A subdivision within the target account, the assets of
which are invested in common stocks selected according to a specified investment
strategy.
Underlying Funds--The WRL Growth Portfolio of the WRL Series Fund, Inc., and
designated portfolios of the Endeavor Series Trust.
Valuation Period--The period of time from one determination of accumulation unit
values 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 or the target 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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<PAGE>
In order to supplement the description in the prospectus, the following provides
additional information about PFL and the policy, which may be of interest to a
prospective purchaser. Words printed in italics in this Statement of Additional
Information are defined in the Glossary of Terms, found on page 4.
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 your spouse in a community or marital property state.
Unless PFL has been notified of a community or marital property interest in the
policy, it will rely on its good faith belief that no such interest exists and
will assume no responsibility for inquiry.
A successor owner can be named in the policy application, information provided
in lieu thereof, or in a written notice. The successor owner will become the new
owner upon your death, if you predecease the annuitant. If no successor owner
survives you and you predecease the annuitant, your estate will become the
owner.
Note carefully. If the owner does not name a contingent owner, the owner's
- -----------------
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or other
instrument, unless PFL has receive written notice of the trust as a successor
owner signed prior to the owner's death, that trust may not exercise ownership
rights to the policy. It may be necessary to open a probate estate in order to
exercise ownership rights to the policy if no contingent owner is named in a
written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will 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 your death.
Entire Policy
The policy and any endorsements thereon, the policy application, or information
provided in lieu thereof constitute the entire contract between PFL and the
owner. All statements in the application are representations and not warranties.
No statement will cause the policy to be void or to be used in defense of a
claim unless contained in the application or information provided in lieu
thereof.
Misstatement of Age or Sex
If the age or sex of the annuitant or owner 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
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<PAGE>
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 or
owner may be established at any time by the submission of proof satisfactory to
PFL.
Addition, Deletion, or Substitution of Investments
PFL cannot and does not guarantee that any of the mutual fund subaccounts or
target series subaccounts 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 mutual
fund 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 Investment Company Act of 1940, (the "1940 Act"), as amended,
substitutions of shares attributable to your interest in a mutual fund
subaccount will not be made without prior notice to you and the prior approval
of the Securities and Exchange Commission ("SEC"). PFL retains the right,
subject to any applicable law, to make certain changes in the target account and
its investments. PFL reserves the right to eliminate a target series subaccount
if, in PFL's judgment, investment in any target series subaccount would be
inappropriate in view of the purposes of the policy or for any other reason.
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 your requests.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio, other
investment vehicle, or, in the case of the target account, in shares of common
stock. 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 you and request a
reallocation of the amounts invested in the eliminated subaccount. If no such
reallocation is provided by you, PFL will reinvest the amounts in the subaccount
that invests in the Endeavor Money Market Portfolio (or in a similar portfolio
of money market instruments), in another subaccount, or in the fixed account, 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 mutual fund accounts, and the target account may be (i) operated in
any 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
mutual fund accounts. To the extent permitted by applicable law, PFL also may
transfer the assets of the mutual fund account or the target account associated
with the policies to another account or accounts.
Excess Interest Adjustment
Money that you withdraw from (or transfer out of) a guaranteed period option of
the fixed account before the end of its guaranteed period (the number of years
you specified the money would remain in the guaranteed period option) may be
subject to an excess interest adjustment. At the time you request a withdrawal,
if interest rates set by PFL have risen since the date of the initial guarantee,
the excess interest adjustment will result in a lower cash value. However, if
interest rates have fallen since the date of the initial guarantee, the excess
interest adjustment will result in a higher cash value.
The formula that will be used to determine the excess interest adjustment is:
-8-
<PAGE>
S* (G - C)* (M/12)
<TABLE>
<CAPTION>
<S> <C>
S = Gross amount being withdrawn that is subject to the excess interest adjustment
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.
* = multiplication
## = exponentiation
</TABLE>
Example 1
(Surrender, rates increase by 3%):
<TABLE>
<CAPTION>
<S> <C>
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) ## 2.5 = 57,161.18
Penalty 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) ## 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 policy value to fall below
the floor, so the adjustment is limited to 53,834.80 - 57,161.18
= -3,326.38
Adjusted Policy Value ("APV") = PV + EIA = 57,161.18 + (-3,326.38)
= 53,834.80
Surrender Charges (50,000 - 5,716.12)* .06
= 2,657.03
Net Surrender Value at
middle of Contract
Year 3 = 53,834.80 - 2,657.03
= 51,177.77
</TABLE>
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<PAGE>
Example 2
(Surrender, rates decrease by 1%):
<TABLE>
<CAPTION>
<S> <C>
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) ## 2.5 = 57,161.18
Penalty 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) ## 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 Policy Value = 57,161.18 + 1,286.13 = 58,447.31
Surrender Charges = (50,000 - 5,716.12)* .06 = 2,657.03
Net Surrender Value at middle of Contract Year 3 = 58,447.31 - 2,657.03 = 55,790.28
</TABLE>
On a partial withdrawal, PFL will pay the policyholder the full amount of
withdrawal requested (as long as the policy value is sufficient). Amounts
withdrawn will reduce the policy value by an amount equal to:
R = E + SC
<TABLE>
<CAPTION>
<S> <C>
R = the requested partial withdrawal;
E = the excess interest adjustment; and
SC = the surrender charges on (EPW - E); where
EPW = the excess partial withdrawal amount.
</TABLE>
Example 3
(Partial Withdrawal, rates increase by 1%):
<TABLE>
<CAPTION>
<S> <C>
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Partial Withdrawal: $20,000; Middle of Contract Year 3
Policy Value at middle of Contract Year 3 = 50,000* (1.055) ## 2.5 = 57,161.18
Penalty Free Amount at middle of Contract
Year 3 = 57,161.18* .10 = 5,716.12
Excess Interest/Surrender Charge (SC) Adjustment
S = 20,000 - 5,716.12 = 14,283.88
G = .055
C = .065
M = 30
E = 14,283.88* (.055 - .065)* (30/12) = - 357.10
EPW = 20,000 - 5,716.12 = 14,283.88
SC = .06* (14,283.88 - (- 357.10) = 878.46
Remaining Policy Value at middle of
Contract Year 3 = 57,161.18 - (R - E + SC)
= 57,161.18 - (20,000 - (- 357.10) + 878.46)
= 35,925.62
</TABLE>
Example 4
(Partial Withdrawal, rates decrease by 1%):
<TABLE>
<CAPTION>
<S> <C>
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) ## 2.5 = 57,161.18
Penalty Free Amount at middle of Contract Year 3 = 57,161.18* .10 = 5,716.12
Excess Interest/Surrender Charge Adjustment
S = 20,000 - 5,716.12 = 14,283.88
G = .055
C = .045
M = 30
E = 14,283.88* (.055 - .045)* (30/12) = 357.10
EPW = 20,000 - 5,716.12 = 14,283.88
SC = .06* (14,283.88 - 357.10) = 835.61
Remaining Policy Value at middle of
Contract Year 3 = 57,161.18 - (R - E + SC)
= 57,161.18 - (20,000 - 357.10 + 835.61)
= 36,682.67
</TABLE>
-11-
<PAGE>
Reallocation of Policy Values After the Annuity Commencement Date
After the annuity commencement date, you may reallocate the value of a
designated number of annuity units of a subaccount of the mutual fund account
(mutual fund subaccount) or of a subaccount of the target account (target
subaccount) then credited to a policy into an equal value of annuity units of
one or more other mutual fund subaccounts, target subaccounts, 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 units may be made in any given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the mutual fund account.
Annuity Payment Options
During the lifetime of the annuitant and prior to the annuity commencement date,
the owner may choose an annuity payment option or change the election, but
written notice of any election or change of election must be received by PFL at
its administrative and service office at least thirty (30) days prior to the
annuity commencement date. If no election is made prior to the annuity
commencement date, annuity payments will be made under (i) Payment Option 3,
life income with level payments for 10 years certain, using the existing
adjusted policy value of the fixed account, or (ii) under Payment Option 3, life
income with variable payments for 10 years certain using the existing policy
value of the mutual fund account, or (iii) in a combination of (i) and (ii).
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount PFL has at the death of a payee.
Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL agrees.
Variable Payment Options The dollar amount of the first variable annuity payment
will be determined in accordance with the annuity payment rates set forth in the
applicable table contained in the policy. The tables are based on a 5% effective
annual Assumed Investment Return and the "1983 Table a" (male, female, and
unisex if required by law) mortality table 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 additional variable annuity
payments will vary based on the investment performance of the subaccount(s) of
the mutual fund account selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
<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>
-12-
<PAGE>
This adjustment assumes an increase in life expectancy, and therefore it results
in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
other than the first are calculated using annuity units and are credited to the
policy. The number of annuity units to be credited in respect of a particular
subaccount is determined by dividing that portion of the first variable annuity
payment attributable to that subaccount by the annuity unit value of that
subaccount on the annuity commencement date. The number of annuity units of each
particular subaccount credited to the policy then remains fixed, assuming no
transfers to or from that subaccount occur. The dollar value of variable annuity
units in the chosen subaccount will increase or decrease reflecting the
investment experience of the chosen subaccount. The dollar amount of each
variable annuity payment after the first may increase, decrease or remain
constant, and is equal to the sum of the amounts determined by multiplying the
number of annuity units of each particular subaccount credited to the policy by
the annuity unit value for the particular subaccount on the date the payment is
made.
Death Benefit
Adjusted Partial Withdrawal. The amount of your Guaranteed Minimum Death Benefit
is reduced due to a partial withdrawal called the adjusted partial withdrawal.
The reduction amount depends on the relationship between your Guaranteed Minimum
Death Benefit and policy value. The adjusted partial withdrawal is equal to (1)
multiplied by (2), where:
(1) is the Gross Partial Withdrawals, where gross partial withdrawal
= requested withdrawal - excess interest adjustment + surrender
charges on (excess partial withdrawal - excess interest adjustment);
and
(2) is the adjustment factor = current death benefit prior to the
withdrawal divided by the current policy value prior to the
withdrawal.
The following examples describe the effect of a withdrawal on the Guaranteed
Minimum Death Benefit and policy value.
<TABLE>
<CAPTION>
Example 1
- ----------------------------------------------------------------------------------------------------
(Assumed Facts for Example)
- ----------------------------------------------------------------------------------------------------
<C> <S>
$75,000 current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
$50,000 current policy value before withdrawal
$75,000 current death benefit (larger of policy value and GMDB)
6% current surrender charge percentage
$15,000 requested withdrawal
$ 5,000 surrender charge-free amount (assumes 10% penalty free withdrawal is available)
$10,000 excess partial withdrawal -EPW (amount subject to surrender charge)
$ 100 excess interest adjustment
(assumes interest rates have decreased since initial guarantee)
$ 594 surrender charge on (EPW less EIA)=0.06*(10,000-100)
$10,194 reduction in policy value due to excess partial withdrawal = 10,000-100+594
$23,241 adjusted partial withdrawal = (5,000 + 10,494) * (75,000/50,000)
$51,759 New GMDB (after withdrawal) = 75,000- 23,241
$34,506 New policy value (after withdrawal)=50,000-15,494
- ----------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Summary:
- ----------------------------------------------------------------------
<S> <C>
Reduction in Guaranteed Minimum Death Benefit = $23,241
Reduction in policy value = $15,494
</TABLE>
Note, Guaranteed Minimum Death Benefit is reduced more than the policy value
since the Guaranteed Minimum Death Benefit was greater than the policy value
just prior to the withdrawal.
<TABLE>
<CAPTION>
Example 2
- ----------------------------------------------------------------------------------------------------
(Assumed Facts for Example)
- ----------------------------------------------------------------------------------------------------
<C> <S>
$50,000 current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
$75,000 current policy value before withdrawal
$75,000 current death benefit (larger of policy value and GMDB)
6% current surrender charge percentage
$15,000 requested withdrawal
$ 7,500 surrender charge-free amount (assumes 10% penalty free withdrawal is available)
$ 7,500 excess partial withdrawal -EPW (amount subject to surrender charge)
$ -100 excess interest adjustment
(assumes interest rates have increased since initial guarantee)
$ 456 surrender charge on (EPW less EIA)=0.06*[(7500-(-100)]
$ 8,056 reduction in policy value due to EPW= 7500-(-100) +456 =7500 + 100 + 456
$15,556 adjusted partial withdrawal = (7,500 + 8056) * (75,000/75,000)
$34,444 New GMDB (after withdrawal) = 50,000- 15,556
$59,444 New policy value (after withdrawal)=75,000 - 15,556
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
<S> <C>
Summary:
Reduction in GMDB = $15,556
Reduction in policy value = $15,556
</TABLE>
Note, GMDB and policy value are reduced by the same amount since the policy
value was higher than the GMDB just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the owner
died prior to the commencement of annuity payments. 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 an annuity payment option
must begin no later than one year after the deceased owner's death and must be
made for the beneficiary's lifetime or for a period certain (so long as any
certain period does not exceed the beneficiary's life expectancy). Death
proceeds which are not paid to or for the benefit of a natural person must be
distributed within five years of
-14-
<PAGE>
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.
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the adjusted policy value. If the successor owner is not the
deceased owner's spouse, however, the adjusted policy value must be distributed:
(1) within five years after the date of the deceased owner's death, or (2)
payments under an annuity payment option must begin no later than one year after
the deceased owner's death and must be made for the successor owner's lifetime
or for a period certain (so long as any period certain does not exceed the
successor owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary by sending
written notice to PFL. The beneficiary's consent to such change is not required
unless the beneficiary was irrevocably designated or law requires consent. (If
an irrevocable beneficiary dies, the owner may then designate a new
beneficiary.) The change will take effect as of the date the owner signs the
written notice, whether or not the owner is living when the notice is received
by PFL. PFL will not be liable for any payment made before the written notice is
received. If more than one beneficiary is designated, and the owner fails to
specify their interests, they will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where 1) the spouse of the deceased owner is the sole beneficiary, 2) the
owner is not a natural person and the primary annuitant dies or is changed, or
3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" for a detailed description of these rules. Other rules
may apply to qualified policies.
Assignment
During the lifetime of the annuitant you 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. Your rights and
benefits and those of the beneficiary are subject to the rights of the assignee.
PFL assumes no responsibility for the validity or effect of any assignment. Any
claim made under an assignment shall be subject to proof of interest and the
extent of the assignment. An assignment may have tax consequences.
Unless you so direct by filing written notice with PFL, no beneficiary may
assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any beneficiary's
creditors.
Ownership under qualified policies is restricted to comply with the code.
Evidence of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
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.
-15-
<PAGE>
PFL reserves the right to amend the policies to meet the requirements of the
code, regulations or published rulings. You can refuse such a change by giving
written notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the policy
due to lower acquisition costs PFL experiences on those purchases. The credit
will be reported to the Internal Revenue Service as taxable income to the
employee or registered representative. PFL may offer certain employer sponsored
savings plans, in its discretion reduced fees and charges including, but not
limited to, the surrender charges, the mortality and expense risk fee and the
administrative charge for certain sales under circumstances which may result in
savings of certain costs and expenses. In addition, there may be other
circumstances of which PFL is not presently aware which could result in reduced
sales or distribution expenses. Credits to the policy or reductions in these
fees and charges will not be unfairly discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general discussion
of certain of the expected federal income tax consequences of investment in and
distributions with respect to a policy, based on the Internal Revenue Code of
1986, as amended, proposed and final Treasury Regulations thereunder, judicial
authority, and current administrative rulings and practice. This summary
discusses only certain federal income tax consequences to "United States
Persons," and does not discuss state, local, or foreign tax consequences. United
States Persons means citizens or residents of the United States, domestic
corporations, domestic partnerships and trusts or estates that are subject to
United States federal income tax regardless of the source of their income.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies as
an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the code, the investments made by such account must
be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. (S)1.817-5) apply
a diversification requirement to each of the mutual fund subaccounts and the
target series subaccounts. The mutual fund account, through its underlying funds
and their portfolios, and the target account, through its subaccounts, 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. which requires the portfolios to be operated in compliance
with the Treasury regulations. PFL has entered into an agreement with First
Trust Advisers, L.P., the adviser of the target account, which requires the
target series subaccounts 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 mutual fund account used to support their contracts. In those circumstances,
income and gains from the mutual fund account assets would be includable in the
variable annuity contract owner's gross income. Several years ago, the IRS
stated in published rulings that a variable annuity contract owner will be
considered the owner of mutual fund account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. More recently, the Treasury
Department announced in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., you), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance
-16-
<PAGE>
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 contract 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 mutual fund account assets. For example,
you have 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. Moreover, the investment strategies for the target series
subaccounts are innovative and have not been addressed by the IRS. These
differences could result in you being treated as the owner of the assets of the
mutual fund account or the target account. In addition, PFL does not know what
standards will be set forth, if any, in the regulations or rulings that the
Treasury Department has stated it expects to issue. PFL therefore reserves the
right to modify the policies as necessary to attempt to prevent you from being
considered the owner of a pro rata share of the assets of the mutual fund
account or the target account.
Distribution Requirements. The code requires that nonqualified policies contain
specific provisions for distribution of policy proceeds upon the death of any
owner. In order to be treated as an annuity contract for federal income tax
purposes, the code requires that such policies provide that if any owner dies on
or after the annuity commencement date and before the entire interest in the
policy has been distributed, the remaining portion must be distributed at least
as rapidly as under the method in effect on such owner's death. If any owner
dies before the annuity commencement date, the entire interest in the policy
must generally be distributed within 5 years after such owner's date of death or
be used to purchase 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 will be reviewed and
modified if necessary to assure that they comply with the code requirements when
clarified by regulation or otherwise.
Withholding. The portion of any distribution under a policy that is includable
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or made.
For certain qualified policies, certain distributions are subject to mandatory
withholding. The withholding rate varies according to the type of distribution
and the owner's tax status. For qualified policies, "eligible rollover
distributions" from section 401(a) plans and section 403(b) tax-sheltered
annuities are subject to a mandatory federal income tax withholding of 20%. An
eligible rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions such as distributions required by the
code or distributions in a specified annuity form. The 20% withholding does not
apply, however, if the owner chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA.
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
-17-
<PAGE>
for determining that contributions, distributions and other transactions with
respect to the policies comply with applicable law.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the code), distributions generally must begin no later than April 1
of the calendar year in which the owner (or plan participant) reaches age 70
1/2. Each owner is responsible for requesting distributions under the policy
that satisfy applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional individual
retirement annuity under Section 408(b) of the code, a policy must contain
certain provisions: (i) the owner must be the annuitant; (ii) the policy
generally is not transferable by the owner, e.g., the owner may not designate a
new owner, designate a contingent owner or assign the policy as collateral
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 a traditional individual retirement annuities under Section 408(b) of the
code contain such provisions. Amounts in the IRA (other than nondeductible
contributions) are taxed when distributed from the IRA. Distributions prior to
age 59 1/2 (unless certain exceptions apply) are subject to a 10% penalty tax.
Section 408 of the code also indicates that no part of the funds for a
traditional individual retirement account or annuity 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.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not deductible
and must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply. You should consult a tax adviser
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made from assets which have been held in the account for 5 tax years and
are made after attaining age 59 1/2, to pay for qualified first time homebuyer
expenses (lifetime maximum of $10,000) or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are the same.
Section 403(b) Plans. Under Section 403(b) of the code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the
-18-
<PAGE>
employee, subject to certain limitations. However, such payments may be subject
to FICA (Social Security) taxes. The policy includes a death benefit that in
some cases may exceed the greater of the premium payments or the policy value.
The death benefit could be characterized as an incidental benefit, the amount of
which is limited in any tax-sheltered annuity under section 403(b). Because the
death benefit may exceed this limitation, employers using the policy in
connection with such plans should consult their tax adviser. Additionally, in
accordance with the requirements of the code, Section 403(b) annuities generally
may not permit distribution of (i) elective contributions made in years
beginning after December 31, 1988, 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. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in an
pension or profit sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax adviser.
Deferred Compensation Plans. Section 457 of the code, while not actually
providing for a qualified plan as that term is 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. 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.
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. Although the likelihood of legislative change is
uncertain, there is always the possibility that the tax treatment of the
policies could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted, would
adversely modify the federal taxation of the policies. It is also possible that
any change could be retroactive (that is, effective prior to the date of the
change). A tax adviser should be consulted with respect to legislative
developments and their effect on the policy.
-19-
<PAGE>
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 and the target account are treated as part
of PFL and, accordingly, will not be taxed separately as "regulated investment
companies" 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 or the target
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 or the target account for federal income taxes. If, in future
years, any federal income taxes are incurred by PFL with respect to the mutual
fund account or the target account, PFL may make a charge to that account.
INVESTMENT EXPERIENCE
A "net investment factor" is used to determine the value of accumulation units
and annuity units, and to determine annuity payment rates.
Accumulation Units
Allocations of a premium payment directed to a mutual fund subaccount or target
series subaccount are credited in the form of accumulation units. Each
subaccount has a distinct accumulation unit value. The number of units credited
is determined by dividing the premium payment or amount transferred to the
mutual fund subaccount or target series subaccount by the accumulation unit
value of the mutual fund subaccount or target series subaccount as of the end of
the valuation period during which the allocation is made. For each mutual fund
subaccount or target series subaccount, the accumulation unit value for a given
business day is based on the net asset value of a share of the corresponding
portfolio of the underlying funds less any applicable charges or fees.
Upon allocation to the selected mutual fund subaccount or target subaccount,
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 and the target subaccounts, which were 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.
For the mutual fund account, an index (the "net investment factor") which
measures the investment performance of a subaccount during a valuation period is
used to determine the value of an accumulation unit for the next subsequent
valuation period. The net investment factor may be greater or less than or equal
to one; therefore, the value of an accumulation unit may increase, decrease or
remain the same from one valuation period to the next. You bear this investment
risk. The net investment performance of a subaccount and deduction of certain
charges affect the accumulation unit value.
The net investment factor for any mutual fund subaccount or target series
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
-20-
<PAGE>
(3) a per share credit or charge for any taxes determined by PFL to have
resulted during the valuation period 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 Double Enhanced Death Benefit) and 1.10% (for the
Return of Premium Death Benefit) of the daily net asset value of the
subaccount, plus the 0.15% administrative charge plus the distribution
financing charge of 0.15%. The distribution financing charge is assessed
only during the first seven policy years and prior to the annuity
commencement date.
Illustration of Mutual Fund Account and Target Account
Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
<TABLE>
<S> <C>
Net Investment 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
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 1.55% on an annual
basis for the first seven years and 1.40% thereafter. On a daily basis, E equals
.0000421409 for the first seven years and .0000380909 thereafter.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Then, the net investment factor = (11.57 + 0 - 0) - .0000421409 = Z = 1.0148701398
---------------
(11.40)
for the first seven years, and (11.57 + 0 - 0) - 0000380909 = 1.0148741898 thereafter.
---------------
11.40
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * 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
</TABLE>
-21-
<PAGE>
Then, the accumulation unit value = $ X * Y = $ Z
Annuity Unit Value and Annuity Payment Rates
For both the mutual fund account and the target account, 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. For the separate account, 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 for the valuation period; and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
assumed investment return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business day.
For the target account, at the end of each valuation period, the annuity unit
value is established by multiplying the value of an annuity unit determined at
the end of the immediately preceding valuation period by a net investment factor
for the current valuation period, and then multiplying that product by an
investment result adjustment factor for the purpose of offsetting the effect of
an assumed investment return of 5.0% per annum which is assumed in the annuity
conversion rates for the contracts. The net investment factor for the target
subaccounts is very similar to the net investment factor for the mutual fund
account, except that it is based upon the value of the assets in the subaccount,
instead of the net asset value for a mutual fund share. The net investment
factor includes a charge for mortality and expense risks, that is, the mortality
and expense risk fee, and administrative charge.
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
<TABLE>
<CAPTION>
<S> <C>
Annuity Unit Value = A * B * C
Where: A = annuity unit value for the immediately preceding valuation period.
Assume.................................................................. = $ X
B = Net investment factor for the valuation period for which the annuity unit
value is being calculated.
Assume........................................................... = Y
C = A factor to neutralize the assumed interest rate of 5% built into the
Annuity Tables used.
Assume........................................................... = Z
</TABLE>
-22-
<PAGE>
Then, the annuity unit value is:
$ X * Y * Z = $ Q
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First monthly variable annuity payment = A * B
-----
$1,000
<TABLE>
<CAPTION>
<S> <C>
Where: A = The adjusted policy value as of the annuity commencement date.
Assume....................................................... = $ X
B = The Annuity purchase rate per $1,000 of adjusted policy value
based upon the option selected, the sex and adjusted age of the
annuitant according to the tables contained in the policy.
Assume....................................................... = $ Y
</TABLE>
Then, the first monthly variable annuity payment = $ X * $ Y = $ Z
---------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
-
B
<TABLE>
<CAPTION>
<S> <C>
Where: A = The dollar amount of the first monthly variable annuity payment.
Assume....................................................... = $ X
B = The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume....................................................... = $ Y
</TABLE>
Then, the number of annuity units $ X = Z
---
$ Y
FAMILY INCOME PROTECTOR - HYPOTHETICAL ILLUSTRATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume that there were no subsequent premium payments, or
withdrawals, that there were no premium taxes and that the $100,000 premium is
subject to the family income protector. Six different annuity payment options
are illustrated: a male annuitant, a female annuitant and a joint and survivor
annuity, each on a Life Only and a Life with 10 Year Certain basis. These
hypothetical illustrations assume that the annuitant is (or both annuitants are)
60 years old when the rider is issued, that the annual growth rate is 6.0% (once
established an annual growth rate will not change during the life of the family
income protector rider), and that there was no upgrade of the minimum
annuitization value. The figures below, which are the amount of the first
monthly payment, are based on an assumed investment return of 3%. Subsequent
payments will never be less than the amount of the first payment (although
subsequent payments are calculated using a 5% assumed investment return).
Illustrations of guaranteed minimum payments based on other assumptions will be
provided upon request.
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity
with 10 Years Certain
-23-
<PAGE>
<TABLE>
<CAPTION>
Rider Anniversary at Male Female Joint & Survivor
Exercise Date
- -------------------------------------------------------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
<S> <C> <C> <C> <C> <C> <C>
10 (age 70) $1,135 $1,067 $ 976 $ 949 $ 854 $ 852
15 1,833 1,634 1,562 1,469 1,332 1,318
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
=========================================================================================================================
</TABLE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table improved
to the year 2000 with projection Scale G. Subsequent payments will be
calculated as described in the family income protector rider using a 5% assumed
investment return. Subsequent payments may fluctuate annually in accordance
with the investment performance of the annuity subaccounts. However, subsequent
payments are guaranteed to never be less than the initial payment.
The stabilized payment on each subsequent policy anniversary after annuitization
using the family income protector will equal the greater of the initial payment
or the payment supportable by the annuity units in the selected subaccounts.
The supportable payment is equal to the number of variable annuity units in the
selected subaccounts multiplied by the variable annuity unit values in those
subaccounts on the date the payment is made. The variable annuity unit values
used to calculate the supportable payment will assume a 5% assumed investment
return. If the supportable payment at any payment date during a policy year is
greater than the stabilized payment for that policy year, the excess will be
used to purchase additional annuity units. Conversely, if the supportable
payment at any payment date during a policy year is less than the stabilized
payment for that policy year, there will be a reduction in the number of annuity
units credited to the policy to fund the deficiency. In the case of a
reduction, you will not participate as fully in the future investment
performance of the subaccounts you selected since fewer annuity units are
credited to your policy. Purchases and reductions will be allocated to each
subaccount on a proportionate basis.
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a stabilized payment fee
will be deducted.
HISTORICAL PERFORMANCE DATA
Money Market Yields
PFL may from time to time disclose the current annualized yield of the Endeavor
Money Market Subaccount, which invests in the Endeavor Money Market Portfolio,
for a 7-day period in a manner which does not take into
-24-
<PAGE>
consideration any realized or unrealized gains or losses on shares of the
Endeavor 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 and income other than investment income) at the end of the 7-
day period in the value of a hypothetical account having a balance of 1 unit of
the Endeavor 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
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) * (365/7)
Where:
NCS = The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Endeavor Money Market Subaccount will be lower than the yield for the Endeavor
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 Endeavor 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))/365/7/ - 1
Where:
NCS = The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the Endeavor 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 Endeavor Money Market Subaccount's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Endeavor Money Market Portfolio, the types and quality of portfolio
securities held by the Endeavor Money Market Portfolio and its operating
expenses. For the seven days ended December 31, 1998, the yield of the Endeavor
Money Market Subaccount was _____%, and the effective yield was _____% for the
5% Annually Compounding Death Benefit and the Double Enhanced Death Benefit. For
the seven days ended December 31, 1998, the yield of the Endeavor Money Market
Subaccount was ____%, and the effective yield was _____% for the Return of
Premium Death Benefit.
-25-
<PAGE>
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the mutual fund subaccounts and the target subaccounts (except
the Endeavor 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 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 * ((((NI - ES)/(U - UV)) + 1)/6/ - 1)
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
Because of the charges and deductions imposed by the mutual fund account, the
yield for a mutual fund subaccount 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 mutual fund subaccounts and the target
subaccounts 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. The types and quality of its investments and its
operating expenses affect a subaccount's actual yield.
Total Returns
PFL may from time to time also advertise or disclose total returns for one or
more of the mutual fund subaccounts or the target subaccounts 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 mutual fund
account's underlying portfolio, and the target subaccount's common shares, and
the deductions for the mortality and expense risk fee, the distribution
financing charges, and the administrative charges. The total return for each
target subaccount will also reflect the manager's fee and other operating
expenses. Total return calculations will reflect the effect of surrender charges
that may be applicable to a particular period. The total return will then be
calculated according to the following formula:
P (1 + T)/N/ = ERV
-26-
<PAGE>
<TABLE>
<CAPTION>
Where:
<S> <C>
T = The average annual total return net of subaccount recurring charges.
ERV = The ending redeemable value of the hypothetical account at the end of the period.
P = A hypothetical initial payment of $1,000.
N = The number of years in the period.
</TABLE>
Other Performance Data
PFL may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
surrender charge percentage will be assumed to be 0%.
PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula.
CTR = (ERV / P) - 1
<TABLE>
<CAPTION>
Where:
<S> <C>
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.
</TABLE>
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.
Adjusted Historical Performance Data--The Mutual Fund Account
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date a particular mutual fund subaccount
commenced operations. Such performance information for the mutual fund
subaccounts will be calculated based on the performance of the various
portfolios and the assumption that the mutual fund subaccounts were in existence
for the same periods as those indicated for the portfolios, with the level of
policy charges that are currently in effect.
THE TARGET ACCOUNT
What is the Investment Strategy?
The objective of each of the target subaccounts is to provide an above-average
total return through a combination of dividend income and capital appreciation.
While the objectives of the target subaccounts are the same, each target
subaccount follows a different investment strategy (set forth below) in order to
achieve its stated objective.
Each target subaccount will initially invest in equal amounts in the common
stock described below for each target subaccount (the common shares) determined
as of a specified business day (initial stock selection date). The Dow/SM/
Target 10 Subaccount will invest in the common stock of the ten companies in the
DJIA that have the highest dividend yield. The Dow/SM/ Target 5 Subaccount will
invest in the common stock of the five companies with the lowest per share stock
price of the ten companies in The Dow/SM/ Target 10 Subaccount. These stocks
will be held for one year.
-27-
<PAGE>
At the initial stock selection date, a percentage relationship among the number
of common shares in a target subaccount will be established. When additional
funds are deposited into the target subaccount, additional common shares will be
purchased in such numbers reflecting as nearly as practicable the percentage
relationship of the number of common shares established at the initial purchase.
Sales of common shares by the target subaccount will likewise attempt to
replicate the percentage relationship of common shares. The percentage
relationship among the number of common shares in the target subaccount should
therefore remain stable. However, given the fact that the market price of such
common shares will vary throughout the year, the value of the common shares of
each of the companies as compared to the total assets of the target subaccount
will fluctuate during the year, above and below the proportion established on a
stock selection date. On the last business day of the 12-month period following
the preceding stock selection date (annual stock selection date), a new
percentage relationship will be established among the number of common shares
described above for each target subaccount on such date. Common shares may be
sold or new equity securities bought so that the target subaccount is equally
invested in the common stock of each company meeting the target subaccount's
investment criteria. Thus the target subaccount may or may not hold equity
securities of the same companies as the previous year. Any purchase or sale of
additional common shares during the year will duplicate, as nearly as
practicable, the percentage relationship among the number of common shares as of
the annual stock selection date since the relationship among the value of the
common shares on the date of any subsequent transactions may be different than
the original relationship among their value.
The yield for each equity security listed on the DJIA is calculated by
annualizing the last quarterly or semi-annual ordinary dividend declared and
dividing the result by the market value of such equity security as of the close
of business on the stock selection date.
The publishers of the DJIA are not affiliated with PFL, Endeavor Management Co.,
or First Trust Advisers L.P. and have not participated in the creation of the
target subaccounts or the selection of the equity securities included therein.
Any changes in the components of any of the respective indices made after a
stock selection date will not cause a change in the identity of the common
shares included in a target subaccount, including any additional common shares
purchased thereafter, until the next annual stock selection date.
Investors should note that the above criteria were applied and will in the
future be applied to the common shares selected for inclusion in the target
subaccounts as of the respective stock selection date. Additional common shares,
which were originally selected through this process, may be purchased throughout
the year, as investors may continue to invest in the target subaccounts, even
though the yields on these common shares may have changed subsequent to the
previous stock selection date. These common shares may no longer be included in
the index, or may not meet a target subaccount's selection criteria at that
time, and therefore, such common shares would no longer be chosen for inclusion
in the target subaccounts if the selection process were to be performed again at
that time. The equity securities selected as common shares and the percentage
relationship among the number of shares will not change for purchase or sales by
a target subaccount until the next annual stock selection date.
Determination of Unit Value; Valuation of Securities
PFL determines the unit value of each target subaccount each business day. This
daily determination of unit value is made by dividing the total assets of a
target series subaccount, less all of its liabilities, by the total number of
units outstanding at the time the determination is made. This is made as of the
close of regular trading on the New York Stock Exchange, currently 4:00 p.m. New
York time, unless the Exchange closes earlier. Purchases and redemptions will
be effected at the time of determination of unit value next following the
receipt of any purchase or redemption order deemed to be in good order.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or at the ask price on the NASDAQ system for unlisted
national market issues, or at the last quoted bid price for securities in which
there were no sales during the day or for unlisted securities not reported on
the NASDAQ system. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates fair value as determined by the
Board of Managers. Futures and option contracts that are traded on commodities
or securities exchanges are normally valued at the settlement price on the
exchange on which they are traded. Securities (other
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<PAGE>
than short-term obligations) for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Managers of the target subaccounts.
The Board of Managers
The members of the Board of Managers of the target account, and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
member is 2101 East Coast Highway, Suite 300, Corona del Mar, California 92625.
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
- --------------------------------- ------------------------------- ----------------------------------------------
<S> <C> <C>
*##Vincent J. McGuinness, President, Chief Financial From February, 1997 to December 1997,
Jr. (34) Officer (Treasurer), Executive Vice-President, Chief of
and Manager Operations, since March 1997, Director, since
December, 1997, Chief Operating Officer and
since June, 1998, Chief Financial Officer of
Endeavor Group; from September, 1996 to June,
1997, and since June 1998, Chief Financial
Officer, since May, 1996, Director, and from
June, 1997 to October, 1998, Executive Vice
President --Administration and since October
1998, President of Endeavor Management Co.;
since August, 1996, Chief Financial Officer
of VJM Corporation; from May, 1996 to January
1997, Executive Vice President and Director
of Sales, Western Division of Endeavor Group;
since May, 1996, Chief Financial Officer of
McGuinness & Associates; from July, 1993 to
August, 1995 Rocky Mountain Regional
Marketing Director for Endeavor Group;
President, Chief Financial Officer, and
Trustee of Endeavor Series Trust.
*Vincent J. McGuinness (64) Manager Chairman, Chief Executive Officer and
Director of McGuinness & Associates, Endeavor
Group, VJM Corporation (oil and gas), until
July, 1996 McGuinness Group (insurance
marketing) and until January, 1994 Swift
Energy Marketing Company and since September,
1988 Endeavor Management Co.; President of
VJM Corporation and until October, 1998,
Endeavor Management Co. and, since February,
1996, McGuinness & Associates; Trustee,
Endeavor Series Trust.
Timothy A. Devine (63) Manager Vice President, Plant Control, Inc.
1424 Dolphin Terrace (landscape contracting and maintenance);
Corona del Mar, California Trustee, Endeavor Series Trust.
92625
Thomas J. Hawekotte (63) Manager President, Thomas Hawekotte, P.C. (law
6007 North Sheridan Road practice); Trustee, Endeavor Series Trust.
Chicago, Illinois 60660
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
- --------------------------------- ------------------------------ ----------------------------------------------
<S> <C> <C>
Steven L. Klosterman (46) Manager Since July, 1995, President of Klosterman
5973 Avenida Encinas, #300 Capital Corporation (investment adviser);
Carlsbad, California 92008 Investment Counselor, Robert J. Metcalf &
Associates, Inc. (investment adviser) from
August, 1990 to June, 1995; Trustee, Endeavor
Series Trust.
*Halbert D. Lindquist (52) Manager President, Lindquist Stephenson and White
1650 E. Fort Lowell Road (investment adviser) and since December, 1987
Suite 203 Tucson Asset Management Inc. (commodity
Tucson, Arizona 85719-2324 trading advisor), and since November, 1987,
Presidio Government Securities, Incorporated
(broker-dealer); since January 1998, Chief
Investment Officer, Blackstone Alternative
Asset Management, Trustee, Endeavor Series
Trust.
Keith H. Wood (62) Manager Since 1972, Chairman and Chief Executive
Officer of Jamison, Eaton & Wood (investment
adviser) and since 1978 to December 1997,
President of Ivory & Sime International, Inc.
(investment adviser); Trustee, Endeavor
Series Trust.
Peter F. Muratore (66) Manager From June, 1989 to March 1998, President of
Too Far OCC Distributors (broker/dealer), a
Posthouse Road subsidiary of Oppenheimer Capital.
Monistoun, NJ 07960
*William. L. Busler (55) Manager President, PFL Life Insurance Company;
4333 Edgewood Road N.E. Trustee, Endeavor Series Trust.
Cedar Rapids, Iowa 52499-0001
Michael Pond (__) Executive Vice President - Since November 1, 1998, Executive Vice
Administration and President - Administrative and Compliance of
Compliance Endeavor Group and Endeavor Management Co.
and Chief Financial Officer of Endeavor
Management Co. From _____ 1991 to _____,
1996, Chairman and President, the Preferred
Group of Mutual Funds; from _____, 1989 to
_____, 1996, President of Caterpillar
Securities, Inc. and Caterpillar Investment
Manager, Ltd.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
- --------------------------------- ------------------------------ ----------------------------------------------
<S> <C> <C>
Pamela A. Shelton (49) Secretary Since October, 1993, Executive Secretary to
Chairman of the Board and Chief Executive
Officer of, and since April, 1996, Secretary
of McGuinness & Associates, Endeavor Group,
VJM Corporation, McGuinness Group (until
July, 1996) and Endeavor Management Co.;
Secretary, Endeavor Series Trust.
</TABLE>
* An "interested person" of the target account as defined in the 1940 Act.
+ Vincent J. McGuinness, Jr. is the son of Vincent J. McGuinness.
The "rules and regulations" of the target account provide that the target
account will indemnify its Board of Managers and officers against liabilities
and expenses incurred in connection with litigation in which they may be
involved because of their offices with the target account, except if it is
determined in the manner specified in the rules and regulations that they have
not acted in good faith in the reasonable belief that their actions were in the
best interests of the target account or that such indemnification would relieve
any officer or member of the Board of Managers of any liability to the target
account or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. The target account, at its
expense, provides liability insurance for the benefit of its Board of Managers
and officers.
Compensation. For the period ending December 31, 1998, the following
compensation was paid to members of the Board of Managers:
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation From Account and Fund
Name of Person From Account Complex Paid to Trustees
- ------------------------------------------ --------------------- -----------------------------
<S> <C> <C>
Vincent J. McGuinness.....................
Timothy A. Devine.........................
Thomas J. Hawekotte.......................
Steven L. Klosterman......................
Halbert D. Lindquist......................
R. Daniel Olmstead (retired as of
12/31/98)................................
Keith H. Wood.............................
Vincent J. McGuinness, Jr. ...............
William L. Busler.........................
Peter F. Muratore.........................
</TABLE>
The Investment Advisory Services
First Trust Advisers L.P. (the "adviser") is the target account's investment
adviser. The adviser manages the assets of each target subaccount, consistent
with the investment objective and policies described herein and in the
prospectus, pursuant to an investment advisory agreement (the "advisory
agreement") with Endeavor Management Co., the target account's manager.
The investment adviser's address is 1001 Warrenville Road, Lisle, Illinois
60532. First Trust Advisers L.P. is a limited partnership with one limited
partner, Grace Partners of Dupage L.P., and one general partner, Nike Securities
Corporation. Grace Partners of Dupage L.P. is a limited partnership with one
general partner, Nike Securities Corporation, and a number of limited partners
(none of whom have more than a 25% interest). Nike Securities Corporation is an
Illinois corporation controlled by Robert Donald Van Kampen.
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<PAGE>
Under the advisory agreement, the investment adviser provides each target
subaccount with discretionary investment services. Specifically, the adviser is
responsible for supervising and directing the investments of each target
subaccount in accordance with each target subaccount's investment objective,
program, and restrictions as provided in the prospectus and this Statement of
Additional Information. The investment adviser is also responsible for effecting
all security transactions on behalf of each target subaccount.
As compensation for its services, the adviser receives a fee of 0.35% of the
average daily net assets of each target subaccount, which is paid by the
manager. Each target subaccount's advisory agreement also provides that the
adviser, its directors, officers, employees, and certain other persons
performing specific functions for the target subaccounts will only be liable to
the target subaccount for losses resulting from willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty. The amount that Endeavor
Management Co. paid to the adviser during 1998 was $_____________.
The adviser is also the portfolio supervisor of certain unit investment trusts
sponsored by Nike Securities L.P. ("Nike Securities") which are substantially
similar to the target series subaccounts in that they have the same investment
objectives as the target series subaccounts but have a life of approximately one
year. Nike Securities specializes in the underwriting, trading and distribution
of unit investment trusts and other securities. Nike Securities, an Illinois
limited partnership formed in 1991, acts as sponsor for successive series of The
First Trust Combined Series, The First Trust Special Situations Trust, the First
Trust Insured Corporate Trust, The First Trust of Insured Municipal Bonds and
the First Trust GNMA. First Trust introduced the first insured unit investment
trust in 1974 and to date more than $11 billion in First Trust unit investment
trusts have been deposited.
The Manager
The target account is managed by Endeavor Management Co. ("the manager") which,
subject to the supervision and direction of the target account's Board of
Managers, has overall responsibility for the general management and
administration of the target account. Vincent J. McGuinness, a member of the
Board of Managers of the target account, together with his family members and
trusts for the benefit of his family members, own all of Endeavor Management
Co.'s outstanding common stock. Mr. McGuinness is Chairman and Chief Executive
Officer of Endeavor Management Co.
The manager is responsible for providing investment management to the target
account and in the exercise of such responsibility selects an investment adviser
for each of the target subaccounts (the "adviser") and monitors the adviser's
investment program and results, reviews brokerage matters, oversees compliance
by the target account with various federal and state statutes, and carries out
the directives of the Board of Managers. The manager is responsible for
providing the target account with office space, office equipment, and personnel
necessary to operate and administer the target account's business, and also
supervises the provision of services by third parties such as the target
account's custodian, transfer agent and administrator. Pursuant to an
administration agreement, First Data Investor Services Group, Inc. assists the
manager in the performance of its administrative responsibilities to the target
account. For its administrative responsibilities, the target account pays First
Data Investor Services Group a fee of $10,000 per annum per subaccount and any
out-of-pocket fees of the expenses.
As compensation for its services, the manager receives a fee equal to 0.75% of
the average daily net assets of each target subaccount. The amount that the
target account paid the manager during 1998 was $____________.
Operating Expenses
In addition to the management fees, the target account pays all expenses not
assumed by the manager, including, without limitation, expenses for legal,
accounting and auditing services, interest, taxes, costs of printing and
distributing reports to shareholders, proxy materials and prospectuses, charges
of its custodian, transfer agent and dividend disbursing agent, registration
fees, fees and expenses of the Board of Managers who are not affiliated persons
of the manager or an adviser, insurance, brokerage costs, litigation, and other
extraordinary or nonrecurring
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<PAGE>
expenses. All general target account expenses are allocated among and charged to
the assets of the target series subaccounts on a basis that the Board of
Managers deems fair and equitable, which may be on the basis of relative net
assets of each target series subaccount or the nature of the services performed
and relative applicability to each target series subaccount. The manager has
agreed to limit each target series subaccount's management fee and operating
expenses during its first year of operations to an annual rate of 1.30% of the
target series subaccount's average net assets. (This limit does not include
other fees and deductions such as the mortality and expense risk fee,
administrative charge, and distribution financing charge.)
Transfer Agent and Custodian
Boston Safe Deposit and Trust Company holds all cash and securities of each
target series subaccount as custodian. First Data Investor Services Group,
located at 4400 Computer Drive, Westborough, Massachusetts 01581, serves as
transfer agent for the target account.
Brokerage Allocation
The adviser invests all assets of the target subaccounts in common stock and
incurs brokerage costs in connection therewith.
Allocations of transactions by the target subaccounts, including their
frequency, to various dealers is determined by the adviser in its best judgment
and in a manner deemed to be in the best interest of the investors in the target
subaccount rather than by any formula. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price.
Purchases and sales of securities may be principal transactions; that is,
securities may be purchased directly from the issuer or from an underwriter or
market maker for the securities. Any transactions for which the target
subaccounts pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price. Brokerage may be allocated based on the sale of policies by dealers
or activities in support of sales of the policies. The target account has
adopted a Brokerage Enhancement Plan, whereby all or a portion of certain
brokerage commission paid by the target subaccounts may be allocated or credited
to the distributor or other entities marketing the policies, to help to finance
sales activities.
The target account did not pay compensation to any affiliated broker of Endeavor
Management Co. or First Trust Advisers L.P. during 1998.
Investment Restrictions
Fundamental policies of the target subaccounts may not be changed without the
approval of the lesser of (1) 67% of the persons holding voting interests
(generally owners) present at a meeting if the holders of more than 50% are
present in person or by proxy or (2) more than 50% of the persons holding voting
interests. Other restrictions, in the form of operating policies, are subject to
change by the Board of Managers without the approval of persons holding a voting
interest. Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
of securities or assets of, or borrowings by, a target subaccount.
Fundamental Policies
As a matter of fundamental policy, each target subaccount may not:
(1) Borrowing. Borrow money, except each target subaccount may borrow as a
temporary measure for extraordinary or emergency purposes, and then only
in amounts not exceeding 30% of its total assets valued at
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<PAGE>
market. Each target subaccount will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might
otherwise require untimely investment liquidations;
(2) Loans. Make loans, although the target subaccounts may purchase money
market securities and enter into repurchase agreements; and they may lend
their common shares.
(3) Margin. Purchase securities on margin;
(4) Mortgaging. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the target subaccounts as security for indebtedness
except as may be necessary in connection with permissible borrowings, in
which event such mortgaging, pledging, or hypothecating may not exceed 30%
of each target subaccount's total assets, valued at market;
(5) Real Estate. Purchase or sell real estate;
(6) Senior Securities. Issue senior securities (except permitted borrowings);
(7) Short Sales. Effect short sales of securities; or
(8) Underwriting. Underwrite securities issued by other persons, except to the
extent the target subaccounts may be deemed to be underwriters within the
meaning of the Securities Act of 1933 in connection with the purchase and
sale of their portfolio securities in the ordinary course of pursuing
their investment programs.
In addition, as a matter of fundamental policy, each target subaccount may
engage in futures and options transactions and hold warrants.
Operating Policies
As a matter of operating policy, each target subaccount may not:
(1) Control of Companies. Invest in companies for the purpose of exercising
management or control;
(2) Illiquid Securities. Purchase a security if, as a result of such purchase,
more than 15% of the value of each target subaccount's net assets would be
invested in illiquid securities or other securities that are not readily
marketable.
(3) Oil and Gas Programs. Purchase participations or other direct interests or
enter into leases with respect to, oil, gas, other mineral exploration or
development program.
Options and Futures Strategies
A subaccount may at times seek to hedge against either a decline in the value of
its portfolio securities or an increase in the price of securities which the
adviser plans to purchase through the writing and purchase of options and the
purchase or sale of future contracts and related options. Expenses and losses
incurred as a result of such hedging strategies will reduce a subaccount's
current return.
The ability of a subaccount to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore no assurance can be
given that a subaccount will be able to utilize these instruments effectively
for the purposes stated below.
Writing Covered Options on Securities. A subaccount may write covered call
options and covered put options on optionable securities of the types in which
it is permitted to invest from time to time as the adviser determines is
appropriate in seeking to attain the subaccount's investment objective. Call
options written by a subaccount give the
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<PAGE>
holder the right to buy the underlying security from the subaccount at a started
exercise price; put options give the holder the right to sell the underlying
security to the subaccount at a stated price.
A subaccount may only write call options on a covered basis or for cross-hedging
purposes and will only write covered put options. A put option would be
considered "covered" if the subaccount owns an option to sell the underlying
security subject to the option having an exercise price equal to or greater than
the exercise price of the "covered" option at all times while the put option is
outstanding. A call option is covered if the subaccount owns or has the right to
acquire the underlying securities subject to the call option (or comparable
securities satisfying the cover requirements of securities exchanges) at all
times during the option period. A call option is for cross-hedging purposes if
it is not covered, but is designed to provide a hedge against another security
which the subaccount owns or has the right to acquire. In the case of a call
written for cross-hedging purposes or a put option, the subaccount will maintain
in a segregated account at the subaccount's custodian bank cash or short-term
U.S. government securities with a value equal to or greater than the
subaccount's obligation under the option. A subaccount may also write
combinations of covered puts and covered calls on the same underlying security.
A subaccount will receive a premium from writing an option, which increases the
subaccount's return in the event the option expires unexercised or is terminated
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, a subaccount will
limit its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a subaccount will assume the risk that it may be required to purchase
the underlying security for an exercise price higher than its then current
market price, resulting in a potential capital loss if the purchase price
exceeds the market price plus the amount of the premium received.
A subaccount may terminate an option, which it has written prior to its
expiration, by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The subaccount
will realize a profit (or loss) from such transaction if the cost of such
transaction is less (or more) than the premium received from the writing of the
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option may be offset in whole or in part
by unrealized appreciation of the underlying security owned by the subaccount.
Purchasing Put and Call Options on Securities. A subaccount may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. This protection is provided during the life of the put
option since the subaccount, as holder of the put, is able to sell the
underlying security at the exercise price regardless of any decline in the
underlying security's market price. For the purchase of a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options in this manner, any profit which the subaccount
might otherwise have realized on the underlying security will be reduced by the
premium paid for the put option and by transaction costs.
A subaccount may also purchase a call option to hedge against an increase in
price of a security that it intends to purchase. This protection is provided
during the life of the call option since the subaccount, as holder of the call,
is able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this matter, any profit which the subaccount
might have realized had it brought the underlying security at the time it
purchased the call option will be reduced by the premium paid for the call
option and by transaction costs.
No subaccount intends to purchase put or call options if, as a result of any
such transaction, the aggregate cost of options held by the subaccount at the
time of such transaction would exceed 5% of its total assets.
Limitations. A subaccount will not purchase or sell futures contracts or options
on futures contracts for non-hedging purposes if, as a result, the sum of the
initial margin deposits on its existing futures contracts and related options
positions and premiums paid for options on futures contracts would exceed 5% of
the net assets of the subaccount unless the transaction meets certain "bona fide
hedging" criteria.
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<PAGE>
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on a subaccount's ability to
terminate options and futures positions at times when the adviser deems it
desirable to do so. Although a subaccount will not enter into an option or
futures position unless the adviser believes that a liquid market exists for
such option or future, there can be no assurance that a subaccount will be able
to effect closing transactions at any particular time or at an acceptable price.
The adviser generally expects that options and futures transactions for the
subaccounts will be conducted on recognized exchanges. In certain instances,
however, a subaccount may purchase and sell options in the over-the-counter
market. The staff of the SEC considers over-the-counter options to be illiquid.
A subaccount's ability to terminate option positions established in the over-
the-counter market may be more limited than in the case of exchange traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the subaccount.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
the securities that are the subject of the hedge. The successful use of these
strategies also depends on the ability of the subaccounts' adviser to forecast
correctly interest rate movements and general stock market price movements. The
risk increases as the composition of the securities held by the subaccount
diverges from the composition of the relevant option or futures contract.
Securities Lending
Each target subaccount may also lend common shares to broker-dealers and
financial institutions to realize additional income. As an operating policy, the
target subaccounts will not lend common shares or other assets, if as a result,
more than 33% of each subaccount's total assets would be lent to other parties.
Under applicable regulatory requirements (which are subject to change), the
following conditions apply to securities loans: (a) the loan must be
continuously secured by liquid assets maintained on a current basis in an amount
at least equal to the market value of the securities loaned; (b) each target
subaccount must receive any dividends or interest paid by the issuer on such
securities; (c) each target subaccount must have the right to call the loan and
obtain the securities loaned at any time upon notice of not more than five
business days, including the right to call the loan to permit voting of the
securities; and (d) each target subaccount must receive either interest from the
investment of collateral or a fixed fee from the borrower.
Securities loaned by a target subaccount remain subject to fluctuations in
market value. A target subaccount may pay reasonable finders, custodian and
administrative fees in connection with a loan. Securities lending, as with other
extensions of credit, involves the risk that the borrower may default. Although
securities loans will be fully collateralized at all times, a target subaccount
may experience delays in, or be prevented from, recovering the collateral.
During the period that the target subaccount seeks to enforce its rights against
the borrower, the collateral and the securities loaned remain subject to
fluctuations in market value. The target subaccount do not have the right to
vote securities on loan, but would terminate the loan and regain the right to
vote if it were considered important with respect to the investment. A target
subaccount may also incur expenses in enforcing its rights. If a target
subaccount has sold a loaned security, it may not be able to settle the sale of
the security and may incur potential liability to the buyer of the security on
loan for its costs to cover the purchase.
Tax Limitation
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 target account. To qualify as "adequately
diversified," each subaccount may have:
. No more than 55% of the value of its total assets represented by any one
investment;
. No more than 70% of the value of its total assets represented by any two
investments;
. No more than 80% of the value of its total assets represented by any three
investments; and
. No more than 90% of the value of its total assets represented by any four
investments.
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<PAGE>
Each target series subaccount may deviate from its stated strategy to the extent
necessary to comply with these requirements.
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. The ratings should not be
considered as bearing on the investment performance of assets held in the mutual
fund account or the target account or of the safety or riskiness of an
investment in the mutual fund account or the target 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).
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the mutual fund account and the target
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 owners at their last known address of record, at least
annually, reports containing such information as may be required under that Act
or by any other applicable law or regulation. Owners will also receive
confirmation of each financial transaction and any other reports required by law
or regulation.
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies. However, PFL reserves the right to discontinue the offering of the
policies.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. Prior to April 30, 1998, AEGON USA Securities,
Inc. (also an affiliate of PFL) was the principal underwriter. During 1998,
1997, and 1996, the amount paid to
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<PAGE>
AEGON USA Securities, Inc. and/or the broker-dealers for their services was
$____________, $29,678,498, and $19,668,001, respectively. During 1998 the
amount paid to AFSG Securities Corporation was $_______________.
The target account has adopted a distribution plan in accordance with Rule 12b-1
under the 1940 Act for the distribution financing charge (the "distribution
plan"). The distribution plan has been approved by a majority of the
disinterested members of the Board of Managers of the target account. The
distribution plan is designed to partially compensate PFL for the cost of
distributing the policies. Charges under the distribution plan will be used to
support marketing efforts, training of representatives and reimbursement of
expenses incurred by broker/dealers who sell the policies, and will be based on
a percentage of the daily net assets of the target account. The distribution
plan may be terminated at any time by a vote of a majority of the disinterested
members of the target account's Board of Managers, or by a vote of the majority
of its outstanding shares.
VOTING RIGHTS
The Mutual Fund Account
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, you hold the voting interest in the
selected Portfolios. The number of votes that you have the right to instruct
will be calculated separately for each Subaccount. The number of votes that you
have the right to instruct for a particular Subaccount will be determined by
dividing your policy value in the Subaccount by the net asset value per share of
the corresponding Portfolio in which the Subaccount invests. Fractional shares
will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable Subaccount by the net asset value per share of the corresponding
Portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
Underlying Fund for determining shareholders eligible to vote at the meeting of
the Underlying Fund. PFL will solicit voting instructions by sending you, or
other persons entitled to vote, written requests for instructions prior to that
meeting in accordance with procedures established by the Underlying Fund.
Portfolio shares as to which no timely instructions are received and shares held
by PFL in which you, or other persons entitled to vote, have no beneficial
interest will be voted in proportion to the voting instructions that are
received with respect to all Policies participating in the same Subaccount.
Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.
The Target Account
The Target Account is the legal owner of the common stock held in the
Subaccounts and as such has the right to vote upon any matter that may be voted
by shareholders. However, you or persons receiving income payments may vote on
certain aspects of the governance of the Subaccounts. Matters on which persons
holding voting interests may vote include the following: (1) approval of any
change in the investment advisory agreement corresponding to a Subaccount; (2)
any change in the fundamental investment policies of a Subaccount; or (3) any
other matter requiring a vote of persons holding voting interests in the
Subaccount. With respect to approval of the investment
-38-
<PAGE>
advisory agreements or any change in a fundamental investment policy, owners
participating in that Subaccount will vote separately on the matter pursuant to
the requirements of Rule 18f-2 under the 1940 Act.
Before the annuity commencement date, you hold the voting interest in the
selected Subaccounts. The number of votes that you have will be calculated
separately for each Subaccount. The number of votes that you have for a
Subaccount will be determined by dividing your policy value in the Subaccount
into the total assets of the Subaccount and multiplying this by the total number
of votes.
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 into the total assets of the Subaccount and multiplying
this by the total number of votes.
PFL does not intend to hold annual or other periodic meetings of owners. PFL
will solicit proxies by sending you or other persons entitled to vote written
requests for proxies prior to the vote. Where timely proxies are not received,
the voting interests will be voted in proportion to the proxies that are
received with respect to all Policies participating in the same Subaccount.
PFL may, if required by state insurance officials, disregard proxies which would
require voting to cause a change in the subclassification or investment
objectives or policies of one or more of the Subaccounts, or to approve or
disapprove an investment adviser or principal underwriter for one or more of the
Subaccounts. In addition, PFL may disregard proxies that would require changes
in the investment objectives or policies of any Subaccount or in an investment
adviser or principal underwriter, if PFL reasonably disapproves those changes in
accordance with applicable federal regulations. If PFL disregards proxies, it
will advise those persons who may give proxies of that action and its reasons
for the action in the next semiannual report.
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the mutual fund account and/or the target account. These variable
annuity policies may have different features, such as different investment
options or charges.
CUSTODY OF ASSETS
The assets of each of the mutual fund subaccounts and the target subaccounts are
held by PFL. The assets of each of the subaccounts 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 mutual fund subaccounts,
and of all purchases and sales of common stock held by each of the target
subaccounts. Additional protection for the assets of the mutual fund account and
the target account is afforded by PFL's fidelity bond, presently in the amount
of $5,000,000, covering the acts of officers and employees of PFL.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C. have provided legal advice
to PFL relating to certain matters under the federal securities laws applicable
to the issue and sale of the policies to PFL.
INDEPENDENT AUDITORS
The Financial Statements of PFL as of December 31, 1998 and 1997, and for each
of the three years in the period ended December 31, 1998, and the Financial
Statements of certain subaccounts of PFL Endeavor VA Separate Account (which
comprises the Endeavor Variable Annuity) at December 31, 1998 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.
-39-
<PAGE>
The Financial Statements of the target account at December 31, 1998, and for the
period then ended included in this Statement of Additional Information have been
audited by Ernst & Young LLP.
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 your interest in the mutual fund account or the target account
will be affected solely by the investment results of the selected subaccount(s).
Financial Statements of The PFL Endeavor Variable Annuity Account (which
comprises a portion of the PFL Endeavor VA Separate Account) and the Financial
Statements of The PFL Endeavor Target 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 or the
target account.
-40-
<PAGE>
THE ENDEAVOR
VARIABLE ANNUITY
Issued Through
PFL ENDEAVOR VA SEPARATE ACCOUNT
and
PFL ENDEAVOR TARGET ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 1999
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about The Endeavor Variable Annuity Policy,
you can obtain a free copy of the Statement of Additional Information (SAI)
dated May 1, 1999. Please call us at (800) 525-6205 or write us at: PFL Life
Insurance Company, Financial Markets Division, Variable Annuity Department, 4333
Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A registration statement,
including the SAI, has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference. The SEC maintains a web site
(http://www.sec.gov) that contains the prospectus, the SAI, material
incorporated by reference, and other information. The table of contents of the
SAI is included at the end of this prospectus.
Please note that the policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
ENDEAVOR SERIES TRUST
Subadvised by Morgan Stanley Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming International, Inc.:
T. Rowe Price International Stock Portfolio
Subadvised by OpCap Advisors:
Endeavor Value Equity Portfolio
Endeavor Opportunity Value
Subadvised by J.P. Morgan Investment Management Inc.:
Endeavor Enhanced Index Portfolio
Subadvised by The Dreyfus Corporation:
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Subadvised by Montgomery Asset Management, LLC
Endeavor Select 50 Portfolio
Subadvised by Massachusetts Financial Services Company
Endeavor High Yield Portfolio
WRL SERIES FUND, INC.
Subadvised by Janus Capital Corporation
WRL Growth
THE TARGET ACCOUNT
Subadvised by First Trust Advisors, L.P.
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
The flexible premium deferred annuity policy has several investment choices.
There are two separate accounts: (1) a mutual fund account; and (2) a target
account. The mutual fund subaccounts and the target series subaccounts are
listed above. There is also a fixed account, which offers an interest rate that
is guaranteed by PFL. You can choose any combination of these investment
choices.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY..........................................................
ANNUITY POLICY FEE TABLE.........................................
EXAMPLES.........................................................
1. THE ANNUITY CONTRACT........................................
2. ANNUITY PAYMENTS (THE INCOME PHASE).........................
Annuity Payment Options.....................................
3. PURCHASE....................................................
Policy Issue Requirements...................................
Premium Payments............................................
Initial Premium Requirements................................
Additional Premium Payments.................................
Maximum Total Premium Payments..............................
Allocation of Premium Payments..............................
Policy Value................................................
4. INVESTMENT CHOICES..........................................
The Separate Accounts.......................................
The Mutual Fund Account.....................................
The Target Account..........................................
The Fixed Account...........................................
Transfers...................................................
Family Income Protector.....................................
Dollar Cost Averaging Program...............................
Asset Rebalancing...........................................
Telephone Transactions......................................
5. EXPENSES....................................................
Surrender Charges...........................................
Mortality and Expense Risk Fee..............................
Administrative Charges......................................
Distribution Financing Charge...............................
Premium Taxes...............................................
Federal, State and Local Taxes..............................
Transfer Fee................................................
Family Income Protector.....................................
Portfolio Management Fees...................................
Target Account Fees.........................................
6. TAXES.......................................................
Annuity Policies in General.................................
Qualified and Nonqualified Policies.........................
Withdrawals - Nonqualified Policies.........................
Withdrawals - Qualified Policies............................
Withdrawals - 403(b) Policies...............................
Diversification and Distribution Requirements...............
Taxation of Death Benefit Proceeds..........................
Annuity Payments............................................
7. ACCESS TO YOUR MONEY........................................
Surrenders..................................................
Delay of Payment and Transfers..............................
Excess Interest Adjustment..................................
Policy Loans for 403(b) Policies............................
Systematic Payout Option....................................
Nursing Care and Terminal Condition.........................
Withdrawal Option......................................
8. PERFORMANCE.................................................
The Mutual Fund Account.....................................
The Target Account..........................................
9. DEATH BENEFIT...............................................
When We Pay A Death Benefit.................................
When We Do Not Pay A Death Benefit..........................
Amount of Death Benefit.....................................
Guaranteed Minimum Death Benefit............................
Adjusted Partial Withdrawal.................................
10. OTHER INFORMATION...........................................
Ownership...................................................
Assignment..................................................
PFL Life Insurance Company..................................
The Mutual Fund Account.....................................
The Target Account..........................................
Mixed and Shared Funding....................................
Reinstatements..............................................
Voting Rights...............................................
Distributor of the Policies.................................
Non-participating Policy....................................
Variations in Policy Provisions.............................
Year 2000 Matters...........................................
IMSA........................................................
Legal Proceedings...........................................
Financial Statements........................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.....
APPENDIX A
Condensed Financial Information..................................
APPENDIX B
Historical Performance Data......................................
APPENDIX C
Glossary of Special Terms........................................
APPENDIX D
Policy Variations................................................
</TABLE>
2
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail. Words printed in italics in this prospectus
are defined in the Glossary, found at Appendix C.
1. THE ANNUITY CONTRACT
The Flexible Premium Variable Annuity Policy offered by PFL Life Insurance
Company (PFL, we, us or our) is a contract between you, as the owner, and PFL,
an insurance company. The policy provides a way to invest on a tax-deferred
basis in the following investment choices: thirteen subaccounts of the mutual
fund account, four subaccounts of the target account, and a fixed account of
PFL. The policy is intended to accumulate money for retirement or other long-
term investment purposes.
This policy offers seventeen subaccounts in both the mutual fund account and the
target account that are listed in Section 4. Each mutual fund subaccount invests
exclusively in shares of one of the portfolios of the underlying funds. Each
target series subaccount invests according to its specific investment strategy.
The policy value may depend on the investment experience of the selected
subaccounts. Therefore, you bear the entire investment risk with respect to all
policy value in any subaccount. You could lose the amount that you invest.
The fixed account offers an interest rate that is guaranteed by PFL. We
guarantee to return your investment with interest credited for all amounts
allocated to the fixed account.
You can transfer money between any of the investment choices. We reserve the
right to impose a $10 fee for each transfer in excess of 12 transfers per policy
year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as income when you
take them out of the policy. The income phase occurs when you begin receiving
regular payments from your policy. The money you can accumulate during the
accumulation phase will determine the income payments you receive during the
income phase.
2. ANNUITY PAYMENTS
(THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options,
or a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
3. PURCHASE
You can buy a nonqualified policy with $5,000 or more, and a qualified policy
with $1,000 or more, under most circumstances. You can add as little as $50 at
any time during the accumulation phase.
4. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the investment choices
listed below.
The following thirteen mutual fund portfolios are described in the fund
prospectuses:
SUBADVISED BY MORGAN STANLEY ASSET MANAGEMENT INC.
Endeavor Asset Allocation
Endeavor Money Market
SUBADVISED BY T. ROWE PRICE ASSOCIATES, INC.
T. Rowe Price Equity Income
T. Rowe Price Growth Stock
SUBADVISED BY ROWE PRICE-FLEMING INTERNATIONAL, INC.
T. Rowe Price International Stock
SUBADVISED BY OPCAP ADVISORS
Endeavor Value Equity
Endeavor Opportunity Value
3
<PAGE>
SUBADVISED BY J.P. MORGAN INVESTMENT MANAGEMENT INC.
Endeavor Enhanced Index
SUBADVISED BY THE DREYFUS CORPORATION
Dreyfus U.S. Government Securities
Dreyfus Small Cap Value
SUBADVISED BY MONTGOMERY ASSET MANAGEMENT, LLC
Endeavor Select 50
SUBADVISED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
Endeavor High Yield
SUBADVISED BY JANUS CAPITAL CORPORATION
WRL Growth
The following four target series subaccounts are described later in this
prospectus:
SUBADVISED BY FIRST TRUST ADVISORS, L.P.
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
Depending upon their investment performance, you can make or lose money in any
of the mutual fund subaccounts or target series subaccounts.
You can also allocate your premium payment to the fixed account.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of the
investment choices.
We may deduct a surrender charge of up to 7% of premium payments withdrawn
within seven years after the premium is paid. To calculate surrender charges,
the first premium paid is considered to come out first.
Full surrenders, partial withdrawals, and transfers from a guaranteed period
option of the fixed account may also be subject to an excess interest
adjustment, which may increase or decrease the amount you receive. This
adjustment may also apply to amounts applied to an annuity payment option from a
guaranteed period option of the fixed account.
We deduct daily mortality and expense risk fees and administrative charges of
1.25% to 1.40% per year of the net assets in each mutual fund subaccount and
target series subaccount.
During the accumulation phase, we deduct an annual service charge of no more
than $35 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
To help with the cost of distributing the policies, we also deduct a
distribution financing charge of 0.15% per year, during the accumulation phase.
We will deduct state premium taxes, which currently range from 0% to 3.50%, upon
total surrender or payment of a death benefit. If you elect the "family income
protector" rider, then there is an annual fee during the accumulation phase of
0.30% of the minimum annuitization value. If you annuitize under the rider, then
there is a stabilized payment fee at an annual rate of 1.25% of the daily net
asset value in the separate account.
The value of the net assets of the mutual fund subaccounts will reflect the
investment advisory fee and other expenses incurred by the underlying funds.
Those fees and expenses are detailed in the underlying funds' prospectuses that
are attached to this prospectus. The value of the net assets of the target
series subaccounts will reflect the investment advisory fee and other expenses
incurred by the manager in operating each target series subaccount.
4
<PAGE>
6. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as income. If you are younger than 59 1/2 when you
take money out, you may be charged a 10% federal penalty tax on the earnings.
Payments during the income phase may be considered partly a return of your
original investment so that part of each payment would not be taxable as income.
7. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase. After one
year, you may take out up to 10% of the policy value free of surrender charges
or excess interest adjustments once each year. Amounts withdrawn in the first
year or in excess of 10% of the policy value may be subject to a surrender
charge and/or excess interest adjustment. You may also have to pay income tax
and a tax penalty on any money you take out.
8. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the mutual fund subaccounts or target series subaccounts you
choose. We provide performance information in Appendix B and in the Statement of
Additional Information. This data is not intended to indicate future
performance.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You generally may choose one of the following guaranteed minimum death benefits:
. 5% Annually Compounding
. Double Enhanced
. Return of Premium
These choices are restricted for annuitants and owners over age 74.
10. OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
time you have to return the policy will depend on the state where the policy was
issued. The amount of the refund will generally be the policy value. We will
pay the refund within 7 days after we receive written notice of cancellation and
the returned policy. The policy will then be deemed void. In some states you
may have more time to return a policy, or receive a refund of more (or less)
than the policy value.
No Probate. Usually when you die the person you choose as your beneficiary will
receive the death benefit under this policy without going through probate.
State laws vary on how the amount that may be paid is treated for estate tax
purposes.
Who should purchase the Policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans and individual retirement
accounts. The tax-deferred feature is most attractive to people in high federal
and state tax brackets. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of getting back less money
than you put in.
Financial Information. Condensed financial information for the mutual fund
subaccounts and target series subaccounts are in Appendix A to this prospectus.
Financial Statements for PFL and the mutual fund subaccounts and target series
subaccounts are in the SAI.
5
<PAGE>
Additional Features. This policy has additional features that might interest
you. These include the following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can arrange to have a certain amount of money automatically invested,
either monthly or quarterly, in your choice of mutual fund subaccounts or
target series subaccounts. This feature is called "dollar cost averaging."
. If yours is a "403(b)" policy, then you may elect an endorsement allowing
you to receive policy loans during the accumulation phase, subject to
certain restrictions. This feature is called "policy loans for 403(b)
policies."
. We will, upon your request, automatically transfer amounts among the mutual
fund subaccounts or target series subaccounts on a regular basis to
maintain a desired allocation of the policy value among the various mutual
fund subaccounts or target series subaccounts. This feature is called
"asset rebalancing."
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender
charge and excess interest adjustment. This feature is called the "nursing
care and terminal condition withdrawal option."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
The dollar cost averaging and asset rebalancing features are inconsistent with
the target series subaccounts' investment strategy.
These features are not available in all states and may not be suitable for your
particular situation.
11. INQUIRIES
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
6
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================
ANNUITY POLICY FEE TABLE
==================================================================================================================
Mutual Fund Account Annual Expenses
Policy Owner Transaction Expenses (as a percentage of account value)
==================================================================================================================
<S> <C> <S> <C>
Sales Load On Purchase Payments...... 0 Mortality and Expense Risk Fee/(4)/......... 1.25%
Maximum Surrender Charge Administrative Charge....................... 0.15%
(as a % of Premium Payments Distribution Financing Charge .............. 0.15%
Surrendered)/(1)(2)/.............. 7% ----
Surrender Fees....................... 0 TOTAL MUTUAL FUND ACCOUNT ANNUAL EXPENSES... 1.55%
Annual Service Charge /(1)/... $35 Per Policy
Transfer Fee/(1)/........... Currently No Fee
Family Income Protector (optional)/(3)/
Rider Fee...................... 0.30%
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Annual Expenses /(5)/
(as a percentage of average net assets and after expense reimbursements)
=======================================================================================================================
Total Total
Rule Portfolio Account and
Management Other 12b-1 Annual Portfolio
Fees Expenses Fees Expenses/(6)/ Expenses
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Endeavor Asset Allocation............ -
Endeavor Money Market................ -
T. Rowe Price Equity Income.......... -
T. Rowe Price Growth Stock........... -
T. Rowe Price International Stock.... -
Endeavor Value Equity................ -
Endeavor Opportunity Value............ -
Endeavor Enhanced Index............... -
Dreyfus U.S. Government Securities... -
Dreyfus Small Cap Value.............. -
Endeavor Select 50................... -
Endeavor High Yield.................. -
WRL Growth/(7)/...................... -
The Dow(SM) Target 10 (July)/(8)(9)(10)/ -
The Dow(SM) Target 5 (July)/(8)(9)(10)/ -
The Dow(SM) Target 10
(January)/(8)(9)(10)/............... -
The Dow(SM) Target 5
(January) /(8)(9)(10)/............. -
=======================================================================================================================
</TABLE>
7
<PAGE>
/(1)/ The surrender charge and transfer fee, if any is imposed, apply to each
policy, regardless of how policy value is allocated among the mutual fund
account, the target account and the fixed account. The service charge
applies to the fixed account, the mutual fund account, and the target
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. There is no fee for
the first 12 transfers per year. For additional transfers, PFL may charge
a fee of $10 per transfer, but currently does not charge for any
transfers.
/(2)/ The surrender charge is decreased based on the number of years since the
premium payment was made, from 7% in the year in which the premium
payment was made, to 0% in the eighth year after the premium payment was
made. If applicable a surrender charge will only be applied to
withdrawals that exceed the amount available under certain listed
exceptions.
/(3)/ The annual rider fee is currently equal to 0.30% of the minimum
annuitization value on the previous policy anniversary; PFL may at its
discretion change the rate in the future, but the rate will never be
greater than 0.50% per year. The stabilized payment fee is only charged
if you annuitize under the family income protector rider, and then only
after annuitization. This fee is reflected in the amount of the variable
payments. The stabilized payment fee is currently equal to an effective
annual rate of 1.25% of the daily net asset value in the variable
investment options; PFL may at its discretion change the rate in the
future, but the rate will never be greater than 2.25% per year. Once the
family income protector rider is added to your policy, neither the rider
fee nor the stabilized payment fee that is in effect at that time will
change during the life of that family income protector rider.
/(4)/ Mortality and expense risk fees shown (1.25%) are for the "5% Annually
Compounding Death Benefit" and the "Double Enhanced Death Benefit." This
reflects a fee that is 0.15% per year higher than the 1.10% corresponding
fee for the Return of Premium Death Benefit.
/(5)/ 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. Actual future expenses of the funds may be greater or
less than those shown in the Table.
/(6)/ Endeavor Management Co. has agreed, until terminated by it, to assume
expenses of the Portfolios that exceed the following rates: Endeavor
Money Market--____%; Endeavor Asset Allocation--____%; T. Rowe Price
International Stock--____%; Endeavor Value Equity--____%; Dreyfus Small
Cap Value--____%; Dreyfus U.S. Government Securities--____%; T. Rowe
Price Equity Income--____%; T. Rowe Price Growth Stock--____%; Endeavor
Opportunity Value--____%; Endeavor Enhanced Index--____%; Endeavor Select
50--____%. During 1998, Endeavor Management Co. waived fees relative to,
or reimbursed the _______________; the annualized operating expense ratio
before waiver/reimbursement by Endeavor Management Co. for the period
ended December 31, 1998, was ____%. Amounts shown for the
_______________, _______________, and _______________ are estimated for
1999. The annualized operating expense ratio before waiver/reimbursement
by Endeavor Management Co. for the ________________, _______________, and
________________ are estimated to be ____%, ____%, and ____%,
respectively.
8
<PAGE>
/(7)/ Effective January 1, 1997, the WRL Series Fund, Inc. adopted a Plan of
Distribution pursuant to Rule 12b-1 under the 1940 Act ("Distribution
Plan") and pursuant to the Distribution Plan, 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 would not
seek payment by the WRL Series Fund, Inc. of distribution expenses
incurred with respect to any portfolio (including the WRL Growth
Portfolio) during the fiscal year ending December 31, 1999. Owners will
be notified in advance prior to ISI's seeking such reimbursement in the
future.
/(8)/ For the target account, the distribution financing charge included under
"Total Mutual Fund Account Annual Expenses" in this table is deducted
pursuant to a 12b-1 plan.
/(9)/ The manager is paid a fee of 0.75% of the average daily net assets of
each target series subaccount. For its services to the target account,
the manager pays the adviser a fee equal to 0.35% of the average daily
net assets of each target series subaccount.
/(10)/ In addition to the management fees, the target account pays all expenses
not assumed by the manager. The manager has agreed to limit each target
series subaccount's management fee and operating expenses during its
first year of operations to an annual rate of 1.30% of the target series
subaccount's average net assets. (This limit does not include other fees
and deductions such as the mortality and expense risk fee, administrative
charge, and distribution financing charge.) (See the Statement of
Additional Information for more details.)
9
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable mutual fund subaccount or target series subaccount, and assuming
the family income protector rider has been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit
B = 5 % Annually Compounding Death
Benefit or the Double Enhanced Death
Benefit
<TABLE>
<CAPTION>
===================================================================================================================
If the Policy is annuitized at
If the Policy is surrendered the end of the applicable time
at the end of the applicable period or if the Policy is not
time period. surrendered or annuitized.
----------------------------------------------------------------------------
Subaccounts 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Endeavor Asset Allocation A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
Endeavor Money Market A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
T. Rowe Price International A
---------------------------------------------------------------------------------
Stock B
- -------------------------------------------------------------------------------------------------------------------
Endeavor Value Equity A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government A
Securities ---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Value A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
Endeavor Select 50 A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
Endeavor High Yield A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
WRL Growth A
---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
The Dow(SM) Target 10 A
(July Series) ---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
The Dow(SM) Target 5 A
(July Series) ---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
The Dow(SM) Target 10 A
(January Series) ---------------------------------------------------------------------------------
B
- -------------------------------------------------------------------------------------------------------------------
The Dow(SM) Target 5 A
(January Series) ---------------------------------------------------------------------------------
B
===================================================================================================================
</TABLE>
10
<PAGE>
The above tables will assist you in understanding the costs and expenses that
you will bear, directly or indirectly. These include the 1998 expenses of the
underlying funds and the target account. In addition to the expenses listed
above, premium taxes may be applicable.
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 is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than the assumed rate.
In the examples, the $35 annual service charge is reflected as a charge of
________% based on average policy value of $___________.
These examples also reflect the annual fee of 0.30% for the family income
protector rider. Expenses would be lower if you do not elect that rider.
11
<PAGE>
1. THE ANNUITY CONTRACT
This prospectus describes The Endeavor Variable Annuity Policy offered by PFL
Life Insurance Company.
An annuity is a contract between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in the
form of annuity payments. These payments begin on a designated date, referred
to as the annuity commencement date. Until the annuity commencement date, your
annuity is in the accumulation phase and the earnings are tax deferred. Tax
deferral means you generally are not taxed on your annuity until you take money
out of your annuity. After the annuity commencement date, your annuity switches
to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
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. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you select
the variable annuity portion of the policy, the amount of money you are able to
accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your policy
also depends upon the investment performance of your investment choices for the
income phase.
The policy also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by PFL and which will not change during the selected
guaranteed period. There may be different interest rates for each different
guaranteed period that you select.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the date when annuity payments under the policy start. This is the
annuity commencement date. You can change this date by giving us 30 days
written notice before the current annuity commencement date. The new annuity
commencement date must be at least 30 days after we receive the change. The
latest annuity commencement date cannot be after the policy month following the
month in which the annuitant attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if the
- ----------------------------------
annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one of
the annuity payment options.
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Supplemental Policy. Once you annuitize and select an annuity payment option,
- -------------------
your policy will be supplemented with who will receive the annuity payments and
when the annuity payments will be made.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may chose any combination of annuity payment options. We will use your "adjusted
policy value" to provide these annuity payments. The adjusted policy value is
the policy value increased or decreased by any applicable excess interest
adjustment. If the adjusted policy value on the annuity commencement date is
less than $2,000, PFL
12
<PAGE>
reserves the right to pay it in one lump sum in lieu of applying it under an
annuity payment option. You can receive payments monthly, quarterly, semi-
annually, or annually.
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive variable payments
under payment options 3 and 5. The dollar amount of the first variable payment
will be determined in accordance with the annuity payment rates set forth in the
applicable table contained in the policy. The dollar amount of additional
variable payments will vary based on the investment performance of the mutual
fund subaccount(s) and/or target series subaccount(s). The dollar amount of
each variable payment after the first may increase, decrease, or remain
constant. If the actual investment performance exactly matched the assumed
investment return of 5% at all times, the amount of each variable annuity
payment would remain equal. If actual investment performance exceeds the assumed
investment return, the amount of the variable annuity payments would increase.
Conversely, if actual investment performance is lower than the assumed
investment return, the amount of the variable annuity payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
- -----------------------------------
use to provide annuity payments in equal payments or this amount may be left to
accumulate for a period of time you and PFL agree to. You and PFL will agree on
withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
- -----------------------------------------------
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
- -----------------------------
Fixed Payments
. No Period Certain--We will make level payments only during the
annuitant's lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for
the longer of the annuitant's lifetime or until the total dollar
amount of payments we made to you equals the amount applied to this
option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of
the annuitant.
. 10 Years Certain--Payments will be made for the longer of the
annuitant's lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
- ----------------------------------------------
specified amount until the amount applied to this option, with interest, are
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
- --------------------------------------------
Fixed Payments
. Payments are made during the joint lifetime of the payee and a joint
payee of your selection. Payments will be made as long as either
person is living.
Variable Payments
. Payments are made as long as either the payee or the joint payee is
living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
13
<PAGE>
NOTE CAREFULLY:
- ---------------
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second annuity payment;
THEN:
. we may make only one annuity payment.
IF:
. you choose Income for a Specified Period, Life Income with 10 years
Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income
of a Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their value (determined at the date of death) may be paid
in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The payee is responsible to keep PFL informed of
the payee's current address of record.
3. PURCHASE
Policy Issue Requirements
PFL will issue a policy IF:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. You (annuitant and any joint owner) are age 84 or younger.
Premium Payments
You should make checks or drafts for premium payments payable only to PFL Life
Insurance Company and send them to the administrative and service office. Your
check or draft must be honored in order for PFL to pay any associated payments
and benefits due under the policy.
Initial Premium Requirements
The initial premium payment for nonqualified policies must be at least $5,000,
and at least $1,000 for qualified policies. There is no minimum initial premium
payment for policies issued under section 403(b) of the Internal Revenue Code;
however, your premium must be received within 90 days of the policy date or your
policy will be canceled. We will credit your initial premium payment to your
policy within two business days after the day we receive it and your complete
policy information. If we are unable to credit your initial premium payment, we
will contact you within five business days and explain why. We will also return
your initial premium payment at that time unless you tell us to keep it and
credit it as soon as possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of the
annuitant and during the accumulation phase. Additional premium payments must
be at least $50. We will credit additional premium payments to your policy as of
the business day we receive your premium and required information.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payment to the
investment choices you select. Your allocation must be in whole
14
<PAGE>
percentages and must total 100%. We will allocate additional premium payments
the same way, unless you request a different allocation.
If you allocate premium payment to the dollar cost averaging fixed account, you
must give us directions regarding the mutual fund subaccount(s) and/or target
series subaccount(s) to which transfers are to be made or we cannot accept your
premium payment.
You may change allocations for future additional premium payments by sending us
written instructions or by telephone, subject to the limitations described under
"Telephone Transactions." The allocation change will apply to premium payments
received after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to valuation
period. A valuation period begins at the close of 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 the New York Stock Exchange is open. Holidays are
generally not business days.
4. INVESTMENT CHOICES
The Separate Accounts
There are currently seventeen variable subaccounts available under the policies.
There are thirteen subaccounts of the mutual fund account (which is a portion of
the PFL Endeavor VA Separate Account) and four subaccounts of the target account
(the PFL Endeavor Target Account).
The Mutual Fund Account
The Underlying Funds. The mutual fund subaccounts invest in shares of the
- --------------------
underlying funds. The companies that provide investment advice and
administrative services for the underlying funds offered through this policy are
listed below. The following mutual fund investment choices are currently
offered through this policy:
ENDEAVOR SERIES TRUST
- ---------------------
Subadvised by Morgan Stanley
Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming
International, Inc.:
T. Rowe Price International Stock Portfolio
Subadvised by OpCap Advisors:
Endeavor Value Equity Portfolio
Endeavor Opportunity Value
Subadvised by J.P. Morgan Investment Management Inc.:
Endeavor Enhanced Index Portfolio
Subadvised by The Dreyfus Corporation:
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Subadvised by Montgomery Asset
Management, LLC
Endeavor Select 50 Portfolio
Subadvised by Massachusetts Financial
Services Company
Endeavor High Yield Portfolio
WRL SERIES FUND, INC.
- ---------------------
Subadvised by Janus Capital Corporation
WRL Growth
The general public may not purchase these underlying funds. The investment
objectives and policies may be similar to other portfolios and mutual funds
managed by the same investment adviser or manager that are sold directly to the
public. You should not expect that the investment results of the other
portfolios and mutual funds would be the same as those of the underlying funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the underlying funds' current
prospectuses, which are attached to this prospectus. You should read the
prospectuses for each of the underlying funds carefully before you invest.
15
<PAGE>
We may receive expense reimbursements or other revenues from the underlying
funds or their investment advisors. The amount of these reimbursements or
revenues, if any, may be based on the amount of assets that PFL or the mutual
fund account invests in the underlying funds.
The Target Account
This section gives information on the target account, including the management
and investment strategies, and policies. The following target account
investment choices are offered through this policy:
THE TARGET ACCOUNT
- ------------------
Subadvised by First Trust Advisors, L.P.
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
General. The target account is a managed separate account and is currently
- -------
divided into four target series subaccounts. Each Series is a separate
subaccount, so there are currently two Target 10 subaccounts (January and July
Series) and two Target 5 subaccounts (January and July Series). Additional
target series subaccounts may be established in the future at the discretion of
PFL. Each target series subaccount invests according to specific investment
strategies. Under Iowa law, the assets of the target 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 policy 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 a target series
subaccount of the target account, whether or not realized, are credited to or
charged against that target series subaccount without regard to other income,
gains or losses of any other account or subaccount of PFL. Each target series
subaccount Series operates as a separate investment fund. Therefore, the
investment performance of any target series subaccount should be entirely
independent of the investment performance of PFL's general account assets or any
other account or subaccount maintained by PFL.
Management of the Target Account. The investments and administration of each
- --------------------------------
managed target series subaccount are under the direction of a Board of Managers.
The Board of Managers for each target series subaccount annually selects an
independent public accountant, reviews the terms of the management and
investment advisory agreements, recommends any changes in the fundamental
investment policies, and takes any other actions necessary in connection with
the operation and management of the target series subaccounts. Endeavor
Management Co., an investment adviser registered with the SEC under the
Investment Advisers Act of 1940, is the target account's manager. The manager
performs administerial and managerial functions for the target account. First
Trust Advisors L.P., an Illinois limited partnership formed in 1991 and an
investment adviser registered with the SEC under the Investment Advisers Act of
1940, is the target account's investment adviser. The adviser is responsible for
selecting the investments of each target series subaccount consistent with the
investment objectives and policies of that target series subaccount, and will
conduct securities trading for the target series subaccount.
Portfolio Manager. There is no one individual primarily responsible for
- -----------------
portfolio management decisions for the target account. Investments are made
according to the prescribed strategy under the direction of a committee.
Investment Strategy. The Dow(SM) Target 10 Subaccount will invest in the common
- -------------------
stock of the ten companies in the DJIA that have the highest dividend yield as
of a specified business day and hold those stocks for the following 12-month
period.
The Dow(SM) Target 5 Subaccount will invest in the common stock of the five
companies with the lowest per share stock price of the ten companies
16
<PAGE>
in the DJIA that have the highest dividend yield as of a specified business day
and hold those stocks for the following 12-month period.
The objective of each target series subaccount is to provide an above-average
total return through a combination of dividend income and capital appreciation.
Each target series subaccount will function in a similar manner. Each target
series subaccount will initially invest in substantially equal amounts in the
common stock of the companies described above for each target series subaccount
(as held in a target series subaccount, such common stock is referred to as the
common shares) determined as of the initial stock selection date.
Each target series subaccount may have different investment series running
simultaneously for different 12-month periods. For example, within The Dow(SM)
Target 10 Subaccount there may be more than one series, each with a different
initial stock selection date. At the initial stock selection date, a percentage
relationship among the number of common shares in a series will be established.
When additional funds are deposited into the series, additional common shares
will be purchased in such numbers reflecting as nearly as practicable the
percentage relationship of the number of common shares established at the
initial purchase. Sales of common shares by the series will likewise attempt to
replicate the percentage relationship of common shares. The percentage
relationship among the number of common shares in the series should therefore
remain stable. However, given the fact that the market price of such common
shares will vary throughout the year, the value of the common shares of each of
the companies as compared to the total assets of the series will fluctuate
during the year, above and below the proportion established on a stock selection
date. As of the annual stock selection date, a new percentage relationship will
be established among the number of common shares described below for each series
on such date. Common shares may be sold or new equity securities bought each
year so that the series is equally invested in the common stock of each company
meeting the series' investment criteria. Thus the series may or may not hold
equity securities of the same companies as the previous year. Any purchase or
sale of additional common shares during the year will duplicate, as nearly as
practicable, the percentage relationship among the number of common shares as of
the annual stock selection date since the relationship among the value of the
common shares on the date of any subsequent transactions may be different than
the original relationship among their value. The adviser may depart from the
specified strategy to meet tax diversification requirements. (See Section 6,
"TAXES - Diversification and Distribution Requirements").
As of May 1, 1999, there are four target series subaccounts. There are two "The
Dow(SM) Target 10 Subaccounts," which contain a July Series (a June 30, 1998
initial stock selection date) and a January Series (a December 31, 1998 initial
stock selection date). Similarly, there are two "The Dow(SM) Target 5
Subaccounts," which contain a July Series (June 30, 1998 initial stock selection
date) and a January Series (December 31, 1998 initial stock selection date).
The target account may determine to offer additional target series subaccounts
in the future, which may have different selection criteria or stock selection
dates (or both).
Units of both The Dow(SM) Target 10 Subaccount and The Dow(SM) Target 5
Subaccount have not been designed so that their prices will parallel or
correlate with movements in the DJIA. It is expected that their prices will not
do so.
An investment in a target series subaccount involves the purchase of a portfolio
of attractive equities with high dividend yields in one convenient purchase.
Investing in the stocks of the DJIA with the highest dividend yields amounts to
a contrarian strategy because these shares are often out of favor. Such strategy
may be effective in achieving a target series subaccount's investment objectives
because regular dividends are common for established
17
<PAGE>
companies and dividends have accounted for a substantial portion of the total
return on stocks of the DJIA as a group. However, there is no guarantee that
either a target series subaccount's objective will be achieved or that a target
series subaccount will provide for capital appreciation in excess of such target
series subaccount's expenses.
Each target series subaccount may also invest in futures and options, hold
warrants, and lend its common shares.
The Dow Jones Industrial Average(SM). The DJIA consists of 30 stocks. The
- ------------------------------------
stocks are chosen by the editors of The Wall Street Journal as representative of
the broad market and of American industry. The companies are major factors in
their industries and their stocks are widely held by individuals and
institutional investors. Changes in the components of the DJIA are made entirely
by the editors of The Wall Street Journal without consultation with the
companies, the stock exchange or any official agency. For the sake of
continuity, changes are made rarely. Most substitutions have been the result of
mergers, but from time to time, changes may be made to achieve a better
representation. The components of the DJIA may be changed at any time, for any
reason. Any changes in the components of the DJIA made after the initial stock
selection date of any series will not cause a change in the identity of the
common shares included in that series, including any equity securities deposited
in that series, except on an annual stock selection date. The following is a
list of the companies that currently comprise the DJIA.
AT&T Corporation
Allied Signal
Aluminum Company of America
American Express Company
Boeing Company
Caterpillar Inc.
Chevron Corporation
Coca Cola Company
Walt Disney Company
International Business Machines Corporation
International Paper Company
Johnson & Johnson
McDonald's Corporation
Merck & Company, Inc.
Minnesota Mining & Manufacturing Company
E.I. du Pont de Nemours & Company
Eastman Kodak Company
Exxon Corporation
General Electric Company
General Motors Corporation
Goodyear Tire & Rubber Company
Hewlett Packard Company
J.P. Morgan & Company, Inc.
Philip Morris Companies, Inc.
Procter & Gamble Company
Sears, Roebuck & Company
Travelers Group
Union Carbide Corporation
United Technologies Corporation
Wal Mart Stores Inc.
The target account is not sponsored, endorsed, sold or promoted by Dow Jones.
Dow Jones makes no representation or warranty, express or implied, to the owners
of the target account or any member of the public regarding the advisability of
purchasing the target account. Dow Jones' only relationship to First Trust
Advisors, Endeavor Management Co. (Endeavor) and PFL is the licensing of certain
copyrights, trademarks, service marks and service names of Dow Jones. Dow Jones
has no obligation to take the needs of First Trust Advisors, Endeavor, PFL or
the owners of the target account into consideration in determining, composing or
calculating the Dow Jones Industrial Average(SM). Dow Jones is not responsible
for and has not participated in the determination of the terms and conditions of
the target account to be issued, including the pricing or the amount payable
under the contract. Dow Jones has no obligation or liability in connection with
the administration or marketing of the target account.
Dow Jones does not guarantee the accuracy and/or the completeness of the Dow
Jones Industrial Average(SM) or any data included therein and Dow Jones shall
have no liability for any errors, omission, or interruptions therein. Dow Jones
makes no warranty, express or implied, as to results to be obtained by First
Trust Advisors, Endeavor, PFL, owners of the target account or any other
18
<PAGE>
person or entity from the use of the Dow Jones Industrial Average/SM/ or any
data included therein. Dow Jones makes no express or implied warranties, and
expressly disclaims all warranties, of merchantability or fitness for a
particular purpose or use with respect to the Dow Jones Industrial Average/SM/
or any data included therein. Without limiting any of the foregoing, in no event
shall Dow Jones have any liability for any lost profits or indirect, punitive,
special or consequential damages (including lost profits), even if notified of
the possibility of such damages.
Investment Risks. There is no assurance that any target series subaccount will
- ----------------
achieve its stated objective. More detailed information, including a description
of each target series subaccount's investment objective and policies and a
description of risks involved in investing in each of the target series
subaccounts and of each target series subaccount's fees and expenses is
contained in the Statement of Additional Information. Information contained in
the Statement of Additional Information should be read carefully before
investing in a target series subaccount.
Each series consists of different issues of equity securities, all of which are
listed on a securities exchange. In addition, each of the companies whose equity
securities are included in a series are actively traded, well-established
corporations.
Common shares may be sold under certain circumstances. Common shares, however,
will not be sold by a target series subaccount to take advantage of market
fluctuations or changes in anticipated rates of appreciation or depreciation, or
if the common shares no longer meet the criteria by which they were selected.
However, common shares will be sold on or about each annual stock selection date
in accordance with the adviser's stock selection strategy.
Whether or not the common shares are listed on a securities exchange, the
principal trading market for the common shares may be in the over-the-counter
market. As a result, the existence of a liquid trading market for the common
shares may depend on whether dealers will make a market in the common shares.
There can be no guarantee that a market will be made for any of the common
shares, that any market for the common shares will be maintained or that there
will be sufficient liquidity of the common shares in any markets made. The price
at which the common shares may be sold to meet transfers, partial withdrawals or
surrenders and the value of a target series subaccount will be adversely
affected if trading markets for the common shares are limited or absent.
Investors should consider the following before making a decision to invest in a
target series subaccount:
. The value of the common shares will fluctuate over the life of a target
series subaccount and may be more or less than the price at which they were
purchased by such target series subaccount.
. The common shares may appreciate or depreciate in value (or pay dividends)
depending on the full range of economic and market influences affecting
these securities, including the impact of the target series subaccounts'
purchase and sale of the common shares and other factors.
. Transfers between the target account investment portfolios during the 12-
month period from stock selection date to stock selection date run counter
to the investment strategy of the target account investment portfolios,
namely holding the applicable stocks for a 12-month period, and may
adversely impact your investment performance. Similarly, using dollar cost
averaging and asset rebalancing for the target account investment
portfolios also runs counter to their investment strategies.
You should understand the risks of investing in common stocks before making an
investment in a target series subaccount. In general, the value of your
investment will fall if the financial condition of the issuers of the common
stocks becomes impaired or if the general condition of the relevant stock market
worsens. Common stocks
19
<PAGE>
are especially susceptible to general stock market movements and to volatile
increases and decreases of value, as market confidence in and perceptions of the
issuers change. These perceptions are based on unpredictable factors including:
. expectations regarding government,;
. economic, monetary and fiscal policies;
. inflation and interest rates;
. economic expansion or contraction; and
. global or regional political, economic or banking crises.
At times, due to the objective nature of the investment selection criteria,
target series subaccounts may be considered concentrated in various industries.
PFL cannot predict the direction or scope of any of these factors. Generally,
common stocks do not receive payments until all obligations of the issuer have
been paid. Unlike debt securities, common stocks do not offer any assurance of
income or provide guaranteed protection of capital.
An investment in The Dow(SM) Target 5 Subaccount may subject you to greater
market risk than other target series subaccounts that contain a more diversified
portfolio of securities since it contains only five stocks.
Each target series subaccount is not actively managed and common shares will not
be sold to take advantage of market fluctuations or changes in anticipated rates
of appreciation.
Please note that each strategy has previously under performed the DJIA.
PFL, Endeavor Management Co., and the adviser shall not be liable in any way for
any default, failure or defect in any common share.
Portfolio Turnover. It is anticipated that each target series subaccount's
- ------------------
annual rate of portfolio turnover normally will not exceed 100%. Portfolio
turnover for each target series subaccount will vary from year to year, and
depending on market conditions, the portfolio turnover rate could be greater in
periods of unusual market movement. A higher turnover rate would result in
heavier brokerage commissions or other transactional expenses which must be
borne, directly or indirectly by each target series subaccount, and ultimately
by you.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of the general account of PFL. 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 Investment Company
Act of 1940 (the "1940 Act"). Accordingly, neither the general account nor any
interests therein are generally subject to the provisions of the 1933 or 1940
Acts. PFL has been advised that the staff of the SEC has not reviewed the
disclosures in this prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period you selected, the value in
that guaranteed period option will automatically be transferred into a new
guaranteed period option period of the same length (or the next shorter period
if the same period is no longer offered) at the current interest rate for that
period. You can transfer to another investment choice by giving us notice
within 30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest adjustment will not decrease the interest credited to your policy below
3% per year, however. You bear the risk that we will not credit interest
greater than 3% per year. We determine credited rates, which are guaranteed for
at least one year, in our sole discretion.
20
<PAGE>
If you select the fixed account, your money will be placed with the other
general assets of PFL. The amount of money you are able to accumulate in the
fixed account during the accumulation phase depends upon the total interest
credited. The amount of annuity payments you receive during the income phase
from the fixed portion of your policy will remain level for the entire income
phase.
Transfers
During the accumulation phase, you may make transfers from any mutual fund
subaccount or target series subaccount as often as you wish within certain
limitations. Transfers from a guaranteed period option of the fixed account are
limited to the following:
. At the end of a guaranteed period: You must notify us within 30 days prior
to the end of the guaranteed period that you wish to transfer amounts from
the guaranteed period option to another investment choice.
. Transfers of amounts equal to interest credited. This may affect your
overall interest-crediting rate, because transfers are deemed to come from
the oldest premium payment first.
. Other than at the end of a guaranteed period, transfers of amounts from the
guaranteed period option in excess of amounts equal to interest credited,
are subject to an excess interest adjustment. If it is a negative
adjustment, the maximum amount you can transfer is 25% of the amount in
that guaranteed period option, less any previous transfer during the
current policy year. If it is a positive adjustment, we do not limit the
amount that you can transfer.
There are no transfers permitted out of the dollar cost averaging fixed account
except through the dollar cost averaging program.
Each transfer must be at least $500 (or the entire mutual fund subaccount or
target series subaccount value), except for transfers of a guaranteed period
option of the fixed account amounts equal to interest credited for which there
is a minimum transfer amount of $50. If less than $500 remains, then we reserve
the right to either deny the transfer or include that amount in the transfer.
During the income phase of your policy, you may transfer values out of any
mutual fund subaccount or target series subaccount up to four times per year.
However, you cannot transfer values out of the fixed account in this phase. The
minimum amount that can be transferred during this phase is the lesser of $10 of
monthly income, or the entire monthly income of the annuity units in the mutual
fund subaccount or target series subaccount from which the transfer is being
made.
Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers. However, the number of transfers
permitted may be limited in the future and charges per transfer may apply in the
future.
Family Income Protector
The "family income protector" assures you of a minimum level of income in the
future by guaranteeing a minimum annuitization value (discussed below) after 10
years. You may elect to purchase this benefit, which guarantees the total
amount you will have to apply to a family income protector payment option and
which guarantees the amounts of those payments once you begin to receive them.
By electing this benefit, you can participate in the gains of the underlying
variable investment options you select while knowing that you are guaranteed a
minimum level of income in the future, regardless of the performance of the
underlying variable investment options.
Minimum Annuitization Value. The minimum annuitization value is:
- ---------------------------
. the policy value on the date the rider is issued,
. plus any additional premium payments,
21
<PAGE>
. minus an adjustment for any withdrawals made after the date the rider is
issued,
. accumulated at the annual growth rate written on page one of the rider,
. minus any premium taxes.
The annual growth rate is currently 6% per year; PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per year,
and once the rider is added to your policy, the annual growth rate will not vary
during the life of that rider. Withdrawals may reduce the minimum annuitization
value on a basis greater than dollar-for-dollar. See the Statement of
Additional Information for more information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in section 2. The family income protector payment
options are:
. Life Income - An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor - An election may be made for "No Period Certain"
or "10 Years Certain". Payments will be made as long as either the
annuitant or joint annuitant is living. In the event of the death of both
the annuitant and joint annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
The minimum annuitization value is used to calculate the family income protector
payment and does not establish or guarantee a policy value or guarantee
performance of any investment option.
Other benefits and fees under the rider (the rider fee, the fee waiver
threshold, the stabilized payment fee, and the waiting period before the family
income protector can be exercised, as well as the annual growth rate) are also
guaranteed not to change after the rider is added. However, all of these
benefit specifications may change if you elect to upgrade the minimum
annuitization value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
- -----------------------------------
value to the policy value within 30 days after any policy anniversary before
your 85/th/ birthday (earlier if required by state law). For your convenience,
we will put the last date to upgrade on page one of the rider.
If you upgrade, the current rider will terminate and a new one will be issued
with its own specified guaranteed benefits and fees. Please note that the
benefits and fees under the new rider may differ from your benefits and fees
prior to upgrading.
Conditions of Exercise of the Family Income Protector. You can only annuitize
- -----------------------------------------------------
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade; PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94/th/ birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully -- If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family
- --------------------------------------
income protector are guaranteed to never be less than the
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<PAGE>
initial payment. See the Statement of Additional Information for information
concerning the calculation of the initial payment. The payments will also be
"stabilized" or held constant during each policy year.
Under the family income protector, each annuity payment will be the greater of
the stabilized payment or the payment calculated without regard to the
stabilized payments. During the first policy year after annuitizing using the
family income protector, each stabilized payment will equal the initial payment.
On each policy anniversary thereafter, the stabilized payment will increase or
decrease depending on the performance of the investment options you selected,
and then be held constant at that amount for that policy year. The stabilized
payment on each policy anniversary will equal the greater of the initial payment
or the payment supportable by the annuity units in the selected investment
options. See the Statement of Additional Information for additional information
concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
- ---------------------------------
annuitization value on the previous policy anniversary, is charged annually
prior to annuitization. PFL may change the rider fee percentage in the future,
but it will never be greater than 0.50%. The rider fee is deducted from each
variable investment option in proportion to the amount of policy value in each
subaccount.
The rider fee on any given policy anniversary will be waived if the policy value
exceeds the fee waiver threshold. The fee waiver threshold currently is two
times the minimum annuitization value. PFL may, at its discretion, change the
fee waiver threshold in the future, but it will never be greater than two and
one-half times the minimum annuitization value.
Stabilized Payment Fee. A stabilized payment fee, currently equal to an
- ----------------------
effective annual rate of 1.25% of the daily net asset value in the variable
investment options, is reflected in the amount of the variable payments you
receive if you annuitize under the family income protector rider. PFL may
change the stabilized payment fee in the future, but it will never be greater
than 2.25%. The stabilized payment fee is included on page one of the rider.
Termination. The family income protector is irrevocable. You have the option
- -----------
not to use the benefit but you will not receive a refund of any fees you have
paid. The family income protector will terminate upon the earliest of the
following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94/th/ birthday (earlier if
required by state law).
The family income protector does not establish or guarantee policy value or
guarantee performance of any investment option. Because this benefit is based
on conservative actuarial factors, the level of lifetime income that it
guarantees may be less than the level that would be provided by application of
the policy value at otherwise applicable annuity factors. Therefore, the family
income protector should be regarded as a safety net.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account, the Endeavor Money Market
Subaccount, or the Dreyfus U.S. Government Securities Subaccount, into any other
mutual fund subaccounts and/or target series subaccounts. You may specify the
dollar amount to be transferred either monthly or quarterly; however each
transfer must be at least $500. A minimum of 6 monthly or 4 quarterly transfers
are required and a maximum of 24 months or 8 quarterly transfers are allowed.
Transfers must begin within 30 days. We will make the transfers on the 28/th/
day of the
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<PAGE>
applicable month. There is no charge for this program.
Dollar cost averaging buys more accumulation units when prices are low and fewer
accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance the
amounts in your mutual fund subaccounts or target series subaccounts to maintain
your desired asset allocation. This feature is called asset rebalancing and can
be started and stopped at any time free of charge. However, we will not
rebalance if you are in the dollar cost averaging program or if any other
transfer is requested. Asset rebalancing ignores amounts in the fixed account.
You can choose to rebalance monthly, quarterly, semi-annually, or annually.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you initial the "Telephone Transfer/Reallocation Authorization" box in the
policy application or enrollment form; or
. you later make this request in writing.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone. We may also require written
confirmation of your request. We will not be liable for following telephone
requests that we believe are genuine.
Telephone requests must be received while the New York Stock Exchange is open to
assure same-day pricing of the transaction. We may discontinue this option at
any time.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment and decreased by an applicable surrender charge. After the first
year, you can withdraw up to 10% of your policy value once each year free of
surrender charges. This amount is referred to as the free percentage. If you
withdraw money in excess of 10% of your policy value, you might have to pay a
surrender charge on the excess amount. The following schedule shows the
surrender charges that apply during the seven years following each premium
payment:
<TABLE>
<CAPTION>
- ----------------------------------------------
Number of Years Surrender
Since Premium Charge
Payment Date
- ----------------------------------------------
<S> <C>
0 - 1 7%
- ----------------------------------------------
1 - 2 7%
- ----------------------------------------------
2 - 3 6%
- ----------------------------------------------
3 - 4 6%
- ----------------------------------------------
4 - 5 5%
- ----------------------------------------------
5 - 6 4%
- ----------------------------------------------
6 - 7 2%
- ----------------------------------------------
7 or more 0%
- ----------------------------------------------
</TABLE>
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your free
percentage, you would pay a surrender charge of $1,400 on the remaining $20,000
(7% of $30,000 - $10,000).
24
<PAGE>
For surrender charge purposes, the oldest premium is considered to be withdrawn
first.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2, may
be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the current
charges will be insufficient in the future to cover costs of administering the
policy. For the Return of Premium Death Benefit the mortality and expense risk
fee is at an annual rate of 1.10% of assets. For the 5% Annually Compounding
Death Benefit and the Double Enhanced Death Benefit, the mortality and expense
risk fee is at an annual rate of 1.25% of assets. This annual fee is assessed
daily based on the net asset value of each mutual fund subaccount and target
series subaccount.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We expect to profit from this charge. We may use any profit for any proper
purpose, including distribution expenses.
Administrative Charges
We deduct an administrative charge to cover the costs of administering the
policies. This charge is equal to 0.15% per year of the daily net asset value
of the mutual fund account and the target account.
In addition, an annual service charge of $35 (but not more than 2% of the policy
value) is charged on each policy anniversary and at surrender. The service
charge is waived if your policy value or the sum of your premium, less all
partial withdrawals, is at least $50,000.
Distribution Financing Charge
We deduct a distribution financing charge to cover the cost of distributing the
policies. This charge is equal to 0.15% per year of the daily net asset value
of the mutual fund account and the target account. This is deemed to be a
deferred sales charge.
Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes we incur
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
You are allowed to make 12 free transfers per year. If you make more than 12
transfers per year, we reserve the right to charge $10 for each transfer.
Premium payments, asset rebalancing and dollar cost averaging transfers are not
considered transfers. All transfer requests made at the same time are treated
as a single request.
25
<PAGE>
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
stabilized payment fee of 1.25% of the daily net asset value if you annuitize
under the rider. (See Section 4, "INVESTMENT CHOICES - Family Income
Protector.")
Portfolio Management Fees
The value of the assets in each mutual fund subaccount will reflect the fees and
expenses paid by the underlying fund. A description of these expenses is found
in the underlying fund's prospectus.
Target Account Fees
For its services to the target account, the manager is paid a fee of 0.75% of
the average daily net assets of each target series subaccount. For its services
to the target account, the manager pays the adviser a fee equal to 0.35% of the
average daily net assets of each target series subaccount.
In addition to the management fees, the target account pays all expenses not
assumed by the manager, including, without limitation, the following:
. expenses for legal;
. accounting and auditing services;
. interest;
. taxes;
. costs of printing and distributing reports to shareholders;
. proxy materials and prospectuses;
. charges of its custodian, transfer agent and dividend disbursing agent;
. registration fees;
. fees and expenses of the Board of Managers who are not affiliated persons
of the Manager or an Adviser;
. insurance;
. brokerage costs
. litigation; and
. other extraordinary or nonrecurring expenses.
All general target account expenses are allocated among and charged to the
assets of the target series subaccounts on a basis that the Board of Managers
deems fair and equitable. This may be on the basis of relative net assets of
each target series subaccount or the nature of the services performed and
relative applicability to each target series subaccount.
The manager has agreed to limit each target series subaccount's management fee
and operating expenses during its first year of operations to an annual rate of
1.30% of the subaccount's average net assets. (This limit does not include other
fees and deductions, such as the mortality and expense risk fee, administrative
charge, and distribution financing charge.)
6. TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in the
Statement of Additional Information.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs like
retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as
to how you will be taxed depending on how you take the money out and the type of
policy - qualified or nonqualified (discussed below).
26
<PAGE>
You will not be taxed on increases in the value of your policy until a
distribution occurs - either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will generally
not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), 403(b) plans (sometimes referred to as tax-sheltered annuities), certain
deferred compensation plans known as "457 plans", and pension and profit sharing
plans (which include 401(k) plans).
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals - Nonqualified Policies
If you make a withdrawal from your policy, the Internal Revenue Code treats that
withdrawal as first coming from earnings and then from your premium payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. (The excess interest adjustment resulting from the withdrawal may
affect the amount on which you are taxed.) Different rules apply for annuity
payments. A portion of each annuity payment is treated as a partial return of
your premium payments and will not be taxed. The remaining portion of the
annuity payment will be treated as ordinary income. How the annuity payment is
divided between taxable and non-taxable portions depends upon the period over
which the annuity payments are expected to be made. Annuity payments received
after you have received all of your premium payments are fully includable in
income.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after the taxpayer dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
Withdrawals - Qualified Policies
The above information describing the taxation of nonqualified policies does not
apply to qualified policies. There are special rules that govern with respect
to qualified policies. We have provided more information in the Statement of
Additional Information.
Withdrawals - 403(b) Policies
The Internal Revenue Code limits the withdrawal of premium payments from certain
403(b) policies. Withdrawals can only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. in the case of hardship. However, in the case of hardship, the owner can
only withdraw the premium payments and not any earnings.
27
<PAGE>
Diversification and Distribution Requirements
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity policy. The policy must also meet certain distribution
requirements in order to be treated as an annuity policy. These diversification
and distribution requirements are discussed in the Statement of Additional
Information. PFL may modify the policy to attempt to maintain favorable tax
treatment.
The target account, through the target series subaccounts, intends to comply
with the diversification requirements of the Treasury. PFL has entered into an
agreement with the manager, who in turn, has entered into a contract with the
adviser that requires the target series subaccounts to be operated in compliance
with the Treasury regulations. The adviser reserves the right to depart from
either target series subaccount's investment strategy in order to meet these
diversification requirements. See the Statement of Additional Information for
more information concerning diversification requirements.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments, less amounts received, which were not
includable in gross income. (The same tax treatment applies to any amounts
distributed after an owner's death.)
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments - by dividing the "investment in the contract" on the
annuity commencement date by the total expected value of the annuity
payments for the term of the payments. This is the percentage of each
annuity payment that is excludable.
. Variable payments - by dividing the "investment in the contract" on the
annuity commencement date by the total number of expected periodic
payments. This is the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If you select more than one annuity payment option, special rules govern the
allocation of the policy's entire "investment in the contract" to each such
option, for purposes of determining the excludable amount of each payment
received under that option. We advise you to consult a competent tax adviser as
to the potential tax effects of allocating amounts to any particular annuity
payment option.
If, after the annuity commencement date, annuity payments stop because you died,
the excess (if any) of the "investment in the contract" as of the annuity
commencement date over the aggregate amount of annuity payments received that
was
28
<PAGE>
excluded from gross income is generally allowable as a deduction for your last
taxable year.
7. ACCESS TO YOUR MONEY
Surrenders
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking annuity payments.
If you want to make a complete withdrawal, you will receive the value of your
policy including any excess interest adjustment, minus:
. surrender charges;
. premium taxes; and
. service charges.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of
the investment choices in proportion to the policy value.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 9, Death Benefit, for more
details. Withdrawals may be subject to a surrender charge. Withdrawals from
the fixed account may also be subject to an excess interest adjustment.
Income taxes, federal tax penalties and certain restrictions may apply to any
withdrawals you make.
During the income phase, the annuity payment option you select will determine
your access to the money in your policy.
Delay of Payment and Transfers
Payment of any amount due from the mutual fund account or target account for a
surrender, a death benefit, or the death of the owner of a nonqualified policy,
will generally occur within seven business days from the date all required
information is received by PFL. PFL may be permitted to defer such payment from
the mutual fund account and target account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the mutual fund subaccounts and target
series subaccounts may be deferred under these circumstances. Pursuant to the
requirements of certain state laws, we reserve the right to defer payment of the
cash value from the fixed account for up to six months.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in the guaranteed period option) may be subject to an excess
interest adjustment. At the time you request a withdrawal, if interest rates set
by PFL have risen since the date of the initial guarantee, the excess interest
adjustment will result in a lower cash value on surrender. However, if interest
rates have fallen since the date of the initial guarantee, the excess interest
adjustment will result in a higher cash value on surrender.
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the free percentage available;
. nursing care and terminal condition withdrawals;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed 10% of the policy
value.
29
<PAGE>
Certain conditions must be satisfied. See the Statement of Additional
Information for more details.
Policy Loans for 403(b) Policies
You may elect an endorsement allowing you to receive policy loans during the
accumulation phase when:
. the policy is used in connection with a Tax Sheltered Annuity Plan under
Section 403(b) of the Code; and
. the policy has been in force for at least 30 days.
The amount you may borrow against the policy is:
. 75% of the policy value when all policy loans and unpaid accrued interest
is less than or equal to $10,000; or
. 50% of the policy value when all policy loans and unpaid accrued interest
is greater than $10,000, but less than or equal to $50,000.
The minimum loan amount is $2,000 (unless otherwise required by state law). You
are responsible for requesting and repaying loans so that they comply with
applicable tax requirements. Accordingly, you should consult a competent tax
adviser before requesting a policy loan.
The loan amount will be withdrawn from your investment choices and transferred
to the loan reserve. The loan reserve is part of the fixed account and used as
collateral for all policy loans. We reserve the right to postpone distributing
the loan amount from the fixed account for up to six months, if required.
On each policy anniversary we will compare the amount of the policy loan to the
amount in the loan reserve. If all policy loans and unpaid accrued interest
exceed the amount in the loan reserve, we will withdraw the difference from the
mutual fund subaccounts and the target series subaccounts and transfer it to the
loan reserve. If the amount of the loan reserve exceeds the amount of the
outstanding policy loan, we will withdraw the difference from the loan reserve
and transfer it in accordance with your current premium payment allocation. We
reserve the right to transfer the difference to the fixed account if the amount
to establish the policy loan was transferred from the fixed account.
If all policy loans and unpaid accrued interest exceeds the policy value, we
will mail notices to your last known address and to any assignee of record. If
that amount is not paid within 20 days after we mail the notices, the policy
will terminate without value.
Interest on the loan is 7% in arrears. Amounts in the loan reserve will earn
interest at a minimum guaranteed effective annual interest rate of 5%.
Principal and interest must be repaid:
. in level quarterly or monthly payments over a 5-year period; or
. over a 10, 15 or 20-year period, if the loan is used to buy your principal
residence.
An extended repayment period cannot go beyond your estimated retirement age.
IF:
. a repayment is not received within 20 days from the original due date;
THEN:
. a distribution of all policy loans and unpaid accrued interest, and any
applicable charges, including any surrender charge, will take place.
This distribution will be reported as taxable to the Internal Revenue Service,
may be subject to income and penalty tax, and may cause the policy to not
qualify under Section 403(b) of the Internal Revenue Code.
You can repay any policy loan in full:
. while the policy is in force; and
. before the annuity commencement date.
Note carefully that if you do not repay your policy loan, this will reduce:
. the amount of any death proceeds;
30
<PAGE>
. the amount payable upon partial withdrawal or full surrender; and
. the amount applied on the annuity commencement date to provide annuity
payments.
The loan date is the date we process the loan request. A $50 fee will be
charged for each loan request, unless otherwise required by state law. You may
only make one policy loan each year.
A premium payment received while a loan is outstanding will be treated as a
premium payment, unless you specify otherwise.
Policy loans may not be available in all states.
Systematic Payout Option
You can receive regular payments from your policy by using the systematic payout
option. Under this option, you can receive up to 10% (annually) of your
policy's value free of surrender charges. Payments can be made monthly,
quarterly, semi-annually, or annually.
Nursing Care and Terminal Condition Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
8. PERFORMANCE
The Mutual Fund Account
PFL periodically advertises performance of the various mutual fund subaccounts.
We may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance
number reflects the deduction of the mortality and expense risk fees and
administrative charges. It does not reflect the deduction of any applicable
premium taxes or surrender charges. The deduction of any applicable premium
taxes or surrender charges would reduce the percentage increase or make greater
any percentage decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges and
surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the mutual fund
account.
Fourth, in addition, for certain investment portfolios, performance may be shown
for the period commencing from the inception date of the investment portfolio.
These figures should not be interpreted to reflect actual historical performance
of the mutual fund account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include, comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
31
<PAGE>
Appendix B contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
The Target Account
Performance Information regarding the target series subaccount is in Appendix B
and in the Statement of Additional Information.
9. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances, if
the annuitant dies before the accumulation phase and the annuitant was also the
owner. (If the annuitant was not the owner, a death benefit may or may not be
paid. See below). The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
- ------------------------------------
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and the owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
If the new owner is not your spouse, then distribution requirements apply to the
policy value. These requirements are detailed in the Statement of Additional
Information.
After the Annuity Commencement Date
- -----------------------------------
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
- ------------------------------------------------
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner may surrender the policy for the policy value increased or
decreased by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
- --------------
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
32
<PAGE>
trust or other instrument), and PFL has not received written notice of the trust
as a successor owner signed prior to the owner's death, then that trust may not
exercise ownership rights to the policy. It may be necessary to open a probate
estate in order to exercise ownership rights to the policy if no contingent
owner is named in a written notice received by PFL.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit option you chose when you bought
the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information; or
. guaranteed minimum death benefit (discussed below), plus premium payments,
less partial withdrawals from the date of death to the date the death
benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the three guaranteed
minimum death benefit options listed below.
Return of Premium Death Benefit
- --------------------------------
Total premium payments, less any adjusted partial withdrawals (discussed below)
as of the date of death.
The Return of Premium Death Benefit will be in effect if you do not choose one
of the other options on the policy application.
5% Annually Compounding Death Benefit
- -------------------------------------
Total premium payments, less any adjusted partial withdrawals, plus interest at
an effective annual rate of 5% from the premium payment date or withdrawal date
to the earlier of the date of death or the owner's 81/st/ birthday. There is an
extra charge for this death benefit.
The 5% Annually Compounding Death Benefit is not available if the owner or
annuitant is 75 or older on the policy date.
Double Enhanced Death Benefit
- ------------------------------
The greater of the following:
. 5% Annually Compounding Death Benefit - total premium payments, less any
adjusted partial withdrawals, plus interest at an effective annual rate of
5% from the premium payment date or withdrawal date to the date of death
(but not later than your 81/st/ birthday).
. Step-Up Death Benefit - the largest policy value on the policy date or on
any policy anniversary before you reach age 81; plus any premium payments
you have made since then; minus any adjusted partial withdrawals we have
paid to you since then.
There is an extra charge for this death benefit.
The Double Enhanced Death Benefit is not available if the owner or annuitant is
81 or older on the policy date.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
IF, under all three death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
33
<PAGE>
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the Statement of Additional Information.
10. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change
may be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. An assignment may be a
taxable event. If the policy is issued pursuant to a qualified plan, there may
be limitations on your ability to assign the contract.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a wholly
owned indirect subsidiary of AEGON USA, Inc. which conducts most of its
operations through subsidiary companies engaged in the insurance business or in
providing non-insurance financial services. All of the stock of AEGON USA, Inc.,
is indirectly owned by AEGON n.v. of the Netherlands, the securities of which
are publicly traded. AEGON n.v., a holding company, conducts its business
through subsidiary companies engaged primarily in the insurance business. PFL
is licensed in the District of Columbia, Guam, and in all states except New
York.
The Mutual Fund Account
PFL established a mutual fund account, called the PFL Endeavor VA Separate
Account, under the laws of the State of Iowa on January 19, 1990. The mutual
fund account receives and currently invests the premium payments that are
allocated to it for investment in shares of the underlying mutual fund
portfolios.
The mutual fund account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940. However, the SEC does not supervise
the management, the investment practices, or the policies of the mutual fund
account or PFL.
The assets of the mutual fund account are held in PFL's name on behalf of the
mutual fund account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The mutual fund account includes other subaccounts that are
not available under these policies.
Information about the mutual fund account can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. You may obtain information
about the operation of the public reference room by calling the SEC at 1-800-
SEC-0330. In addition, the SEC maintains a web site (http://www.sec.gov) that
contains other information regarding the mutual fund account.
The Target Account
The target account (its legal name is the PFL Endeavor Target Account) is
registered with the SEC under the Investment Company Act of 1940, as amended, as
an open-end management investment company 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 target account or PFL.
34
<PAGE>
The two Dow(SM) Target 10 Subaccounts (January and July Series) and the two
Dow(SM) Target 5 Subaccounts (January and July Series) are non-diversified
target series subaccounts of the target account.
Legislation. Legislation may be enacted at any time that could negatively affect
- -----------
the common shares in the target series subaccounts or the issuers of the common
shares. Changing approaches to regulation, particularly with respect to the
environment or with respect to the petroleum industry, may have a negative
impact on certain companies represented in the target series subaccounts. There
can be no assurance that future legislation, regulation or deregulation will not
have a material adverse effect on the target series subaccounts or will not
impair the ability of the issuers of the common shares to achieve their business
goals.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular mutual fund subaccount, please read the underlying funds'
prospectuses. The underlying funds are not limited to selling their shares to
this mutual fund account and are permitted to accept investments from any mutual
fund account of an insurance company. Since the portfolios of the underlying
funds are available to registered mutual fund accounts offering variable annuity
products of PFL, as well as variable annuity and variable life products of other
insurance companies, there is a possibility that a material conflict may arise
between the interests of this mutual fund account and one or more of the mutual
fund accounts of another participating insurance company. In the event of a
material conflict, the affected insurance companies, including PFL, agree to
take any necessary steps to resolve the matter. This includes removing their
mutual fund accounts from the underlying funds. See the underlying funds'
prospectuses for more details.
Reinstatements
You may surrender your policy and transfer your money directly to another life
insurance company (sometimes referred to as a 1035 Exchange or a trustee-to-
trustee transfer). You may also request us to reinstate your policy after such a
transfer by returning the same total dollar amount of funds to the applicable
investment choices. The dollar amount will be used to purchase new accumulation
units at the then current price. Because of changes in market value, your new
accumulation units may be worth more or less than the units you previously
owned. We recommend that you consult a tax professional to explain the possible
tax consequences of exchanges and/or reinstatements.
Voting Rights
Mutual Fund Account. PFL will vote all shares of the underlying funds in
- -------------------
accordance with instructions we receive from you and other owners that have
voting interests in the portfolios. We will send you and other owners written
requests for instructions on how to vote those shares. When we receive those
instructions, we will vote all of the shares in proportion to those
instructions. If, however, we determine that we are permitted to vote the
shares in our own right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Target Account. You (or the person receiving annuity payments) can vote on
- --------------
certain matters with respect to the target series subaccounts you have an
interest in. Such matters include:
. changes in the investment advisory agreement;
. changes in the fundamental investment policies;
. any other matter requiring a vote of persons holding voting interests; and
35
<PAGE>
. matters pursuant to the requirements of Rules 12b-1 and 18f-2 of the
Investment Company Act of 1940.
We will send you and other owners written requests for instructions on how to
vote shares you are entitled to vote on. When we receive those instructions, we
will vote all shares in proportion to those instructions.
On certain matters, each target series subaccount or Series may vote separately.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate target series subaccount.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is an indirect wholly owned subsidiary of AEGON USA, Inc. It is located
at 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001. AFSG Securities
Corporation is registered as a broker/dealer under the Securities Exchange Act
of 1934. It is a member of the National Association of Securities Dealers, Inc.
Commissions of up to 6% of premium payments or 5% of premium payments plus an
annual continuing fee based on policy values will be paid to broker/dealers who
sell the policies under agreements with AFSG Securities Corporation. These
commissions are not deducted from premium payments. In addition, certain
production, persistency and managerial bonuses may be paid. PFL may also pay
compensation to financial institutions for their services in connection with the
sale and servicing of the policies.
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.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or in
riders or endorsements attached to your policy.
New Jersey residents: Annuity payments must begin on or before the later of: (1)
the policy anniversary that is closest to the annuitant's 70th birthday or (2)
the 10th policy anniversary. You may not select a guaranteed period option that
would extend beyond that date. Your 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.
Year 2000 Matters
In October, 1996, PFL adopted and presently has in place a Year 2000 Assessment
and Planning Project (the "Plan") to review and analyze existing hardware and
software systems, as well as voice and data communications systems, to determine
if they are Year 2000 compatible. The Plan provides for a management process,
which ensures that when a particular system, or software application, is
determined to be "non-compliant" the proper steps are in place to either remedy
the "non-compliance" or cease using the particular system or software. The Plan
also provides that the Chief Information Officer report to the Board of
Directors as to the status of the efforts under the Plan on a regular and
routine basis. PFL has engaged the services of a third-party provider that
specializes in Year 2000 issues to work on the project.
The Plan has four specific objectives: (1) develop an inventory of all
applications; (2) evaluate all applications to determine the most prudent manner
to move them to Year 2000 compliance,
36
<PAGE>
if required; (3) estimate budgets, resources and schedules for the migration of
the "affected" applications to Year 2000 compliance; and (4) define testing and
deployment requirements to successfully manage validation and re-deployment of
any changed code. It is believed that all mission critical systems are Year 2000
compliant as of December 31, 1998, with validation testing to continue through
and including June 1999.
As of the date of this Prospectus, PFL has identified and made available what it
believes are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
The Year 2000 computer problem, and its resolution, is complex and multifaceted,
and the success of a response plan cannot be conclusively known until the Year
2000 is reached (or an earlier date to the extent that the systems or equipment
addresses Year 2000 data prior to the Year 2000). Even with appropriate and
diligent pursuit of a well-conceived response plan, including testing
procedures, there is no certainty that any company will achieve complete
success. Further, notwithstanding its efforts or results, PFL's ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond its knowledge or control.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
members subscribe to a set of ethical standards involving the sales and service
of individually sold life insurance and annuities. As a member, we may use the
IMSA logo and language in advertisements.
Legal Proceedings
There are no legal proceedings to which the mutual fund account or target
account is a party or to which the assets of the account are subject. PFL, like
other life insurance companies, is involved in lawsuits. In some class action
and other lawsuits involving other insurers, substantial damages have been
sought and/or material settlement payments have been made. Although the outcome
of any litigation cannot be predicted with certainty, PFL believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the mutual fund account, target
account or PFL.
Financial Statements
The financial statements of PFL, the mutual fund account, and the target account
are included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Special Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Historical Performance Data
The Target Account
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
37
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The Mutual Fund Account
The accumulation unit values and the number of accumulation units outstanding
for each mutual fund subaccount from the date of inception are shown in the
following tables.
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.55%)
<TABLE>
<CAPTION>
=================================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning of at End of Units at End
Year Year of Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Asset Allocation Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.998344 $ 2.169995 1,857,541.490
- -----------------------------------------------------------------------------------------------------------------
Endeavor Money Market Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.170606 $ 1.185346 1,002,462.071
- -----------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.663897 $ 1.923303 3,943,109.487
- -----------------------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.774078 $ 2.041653 1,909,047.791
- -----------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.432514 $ 1.345339 2,717,945.242
- -----------------------------------------------------------------------------------------------------------------
Endeavor Value Equity Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.804168 $ 2.086425 2,607,465.410
- -----------------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.049539 $ 1.155963 2,879,146.147
- -----------------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.066111 $ 1.216554 1,987,857.002
- -----------------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.136634 $ 1.213942 858,785.418
- -----------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Value Subaccount
1998..........................................
1997 /(9)/.................................... $ 1.635726 $ 1.849564 2,651,783.374
- -----------------------------------------------------------------------------------------------------------------
Endeavor Select 50 Subaccount
1998 /(10)/...................................
- -----------------------------------------------------------------------------------------------------------------
Endeavor High Yield Subaccount
1998 /(11)/...................................
- -----------------------------------------------------------------------------------------------------------------
WRL Growth Subaccount
1998..........................................
1997 /(9)/.................................... $18.030324 $19.647490 331,277.459
===============================================================================================================
</TABLE>
38
<PAGE>
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
<TABLE>
<CAPTION>
=================================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning of at End of Units at End
Year Year of Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Asset Allocation Subaccount
1998...........................................
1997........................................... $ 1.833135 $ 2.171948 127,262,704.167
1996........................................... $ 1.577873 $ 1.833135 124,998,927.667
1995........................................... $ 1.301669 $ 1.577873 122,974,873.030
1994........................................... $ 1.393488 $ 1.301669 130,909,987.116
1993........................................... $ 1.209859 $ 1.393488 69,252,242.665
1992........................................... $ 1.125386 $ 1.209859 11,637,563.615
1991 /(1)/..................................... $ 1.000000 $ 1.125386 3,775,618.731
- -----------------------------------------------------------------------------------------------------------------
Endeavor Money Market Subaccount
1998...........................................
1997........................................... $ 1.15422 $ 1.196418 28,678,037.042
1996........................................... $ 1.11571 $ 1.15422 26,461,099.190
1995........................................... $ 1.07242 $ 1.11571 21,103,926.232
1994........................................... $ 1.05150 $ 1.07242 17,836,839.874
1993........................................... $ 1.04313 $ 1.05150 12,190,857.625
1992........................................... $ 1.02803 $ 1.04313 4,334,947.760
1991 /(1)/..................................... $ 1.00000 $ 1.02803 1,855,372.177
- -----------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Subaccount
1998...........................................
1997........................................... $ 1.521680 $ 1.925022 79,662,847.306
1996........................................... $ 1.287240 $ 1.521680 42,673,040.677
1995 /(5)/..................................... $ 1.000000 $ 1.287240 14,943,358.393
- -----------------------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock Subaccount
1998...........................................
1997........................................... $ 1.611613 $ 2.043487 44,624,829.320
1996........................................... $ 1.353339 $ 1.611613 30,237,847.748
1995 /(5)/..................................... $ 1.000000 $ 1.353339 14,196,707.745
- -----------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Subaccount
1998...........................................
1997........................................... $ 1.330640 $ 1.346560 101,220,764.948
1996........................................... $ 1.171039 $ 1.330640 91,462,303.686
1995........................................... $ 1.073958 $ 1.171039 75,065,177.549
1994........................................... $ 1.156482 $ 1.073958 76,518,044.179
1993........................................... $ 0.989782 $ 1.156482 45,569,234.403
1992........................................... $ 1.041235 $ 0.989782 6,368,485.858
1991 /(1)/..................................... $ 1.000000 $ 1.041235 3,068,279.081
- -----------------------------------------------------------------------------------------------------------------
Endeavor Value Equity Subaccount
1998...........................................
1997........................................... $ 1.694854 $ 2.086130 82,171,833.799
1996........................................... $ 1.387903 $ 1.694854 65,227,195.342
1995........................................... $ 1.045610 $ 1.387903 46,194,663.692
1994........................................... $ 1.018576 $ 1.045610 30,512,231.489
1993 /(2)/..................................... $ 1.000000 $ 1.018576 10,958,836.984
- -----------------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value Subaccount
1998...........................................
1997........................................... $ 1.004355 $ 1.156993 14,927,829.243
1996 /(6)/..................................... $ 1.000000 $ 1.004355 314,119.406
=================================================================================================================
</TABLE>
39
<PAGE>
<TABLE>
=================================================================================================================
<S> <C> <C> <C>
Endeavor Enhanced Index Subaccount
1998...........................................
1997 /(7)/..................................... $ 1.000000 $ 1.217647 9,296,582.067
- -----------------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities Subaccount
1998...........................................
1997........................................... $ 1.128769 $ 1.215033 30,043,275.031
1996........................................... $ 1.124292 $ 1.128769 17,561,825.527
1995........................................... $ 0.985803 $ 1.124292 8,456,764.729
1994 /(4)/..................................... $ 0.998670 $ 0.985803 3,102,671.789
- -----------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Value Subaccount
1998...........................................
1997........................................... $ 1.496065 $ 1.851229 63,123,931.161
1996........................................... $ 1.206843 $ 1.496065 51,124,831.634
1995........................................... $ 1.072941 $ 1.206843 40,635,696.978
1994........................................... $ 1.107747 $ 1.072941 32,607,348.474
1993 /(3)/..................................... $ 1.000000 $ 1.107747 11,449,956.948
- -----------------------------------------------------------------------------------------------------------------
Endeavor Select 50 Subaccount
1998 /(10)/....................................
- -----------------------------------------------------------------------------------------------------------------
Endeavor High Yield Subaccount
1998 /(11)/....................................
- -----------------------------------------------------------------------------------------------------------------
WRL Growth Subaccount
1998...........................................
1997........................................... $16.964068 $19.665157 16,307,024.863
1996........................................... $14.583843 $16.964068 15,174,482.394
1995........................................... $10.051117 $14.583843 13,337,196.679
1994........................................... $11.114865 $10.051117 12,758,957.591
1993........................................... $10.839753 $11.114865 9,252,403.800
1992 /(8)/..................................... $10.000000 $10.839753 1,119,066.376
=================================================================================================================
</TABLE>
/(1)/ Period from April 8, 1991 through December 31, 1991.
/(2)/ Period from May 27, 1993 through December 31, 1993.
/(3)/ Period from May 4, 1993 through December 31, 1993.
/(4)/ Period from May 9, 1994 through December 31, 1994.
/(5)/ Period from January 3, 1995 through December 31, 1995.
/(6)/ Period from November 18, 1996, through December 31, 1996.
/(7)/ Period from May 1, 1997 through December 31, 1997.
/(8)/ Period from July 1, 1992 through December 31, 1992.
/(9)/ Period from May 23, 1997 through December 31, 1997.
/(10)/ Period from _________, 1998 through December 31, 1998.
/(11) /Period from _________, 1998 through December 31, 1998.
40
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Target Account
<TABLE>
<CAPTION>
==================================================================================================
The Dow Target 10 The Dow Target 5
Subaccount (July Series) Subaccount (July Series)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
1998....................................
- --------------------------------------------------------------------------------------------------
Expenses
1998....................................
- --------------------------------------------------------------------------------------------------
Net investment income
1998....................................
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gains
(losses) on securities
1998....................................
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation unit value
1998....................................
- --------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period
1998....................................
- --------------------------------------------------------------------------------------------------
Accumulation unit value at end of period
1998....................................
- --------------------------------------------------------------------------------------------------
Expenses to average net assets
1998....................................
- --------------------------------------------------------------------------------------------------
Portfolio turnover rates
1998....................................
- --------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
1998....................................
==================================================================================================
</TABLE>
The Dow(SM) Target 10 (January Series) and The Dow(SM) Target 5 (January Series)
had not commenced operations as of December 31, 1998. Accordingly, no comparable
data is available for those Subaccounts.
41
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
THE MUTUAL FUND ACCOUNT
Standardized Performance Data
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 Endeavor Money Market Portfolio (the "Endeavor Money
Market Subaccount"). These figures are calculated according to standardized
methods prescribed by the SEC. They are based on historical earnings and are not
intended to indicate future performance.
Endeavor Money Market Subaccount. The yield of the Endeavor 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 mutual fund subaccount (other than the
Endeavor 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 refers to return quotations assuming an
investment under a policy has been held in the subaccount for various periods of
time including a period measured from the date the subaccount commenced
operations. When a subaccount has been in operation for 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
subaccount to the redemption value of that investment as of the last day of each
of the periods for which total return quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy, and
they do not reflect the rider charge for the optional family income protector.
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, 1998, and for the one and five year periods ended
December 31, 1998 are shown in Table 1 below. Total returns shown reflect
deductions for the mortality and expense risk fee, the distribution financing
charge and the administrative charges. The total return for each target series
subaccount will also reflect the manager's fee and other operating expenses.
Performance figures may reflect the 1.25% mortality and expense risk fee for the
5% Annually Compounding and Double Enhanced Death Benefits, or the 1.10%
mortality and expense risk fee for the Return of Premium Death Benefit.
Standard total return calculations will reflect the effect of surrender charges
that may be applicable to a particular period.
42
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
TABLE 1
Standard Average Annual Total Returns
======================================================================================================
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.55%)
- ------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation................
T. Rowe Price Equity Income..............
T. Rowe Price Growth Stock...............
T. Rowe Price International Stock /(1)/..
Endeavor Value Equity....................
Endeavor Opportunity Value...............
Endeavor Enhanced Index..................
Dreyfus U.S. Government Securities.......
Dreyfus Small Cap Value /(2)/............
Endeavor Select 50.......................
Endeavor High Yield......................
WRL Growth...............................
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
- ------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation................
T. Rowe Price Equity Income..............
T. Rowe Price Growth Stock...............
T. Rowe Price International Stock /(1)/..
Endeavor Value Equity....................
Endeavor Opportunity Value...............
Endeavor Enhanced Index..................
Dreyfus U.S. Government Securities.......
Dreyfus Small Cap Value /(2)/............
Endeavor Select 50.......................
Endeavor High Yield......................
WRL Growth...............................
======================================================================================================
</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)/ Effective September 16, 1986, The Dreyfus Corporation became the adviser
to the Dreyfus Small Cap Value Portfolio, formerly known as Quest for
Value Small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
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 T. Rowe Price
Growth Stock Portfolio. In the absence of such waivers, the average annual total
return figures above for the from the five year and from inception periods would
have been lower.
Non-Standardized Performance Data
In addition to the standard data discussed above, similar performance data for
other periods may also be shown.
43
<PAGE>
PFL may 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 assume that no surrender charge
is applicable, and may also make other assumptions such as the amount invested
in a subaccount, differences in time periods to be shown, or the effect of
partial withdrawals or annuity payments.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information.
The non-standardized average annual total return figures shown in Table 2 are
based on the assumption that the policy is not surrendered, and therefore the
surrender charge is not imposed. Also, Table 2 does not reflect the rider
charge for the optional family income protector.
<TABLE>
<CAPTION>
======================================================================================================
TABLE 2
Non-Standard Average Annual Total Returns
(Assuming No Surrender Charge)
======================================================================================================
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.55%)
- ------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation................
T. Rowe Price Equity Income..............
T. Rowe Price Growth Stock...............
T. Rowe Price International Stock /(1)/..
Endeavor Value Equity....................
Endeavor Opportunity Value...............
Endeavor Enhanced Index..................
Dreyfus U.S. Government Securities.......
Dreyfus Small Cap Value /(2)/............
Endeavor Select 50.......................
Endeavor High Yield......................
WRL Growth...............................
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
- ------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation................
T. Rowe Price Equity Income..............
T. Rowe Price Growth Stock...............
T. Rowe Price International Stock /(1)/..
Endeavor Value Equity....................
Endeavor Opportunity Value...............
Endeavor Enhanced Index..................
Dreyfus U.S. Government Securities.......
Dreyfus Small Cap Value /(2)/............
Endeavor Select 50.......................
Endeavor High Yield......................
WRL Growth...............................
======================================================================================================
</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).
44
<PAGE>
/(2)/ Effective September 16, 1986, The Dreyfus Corporation became the adviser
to the Dreyfus Small Cap Value Portfolio, formerly known as Quest for
Value Small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
Endeavor Select 50 and Endeavor High Yield Portfolios
The Endeavor Select 50 Portfolio and the Endeavor High Yield Portfolio commenced
operations on February 2, 1998 and May____, 1998, respectively, and therefore
these Portfolios does not have significant historical performance data. However,
its investment managers, (Montgomery Asset Management, LLC and Massachusetts
Financial Services Company) have experience managing similar portfolios with
substantially the same investment objectives and policies. Historical
performance data showing the results the investment manager achieved for those
other portfolios is in the prospectus for the Endeavor Series Trust, which
accompanies this prospectus. See "Management - The Investment Advisors Prior
Experience with Comparable Fund" 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.
HISTORICAL PERFORMANCE DATA
THE TARGET ACCOUNT
The total return for each target series subaccount will also reflect the
manager's fee and other operating expenses.
Target Strategies--Performance Data
Certain aspects of the investment strategies can be demonstrated using
historical data.
The following table contains three columns that show the performance of:
Column One: the Ten Highest Dividend Yielding Stocks Strategy for the
DJIA;
Column Two: Five Lowest Priced Stocks of the Ten Highest Dividend
Yielding Stocks Strategies in the DJIA; and
Column Three: the performance of the DJIA.
The returns shown in the following table and graphs are not guarantees of future
performance and should not be used as predictors of returns to be expected in
connection with a target series subaccount. Both stock prices (which may
appreciate or depreciate) and dividends (which may be increased, reduced or
eliminated) will affect the returns. Each strategy under performed its
respective index in certain years. Accordingly, there can be no assurance that a
target series subaccount will outperform its respective index over the life of a
target series subaccount or over consecutive rollover periods, if available.
An investor in a target series subaccount would not necessarily realize as high
a total return on an investment in the stocks upon which the hypothetical
returns are based for the following reasons: the total return figures shown do
not reflect brokerage commissions, target series subaccount expenses or taxes;
the target series subaccounts are established at different times of the year;
and the target series subaccounts may not be fully invested at all times or
equally weighted in all stocks comprising a strategy. If the above-mentioned
charges were reflected in the hypothetical returns, the returns would be lower
than those presented here.
45
<PAGE>
COMPARISON OF TOTAL RETURN/(2)/
<TABLE>
<CAPTION>
Index
Strategy Total Returns Total Returns
---------------------- -------------
5 Lowest Priced of
10 Highest Dividend the 10 Highest
Year Yielding Stocks/(1)/ Dividend Yielding Stocks/(1)/ DJIA
- ---- -------------------- ----------------------------- ----
<S> <C> <C> <C>
1974..................................... 18.73% 21.07% 14.48%
1975..................................... 19.63% 22.32% 16.43%
1976..................................... 18.26% 20.75% 15.34%
1977..................................... 17.54% 19.90% 15.01%
1978..................................... 18.56% 20.63% 16.54%
1979..................................... 19.57% 21.70% 17.28%
1980..................................... 19.93% 22.35% 17.65%
1981..................................... 19.50% 21.36% 17.41%
1982..................................... 20.25% 22.52% 18.79%
1983..................................... 19.83% 21.33% 18.30%
1984..................................... 18.65% 20.38% 17.81%
1985..................................... 19.59% 21.08% 19.09%
1986..................................... 18.85% 19.84% 18.07%
1987..................................... 17.55% 18.96% 17.35%
1988..................................... 18.71% 19.74% 18.47%
1989..................................... 18.14% 19.57% 18.72%
1990..................................... 17.19% 20.62% 17.32%
1991..................................... 20.76% 26.15% 19.80%
1992..................................... 18.96% 21.72% 19.18%
1993..................................... 20.95% 21.53% 21.27%
1994..................................... 19.76% 19.17% 22.17%
1995..................................... 23.99% 22.07% 26.88%
1996..................................... 19.98% 19.38% 23.77%
1997..................................... 16.00% 16.11% 21.38%
1998..................................... 10.59% 12.36% 18.03%
</TABLE>
- --------------------------
(1) The Ten Highest Dividend Yielding Stocks and the Five Lowest Priced Stocks
of the Ten Highest Dividend Yielding Stocks in the DJIA for any given period
were selected by ranking the dividend yields for each of the stocks in the
index, as of the beginning of the period, and dividing by the stock's market
value on the first trading day on the exchange where that stock principally
trades in the given period.
(2) Total Return represents the sum of the percentage change in market value of
each group of stocks between the first trading day of a period and the total
dividends paid on each group of stocks during the period divided by the
opening market value of each group of stocks as of the first trading day of
a period. Total Return does not take into consideration any sales charges,
commissions, expenses or taxes. Total Return dividends are reinvested semi-
annually and all returns are stated in terms of the United States dollar.
Based on the year-by-year returns contained in the table, over the twenty-
five years listed above, the Ten Highest Dividend Yielding Stocks in the
DJIA achieved an average annual total return of 18.73%, while the Five
Lowest Priced Stocks of the Ten Highest Dividend Yielding Stocks in the DJIA
achieved an average annual total return of 21.07%. In addition, over this
period, the individual strategies achieved a greater average annual total
return than that of the DJIA, which was 14.48%. Although each target series
subaccount seeks to achieve a better performance than the index as a whole,
there can be no assurance that a target series subaccount will achieve a
better performance.
46
<PAGE>
Past Performance of the DJIA
[INSERT CHART HERE]
The chart above represents past performance of the DJIA, the Ten Highest
Dividend Yielding DJIA Stocks and the Five Lowest Priced Stocks of the Ten
Highest Yielding DJIA Stocks (but not The Dow(SM) Target 10 Subaccount or The
Dow(SM) Target 5 Subaccount) from January 1, 1974 through December 31, 1998 and
should not be considered indicative of future results. Further, these results
are hypothetical. The chart assumes that all dividends during a year are
reinvested semi-annually and does not reflect sales charges, commissions,
expenses or taxes. There can be no assurance that either The Dow(SM) Target 10
Subaccount or The Dow(SM) Target 5 Subaccount will outperform the DJIA.
Investors should not rely on the preceding financial information as an
indication of the past or future performance of the target series subaccounts.
Standardized Performance Data
PFL may advertise historical total returns for the target series subaccounts.
These figures will be calculated according to standardized methods prescribed by
the SEC. They will be based on historical earnings and are not intended to
indicate future performance.
The total return calculations for a target series 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 total return of that policy will be reduced. For additional
information regarding total returns calculated using the standard formats
briefly summarized above, please refer to the Statement of Additional
Information.
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, 1998, and for the one and five year periods ended
December 31, 1998 are shown in Table 1 below. Total returns shown reflect
deductions for the mortality and expense risk fee, the distribution financing
charge and the administrative charges. Performance figures may reflect the 1.25%
mortality and expense risk fee for the 5% Annually Compounding and Double
Enhanced Death Benefits, or the 1.10% mortality and expense risk fee for the
Return of Premium Death Benefit. Standard total return calculations will
reflect the effect of surrender charges that may be applicable to a particular
period. Also, Table 1 does not reflect the rider charge for the optional family
income protector.
47
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
Standard Average Annual Total Returns
=====================================================================================================================
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.55%)
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Dow(SM) Target 10 (July Series).......................
The Dow(SM) Target 5 (July Series)........................
The Dow(SM) Target 10 (January Series) /(1)/..............
The Dow(SM) Target 5 (January Series) /(1)/...............
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Dow(SM) Target 10 (July Series)......................
The Dow(SM) Target 5 (July Series).......................
The Dow(SM) Target 10 (January Series) /(1)/.............
The Dow(SM) Target 5 (January Series) /(1)/..............
======================================================================================================================
</TABLE>
/(1)/ The January Series of The Dow(SM) Target 10 Subaccount and The Dow(SM)
Target 5 Subaccount began operations on January 4, 1999, therefore
comparable information is not available.
Non-Standardized Performance Data
PFL may also advertise or disclose average annual total return or other
performance data in non-standard formats for a target series subaccount. The
non-standard data may assume that the policy remains in force and therefore not
reflect the surrender charge. The non-standard performance data may make other
assumptions such as the amount invested in a target series subaccount,
differences in time periods to be shown, or the effect of partial withdrawals or
annuity payments and may also make other assumptions.
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.
The non-standardized average annual total return figures shown in Table 2 are
based on the assumption that the policy is not surrendered, and therefore the
surrender charge is not imposed. Also, Table 2 does not reflect the rider charge
for the optional family income protector.
48
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
Average Annual Total Returns
(Assuming No Surrender Charge)
======================================================================================================================
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.55%)
- ----------------------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Dow(SM) Target 10 (July Series)..................
The Dow(SM) Target 5 (July Series)...................
The Dow(SM) Target 10 (January Series)/(1)/..........
The Dow(SM) Target 5 (January Series)/(1)/...........
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Dow(SM) Target 10 (July Series)..................
The Dow(SM) Target 5 (July Series)...................
The Dow(SM) Target 10 (January Series)/(1)/..........
The Dow(SM) Target 5 (January Series)/(1)/...........
====================================================================================================================
</TABLE>
/(1)/ The January Series of The Dow(SM) Target 10 Subaccount and The Dow(SM)
Target 5 Subaccount began operations on January 4, 1999, therefore
comparable information is not available.
49
<PAGE>
APPENDIX C
GLOSSARY OF SPECIAL TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the mutual fund account and the target account before the annuity
commencement date.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
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 be any date at least thirty days after the policy date and may not
be later than the last day of the policy month starting after the annuitant
attains age 85, except as expressly allowed by PFL. In no event will this date
be later than the last day of the month following the month in which the
annuitant attains age 95.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the surrender charge, if any.
Distribution Financing Charge--A daily charge for the first seven policy years
equal to an effective annual rate of 0.15% of the mutual fund account's and the
target account's net assets. This charge is not deducted after the annuity
commencement date.
DJIA--The Dow Jones Industrial Average SM. Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of American
industry.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals, full surrenders, or transfers from the
guaranteed period options, or to amounts applied to annuity payment options. The
adjustment reflects changes in the interest rates declared by PFL since the date
any payment was received by, or an amount was transferred to, the guaranteed
period option. The excess interest adjustment can either decrease or increase
the amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and are not in the mutual fund account or the target
account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which may be offered by PFL and into which premium payments may be
paid or amounts transferred.
Initial Stock Selection Date--The date is June 30, 1998 for the July Series.
The date is December 31, 1998 for the January Series.
Mutual Fund 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
WRL Growth Portfolio of the WRL Series Fund, Inc., designated portfolios of the
Endeavor Series Trust and such other mutual funds as PFL may determine from time
to time.
Mutual Fund Subaccount--A subdivision within the mutual fund account, the assets
of which are invested in a specified portfolio of the underlying funds.
50
<PAGE>
Owner or Owners--The person who may exercise all rights and privileges under the
policy. The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the application.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
(1) premium payments; minus
(2) partial withdrawals (including any applicable excess interest adjustments
and/or surrender charges on such withdrawals); plus
(3) interest credited in the fixed account; plus
(4) accumulated gains or losses in the mutual fund account and the target
account; minus
(5) service charges, premium taxes, and transfer fees, if any.
Target Account--A separate account established and registered as a management
investment company under the 1940 Act to which premium payments under the
policies may be allocated.
Target Series Subaccount--A subdivision within the target account, the assets of
which are invested in common stocks selected according to a specified investment
strategy, with a specific stock selection date.
51
<PAGE>
APPENDIX D
POLICY VARIATIONS
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>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Policy Form/Endorsement Approximate First Issue Date
<S> <C>
AV201 101 65 189 (Policy Form) January 1991
AE830 292 (endorsement) May 1992
AE847 394 (endorsement) June 1994
AE871 295 (endorsement) May 1995
AV254 101 87 196 (Policy Form) June 1996
AE909 496 (endorsement) June 1996
AE890 196 (endorsement) June 1996
AV320 101 99 197 (Policy Form) May 1997
AE945 197 (endorsement) May 1997
AV376 101 106 1197 (Policy Form) May 1998
- -------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Product AV201 101 65 189 AV201 101 65 189, AV201 101 65 189,
Feature AE830 292, and AE847 394 AE847 394, and AE871 295
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Excess Interest N/A N/A N/A
Adjustment
- -------------------------------------------------------------------------------------------------------------------------------
Guaranteed Minimum Total Premiums Paid, less 5% Annually Compounding 5% Annually Compounding
Death Benefit Option(s) any partial withdrawals and (Option A). (Option A) or Annual Step-
any surrender charges made Up (Option B). Option A is
before death, accumulated only available if Owner and
at 4% to the date we receive Annuitant are both under
due proof of death or the age 75.
Policy Value on the date we
receive due proof of death,
which ever is greater.
- ------------------------------------------------------------------------------------------------------------------------------
Guaranteed Period 1 and 3 year guaranteed 1 and 3 year guaranteed 1 and 3 year guaranteed
Options (available in the periods available. periods available. periods available.
Fixed Account)
- ------------------------------------------------------------------------------------------------------------------------------
Minimum effective annual 4% 4% 4%
interest rate applicable to
the fixed account
- ------------------------------------------------------------------------------------------------------------------------------
Asset Rebalancing N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
Death Proceeds Greater of 1) the Policy Greater of (a) Policy Value Greatest of (a) Annuity
Value on the date we receive and (b) 5% Annually Purchase Value, (b) Cash
due proof of death, or 2) the Compounding Death Benefit Value, and (c) Guaranteed
total premiums paid for this Minimum Death Benefit
policy, less any partial
withdrawals and any
surrender charges made
before death, accumulated
at 4% interest per annum to
the date we receive due
proof of death
- ------------------------------------------------------------------------------------------------------------------------------
Distribution Financing N/A N/A N/A
Charge
- ------------------------------------------------------------------------------------------------------------------------------
Is Mortality & Expense No No No
Risk Fee different after
the Annuity
Commencement Date?
- -----------------------------------------------------------------------------------------------------------------------------
Dollar Cost Averaging N/A N/A N/A
Fixed Account Option
- -----------------------------------------------------------------------------------------------------------------------------
Service Charge $35 assessed on each Policy $35 assessed on each Policy Assessed only on a Policy
Anniversary. Not deducted Anniversary. Not deducted Anniversary; Waived if Sum
from the Fixed Account. from the Fixed Account. of Premium Payments less
partial withdrawals is at
least $50,000 on the Policy
Anniversary. Not deducted
from the Fixed Account.
- ------------------------------------------------------------------------------------------------------------------------------
Nursing Care and N/A yes yes
Terminal Condition
Withdrawal Option
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Product AV250 101 87 196, AV320 101 99 197, AV376 101 106 1197,
Feature AE909 496, and AE890 196 and AE945 197 and AE 945 197
- ------------------------------------------------------------------------------------------------------------------------------
Excess Interest N/A yes yes
Adjustment
- ------------------------------------------------------------------------------------------------------------------------------
Guaranteed Minimum 5% Annually Compounding 5% Annually Compounding 5% Annually Compounding
Death Benefit Option(s) (Option A) or Annual Step- (Option A), Annual Step-Up (Option A), Double Enhanced
Up (Option B). Option A is (Option B), or Return of (Option B), or Return of
only available if Owner and Premium (Option C). Option A Premium (Option C). Option A
Annuitant are both under is only available if Owner and is only available if Owner and
age 75. Annuitant are both under age Annuitant are both under age
75. Option B is only available 75. Option B is only available
if Owner and Annuitant are if Owner and Annuitant are
under age 81. both under age 81.
- -----------------------------------------------------------------------------------------------------------------------------------
Guaranteed Period 1, 3, 5, and 7 year 1, 3, 5 and 7 year guaranteed 1, 3, 5, and 7 year guaranteed
Options (available in the guaranteed periods periods available. periods available.
Fixed Account) available.
- -----------------------------------------------------------------------------------------------------------------------------------
Minimum effective annual 4% 3% 3%
interest rate applicable to
the fixed account
- ----------------------------------------------------------------------------------------------------------------------------------
Asset Rebalancing Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------------------------
Death Proceeds Greatest of (a) Annuity Greatest of (a) Policy Value, Greatest of (a) Policy Value,
Purchase Value, (b) Cash (b) Cash Value, and (c) (b) Cash Value, and (c)
Value, and (c) Guaranteed Guaranteed Minimum Death Guaranteed Minimum Death
Minimum Death Benefit. Benefit. Benefit.
- ----------------------------------------------------------------------------------------------------------------------------------
Distribution Financing N/A Applicable Applicable
Charge
- ----------------------------------------------------------------------------------------------------------------------------------
Is Mortality & Expense No No Yes (1.10%, plus
Risk Fee different after Administrative Charge,
the Annuity regardless of death benefit
Commencement Date? chosen prior to the Annuity
Commencement Date)
- ----------------------------------------------------------------------------------------------------------------------------------
Dollar Cost Averaging yes yes yes
Fixed Account Option
- ----------------------------------------------------------------------------------------------------------------------------------
Service Charge Assessed only on a Policy Assessed either on a Policy Assessed either on a Policy
Anniversary; Waived if Sum Anniversary or on Surrender; Anniversary or on Surrender;
of Premium Payments less Waived if Sum of Premium Waived if Sum of Premium
partial withdrawals is at Payments less partial Payments less partial
least $50,000 on the Policy withdrawals or the Policy withdrawals or the Policy
Anniversary. Not deducted Value is at least $50,000 on the Value is at least $50,000 on
from the Fixed Account. Policy Anniversary or at the the Policy Anniversary or at
time of Surrender. The Service the time of Surrender. The
Charge is deducted pro-rata Service Charge is deducted
from the Investment Options. pro-rata from the Investment
Options.
- -----------------------------------------------------------------------------------------------------------------------------------
Nursing Care and yes yes yes
Terminal Condition
Withdrawal Option
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<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 9.
(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 MidAmerica Management
Corporation. Note 3.
(a)(1) Principal Underwriting Agreement by and between PFL Life
Insurance Company, on its own behalf and on the behalf of
the Mutual Fund Account, and AFSG Securities Corporation.
Note 12.
(a)(2) Termination of Principal Underwriting Agreement by and
between AEGON USA Securities, Inc., formerly known as
MidAmerica Management Corporation, and PFL Life Insurance
Company on its own behalf and on the behalf of PFL
Endeavor Variable Annuity Account. Note 14.
(b) Form of Broker/Dealer Supervision and Sales Agreement by
and between AFSG Securities Corporation and the
Broker/Dealer. Note 12.
(4) (a) Form of Policy for the Endeavor Variable Annuity. Note 3.
(b) Form of Policy Endorsement (Required Distributions). Note
3.
(c) Form of Policy Endorsement (Death Benefits). Note 4.
(d) Form of Policy Endorsement (Nursing Care). Note 7.
(e) Form of Policy Endorsement (Death Benefit). Note 8.
(f) Form of Policy for the Endeavor Variable Annuity. Note
10.
(g) Form of Policy Endorsement (Nursing Care). Note 10.
(h) Form of Policy for the Endeavor FI Variable Annuity.
Note 11.
(i) Form of Policy Endorsement for the Endeavor FI (Nursing
Care). Note 11
(j) Form of Policy Endorsement for the Endeavor Variable
Annuity. (Nursing Care) Note 11.
(k) Form of Policy for the Endeavor Variable Annuity.
Note 12.
(l) Form of Policy Endorsement (New Separate Accounts and
Annuity Commencement Date). Note 12.
(m) Form of Policy Endorsement for the PFL Endeavor Variable
Annuity and the PFL Endeavor ML Variable Variable Annuity
(GMIB) Note 14.
(n) Form of Policy Endorsement for the PFL Endeavor Variable
Annuity and the PFL Endeavor ML Variable Annuity (403(b)
Loan). Note 15.
(5) (a) Form of Application for the Endeavor Variable Annuity.
Note 11.
(b) Form of Application for the Endeavor FI Variable Annuity.
Note 11.
(c) Form of Application for the Endeavor ML Variable
Annuity. Note 11.
(d) Form of Application for the PFL Endeavor Variable
Annuity. Note 12.
(e) Form of Application for the PFL Endeavor Variable
Annuity. Note 14.
(f) Form of Application for the PFL Endeavor ML Variable
Annuity. Note 14.
(6) (a) Articles of Incorporation of PFL Life Insurance Company.
Note 3.
(b) Bylaws of PFL Life Insurance Company. Note 3.
(7) Not Applicable.
(8) (a) Participation Agreement by and between PFL Life Insurance
Company and Endeavor Series Trust. Note 3.
(b) Participation Agreement with WRL Series Fund, Inc. Note
5.
(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 2.
(d) Amendment and Assignment of Administrative Services
Agreement. Note 3.
(e) Second Amendment to Administrative Services Agreement.
Note 4.
(f) Termination Notice of Administrative Services Agreement
by and between PFL Life Insurance Company and Vantage
Computer Systems, Inc. Note 10.
(g) Participation Agreement by and between PFL Life Insurance
Company and Merrill Lynch Asset Management L.P. for the
Endeavor ML Variable Annuity Note 11.
(h) Amendment to Participation Agreement by and between PFL
Life Insurance Company and Endeavor Series Trust.
Note 11.
1
<PAGE>
(9) (a) Opinion and Consent of Counsel. Note 2.
(b) Consent of Counsel. Note 2.
(10) (a) Consent of Independent Auditors. Note 16.
(b) Opinion and Consent of Actuary. Note 14.
(11) Not Applicable.
(12) Not Applicable.
(13) Performance Data Calculations. Note 7.
(14) Powers of Attorney (P.S. Baird, W.L. Busler, D.C.
Kolsrud, R.J. Kontz). Note 6. (Craig D. Vermie) Note 9.
(Brenda K. Clancy) Note 10. Larry N. Norman Note 14.
Note 1. Filed with the initial filing of this Form N-4 Registration
Statement (File No. 33-33085 on January 23, 1990.
Note 2. Filed with Pre-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 33-33085) on April 9, 1990.
Note 3. Filed with Post-Effective Amendment No. 2 to this Form N-4
Registration Statement (File No. 33-33085) on April 1, 1991.
Note 4. Filed with Post-Effective Amendment No. 3 to this Form N-4
Registration Statement (File No. 33-33085) on April 29, 1992.
Note 5. Filed with Post-Effective Amendment No. 5 to this Form N-4
Registration Statement (File No. 33-33085) on April 30, 1993.
Note 6. Filed with Post-Effective Amendment No. 6 to this Form N-4
Registration Statement (File No. 33-33085) on January 28,
1994.
Note 7. Filed with Post-Effective Amendment No. 7 to this Form N-4
Registration Statement (File No. 33-33085) on March 29, 1994.
Note 8. Filed with Post-Effective Amendment No. 10 to this Form N-4
Registration Statement (File No. 33-33085) on April 27, 1995.
Note 9. Filed with Post-Effective Amendment No. 11 to this Form N-4
Registration Statement (File No. 33-33085) on April 24, 1996.
Note 10. Filed with Post-Effective Amendment No. 12 to this Form N-4
Registration Statement (File No. 33-33085) on February 28,
1997.
Note 11. Filed with Post-Effective Amendment No. 13 to this Form N-4
Registration Statement (File No. 33-33085) on April 29, 1997.
Note 12. Filed with Post-Effective Amendment No. 14 to this Form N-4
Registration Statement (File No. 33-33085) on February 27,
1998.
Note 13. Filed with Post-Effective Amendment No. 15 to this Form N-4
Registration Statement (File No. 33-33085) on April 29, 1998.
Note 14. Filed with Post-Effective Amendment No. 16 to this Form N-4
Registration Statement (File No. 33-33085) on September 28,
1998.
Note 15. Filed herewith.
Note 16. To be filed by future Amendment.
2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
PRINCIPAL POSITIONS
NAME AND AND OFFICES WITH
BUSINESS ADDRESS 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 Operating
Cedar Rapids, IA 52499 Officer
Craig D. Vermie Director
4333 Edgewood Road, N.E. Vice President,
Cedar Rapids, IA 52499 Secretary, and General
Counsel
Douglas C. Kolsrud Director, Senior Vice President,
4333 Edgewood Road, N.E. Chief Investment Officer
Cedar Rapids, IA 52499 and Corporate Actuary
Robert J. Kontz Vice President and
4333 Edgewood Road, N.E. Corporate Controller
Cedar Rapids, IA 52499
Larry N. Norman Director and Executive
4333 Edgewood Road, N.E. Vice President
Cedar Rapids, IA 52499
Brenda K. Clancy Vice President
4333 Edgewood Road, N.E. Treasurer and Chief
Cedar Rapids, IA 52499 Financial Officer
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ---------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advsiors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Ins. Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% Western Reserve Life Broker-Dealer
Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Intersecurities, Inc. Insurance agency
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX II Series Fund Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
AEGON Assignment Illinois 100% AEGON Financial Administrator of
Corporation Services Group, Inc. Structured Settlements
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
Life Investors Delaware 100% LIICA Purchase, own, and hold
Alliance, LLC the equity interest of
other entities
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency
Assurance Co. of Ohio
Monumental Life Insurance Co. Maryland 100% First AUSA Life Ins. Co. Insurance
AEGON Special Markets Maryland 100% Monumental Life Ins. Co. Marketing
Group, Inc.
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Commonwealth General Delaware 100% AEGON USA Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc.. holding company
Capital Real Estate Delaware 100% CGC Furniture and equiment lessor
Development Corporation
Capital General Development Delaware 100% CGC Holding company
Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100%Unicom Administrative Provider of admin. servcies
Services, GmbH Services, Inc.
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20% Capital Liberty, L.P.
76.3% Monumental
Life Ins. Co.
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Life Insurance company
Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
</TABLE>
3
<PAGE>
ITEM 27. NUMBER OF POLICYOWNERS
As of December 31, 1998, there were 28,453 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.
ITEM 29. PRINCIPAL UNDERWRITER
AFSG Securities Corporation
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499-0001
The directors and officers of
AFSG Securities Corporation
are as follows:(5)
<TABLE>
<CAPTION>
<S> <C>
Larry N. Norman Sarah J. Strange
Director and President Director and Vice President
Frank A. Camp Darin Smith
Director and Secretary Assistant Vice President
and Assistant Secretary
Lisa Wachendorf Linda Gilner
Vice President and Treasurer/Controller
Compliance Officer and Chief
Debra C. Cubero Robert Warner
Vice President Assistant Compliance
Officer
Priscilla Hechler Emily Bates
Assistant Vice President and Assistant Treasurer
Assistant Secretary
Thomas Pierpan Clifton Flenniken
Assistant Vice President and Assistant Treasurer
Assistant Secretary
Anne Spaes
Vice President
</TABLE>
_____________________
/5/ The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
4
<PAGE>
Commissions and Other Compensation Received by Principal Underwriter.
AFSG Securities Corporation, the broker/dealer, received $13,075,039.78
from the Registrant from May 1, 1998 through December 31, 1998, for its services
in distributing the Policies. AEGON USA Securities, Inc., its predecessor,
received $8,891,105.79 from the Registrant from January 1, 1998 through April
30, 1998, for its services in distributing the Policies. No other commission or
compensation was received by the principal underwriter, directly or indirectly,
from the Registrant during the fiscal year.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor VA Separate Account, the PFL Retirement Builder Variable Annuity
Account, the PFL Life Variable Annuity Account A, the PFL Wright Variable
Annuity Account and the AUSA Endeavor Variable Annuity Account. These accounts
are separate accounts of PFL Life Insurance Company or AUSA Life Insurance
Company, Inc. AFSG Securities Corporation also serves as principal underwriter
for Separate Account I, Separate Account II, Separate Account IV and Separate
Account V of Peoples Benefit Life Insurance Company, and for Separate Account B
and Separate Account C of AUSA Life Insurance Company, Inc.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder,
are maintained by PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499.
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
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.
5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Cedar Rapids and State of Iowa, on this 25/th/ day of
January, 1999.
PFL ENDEAVOR VA SEPARATE
ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
_________________________________ *
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.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
_______________________________ * Director January , 1999
Patrick S. Baird ----------------
/s/ Craig D. Vermie Director January 25, 1999
- -------------------------------
Craig D. Vermie
_______________________________ * Director January , 1999
William L. Busler (Principal Executive Officer) ----------------
_______________________________ * Director January , 1999
Larry N. Norman ----------------
_______________________________ * Director January , 1999
Douglas C. Kolsrud ----------------
_______________________________ * Vice President and January , 1999
Robert J. Kontz Corporate Controller ----------------
/s/ Brenda K. Clancy Treasurer January 25, 1999
- ------------------------------------
Brenda K. Clancy
</TABLE>
* By Brenda K. Clancy and Craig D. Vermie, attorneys in fact.
<PAGE>
Registration No.
33-33085
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL ENDEAVOR VA SEPARATE ACCOUNT
_______________
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No./*/
- ----------- ---------------------- ----------
<S> <C> <C>
(4)(n) Form of Policy Endorsement for the PFL Endeavor
Variable Annuity and the PFL Endeavor ML Variable
Annuity (403(b) Loan).
</TABLE>
- -----------------
/*/ Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (4)(n)
--------------
FORM OF POLICY ENDORSEMENT FOR
THE PFL ENDEAVOR VARIABLE ANNUITY AND
THE PFL ENDEAVOR ML VARIABLE ANNYITY (403(b) LOAN).
<PAGE>
PFL LIFE INSURANCE COMPANY
PFL A Stock Company
LOGO Home Office located at 4333 Edgewood Road N.E.,
Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us)
AMENDATORY ENDORSEMENT
This Amendatory Endorsement is subject to all provisions of the policy to which
it is attached which are not in conflict with the provisions of this Amendatory
Endorsement. This Amendatory Endorsement may be used only with policies
purchased pursuant to a Tax Sheltered Annuity Plan under Section 403(b) of the
Internal Revenue Code that is not subject to the Employee Retirement Income
Security Act of 1974.
The following provisions are added to the policy:
SECTION 1 - POLICY LOANS
We will permit you to take a Policy Loan prior to the Annuity Commencement Date
once the policy has been force for at least 30 days. You can borrow up to the
available Loan Value as defined below. Upon your request for a Policy Loan, we
will send to you a loan agreement for your signature. You must elect the
Subaccount(s) and/or Fixed Account(s) and the proportions you wish to borrow
against. In the absence of an election, the loan will be made from each
Subaccount(s) and/or Fixed Account(s) in proportion to the portion of the Policy
Value (immediately prior to the loan) in each Subaccount(s) and/or Fixed
Account(s). When a loan is made, an amount equal to the loan will be withdrawn
from the applicable Subaccount(s) and/or Fixed Account(s) and transferred to the
loan reserve. The loan reserve is part of the Fixed Account to be used as
collateral for any Policy Loan. Amounts transferred to the loan reserve do not
participate in the investment experience of the Subaccount(s) from which they
were withdrawn, but will be credited with interest as provided in Section 2 of
this Amendatory Endorsement.
We have the right to postpone distributing the proceeds of a Policy Loan for up
to six months from the date the loan agreement is signed. Only one new loan
will be permitted per Policy Year. If you decide to take a Policy Loan, the
following provisions may be affected:
(1) Asset rebalancing;
(2) Transfers of interest;
(3) Systematic Payout Option (SPO) payments;
(4) Dollar cost Averaging; or
(5) Any other policy options which may conflict with loan processing.
The loan Value is an amount up to:
(1) 75% of the Policy Value when total indebtedness is less than or equal to
$10,000; or
(2) 50% of the Policy Value when total indebtedness is greater than $10,000 but
less than or equal to $50,000.
The minimum Policy Loan size is $2,000 (unless otherwise required by state law).
At each Policy Anniversary we will compare the amount of the outstanding Policy
Loan to the amount in the loan reserve. If the amount of the outstanding Policy
Loan (plus any unpaid interest) exceeds the amount in the loan reserve, we will
withdraw the difference from the Subaccount(s) and/or Fixed Account(s) in
proportion to the portion of the Policy Value in each Subaccount and/or Fixed
Account(s) and transfer it to the loan reserve. If the amount in the loan
reserve exceeds the amount of the outstanding loan, we will withdraw the
difference from the loan reserve and transfer it to the Subaccount(s) and/or
Fixed Account(s) in accordance with your current premium payment allocation.
However, we reserve the right to require the transfer to the Fixed Account if
the amount was transferred from the Fixed Account to establish the Policy Loan.
Your annuity policy is the sole security for all Policy Loans. You have sole
responsibility for requesting Policy Loans and making Policy Loan repayments
that comply with applicable tax requirements. Consult a competent tax adviser
before requesting a Policy Loan.
We will charge a fee of $50.00 at the time of each Policy Loan origination,
unless otherwise required by state law.
<PAGE>
SECTION 2 - LOAN INTEREST PROVISION
Policy Loans will bear interest at the fixed rate of 7.00% per year. While any
Policy Loan is outstanding, amounts in the loan reserve will earn interest at a
minimum guaranteed effective annual interest rate of 5%. We may declare higher
current interest rates from time to time. We may apply different current
interest rates to the loan reserve than other portions of the Fixed Account.
Interest will be added to the Policy Loan and charged the same rate of interest
as the principal portion of the Policy Loan.
SECTION 3 - INDEBTEDNESS - LIMITATION
Indebtedness is defined as the total of the Policy Loans and accrued interest.
The total Indebtedness will not be allowed to exceed $50,000. If the
indebtedness exceeds the Policy Value, we will mail notices to the last known
addresses of you and any assignee of record. If the Indebtedness is not paid
within 20 days after mailing of the notices, the policy will terminate without
value.
SECTION 4 - REPAYMENT OF INDEBTEDNESS
Principal and interest must be repaid in substantially level quarterly or
monthly payments over a 5-year period or, if the Policy Loan is used to acquire
your principal residence, a 10-, 15-, or 20-year period, but such an extended
period cannot go beyond your estimated retirement age.
Any outstanding indebtedness will automatically be deducted from any Death
Proceeds, the amount payable upon a Partial Withdrawal or surrender of the
policy, and the amount applied on the Annuity Commencement Date to provide any
annuity payments, unless the Indebtedness is repaid prior to the distribution of
Death proceeds, Partial Withdrawal, Surrender or application of an amount to
provide annuity payments on the Annuity Commencement Date.
Indebtedness may be repaid in full any time before the Annuity Commencement Date
of the policy and while the policy is in force. Any Policy Loan repayments will
be allocated to the Subaccount(s) and/or Fixed Account(s) pro rata in accordance
with your current premium allocations. If the scheduled principal and interest
payments are not received within 20 days after the installment's due date, the
entire amount of the outstanding Indebtedness as of the end of the 20-day grace
period will be reported to the Internal Revenue Service as a taxable
distribution. This deemed distribution may be subject to income tax and a
federal penalty tax and may cause the policy to fail to qualify under Section
403(b) of the Internal Revenue Code.
This Amendatory Endorsement takes effect and expires concurrently with the
Policy to which it is attached.
Signed for us at our home office.
/s/ Craig D. Vermie /s/ William L. Busler
SECRETARY PRESIDENT
