<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 33- 33085
811-06032
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
- --------------------------------------------------------------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___
Post-Effective Amendment No. 21 X
---- -
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 30 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 LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
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<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
X on May 1, 2000 pursuant to paragraph (b) of Rule 485
-------
60 days after filing pursuant to paragraph (a) (1) of
------- Rule 485
on May 1, 2000 pursuant to paragraph (a)(1) of Rule 485
-------
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
2
<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, 2000
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, 2000. Please call us at (800) 525-6205 or write us at: PFL Life
Insurance Company, Financial Markets Division, Variable Annuity Department,
4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A registration
statement, including the SAI, has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference. Information about
the variable annuity can be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. You may obtain information about the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a web site (http://www.sec.gov) that contains the prospectus, the
SAI, material incorporated by reference, and other information. The table of
contents of the SAI is included at the end of this prospectus.
Please note that the policies and the separate account investment choices:
. 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.
This flexible premium deferred (group or individual) annuity policy has many
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 below. You bear the entire investment risk for
all amounts you put in either separate account. There is also a fixed account,
which offers interest at rates that are guaranteed by PFL Life Insurance
Company (PFL). You can choose any combination of these investment choices.
ENDEAVOR SERIES TRUST
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
TRANSAMERICA VARIABLE
INSURANCE FUND, INC.
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND
(VIP) - SERVICE CLASS 2
Fidelity - VIP Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II) - SERVICE CLASS 2
Fidelity - VIP II Contrafund(R) Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III) - SERVICE CLASS 2
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth
WRL Janus Global
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
THE TARGET ACCOUNT
The Dow SM Target 10 (January Series)
The Dow SM Target 5 (January Series)
The Dow SM Target 10 (July Series)
The Dow SM Target 5 (July Series)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF
CONTENTS Page
<S> <C>
GLOSSARY OF TERMS........................................................... 3
SUMMARY..................................................................... 5
ANNUITY POLICY FEE TABLE.................................................... 9
EXAMPLES.................................................................... 13
1.THE ANNUITY POLICY........................................................ 15
2.PURCHASE.................................................................. 15
Policy Issue Requirements................................................. 15
Premium Payments.......................................................... 15
Initial Premium Requirements.............................................. 15
Additional Premium Payments............................................... 16
Maximum Total Premium Payments............................................ 16
Allocation of Premium Payments............................................ 16
Policy Value.............................................................. 16
3.INVESTMENT CHOICES........................................................ 16
The Separate Accounts..................................................... 16
The Mutual Fund Account................................................... 16
The Target Account........................................................ 17
The Fixed Account......................................................... 22
Transfers................................................................. 23
4.PERFORMANCE............................................................... 24
5.EXPENSES.................................................................. 24
Surrender Charges......................................................... 24
Excess Interest Adjustment................................................ 25
Mortality and Expense Risk Fee............................................ 25
Administrative Charges.................................................... 25
Premium Taxes............................................................. 26
Federal, State and Local Taxes............................................ 26
Transfer Fee.............................................................. 26
Family Income Protector................................................... 26
Portfolio Management Fees................................................. 26
Target Account Fees....................................................... 26
6.ACCESS TO YOUR MONEY...................................................... 27
Surrenders................................................................ 27
Delay of Payment and Transfers............................................ 27
Excess Interest Adjustment................................................ 27
7. ANNUITY PAYMENTS (THE INCOME PHASE)...................................... 28
Annuity Payment Options................................................... 28
8.DEATH BENEFIT............................................................. 29
When We Pay A Death Benefit............................................... 29
When We Do Not Pay A Death Benefit........................................ 30
Amount of Death Benefit................................................... 30
Guaranteed Minimum Death Benefit.......................................... 30
Adjusted Partial Withdrawal............................................... 32
9.TAXES..................................................................... 32
Annuity Policies in General............................................... 32
Qualified and Nonqualified Policies....................................... 32
</TABLE>
<TABLE>
<S> <C>
Withdrawals - Qualified Policies.......................................... 32
Withdrawals - 403(b) Policies............................................. 33
Tax Status of the Policy.................................................. 33
Withdrawals - Nonqualified Policies....................................... 34
Taxation of Death Benefit Proceeds........................................ 34
Annuity Payments.......................................................... 34
Transfers, Assignments or Exchanges of Policies........................... 35
Possible Tax Law Changes.................................................. 35
10.ADDITIONAL FEATURES...................................................... 35
Systematic Payout Option.................................................. 35
Family Income Protector................................................... 35
Nursing Care and Terminal Condition Withdrawal Option..................... 37
Unemployment Waiver....................................................... 37
Telephone Transactions.................................................... 38
Dollar Cost Averaging Program............................................. 38
Asset Rebalancing......................................................... 38
11.OTHER INFORMATION........................................................ 39
Ownership................................................................. 39
Assignment................................................................ 39
PFL Life Insurance Company................................................ 39
The Mutual Fund Account................................................... 39
The Target Account........................................................ 39
Mixed and Shared Funding.................................................. 39
Reinstatements............................................................ 40
Voting Rights............................................................. 40
Distributor of the Policies............................................... 40
Variations in Policy Provisions........................................... 41
IMSA...................................................................... 41
Legal Proceedings......................................................... 41
Financial Statements...................................................... 41
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 41
APPENDIX A
Condensed Financial Information The Mutual Fund Account..................... 42
Condensed Financial Information The Target Account.......................... 47
APPENDIX B
Historical Performance Data The Mutual Fund Account......................... 49
Historical Performance Data
The Target Strategies and the Dow Jones Industrial Average SM.............. 57
APPENDIX C
Policy Variations........................................................... 62
</TABLE>
2
<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.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. 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 annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fee.
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
PFL's general assets 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 PFL may offer 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.
Monthly Anniversary--The same date in each succeeding month as the policy date.
For purposes of the variable account, whenever the monthly anniversary falls on
a date other than a valuation date, the monthly anniversary will be deemed to
be the next valuation date.
Mutual Fund Account--PFL Endeavor VA Separate Account, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"), to which premium payments
under the policies may be allocated.
Mutual Fund Subaccount--A subdivision within the mutual fund account, the
assets of which are invested in specified portfolios of the underlying funds.
Owner--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
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<PAGE>
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the mutual fund account and the target
account; minus
. service charges, rider fees, premium taxes, and transfer fees, if any.
Policy Year--A policy year begins on the policy date and on each policy
anniversary.
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.
(Note: The SAI contains a more extensive Glossary.)
4
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail.
1. THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us, or our) provides a way for you to invest on a tax-
deferred basis in the following investment choices: twenty-six 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 thirty subaccounts in the mutual fund account and the target
account that are listed in Section 3. Each mutual fund subaccount invests
exclusively in shares of one of the portfolios of the underlying funds. Each
target series subaccount invests directly in individual stocks 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 PFL guarantees. We guarantee to
return your investment with interest credited for all amounts allocated to the
fixed account.
You can transfer money between any of the investment choices. We reserve the
right to impose a $10 fee for each transfer in excess of 12 transfers per
policy year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate
during the accumulation phase will largely determine the income payments you
receive during the income phase.
2. PURCHASE
You can buy 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.
3. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the investment choices
listed below.
The following twenty-six mutual fund portfolios are described in the underlying
fund prospectuses:
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select Portfolio(/1/)
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Transamerica VIF Growth Portfolio
Fidelity - VIP Equity-Income Portfolio - Service Class 2
Fidelity - VIP II Contrafund(R) Portfolio - Service Class 2
Fidelity - VIP III Growth Opportunities Portfolio - Service Class 2
Fidelity - VIP III Mid Cap Portfolio - Service Class 2
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth
WRL Janus Global
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
(/1/)Formerly known as Endeavor Select 50.
5
<PAGE>
The following four target series subaccounts are described later in this
prospectus:
The Dow SM Target 10 (January Series)
The Dow SM Target 5 (January Series)
The Dow SM Target 10 (July Series)
The Dow SM Target 5 (July 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 payments to the fixed account.
4. 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 SAI. This
data does not indicate future performance.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
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,
we consider the premium you paid to come out before any earnings.
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 at
an annual rate of of 1.40% (if you choose the "Return of Premium Death
Benefit") or 1.55% (if you choose any other death benefit option) from the
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.
We will deduct state premium taxes, which currently range from 0% to 3.50%,
upon total surrender, payment of a death benefit, or when annuity payments
begin.
If you elect the "family income protector" rider, then there is an annual fee
during the accumulation phase of 0.30% of the minimum annuitization value. If
you receive annuity payments under the rider, then there is a guaranteed
payment fee at an annual rate of 1.25% of the daily net asset value in the
separate account.
The value of the net assets of the mutual fund subaccounts will reflect the
management fee and other expenses incurred by the underlying portfolios. The
value of the net assets of the target series subaccounts will reflect the
management fee and other expenses incurred by the manager in operating each
target series subaccount.
6. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase (except
under certain qualified policies). After one year, you may, free of surrender
charges once each policy year, take out the greater of:
. up to 10% of your premium; or
. any gains in the policy.
The gains in the policy are the amount equal to the policy value, minus the sum
of all premium payments, reduced by all prior partial withdrawals.
If you have policy value in the fixed account, you may take the 10% free of
surrender charges and free of excess interest adjustments. Amounts withdrawn in
the first year, or in excess of the 10% free amount, may be subject to a
surrender charge and/or excess interest adjustment. You
6
<PAGE>
may also have to pay income tax and a tax penalty on any money you take out.
Access to amounts held in qualified policies may be restricted or prohibited.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options,
or a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
8. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You generally may choose one of the following guaranteed minimum death
benefits:
. 5% Annually Compounding
. Greater of 5% Annually Compounding through age 80 or Annual Step-Up through
age 80
. Monthly Step-Up through age 80
. Return of Premium
Charges are lower for the the Return of Premium Death Benefit than they are for
the other three.
These choices are restricted for annuitants and owners over age 74.
If the owner is not the annuitant, no death benefit is paid if the owner dies.
9. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as ordinary income. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase may be considered partly a return of
your original investment so that part of each payment would not be taxable as
income.
10. ADDITIONAL FEATURES
This policy has additional features that might interest you. These include the
following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector." There is an
extra charge for this rider and the rider may vary by state.
. Under certain medically related circumstances, 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."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money (at least $500)
automatically transferred from the fixed account, the Endeavor Money Market
Subaccount, or the Dreyfus U.S. Government Securities
7
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Subaccount, either monthly or quarterly, into your choice of mutual fund
subaccounts or target series subaccounts. This feature is called "dollar
cost averaging."
. 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."
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. 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. It is generally only 20 days. 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 or less than 20 days to
return a policy, or receive a refund of more (or less) than the policy value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
Who should purchase the Policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or
other long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most attractive to people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund
a qualified plan. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of losing money that you
put in.
There are various fees and charges associated with variable annuities. You
should consider whether the features and benefits of this policy, unique to
variable annuities, such as the opportunity for lifetime income payments, a
guaranteed death benefit, the guaranteed level of certain charges, and the
family income protector, make this policy appropriate for your needs.
Financial Statements. Financial Statements for PFL, the mutual fund
subaccounts, and the target series subaccounts are in the SAI.
12. INQUIRIES
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
You may check your policy at www.pfllife.com/fmd. Follow the logon procedures.
You will need your pre-assigned Personal Identification Number ("PIN") to
access information about your policy.
8
<PAGE>
ANNUITY POLICY FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Policy Owner Transaction Expenses
- --------------------------------------
<S> <C>
Sales Load On Purchase Payments.. 0
Maximum Surrender Charge
(as a % of Premium Payments
Surrendered)(/1/)(/2/).......... 7%
</TABLE>
<TABLE>
<CAPTION>
Separate Account Annual Expenses
(as a percentage of average account value)
<S> <C>
Mortality and Expense Risk Fee(/3/)..... 1.40%
Administrative Charge................... 0.15%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.. 1.55%
</TABLE>
<TABLE>
- --------------------
<CAPTION>
Portfolio Annual
Expenses(/4/)
(as a percentage of
average net assets
and after expense
reimbursements)
- --------------------
<S> <C>
Annual Service Charge(/1/)....... $35 Per Policy
Transfer Fee(/1/)................ Currently No Fee
</TABLE>
<TABLE>
<CAPTION>
Total
Total Account
Portfolio and
Management Other Rule Annual Portfolio
Fees Expenses 12b-1 Fees(/5/) Expenses Expenses
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dreyfus Small Cap
Value(/6/)............... 0.80% 0.10% 0.32% 1.22% 2.77%
Dreyfus U.S. Government
Securities(/7/).......... 0.65% 0.12% -- 0.77% 2.32%
Endeavor Asset
Allocation(/8/).......... 0.75% 0.10% 0.02% 0.87% 2.42%
Endeavor Money Market..... 0.50% 0.05% -- 0.55% 2.10%
Endeavor Enhanced Index... 0.75% 0.03% -- 0.78% 2.33%
Endeavor High Yield(/9/).. 0.746% 0.504% -- 1.25% 2.80%
Endeavor Janus
Growth(/10/)............. 0.775% 0.055% -- 0.83% 2.38%
Endeavor Opportunity
Value(/11/).............. 0.80% 0.05% 0.06% 0.91% 2.46%
Endeavor Value
Equity(/12/)............. 0.80% 0.07% 0.08% 0.95% 2.50%
Endeavor Select........... 1.00% 0.39% -- 1.39% 2.94%
T. Rowe Price Equity
Income(/13/)............. 0.80% 0.07% 0.01% 0.88% 2.43%
T. Rowe Price Growth
Stock(/14/).............. 0.80% 0.07% 0.01% 0.88% 2.43%
T. Rowe Price
International
Stock(/15/).............. 0.90% 0.10% -- 1.00% 2.55%
Transamerica VIF
Growth(/16/)............. 0.70% 0.15% -- 0.85% 2.40%
Fidelity--VIP Equity-
Income--
Service Class 2(/17/).... 0.48% 0.10% 0.25% 0.83% 2.38%
Fidelity--VIP II
Contrafund(R)--
Service Class 2(/17/).... 0.58% 0.12% 0.25% 0.95% 2.50%
Fidelity--VIP III Growth
Opportunities--Service
Class 2(/17/)............ 0.58% 0.13% 0.25% 0.96% 2.51%
Fidelity--VIP III Mid
Cap--
Service Class 2(/17/).... 0.57% 0.43% 0.25% 1.25% 2.80%
WRL Alger Aggressive
Growth................... 0.80% 0.09% -- 0.89% 2.44%
WRL Goldman Sachs
Growth(/18/)(/19/)....... 0.90% 0.10% -- 1.00% 2.55%
WRL Janus Global(/20/).... 0.80% 0.12% -- 0.92% 2.47%
WRL NWQ Value Equity...... 0.80% 0.10% -- 0.90% 2.45%
WRL Pilgrim Baxter Mid Cap
Growth(/18/)(/21/)....... 0.90% 0.10% -- 1.00% 2.55%
WRL Salomon All
Cap(/18/)(/22/).......... 0.90% 0.10% -- 1.00% 2.55%
WRL T. Rowe Price Dividend
Growth(/18/)(/23/)....... 0.90% 0.10% -- 1.00% 2.55%
WRL T. Rowe Price Small
Cap(/18/)(/24/).......... 0.75% 0.25% -- 1.00% 2.55%
The Dow SM Target 10
(January)(/25/)(/26/).... 0.69% 0.51% -- 1.20% 2.75%
The Dow SM Target 5
(January)(/25/)(/27/).... 0.69% 0.52% -- 1.21% 2.76%
The Dow SM Target 10
(July)(/25/)(/28/)....... 0.75% 0.38% -- 1.13% 2.68%
The Dow SM Target 5
(July)(/25/)(/29/)......... 0.75% 0.32% -- 1.07% 2.62%
</TABLE>
9
<PAGE>
(/1/)The surrender charge and transfer fee, if any are 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 pro rata 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. 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/)Mortality and expense risk fees shown (1.40%) are for the "5% Annually
Compounding Death Benefit," the "Greater of 5% Annually Compounding
through age 80 Death Benefit or Annual Step-Up through age 80 Death
Benefit," and the "Monthly Step-Up through age 80 Death Benefit." This
reflects a fee that is 0.15% per year higher than the 1.25% corresponding
fee for the "Return of Premium Death Benefit."
(/4/)The fee table information relating to the underlying funds was provided
to PFL by the underlying funds, their investment advisers or managers,
and PFL has not independently verified such information. Actual future
expenses of the portfolios may be greater or less than those shown in the
Table.
(/5/)The Board of Trustees of Endeavor Series Trust (the "Trust") and the
Board of Managers of the target account have authorized an arrangement
whereby, subject to best price and execution, executing brokers will
share commissions with the Trust's or the target account's affiliated
broker. Under supervision of the Trustees and the Managers, the
affiliated broker will use the "recaptured commissions" to promote
marketing of the Trust's shares and investments in the target account.
The staff of the Securities and Exchange Commission believes that,
through the use of these recaptured commissions, the Trust and the target
account are indirectly paying for distribution expenses and such amounts
are shown as 12b-1 fees in the above table. This use of recaptured
commissions to promote the sale of the Trust's shares and investments in
the target account involves no additional costs to the Trust, to the
target account or any owner. Endeavor Series Trust and the target
account, based on advice of counsel, do not believe that recaptured
brokerage commissions should be treated as 12b-1 fees. For more
information on the Trust's Brokerage Enhancement Plan, see the Trust's
prospectus accompanying this Prospectus. For more information on the
target account's Brokerage Enhancement Plan, see the target account's
section of this prospectus.
(/6/)For the Dreyfus Small Cap Value Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.10%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.90%.
(/7/)For the Dreyfus U.S. Government Securities Portfolio, the management fees
were 0.65% and other expenses (reduced by custodial offset arrangements)
were 0.08%. Therefore, Total Portfolio Annual Expenses for the period
ended December 31, 1999 were 0.73%.
(/8/)For the Endeavor Asset Allocation Portfolio, the management fees were
0.75% and other expenses before reimbursements were 0.09%. Therefore,
Total Portfolio Annual Expenses and other expenses before reimbursements
(reduced by custodial offset arrangements) for the period ended December
31, 1999 were 0.84%.
(/9/)For the Endeavor High Yield Portfolio, the management fees before waivers
were 0.775% (after waivers 0.746%) and other expenses were 0.47%.
Therefore, Total Portfolio Annual Expenses after waivers (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 1.22%.
(/10/)For the Endeavor Janus Growth Portfolio, the management fees before
waivers were 0.80% (after waivers 0.775%) and other expenses were
0.055%. Therefore, Total Portfolio Annual Expenses after waivers
(reduced by custodial offset arrangements) for the period ended December
31, 1999 were 0.83%.
(/11/)For the Endeavor Opportunity Value Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.05%. Therefore,
Total Portfolio Annual Expenses before
10
<PAGE>
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 0.85%.
(/12/)For the Endeavor Value Equity Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.88%.
(/13/)For the T. Rowe Price Equity Income Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.07%. Therefore,
Total Portfolio Annual Expenses before reimbursements (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 0.87%.
(/14/)For the T. Rowe Price Growth Stock, the management fees were 0.80% and
other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.87%.
(/15/)For the T. Rowe Price International Stock Portfolio, the management fees
were 0.90% and other expenses (reduced by custodial offset arrangements)
were 0.01%. Therefore, Total Portfolio Annual Expenses for the period
ended December 31, 1999 were 0.91%.
(/16/)For the Transamerica VIF Growth Portfolio, the management fees before
waivers were 0.75% and other expenses before reimbursements were 0.15%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset arrangements)
for the period ended December 31, 1999 were 0.90%.
(/17/)Service Class 2 expenses are based on estimated expenses for the first
year. VIP expenses are without any reimbursement.
(/18/)Because WRL Goldman Sachs Growth, WRL Pilgrim Baxter Mid Cap Growth, WRL
Salomon All Cap, WRL T. Rowe Price Dividend Growth and WRL T. Rowe Price
Small Cap commenced operations on May 3, 1999, the percentages set forth
as "Other Expenses" and "Total Portfolio Annual Expenses" are estimated.
(/19/)For WRL Goldman Sachs Growth, the management fees before waivers were
0.90% and other expenses before reimbursements were 1.78%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.68%.
(/20/ For)WRL Janus Global, the investment adviser currently waives 0.025% of
its advisory fee on portfolio average daily net assets over $2 billion
(net fee 0.775%). This waiver is voluntary and will be terminated on June
25, 2000.
(/21/)For WRL Pilgrim Baxter Mid Cap Growth, the management fees before waivers
were 0.90% and other expenses before reimbursements were 0.50%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset arrangements)
for the period ended December 31, 1999 were 1.40%.
(/22/)For WRL Salomon All Cap, the management fees before waivers were 0.90%
and other expenses before reimbursements were 1.97%. Therefore, Total
Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.87%.
(/23/)For WRL T. Rowe Price Dividend Growth, the management fees before waivers
were 0.90% and other expenses before reimbursements were 1.45%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset arrangements)
for the period ended December 31, 1999 were 2.35%.
(/24/)For WRL T. Rowe Price Small Cap, the management fees before waivers were
0.75% and other expenses before reimbursements were 1.71%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.46%.
(/25/)For the target account, 0.15% of the mortality and expense risk fee
included under "Total Separate Account Annual Expenses" in this table is
deducted pursuant to a 12b-1 plan.
(/26/)For The DowSM Target 10 (January), the management fees before waivers
were 0.75% and other expenses before reimbursements were 0.43%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before
11
<PAGE>
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 1.18%.
(/27/)For The DowSM Target 5 (January), the management fees before waivers
were 0.75% and other expenses before reimbursements were 0.46%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 1.21%.
(/28/)For The DowSM Target 10 (July), the management fees before waivers were
0.75% and other expenses before reimbursements were 0.37%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 1.12%.
(/29/)For The DowSM Target 5 (July), the management fees before waivers were
0.75% and other expenses before reimbursements were 0.29%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 1.04%.
12
<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 subaccount, and assuming the family income protector rider has
not been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.25%)
B = 5% Annually Compounding Death Benefit, Greater of 5% Annually Compounding
through age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit,
or Monthly Step-Up through age 80 Death Benefit (1.40%)
<TABLE>
<CAPTION>
If the Policy is
If the Policy is annuitized at the end
surrendered at the of the applicable
end of the time period or if the
applicable Policy is simply in the
time period. annuitization phase.
-----------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dreyfus Small Cap Value A $ 97 $136 $185 $298 $27 $82 $141 $298
--------------------------------------------------
B $ 98 $140 $192 $313 $28 $87 $148 $313
- -------------------------------------------------------------------------------
Dreyfus U.S. Government
Securities A $ 92 $122 $162 $253 $22 $69 $118 $253
--------------------------------------------------
B $ 94 $127 $170 $269 $24 $73 $126 $269
- -------------------------------------------------------------------------------
Endeavor Asset Allocation A $ 93 $125 $167 $264 $23 $72 $123 $264
--------------------------------------------------
B $ 95 $130 $175 $279 $25 $76 $131 $279
- -------------------------------------------------------------------------------
Endeavor Money Market A $ 90 $116 $151 $231 $20 $62 $107 $231
--------------------------------------------------
B $ 92 $120 $159 $246 $22 $67 $114 $246
- -------------------------------------------------------------------------------
Endeavor Enhanced Index A $ 92 $123 $163 $254 $22 $69 $118 $254
--------------------------------------------------
B $ 94 $127 $170 $270 $24 $74 $126 $270
- -------------------------------------------------------------------------------
Endeavor High Yield A $ 97 $137 $186 $301 $27 $83 $142 $301
--------------------------------------------------
B $ 99 $141 $194 $316 $29 $88 $149 $316
- -------------------------------------------------------------------------------
Endeavor Janus Growth A $ 93 $124 $165 $260 $23 $71 $121 $260
--------------------------------------------------
B $ 94 $129 $173 $275 $24 $75 $129 $275
- -------------------------------------------------------------------------------
Endeavor Opportunity Value A $ 94 $127 $169 $268 $24 $73 $125 $268
--------------------------------------------------
B $ 95 $131 $177 $283 $25 $78 $133 $283
- -------------------------------------------------------------------------------
Endeavor Value Equity A $ 94 $128 $171 $272 $24 $74 $127 $272
--------------------------------------------------
B $ 96 $132 $179 $287 $26 $79 $135 $287
- -------------------------------------------------------------------------------
Endeavor Select A $ 99 $141 $193 $315 $29 $87 $149 $315
--------------------------------------------------
B $100 $145 $201 $329 $30 $92 $156 $329
- -------------------------------------------------------------------------------
T. Rowe Price Equity
Income A $ 93 $126 $168 $265 $23 $72 $124 $265
--------------------------------------------------
B $ 95 $130 $175 $280 $25 $77 $131 $280
- -------------------------------------------------------------------------------
T. Rowe Price Growth Stock A $ 93 $126 $168 $265 $23 $72 $124 $265
--------------------------------------------------
B $ 95 $130 $175 $280 $25 $77 $131 $280
- -------------------------------------------------------------------------------
T. Rowe Price
International Stock A $ 95 $129 $174 $277 $25 $76 $130 $277
--------------------------------------------------
B $ 96 $134 $181 $292 $26 $80 $137 $292
- -------------------------------------------------------------------------------
Transamerica VIF Growth A $ 93 $125 $166 $262 $23 $71 $122 $262
--------------------------------------------------
B $ 95 $129 $174 $277 $25 $76 $130 $277
- -------------------------------------------------------------------------------
Fidelity--VIP Equity-
Income Service Class 2 A $ 93 $124 $165 $260 $23 $71 $121 $260
--------------------------------------------------
B $ 94 $129 $173 $275 $24 $75 $129 $275
- -------------------------------------------------------------------------------
Fidelity--VIP II
Contrafund(R) Service
Class 2 A $ 94 $128 $171 $272 $24 $74 $127 $272
--------------------------------------------------
B $ 96 $132 $179 $287 $26 $79 $135 $287
- -------------------------------------------------------------------------------
Fidelity--VIP III Growth
Opportunities A $ 94 $128 $172 $273 $24 $75 $128 $273
--------------------------------------------------
Service Class 2 B $ 96 $133 $179 $288 $26 $79 $135 $288
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
EXAMPLES continued
<TABLE>
<CAPTION>
--------------------------------------------------
If the Policy is
annuitized at the end
If the Policy is of the applicable time
surrendered at the period or if the
end of the applicable Policy is simply in
time period the annuitization phase
--------------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity--VIP III Mid Cap
Service Class 2 A $97 $137 $186 $301 $27 $83 $142 $301
--------------------------------------------------
B $99 $141 $194 $316 $29 $88 $149 $316
- -------------------------------------------------------------------------------
WRL Alger Aggressive
Growth A $94 $126 $168 $266 $24 $72 $124 $266
--------------------------------------------------
B $95 $130 $176 $281 $25 $77 $132 $281
- -------------------------------------------------------------------------------
WRL Goldman Sachs Growth A $95 $129 $174 $277 $25 $76 $130 $277
--------------------------------------------------
B $96 $134 $181 $292 $26 $80 $137 $292
- -------------------------------------------------------------------------------
WRL Janus Global A $94 $127 $170 $269 $24 $73 $126 $269
--------------------------------------------------
B $95 $131 $177 $284 $25 $78 $133 $284
- -------------------------------------------------------------------------------
WRL NWQ Value Equity A $94 $126 $169 $267 $24 $73 $125 $267
--------------------------------------------------
B $95 $131 $176 $282 $25 $77 $132 $282
- -------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap
Growth A $95 $129 $174 $277 $25 $76 $130 $277
--------------------------------------------------
B $96 $134 $181 $292 $26 $80 $137 $292
- -------------------------------------------------------------------------------
WRL Salomon All Cap A $95 $129 $174 $277 $25 $76 $130 $277
--------------------------------------------------
B $96 $134 $181 $292 $26 $80 $137 $292
- -------------------------------------------------------------------------------
WRL T. Rowe Price Dividend
Growth A $95 $129 $174 $277 $25 $76 $130 $277
--------------------------------------------------
B $96 $134 $181 $292 $26 $80 $137 $292
- -------------------------------------------------------------------------------
WRL T. Rowe Price Small
Cap A $95 $129 $174 $277 $25 $76 $130 $277
--------------------------------------------------
B $96 $134 $181 $292 $26 $80 $137 $292
- -------------------------------------------------------------------------------
The Dow SM Target 10
(January Series) A $97 $135 $184 $296 $27 $82 $140 $296
--------------------------------------------------
B $98 $140 $191 $311 $28 $86 $147 $311
- -------------------------------------------------------------------------------
The Dow SM Target 5
(January Series) A $97 $136 $184 $297 $27 $82 $140 $297
--------------------------------------------------
B $98 $140 $192 $312 $28 $87 $147 $312
- -------------------------------------------------------------------------------
The Dow SM Target 10 (July
Series) A $96 $133 $180 $290 $26 $80 $136 $290
--------------------------------------------------
B $97 $138 $188 $304 $27 $84 $144 $304
- -------------------------------------------------------------------------------
The Dow SM Target 5 (July
Series) A $95 $131 $177 $284 $25 $78 $133 $284
--------------------------------------------------
B $97 $136 $185 $298 $27 $82 $141 $298
</TABLE>
- --------------------------------------------------------------------------------
The above tables will assist you in understanding the costs and expenses that
you will bear, directly or indirectly. These include the 1999 expenses of the
underlying portfolios, except for Endeavor Janus Growth, WRL Goldman Sachs
Growth, WRL Pilgrim Baxter Mid Cap Growth, WRL Salomon All Cap, WRL T. Rowe
Price Dividend Growth and WRL T. Rowe Price Small Cap (whose expenses listed
above are estimated for the first full year of operations). 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
0.0299% based on average policy value of $116,930.00.
These examples do not reflect the annual fee of 0.30% of the minimum
annuitization value for the family income protector rider. The above expense
figures would be approximately $3 per year higher if you elected that rider.
Financial Information. Condensed financial information for the mutual fund
subaccounts and target series subaccounts are in Appendix A to this prospectus.
14
<PAGE>
1. THE ANNUITY POLICY
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 (if any) are
tax deferred. Tax deferral means you generally are not taxed on your annuity
until you take money out of your annuity. After the annuity commencement date,
your annuity switches to the income phase.
The Endeavor Variable Annuity consists of either:
. a group annuity contract that we, PFL Life Insurance Company, issue to the
contract holder and an individual certificate that we issue to you; or
. an individual policy that we issue to you.
This prospectus describes your individual certificate or policy (both are
referred to as the policy in this prospectus). 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. Your individual investment and
your rights are determined primarily by your own policy.
The policy is a "flexible premium" policy because after you purchase it, you
can generally make additional investments of any amount of $50 or more, until
the annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest
in the mutual fund account or the target account, 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 mutual fund account or the target
account also depends upon the investment performance of your investment choices
for the income phase. However, if you annuitize under the family income
protector rider, then PFL will guarantee a minimum amount of your annuity
payments. There is an extra charge for this rider.
The policy also contains a fixed account. The fixed account offers interest at
rates that we guarantee will not decrease during the selected guaranteed
period. There may be different interest rates for each different guaranteed
period that you select.
2. PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. The annuitant and any joint owner are age 90 or younger.
Premium Payments
You should make checks for premium payments payable only to PFL Life Insurance
Company and send them to the administrative and service office. Your check must
be honored in order for PFL to pay any associated payments and benefits due
under the policy.
Initial Premium Requirements
The initial premium payment for 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
15
<PAGE>
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.
Additional premium payments must be received before the New York Stock Exchange
closes to get same-day pricing of the additional premium payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
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 percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
If you allocate premium payments to the dollar cost averaging fixed account,
you must give us instructions 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 on or after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to
valuation period. A valuation period begins at the close of trading on the New
York Stock Exchange on each business day and ends at the close of trading on
the next succeeding business day. A business day is each day that the New York
Stock Exchange is open. The New York Stock Exchange generally closes at 4:00
p.m. eastern time. Holidays are generally not business days.
3. INVESTMENT CHOICES
The Separate Accounts
There are currently thirty variable subaccounts available under the policies.
There are twenty-six 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 mutual fund subaccounts invest in shares of the various underlying fund
portfolios. The companies that provide investment advice and administrative
services for the underlying fund portfolios offered through this policy are
listed below. The following mutual fund investment choices are currently
offered through this policy:
ENDEAVOR SERIES TRUST
Subadvised by The Dreyfus Corporation
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Subadvised by Morgan Stanley Asset Management
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by J.P. Morgan Investment Management Inc.
Endeavor Enhanced Index Portfolio
Subadvised by Massachusetts Financial Services Company
Endeavor High Yield Portfolio
16
<PAGE>
Subadvised by Janus Capital Corporation
Endeavor Janus Growth Portfolio
Subadvised by OpCap Advisors
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Subadvised by Montgomery Asset Management, LLC
Endeavor Select 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
TRANSAMERICA VARIABLE
INSURANCE FUND, INC.
Managed by Transamerica Investment Management, LLC
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP II Contrafund(R) Portfolio
VARIABLE INSURANCE PRODUCTS FUND III - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
Subadvised by Fred Alger Management, Inc.
WRL Alger Aggressive Growth
Subadvised by Goldman Sachs Asset Management
WRL Goldman Sachs Growth
Subadvised by Janus Capital Corporation
WRL Janus Global
Subadvised by NWQ Investment Management Company, Inc.
WRL NWQ Value Equity
Subadvised by Pilgrim Baxter & Associates, Ltd.
WRL Pilgrim Baxter Mid Cap Growth
Subadvised by Salomon Brothers Asset Management Inc
WRL Salomon All Cap
Subadvised by T. Rowe Price Associates, Inc.
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
The general public may not purchase shares of these underlying fund portfolios.
The investment objectives and policies may be similar to other portfolios and
mutual funds managed by the same investment adviser or manager that are sold
directly to the public. You should not expect the investment results of the
underlying fund portfolios to be the same as those of other portfolios or
mutual funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current prospectus for the
underlying funds, which are attached to this prospectus. You should read the
prospectuses for the underlying funds carefully before you invest.
We may receive expense reimbursements or other revenues from the underlying
funds or their managers. The amount of these reimbursements or revenues, if
any, may be different for different funds or portfolios and may be based on the
amount of assets that PFL or the mutual fund account invests in the underlying
fund portfolios.
We do not guarantee that any of the mutual fund subaccounts will always be
available for premium payments, allocations, or transfers. See the SAI for more
information concerning the possible addition, deletion or substitution of
investments.
The 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 currently offered through this policy:
THE TARGET ACCOUNT
Subadvised by First Trust Advisors, L.P.
The Dow SM Target 10 (January Series)
The Dow SM Target 5 (January Series)
The Dow SM Target 10 (July Series)
The Dow SM Target 5 (July Series)
17
<PAGE>
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,
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 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
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, and an affiliate of PFL, 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. The manager has the ultimate responsibility to
oversee the adviser and recommend its hiring, termination and replacement.
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. Each of the Dow SM Target 10 Subaccounts 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.
Each of the Dow SM Target 5 Subaccounts will invest in the common stock of the
five companies with the lowest per share stock price 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 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
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number of common shares in a series will be established.
There are currently four target series subaccounts. There are two "The Dow SM
Target 10 Subaccounts," which contain a January Series (a December 31, 1998
initial stock selection date) and a July Series (a June 30, 1998 initial stock
selection date). Similarly, there are two "The Dow SM Target 5 Subaccounts,"
which contain a January Series (December 31, 1998 initial stock selection date)
and a July Series (June 30, 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).
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.
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 shares 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 shares 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 9, "TAXES--Diversification and
Distribution Requirements").
The Dow SM Target 10 Subaccounts and The Dow SM Target 5 Subaccounts 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 is an investment in a portfolio of
equity securities 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 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
New York 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. The components of the DJIA may be
changed at any time, for any reason. Any changes in the components of the
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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 as of March 23, 2000.
ALCOA Inc.
American Express Company
AT&T Corporation
Boeing Company
Caterpillar Inc.
Citigroup Inc.
Coca Cola Company
Walt Disney Company
E.I. du Pont de Nemours & Company
Eastman Kodak Company
Exxon Mobil Corporation
General Electric Company
General Motors Corporation
Hewlett Packard Company
Home Depot Inc.
Honeywell International
Intel Corporation
International Business Machines Corporation
International Paper Company
Johnson & Johnson
J.P. Morgan & Company, Inc.
McDonald's Corporation
Merck & Company, Inc.
Microsoft Corporation
Minnesota Mining & Manufacturing Company
Philip Morris Companies, Inc.
Procter & Gamble Company
S B C Communications Inc.
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 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 policy. 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 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 SAI. You should read the SAI carefully before investing in a
target series subaccount.
Each subaccount 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 subaccount are actively traded, well-
established corporations.
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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.
Even though 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.
. The investment policies of each target series subaccount are narrow and
innovative, and the Internal Revenue Service has not addressed them. If you
are deemed to have investment control of the assets in a target series
subaccount, then you could be treated as the owner of those assets. If so,
income and gains from the subaccount's assets would be includable (pro rata)
in your taxable income each year.
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 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.
No target series subaccount is actively managed and common shares will not be
sold to take
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<PAGE>
advantage of market fluctuations or changes in anticipated rates of
appreciation.
Please note that each strategy has previously underperformed the DJIA.
Neither PFL nor the manager shall be liable in any way for any default, failure
or defect in any common share.
The target account is also available as an investment option in other types of
variable annuity policies sold by PFL. Those other policies may have different
features and different charges than the policy described in this prospectus,
and therefor are accounted for through a different class of accumulation or
annuity units. PFL does not believe there are any disadvantages to this
arrangement; rather, it leads to larger pools of assets which can result in
economies of scale.
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.
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.
Brokerage Enhancement Plan. The target account has adopted, but is not
currently participating in, a Brokerage Enhancement Plan (the "Plan") for each
of its subaccounts in accordance with the substantive provisions of Rule 12b-1
under the 1940 Act. The Plan uses available brokerage commissions to promote
the sale and distribution of interests in the subaccount's shares. Under the
Plan, the target account may use recaptured commissions to pay for distribution
expenses. Except for recaptured commissions (unlike asset based charges imposed
by many mutual funds for sales expenses) the subaccounts do not incur any asset
based or additional fees or charges under the Plan. Under the Plan, the manager
is authorized to direct investment advisers to use certain broker/dealers for
securities transactions. (The duty of best price and execution still applies to
these transactions.) These broker/dealers have agreed to give a percentage of
their commission from the sale and purchase of securities to Transamerica
Capital, Inc., the target account's disbributor and an affiliate of PFL.
Transamerica Capital, Inc. will not make any profit from participating in the
Plan. It is obligated to use any money given to it under the Plan for
distribution expenses (other than a minimal amount to defray its legal and
administrative costs). The rest will be spent on activities that are meant to
result in the sale of the policies, including:
. holding or participating in seminars and sales meetings promoting the
subaccounts;
. paying marketing fees requested by broker/dealers who sell policies;
. training sales personnel;
. compensating broker/dealers and/or registered representatives in connection
with the allocation of cash values and premiums to the target account;
. printing and mailing prospectuses, statements of additional information and
reports to prospective owners; and
. creating and mailing advertising and sales literature.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general accounts. Interests in the general account have not been
registered under the Securities Act of 1933
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(the "1933 Act"), nor is the general account registered as an investment
company under the 1940 Act. Accordingly, neither the general account nor any
interests therein are generally subject to the provisions of the 1933 or 1940
Acts. PFL has been advised that the staff of the SEC has not reviewed the
disclosures in this prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next shorter period if
the same period is no longer offered) at the current interest rate for that
period. You can transfer to another investment choice by giving us notice
within 30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest adjustment will not decrease the interest credited to your policy
below 3% per year, however. You bear the risk that we will not credit interest
greater than 3% per year. We determine credited rates, which are guaranteed for
at least one year, in our sole discretion.
If you select the fixed account, your money will be placed with PFL's other
general assets. The amount of money you are able to accumulate in the fixed
account during the accumulation phase depends upon the total interest credited.
The amount of annuity payments you receive during the income phase from the
fixed portion of your policy will remain level for the entire income phase.
Transfers
During the accumulation phase, you may make transfers to or from any mutual
fund subaccount, target series subaccount, or the fixed account as often as you
wish within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. Within 30 days prior to the end of the guaranteed period you must notify us
that you wish to transfer the amount in that guaranteed period option to
another investment choice. No excess interest adjustment will apply.
. Transfers of amounts equal to interest credited. 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 transfers 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
option except through the dollar cost averaging program.
Transfers out of a mutual fund subaccount or target series subaccount must be
at least $500, or the entire mutual fund subaccount or target series subaccount
value. Transfers of guaranteed period option amounts equal to interest credited
must be at least $50. If less than $500 remains, then we reserve the right to
either deny the transfer or include that amount in the transfer. Transfers must
be received while the New York Stock Exchange is open to get same-day pricing
of the transaction.
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.
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Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers and no limit on the number of
transfers during the accumulation phase. However, in the future, the number of
transfers permitted may be limited and a $10 charge per transfer may apply. We
reserve the right to prohibit transfers to the fixed account if we are
crediting an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies or would otherwise be potentially adversely affected or
if an underlying portfolio would reject our purchase order.
4. PERFORMANCE
PFL periodically advertises performance of the various 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 the mutual fund subaccounts, 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, for the mutual fund subaccounts, 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.
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.
Additional performance information regarding the target series subaccounts is
in Appendix B and in the SAI.
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, less the annual service charge, and less any applicable surrender
charge, premium taxes, and family income protector rider fees. We may apply a
surrender charge to compensate us for expenses relating to policy sales,
including commissions to registered representatives and other promotional
expenses. After the first year, you can withdraw up to 10%
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of your policy value once each year free of surrender charges. This amount is
referred to as the free percentage and is determined at the time of withdrawal.
(The free percentage is not cumulative, so not withdrawing anyting in one year
does not increase the free withdrawal amount in subsequent years.) If you
withdraw money in excess of 10% of your policy value, you might have to pay a
surrender charge, which is a contingent deferred sales charge, on the excess
amount. The following schedule shows the surrender charges that apply during
the seven years following each premium payment:
<TABLE>
<CAPTION>
Surrender Charge
Number of Years Since (as a percentage of
Premium Payment Date premium withdrawn)
- ------------------------------------------------------------------------------
<S> <C>
0 - 1 7%
1 - 2 7%
2 - 3 6%
3 - 4 6%
4 - 5 5%
5 - 6 4%
6 - 7 2%
</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).
You receive the full amount of a requested partial withdrawal because we deduct
any applicable surrender charge (and any negative excess interest adjustment)
from your remaining policy value. You receive your cash value upon full
surrender. For surrender charge purposes, the oldest premium is considered to
be withdrawn first.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2,
may be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or the unemployment waiver.
Excess Interest Adjustment
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce (or increase)
the interest credited in the fixed account to the guaranteed minimum of 3% per
year. See "Excess Interest Adjustment" in Section 6 of this prospectus.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the
current charges will be insufficient in the future to cover costs of
administering the policy. We may also pay distribution expenses out of this
charge.
For the Return of Premium Death Benefit the mortality and expense risk fee is
at an annual rate of 1.25% of assets. During the accumulation phase, for the 5%
Annually Compounding Death Benefit, the Greater of 5% Annually Compounding
through age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit,
and the Monthly Step-Up through age 80 Death Benefit, the mortality and expense
risk fee is at an annual rate of 1.40% of assets. During the income phase, the
mortality and expense risk fee is always 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
policy. This charge is equal to an annual rate of 0.15% of the daily net asset
value of the mutual fund account and the target account.
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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 premiums, less
all partial withdrawals, is at least $50,000.
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 before the annuity
commencement date. If you make more than 12 transfers per year, we reserve the
right to charge $10 for each additional transfer. Premium payments, asset
rebalancing and dollar cost averaging transfers are not considered transfers.
All transfer requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual rider fee is also deducted
if you surrender the policy. We may raise these fees in the future.
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 prospectuses for the underlying funds.
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 the
adviser's 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:
. legal expenses;
. accounting and auditing services;
. interest;
. taxes;
. costs of printing and distributing reports to shareholders;
. proxy materials and prospectuses;
. custodian, transfer agent, and dividend disbursing agent charges;
. 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.
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6. ACCESS TO YOUR MONEY
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 systematic payouts.
Surrenders
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment; minus
. surrender charges; minus
. any applicable premium taxes, service charges, and family income protector
rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of
the investment choices in proportion to the policy value.
After one year, you may take the greater of 10% of your premium or any gains in
the policy free of surrender charges once each policy year. Remember that any
withdrawal you take will reduce the policy value, and might reduce the amount
of the death benefit. See Section 8, Death Benefit, for more details.
Withdrawals may be subject to a surrender charge. Withdrawals from the fixed
account may also be subject to an excess interest adjustment. Income taxes,
federal tax penalties and certain restrictions may apply to any withdrawals you
make.
Withdrawals from qualified policies may be restricted or prohibited.
During the income phase, you will receive annuity payments under the annuity
payment option you select; however, you generally may not take any other
withdrawals, either complete or partial.
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 PFL receives all
required information. PFL may 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;
. 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. We
may defer payment of any amount until your premium check has cleared your bank.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in the guaranteed period option) may be subject to an excess
interest adjustment. At the time you request a withdrawal, if interest rates
set by PFL have risen since the date of the initial guarantee, the excess
interest adjustment will result in a lower cash value on surrender. However, if
interest rates have fallen since the date of the initial guarantee, the excess
interest adjustment will result in a higher cash value on surrender.
Generally, all withdrawals from a guaranteed payment option during the first
policy year are subject to an excess interest adjustment. Any amount withdrawn
during a subsequent policy year in excess of the free percentage amount is also
generally subject to an excess interest adjustment. Beginning in the second
policy year, you can, however, withdraw up to the free
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Percentage amount once each policy year without an excess interest adjustment.
There will be no excess interest adjustment on any of the following:
. a lump sum withdrawal of up to the free percentage amount;
. nursing care and terminal condition withdrawals;
. unemployment waiver;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed 10% of the premium.
Please note that in these circumstances you will not receive a higher cash
value if interest rates have fallen nor will you receive a lower cash value if
interest rates have risen.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
written notice 30 days before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85 (in
certain cases, we may allow the date to be up to the last day of the month
following the month in which the annuitant attains age 95).
Election of Annuity Payment Option. Before the annuity commencement date, if
the annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one
of the annuity payment options (unless you become the new annuitant).
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may choose any combination of annuity payment options. We will use your
"adjusted policy value" to provide these annuity payments. The adjusted policy
value is the policy value increased or decreased by any applicable excess
interest adjustment. If the adjusted policy value on the annuity commencement
date is less than $2,000, PFL reserves the right to pay it in one lump sum in
lieu of applying it under an annuity payment option. You can receive annuity
payments monthly, quarterly, semi-annually, or annually. (We reserve the right
to change the frequency if payments would be less than $50.)
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive 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
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amount may be left to accumulate for a period of time you and PFL agree to. You
and PFL will agree on withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
Fixed Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second (third, fourth,
etc.) annuity payment;
THEN:
. we may make only one (two, three, etc.) annuity payments.
IF:
. you choose Income for a Specified Period, Life Income with 10 years Certain,
Life Income with Guaranteed Return of Policy Proceeds, or Income of a
Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible to
keep PFL informed of their current address.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
8. 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
an owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below). The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and an owner of the policy; and
. you die before the annuity commencement date.
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If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any
owner. These requirements are detailed in the SAI.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner (unless it is your spouse) must generally surrender the policy
within five years of your death for the policy value increased or decreased
by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice 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 (this could be
more than the policy value if there is a positive excess interest adjustment
that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the four guaranteed
minimum death benefit options listed below.
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After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A. 5% Annually Compounding Death Benefit
The 5% Annually Compounding Death Benefit is:
. the total premium payments; less
. any adjusted partial withdrawals; plus
. interest at an effective annual rate of 5% from the premium payment date
or withdrawal date to the date of death.
The 5% Annually Compounding Death Benefit is not available if the owner or
annuitant is 75 or older on the policy date. There is an extra charge for
this death benefit.
B. Greater of 5% Annually Compounding through age 80 Death Benefit or Annual
Step-Up through age 80 Death Benefit
The death benefit under this option is the greater of 1 or 2 below:
1. The 5% Annually Compounding through age 80 Death Benefit is:
. the total premium payments; less
. any adjusted partial withdrawals; plus
. interest at an effective annual rate of 5% from the premium payment
date or withdrawal date to the earlier of the annuitant's date of
death or the annuitant's 81st birthday.
2. The Annual Step-Up through age 80 Death Benefit is equal to:
. the largest policy value on the policy date or on any policy
anniversary prior to the earlier of the annuitant's date of death or
the annuitant's 81st birthday; plus
. any premium payments subsequent to the date of any policy anniversary
with the largest policy value; minus
. any adjusted partial withdrawals subsequent to the date of the policy
anniversary with the largest policy value.
This benefit is not available if the owner or annuitant is age 81 or
older on the policy date.
C. Monthly Step-Up through age 80 Death Benefit
The Monthly Step-Up through age 80 Death Benefit is:
. the largest policy value on the policy date or on any monthly
anniversary prior to the earlier of the annuitant's date of death or the
annuitant's 81st birthday; plus
. any premium payments subsequent to the date of any monthly anniversary
with the largest policy value; minus
. any adjusted partial withdrawals subsequent to the date of the monthly
anniversary with the largest policy value.
This benefit is not available if the owner or annuitant is age 81 or older
on the policy date.
D. Return of Premium Death Benefit
The Return of Premium Death Benefit is:
. 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 death benefit options on the policy application. The
charges are lower for this option than for the other three.
IF, under all four 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.
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Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
9. TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in the
SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that 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).
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.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals to
make contributions, which may be deductible, to the policy. A Roth IRA also
allows individuals to make contributions to the policy, but it does not
allow a deduction for contributions, and distributions may be tax-free if
the owner meets certain rules.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the policy on a pre-tax basis.
. Corporate Pension and Profit-Sharing and H.R. 10 Plan: Employers and self-
employed individuals can establish pension or profit-sharing plans for their
employees or themselves and make contributions to the policy on a pre-tax
basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the policy.
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals--Qualified Policies
The information herein describing the taxation of nonqualified policies does
not apply to qualified policies.
There are special rules that govern with respect to qualified policies.
Generally, these rules restrict:
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. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policy.
In addition, a penalty tax may be assessed on amounts withdrawn from the policy
prior to the date you reach age 59 1/2, unless you meet one of the exceptions
to this rule. You may also be required to begin taking minimum distributions
from the policy by a certain date. The terms of the plan may limit the rights
otherwise available to you under the policy. We have provided more information
in the SAI.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals--403(b) Policies
The Internal Revenue Code limits withdrawal from certain 403(b) policies.
Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. declares hardship. However, in the case of hardship, the owner can only
withdraw the premium payments and not any earnings.
Tax Status of the Policy
The following discussion is based on the assumption that the policy is a non-
qualified policy that 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. 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 with each underlying fund 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 subadviser of
the target account, which requires the target series subaccounts to be operated
in compliance with the Treasury regulations. The subadviser reserves the right
to depart from either target series subaccount's investment strategy in order
to meet these diversification requirements.
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.
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 narrow and 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 target account. PFL 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 policy must meet certain distribution
requirements at the death of an owner in order to be treated as an annuity
policy. These distribution requirements are discussed in the SAI. PFL may
modify the policy to attempt to maintain favorable tax treatment.
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Withdrawals--Nonqualified Policies
If you make a withdrawal from your policy before the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed
on the amount of the withdrawal that is earnings. (The excess interest
adjustment resulting from the withdrawal may affect the amount on which you are
taxed. The tax treatment of excess interest adjustments is uncertain. You
should consult a tax adviser if a withdrawal results in an excess interest
adjustment.) Different rules apply for annuity payments. See "Annuity Payments"
below.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after an owner dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified annuity policies that are issued by PFL (or its
affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distributions occurs.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments (less amounts received which were not
includable in gross income). The same tax treatment applies to any amounts
distributed after an owner's death.
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.
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If, after the annuity commencement date, annuity payments stop because an
annuitant died, the excess (if any) of the "investment in the contract" as of
the annuity commencement date over the aggregate amount of annuity payments
received that was excluded from gross income is generally allowable as a
deduction for your last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant or payee or other beneficiary who is not also the owner, the
selection of certain annuity commencement dates, or a change of annuitant, may
result in certain income or gift tax consequences to the owner that are beyond
the scope of this discussion. An owner contemplating any such transfer,
assignment, selection, or change should contact a competent tax adviser with
respect to the potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the policy could change by
legislation or otherwise. You should consult a tax adviser with respect to
legal developments and their effect on the policy.
10. ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time (during the accumulation phase) to receive regular
payments from your policy by using the systematic payout option. Under this
option, you can receive the greater of:
. up to 10% (annually) of your premium; and
. Any gains in the policy, divided by the number of payouts made per year.
This amount may be taken free of surrender charges (and excess interest
adjustments). Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50. Monthly and quarterly payments
must be made by electronic funds transfer directly to your checking or savings
account. There is no charge for this benefit.
Family Income Protector
The family income protector may vary by state and may not be available in all
states.
The optional "family income protector" rider assures you of a minimum level of
income in the future by guaranteeing a minimum annuitization value (discussed
below) after 10 years. You may elect to purchase this benefit, which guarantees
the total amount you will have to apply to a family income protector payment
option and which guarantees a minimum amount for those payments once you begin
to receive them. By electing this benefit, you can participate in the gains of
the underlying variable investment options you select while knowing that you
are guaranteed a minimum level of income in the future, regardless of the
performance of the underlying variable investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the adjusted policy value or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
. the policy value on the date the rider is issued; plus
. Any additional premium payments; minus
. An adjustment for any withdrawals made after the date the rider is issued;
. which is accumulated at the annual growth rate written on page one of the
rider; minus
. Any premium taxes.
The annual growth rate is currently 6% per year. PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per
year. Once the rider is added to your policy, the annual growth rate will not
vary during the life of that rider. Withdrawals may reduce the minimum
annuitization value on a basis greater than dollar-for-dollar. See the SAI for
more information.
The minimum annuitization value may only be used to annuitize using the family
income
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protector payment options and may not be used with any of the annuity payment
options listed in Section 7 of this prospectus. The family income protector
payment options are:
. Life Income--An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of the
chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor--An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant or
joint annuitant is living. In the event of the death of both the annuitant
and joint annuitant prior to the end of the chosen period certain, the
remaining period certain payments will be continued to the beneficiary.
The minimum annuitization value is used solely to calculate the family income
protector annuity payments. The family income protector does not establish or
guarantee policy value or guarantee performance of any investment option.
Because this benefit is based on conservative actuarial factors, the level of
lifetime income that it guarantees may be less than the level that would be
provided by application of the policy value at otherwise applicable annuity
factors. Therefore, the family income protector should be regarded as a safety
net. The costs of annuitizing under the family income protector include the
guaranteed payment fee, and also the lower payout levels inherent in the
annuity tables used for those minimum payouts. These costs should be balanced
against the benefits of a minimum payout level.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, the guaranteed payment fee, and the
waiting period before the family income protector can be exercised) are also
guaranteed not to change after the rider is added. However, all of these
benefit specifications may change if you elect to upgrade the minimum
annuitization value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
value to the policy value within 30 days after any policy anniversary before
your 85th birthday (earlier if required by state law). For your convenience, we
will put the last date to upgrade on page one of the rider.
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the
family income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy anniversary.
Conditions of Exercise of the Family Income Protector. You can only annuitize
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade; PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully--If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family
income protector are guaranteed to never be less than the initial payment. See
the SAI for information concerning the calculation of the initial payment. The
payments will also be "stabilized" or held constant during each policy year.
During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized
36
<PAGE>
payment will increase or decrease depending on the performance of the
investment options you selected (but will never be less than the initial
payment), and then be held constant at that amount for that policy year. The
stabilized payment on each policy anniversary will equal the greater of the
initial payment or the payment supportable by the annuity units in the selected
investment options. See the SAI for additional information concerning
stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
annuitization value on the policy anniversary, is charged annually prior to
annuitization. We will also charge this fee if you take a complete withdrawal.
The rider fee is deducted from each variable investment option in proportion to
the amount of policy value in each mutual fund subaccount and target series
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.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
effective annual rate of 1.25% of the daily net asset value in the mutual fund
account and/or the target account, is reflected in the amount of the variable
payments you receive if you annuitize under the family income protector rider.
The guaranteed payment fee is included on page one of the rider.
Termination. The family income protector is irrevocable. You have the option
not to use the benefit but you will not receive a refund of any fees you have
paid. The family income protector will terminate upon the earliest of the
following:
. Annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94th birthday (earlier if
required by state law).
Nursing Care and Terminal Condition Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
Unemployment Waiver
No surrender charges or excess interest adjustment will apply to withdrawals if
you or your spouse is unemployed. In order to qualify, you (or your spouse,
whichever is applicable) must have been:
. employed full time for at least two years prior to becoming unemployed; and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of the withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
37
<PAGE>
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy enrollment form or enrollment information; or
. you later complete an authorization form.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone and we may record your telephone
call. 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 get same-day pricing of the transaction. We may discontinue this option at
any time.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option, the Dreyfus U.S.
Government Securities Subaccount, or, the Endeavor Money Market Subaccount,
into any other mutual fund subaccounts and/or target series subaccounts. There
is no charge for this program.
Complete and clear instructions must be received before a dollar cost averaging
program will begin. The instructions must include:
. the subaccounts into which money from the dollar cost averaging fixed
account (or other subaccount(s) used for dollar cost averaging) is to be
transferred; and
. either the dollar amount to transfer monthly or quarterly (each transfer
must be at least $500) or the number of transfers (minimum of 6 monthly or 4
quarterly and maximum of 24 monthly or 8 quarterly).
Transfers must begin within 30 days. We will make the transfers on the 28th day
of the applicable month. You may change your allocations at anytime.
Only one dollar cost averaging program can run at one time. This means that any
addition to a
dollar cost averaging program must change either the length of the program or
the dollar amount of the transfers. New instructions must be received each time
there is an addition to a dollar cost averaging program.
Any amount in the dollar cost averaging fixed account (or other subaccount(s)
used for dollar cost averaging) for which we have not received complete and
clear instructions will remain in the dollar cost averaging fixed account (or
other such subaccount) until we receive the instructions. If we have not
received complete and clear instructions within 30 days, the interest credited
in the dollar cost averaging fixed account may be adjusted downward, but not
below the guaranteed effective annual interest rate of 3%.
Dollar cost averaging buys more accumulation units when prices are low and
fewer accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance
the amounts in your 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. If a transfer is requested, we will honor the
requested transfer and discontinue asset rebalancing. New instructions are
required to start asset rebalancing. Asset rebalancing ignores amounts in the
fixed account. You can choose to rebalance monthly, quarterly, semi-annually,
or annually.
38
<PAGE>
11. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying 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. There may be limitations
on your ability to assign a qualified policy. An assignment may have tax
consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly-owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc. is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily
in the insurance business. PFL is licensed in the District of Columbia, Guam,
and in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The 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 1940 Act. However, the SEC does not supervise the management, the
investment practices, or the policies of the mutual fund account or PFL.
Income, gains and losses, whether or not realized, from assets allocated to the
mutual fund account are, in accordance with the policies, credited to or
charged against the mutual fund account without regard to PFL's other income,
gains or losses.
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.
The Target Account
PFL established the PFL Endeavor Target Account under the laws of the state of
Iowa on September 15, 1997. The target account is registered with the SEC under
the 1940 Act, 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.
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.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular mutual fund subaccount, please read the prospectuses for the
underlying funds. The underlying funds are not limited to selling their shares
to this mutual fund account and can accept investments from any separate
account or qualified retirement plan. Since the portfolios of
39
<PAGE>
the underlying funds are available to registered separate accounts offering
variable annuity products of PFL, as well as variable annuity and variable life
products of other insurance companies, and qualified retirement plans, there is
a possibility that a material conflict may arise between the interests of this
mutual fund account and one or more of the other accounts of another
participating insurance company. In the event of a material conflict, the
affected insurance companies, including PFL, agree to take any necessary steps
to resolve the matter. This includes removing their 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 management agreement;
. changes in the fundamental investment policies;
. Any other matter requiring a vote of persons holding voting interests; and
. matters pursuant to the requirements of Rules 12b-1 and 18f-2 of the
Investment Company Act of 1940.
In response to an exemptive application filed by the manager, the SEC has
issued an exemptive order that will permit the manager, subject to certain
conditions, and without the approval of owners who have an interest in a target
series subaccount, to: (a) employ a new unaffiliated investment adviser for a
target series subaccount pursuant to the terms of a new investment advisory
agreement, in each case either as a replacement for an existing investment
adviser or as an additional investment adviser; (b) change the terms of any
investment advisory agreement; and (c) continue the employment of an existing
investment adviser on the same advisory contract terms where a contract has
been assigned because of a change in control of the investment adviser. In such
circumstances, owners who have an interest in a target series subaccount would
receive notice of such action, including the information concerning the
investment adviser that normally is provided in a proxy statement. The
exemptive order also permits disclosure of fees paid to multiple unaffiliated
investment advisers on an aggregate basis only.
On certain matters, each target series subaccount 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 a Transamerica Company and an indirect wholly owned subsidiary of
AEGON USA, Inc. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG Securities
40
<PAGE>
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 6.25% 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.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or
in riders or endorsements attached to your policy.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of individual life
insurance and annuity products. Companies must undergo a rigorous self and
independent assessment of their practices to become a member of IMSA. The IMSA
logo in our sales literature shows our ongoing commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the 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 subaccounts, and the target
series subaccounts are included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Glossary of Terms...........................................................
The Policy--General Provisions..............................................
Certain Federal Income Tax Consequences.....................................
Investment Experience.......................................................
Family Income Protector--Additional Information.............................
Historical Performance Data.................................................
The Target Account..........................................................
Published Ratings...........................................................
State Regulation of PFL.....................................................
Administration..............................................................
Records and Reports.........................................................
Distribution of the Policies................................................
Voting Rights...............................................................
Other Products..............................................................
Custody of Assets...........................................................
Legal Matters...............................................................
Independent Auditors........................................................
Other Information...........................................................
Financial Statements........................................................
</TABLE>
41
<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 Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Small Cap Value
Subaccount
1999................... $ 1.781675 $ 2.270110 8,787,718.359
1998................... $ 1.849564 $ 1.781675 7,236,830.344
1997(/9/).............. $ 1.635726 $ 1.849564 2,651,783.374
- ------------------------------------------------------------------------------------
Dreyfus U.S. Government
Securities Subaccount
1999................... $ 1.283673 $ 1.253119 6,668,600.311
1998................... $ 1.213942 $ 1.283673 5,114,379.634
1997(/9/).............. $ 1.136634 $ 1.213942 858,785.418
- ------------------------------------------------------------------------------------
Endeavor Asset
Allocation Subaccount
1999................... $ 2.529863 $ 3.148754 10,427,868.661
1998................... $ 2.169995 $ 2.529863 7,169,923.981
1997(/9/).............. $ 1.998344 $ 2.169995 1,857,541.490
- ------------------------------------------------------------------------------------
Endeavor Money Market
Subaccount
1999................... $ 1.236621 $ 1.275724 11,328,428.234
1998................... $ 1.185346 $ 1.236621 4,060,082.004
1997(/9/).............. $ 1.170606 $ 1.185346 1,002,462.071
- ------------------------------------------------------------------------------------
Endeavor Enhanced Index
Subaccount
1999................... $ 1.574026 $ 1.831468 16,917,672.030
1998................... $ 1.216554 $ 1.574026 7,597,253.113
1997(/9/).............. $ 1.066111 $ 1.216554 1,987,857.002
- ------------------------------------------------------------------------------------
Endeavor High Yield
Subaccount
1999................... $ 0.960378 $ 1.000739 3,346,479.952
1998(/11/)............. $ 1.000000 $ 0.960378 1,139,786.018
- ------------------------------------------------------------------------------------
Endeavor Janus Growth
Subaccount
1999................... $31.822714 $49.862043 2,138,499.285
1998................... $19.647490 $31.822714 1,055,990.702
1997(/9/).............. $18.030324 $19.647490 331,277.459
- ------------------------------------------------------------------------------------
Endeavor Opportunity
Value Subaccount
1999................... $ 1.197263 $ 1.235481 8,078,978.665
1998................... $ 1.155963 $ 1.197263 7,330,811.955
1997(/9/).............. $ 1.049539 $ 1.155963 2,879,146.147
- ------------------------------------------------------------------------------------
Endeavor Value Equity
Subaccount
1999................... $ 2.207647 $ 2.107532 9,518,037.409
1998................... $ 2.086425 $ 2.207657 8,178,731.965
1997(/9/).............. $ 1.804168 $ 2.086425 2,607,465.410
- ------------------------------------------------------------------------------------
Endeavor Select
Subaccount
1999................... $ 1.051197 $ 1.530432 6,125,056.867
1998(/10/)............. $ 1.000000 $ 1.051197 5,686,375.448
</TABLE>
42
<PAGE>
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.55%)
continued . . .
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
T. Rowe Price Equity
Income Subaccount
1999................... $2.060734 $2.099660 15,216,376.264
1998................... $1.923303 $2.060734 12,371,479.613
1997(/9/).............. $1.663897 $1.923303 3,943,109.487
- ------------------------------------------------------------------------------------
T. Rowe Price Growth
Stock Subaccount
1999................... $2.586964 $3.112902 10,308,335.059
1998................... $2.041653 $2.586964 7,055,527.601
1997(/9/).............. $1.774078 $2.041653 1,909,047.791
- ------------------------------------------------------------------------------------
T. Rowe Price
International Stock
Subaccount
1999................... $1.529380 $1.993345 7,730,718.841
1998................... $1.345339 $1.529380 6,282,060.011
1997(/9/).............. $1.432514 $1.345339 2,717,945.242
</TABLE>
43
<PAGE>
Return of Premium Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.40%)
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Small Cap Value
Subaccount
1999................... $1.785929 $2.278888 49,653,848.359
1998................... $1.851229 $1.785929 59,347,329.564
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
- ------------------------------------------------------------------------------------
Dreyfus U.S. Government
Securities Subaccount
1999................... $1.286733 $1.255919 38,368,703.838
1998................... $1.215033 $1.286733 41,241,127.664
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
- ------------------------------------------------------------------------------------
Endeavor Asset
Allocation Subaccount
1999................... $2.535888 $3.160924 100,119,683.393
1998................... $2.171948 $2.535888 116,236,043.595
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
1999................... $1.239556 $1.280646 57,250,677.280
1998................... $1.196418 $1.239556 51,024,317.036
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
- ------------------------------------------------------------------------------------
Endeavor Enhanced Index
Subaccount
1999................... $1.577775 $1.838549 20,376,496.984
1998................... $1.217647 $1.577775 13,701,547.835
1997(/7/).............. $1.000000 $1.217647 9,296,582.067
- ------------------------------------------------------------------------------------
Endeavor High Yield
Subaccount
1999................... $0.961203 $1.003083 8,977,276.504
1998(/11/)............. $1.000000 $0.961203 6,199,317.634
</TABLE>
44
<PAGE>
Return of Premium Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.40%)
continued . . .
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Janus Growth
Subaccount
1999................... $31.898334 $50.054351 13,723,324.372
1998................... $19.665157 $31.898334 15,001,694.599
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
- ------------------------------------------------------------------------------------
Endeavor Opportunity
Value Subaccount
1999................... $ 1.200101 $ 1.240246 16,283,827.424
1998................... $ 1.156993 $ 1.200101 18,189,950.241
1997................... $ 1.004355 $ 1.156993 14,927,829.243
1996(/6/).............. $ 1.000000 $ 1.004355 314,119.406
- ------------------------------------------------------------------------------------
Endeavor Value Equity
Subaccount
1999................... $ 2.212928 $ 2.115695 66,030,029.169
1998................... $ 2.086130 $ 2.212928 78,666,773.562
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 Select
Subaccount
1999................... $ 1.052609 $ 1.534754 8,189,238.812
1998(/10/)............. $ 1.000000 $ 1.052609 7,340,386.987
- ------------------------------------------------------------------------------------
T. Rowe Price Equity
Income Subaccount
1999................... $ 2.065623 $ 2.107761 74,445,822.349
1998................... $ 1.925022 $ 2.065623 83,821,265.291
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
1999................... $ 2.593121 $ 3.124914 42,063,488.642
1998................... $ 2.043487 $ 2.593121 45,596,534.725
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
1999................... $ 1.533035 $ 2.001071 77,283,279.960
1998................... $ 1.346560 $ 1.533035 90,839,071.438
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
</TABLE>
45
<PAGE>
(/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 February 2, 1998 through December 31, 1998.
(/11/)Period from June 2, 1998 through December 31, 1998.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the corresponding unit values for each death benefit did
not change.
The Transamerica VIF Growth Subaccount, Fidelity--VIP Equity-Income Subaccount,
Fidelity--VIP II Contrafund(R) Subaccount, Fidelity--VIP III Growth
Opportunities Subaccount, Fidelity--VIP III Mid Cap Subaccount, WRL Alger
Aggressive Growth Subaccount, WRL Goldman Sachs Growth Subaccount, WRL Janus
Global Subaccount, WRL NWQ Value Equity Subaccount, WRL Pilgrim Baxter Mid Cap
Growth Subaccount , WRL Salomon All Cap Subaccount, WRL T. Rowe Price Dividend
Growth Subaccount and WRL T. Rowe Price Small Cap Subaccount had not commenced
operations as of December 31, 1999, therefore, comparable data is not
available.
46
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Target Account
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
<TABLE>
<CAPTION>
The Dow Target The Dow Target 5 The Dow Target The Dow Target
10 Subaccount Subaccount 10 Subaccount 5 Subaccount
(January Series) (January Series) (July Series) (July Series)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
1999(/2/).............. .0283215 .0294767 .0285714 .0313341
1998(/1/).............. N/A N/A .0258515 .0456860
- -------------------------------------------------------------------------------------------
Expenses
1999(/2/).............. (.0266756) (.0275719) (.0280493) (.0291226)
1998(/1/).............. N/A N/A (.0242777) (.0199165)
- -------------------------------------------------------------------------------------------
Net investment income
1999(/2/).............. .00164588 .00190481 .00052212 .00221149
1998(/1/).............. N/A N/A .00157378 .02576956
- -------------------------------------------------------------------------------------------
Net realized and
unrealized gains
(losses) on securities
1999(/2/).............. (.0187049) (.0918538) (.0241121) (.1610085)
1998(/1/).............. N/A N/A .0308494 .0697949
- -------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation unit
value
1999(/2/).............. (.017059) (.089949) (.023590) (.158797)
1998(/1/).............. N/A N/A .033997 .121334
- -------------------------------------------------------------------------------------------
Accumulation unit value
at beginning of period
1999(/2/).............. 1.000000 1.000000 1.033997 1.121334
1998(/1/).............. N/A N/A 1.000000 1.000000
- -------------------------------------------------------------------------------------------
Accumulation unit value
at end of period
1999(/2/).............. .982941 .910051 1.010407 .962537
1998(/1/).............. N/A N/A 1.033997 1.121334
- -------------------------------------------------------------------------------------------
Expenses to average net
assets
1999(/2/).............. 1.18% 1.21% 1.12% 1.04%
1998(/1/).............. N/A N/A 1.30% 1.30%
- -------------------------------------------------------------------------------------------
Portfolio turnover rates
1999(/2/).............. 0% 0% 0% 0%
1998(/1/).............. N/A N/A 0% 0%
- -------------------------------------------------------------------------------------------
Number of accumulation
units outstanding at
end of period
1999(/2/).............. 2,676,674 2,552,038 3,802,468 6,044,674
1998(/1/).............. N/A N/A 2,825,523 4,444,952
</TABLE>
47
<PAGE>
Return of Premium Death Benefit*
<TABLE>
<CAPTION>
The Dow Target The Dow Target 5 The Dow Target The Dow Target
10 Subaccount Subaccount 10 Subaccount 5 Subaccount
(January Series) (January Series) (July Series) (July Series)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
1999(/2/).............. .0284279 .0293860 .0269276 .0311370
1998(/1/).............. N/A N/A .0149959 .0156160
- -------------------------------------------------------------------------------------------
Expenses
1999(/2/).............. (.0253792) (.0258911) (.0248786) (.0272556)
1998(/1/).............. N/A N/A (.0134201) (.0141319)
- -------------------------------------------------------------------------------------------
Net investment income
1999(/2/).............. .00304874 .00349489 .00204905 .00388134
1998(/1/).............. N/A N/A .00157583 .00148401
- -------------------------------------------------------------------------------------------
Net realized and
unrealized gains
(losses) on securities
1999(/2/).............. (.0186667) (.0921099) (.0241541) (.1613693)
1998(/1/).............. N/A N/A .0316123 .1192020
- -------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation unit
value
1999(/2/).............. (.015618) (.088615) (.022105) (.157488)
1998(/1/).............. N/A N/A .034764 .122170
- -------------------------------------------------------------------------------------------
Accumulation unit value
at beginning of period
1999(/2/).............. 1.000000 1.000000 1.034764 1.122170
1998(/1/).............. N/A N/A 1.000000 1.000000
- -------------------------------------------------------------------------------------------
Accumulation unit value
at end of period
1999(/2/).............. .984382 .911385 1.012659 .964682
1998(/1/).............. N/A N/A 1.034764 1.122170
- -------------------------------------------------------------------------------------------
Expenses to average net
assets
1999(/2/).............. 1.18% 1.21% 1.12% 1.04%
1998(/1/).............. N/A N/A 1.30% 1.30%
- -------------------------------------------------------------------------------------------
Portfolio turnover rates
1999(/2/).............. 0% 0% 0% 0%
1998(/1/).............. N/A N/A 0% 0%
- -------------------------------------------------------------------------------------------
Number of accumulation
units outstanding at
end of period
1999(/2/).............. 1,479,044 2,262,326 2,604,042 3,560,121
1998(/1/).............. N/A N/A 1,692,851 1,697,953
</TABLE>
(1) Period from July 1, 1998 through December 31, 1998 for The DowSM Target 10
(July Series) and The DowSM Target 5 (July Series). The DowSM Target 10
(January Series) and The DowSM Target 5 (January Series) had not commenced
operations as of December 31, 1998, therefore there was no Condensed
Financial Information to report for that period.
(2) Period from January 1, 1999 through December 31, 1999 for The DowSM Target
10 (January Series), The DowSM Target 5 (January Series), The DowSM Target
10 (July Series), and The DowSM Target 5 (July Series),.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the corresponding unit values for each death benefit did
not change.
48
<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 SAI, a copy of
which may be obtained from the administrative and service office upon request.
Based on the method of calculation described in the SAI, the average annual
total returns for periods from inception of the subaccounts to December 31,
1999, and for the one and five year periods ended December 31, 1999 are shown
in Table 1 below. Total returns shown reflect deductions for the mortality and
expense risk fee and the administrative charges. Performance figures may
reflect the 1.40% mortality and expense risk fee for the 5% Annually
Compounding and Double Enhanced Death Benefits, or the 1.25% 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.
49
<PAGE>
TABLE 1--A
Standard Average Annual Total Returns
(Assuming A Surrender Charge and No Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.55%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
of the
1 Year 5 Year Subaccount Subaccount
Ended Ended to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(/1/)... 22.14% 15.88% 12.90% May 4, 1993
Dreyfus U.S. Government
Securities.................... (7.83%) 4.51% 3.72% May 9, 1994
Endeavor Asset Allocation...... 19.17% 19.05% 13.88% April 8, 1991
Endeavor Enhanced Index........ 11.02% N/A 24.36% May 1, 1997
Endeavor High Yield............ (1.21%) N/A (3.44%) June 2, 1998
Endeavor Janus Growth(/2/)..... 51.59% 37.56% 23.72% July 1, 1992
Endeavor Opportunity Value..... (2.23%) N/A 5.97% November 18, 1996
Endeavor Value Equity.......... (10.00%) 14.76% 11.78% May 27, 1993
Endeavor Select................ 40.42% N/A 22.73% February 2, 1998
T. Rowe Price Equity Income.... (3.54%) N/A 15.63% January 3, 1995
T. Rowe Price Growth Stock..... 15.01% N/A 25.24% January 3, 1995
T. Rowe Price International
Stock(/3/).................... 25.08% 12.85% 8.06% April 8, 1991
Transamerica VIF Growth(/4/)... N/A N/A N/A May 1, 2000
Fidelity--VIP Equity-Income--
Service Class 2(/4/).......... N/A N/A N/A May 1, 2000
Fidelity--VIP II
Contrafund(R)--Service Class
2(/4/)........................ N/A N/A N/A May 1, 2000
Fidelity--VIP III Growth
Opportunities--Service Class
2(/4/)........................ N/A N/A N/A May 1, 2000
Fidelity--VIP III Mid Cap--
Service Class 2(/4/).......... N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/4/)................... N/A N/A N/A May 1, 2000
WRL Goldman Sachs Growth(/4/).. N/A N/A N/A May 1, 2000
WRL Janus Global(/4/).......... N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/4/)...... N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/4/)................... N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/4/)....... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/4/)................... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/4/)...................... N/A N/A N/A May 1, 2000
</TABLE>
50
<PAGE>
TABLE 1--B
Standard Average Annual Total Returns
(Assuming A Surrender Charge and No Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(/1/).. 22.33% 16.05% 13.06% May 4, 1993
Dreyfus U.S. Government
Securities................... (7.85%) 4.64% 3.84% May 9, 1994
Endeavor Asset Allocation..... 19.36% 19.23% 14.04% April 8, 1991
Endeavor Enhanced Index....... 11.19% N/A 24.54% May 1, 1997
Endeavor High Yield........... (1.05%) N/A (3.29%) June 2, 1998
Endeavor Janus Growth(/2/).... 51.82% 37.77% 23.90% July 1, 1992
Endeavor Opportunity Value.... (2.07%) N/A 6.13% November 18, 1996
Endeavor Value Equity......... (9.86%) 14.92% 11.92% May 27, 1993
Endeavor Select............... 40.64% N/A 22.92% February 2, 1998
T. Rowe Price Equity Income... (3.39%) N/A 15.80% January 3, 1995
T. Rowe Price Growth Stock.... 15.19% N/A 25.42% January 3, 1995
T. Rowe Price International
Stock(/3/)................... 25.28% 13.02% 8.23% April 8, 1991
Transamerica VIF Growth(/4/).. N/A N/A N/A May 1, 2000
Fidelity--VIP Equity-Income--
Service Class 2(/4/)......... N/A N/A N/A May 1, 2000
Fidelity--VIP II
Contrafund(R)--Service Class
2(/4/)....................... N/A N/A N/A May 1, 2000
Fidelity--VIP III Growth
Opportunities--Service
Class 2(/4/)................. N/A N/A N/A May 1, 2000
Fidelity--VIP III Mid Cap--
Service Class 2(/4/)......... N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/4/).................. N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/4/).................. N/A N/A N/A May 1, 2000
WRL Janus Global(/4/)......... N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/4/)..... N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/4/).................. N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/4/)...... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/4/).................. N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/4/)..................... N/A N/A N/A May 1, 2000
</TABLE>
(/1/)Effective September 16, 1996, 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.
(/2/)Effective April 30, 1999, shares of the WRL Janus Growth Portfolio were
removed and replaced with shares of the Endeavor Janus Growth Portfolio.
The Endeavor Janus Growth Portfolio has the same investment objectives, the
same investment adviser (Janus Capital Corporation) and the same advisory
fees as the WRL Janus Growth Portfolio. Performance prior to May 1, 1999
reflects performance of the annuity subaccount while it was invested in the
WRL Janus Growth Portfolio.
(/3/)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).
(/4/)The Transamerica VIF Growth Subaccount, Fidelity--VIP Equity-Income
Subaccount, Fidelity--VIP II Contrafund(R) Subaccount, Fidelity--VIP III
Growth Opportunities Subaccount, Fidelity--VIP III Mid Cap Subaccount, WRL
Alger Aggressive Growth Subaccount, WRL Goldman Sachs Growth Subaccount,
WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount, WRL Pilgrim
Baxter Mid Cap Growth Subaccount, WRL Salomon All Cap Subaccount, WRL T.
Rowe Price Dividend Growth Subaccount, and WRL T. Rowe Price Small Cap
Subaccount had not commenced operations as of December 31, 1999, therefore,
comparable information is not available.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
51
<PAGE>
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 standardized data discussed above, similar performance data
for other periods may also be shown.
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-standardized 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-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
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 2--A
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.55%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap
Value(/1/).................. 27.41% 16.09% 12.99% May 4, 1993
Dreyfus U.S. Government
Securities.................. (2.38%) 4.84% 4.01% May 9, 1994
Endeavor Asset Allocation.... 24.46% 19.24% 13.91% April 8, 1991
Endeavor Enhanced Index...... 16.36% N/A 25.45% May 1, 1997
Endeavor High Yield.......... 4.20% N/A 0.05% June 2, 1998
Endeavor Janus Growth(/2/)... 56.69% 37.66% 23.76% July 1, 1992
Endeavor Opportunity Value... 3.19% N/A 6.99% November 18, 1996
Endeavor Value Equity........ (4.54%) 14.99% 11.88% May 27, 1993
Endeavor Select.............. 45.59% N/A 24.96% February 2, 1998
T. Rowe Price Equity Income.. 1.89% N/A 15.94% January 3, 1995
T. Rowe Price Growth Stock... 20.33% N/A 25.45% January 3, 1995
T. Rowe Price International
Stock(/3/).................. 30.34% 13.09% 8.10% April 8, 1991
Transamerica VIF
Growth(/4/)................. N/A N/A N/A May 1, 2000
Fidelity - VIP Equity-
Income - Service Class
2(/3/)...................... N/A N/A N/A May 1, 2000
Fidelity - VIP II
Contrafund(R) - Service
Class 2(/4/)................ N/A N/A N/A May 1, 2000
Fidelity - VIP III Growth
Opportunities - Service
Class 2(/4/)................ N/A N/A N/A May 1, 2000
Fidelity - VIP III Mid Cap -
Service Class 2(/4/)....... N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/4/)................. N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/4/)................. N/A N/A N/A May 1, 2000
WRL Janus Global(/4/)........ N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/4/).... N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/4/)................. N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/4/)..... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/4/)................. N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/4/).................... N/A N/A N/A May 1, 2000
</TABLE>
- --------------------------------------------------------------------------------
52
<PAGE>
TABLE 2--B
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap
Value(/1/).............. 27.60% 16.26% 13.16% May 4, 1993
Dreyfus U.S. Government
Securities.............. (2.39%) 4.96% 4.14% May 9, 1994
Endeavor Asset
Allocation.............. 24.65% 19.42% 14.08% April 8, 1991
Endeavor Enhanced Index.. 16.53% N/A 25.63% May 1, 1997
Endeavor High Yield...... 4.36% N/A 0.19% June 2, 1998
Endeavor Janus
Growth(/2/)............. 56.92% 37.86% 23.94% July 1, 1992
Endeavor Opportunity
Value................... 3.35% N/A 7.15% November 18, 1996
Endeavor Value Equity.... (4.39%) 15.14% 12.02% May 27, 1993
Endeavor Select.......... 45.80% N/A 25.15% February 2, 1998
T. Rowe Price Equity
Income.................. 2.04% N/A 16.10% January 3, 1995
T. Rowe Price Growth
Stock................... 20.51% N/A 25.63% January 3, 1995
T. Rowe Price
International
Stock(/3/).............. 30.53% 13.25% 8.26% April 8, 1991
Transamerica VIF
Growth(/4/)............. N/A N/A N/A May 1, 2000
Fidelity - VIP Equity-
Income - Service Class
2(/4/).................. N/A N/A N/A May 1, 2000
Fidelity - VIP II
Contrafund(R) - Service
Class 2(/4/)............ N/A N/A N/A May 1, 2000
Fidelity - VIP III Growth
Opportunities - Service
Class 2(/4/)............ N/A N/A N/A May 1, 2000
Fidelity - VIP III Mid
Cap - Service Class
2(/4/).................. N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/4/)............. N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/3/)............. N/A N/A N/A May 1, 2000
WRL Janus Global(/4/).... N/A N/A N/A May 1, 2000
WRL NWQ Value
Equity(/4/)............. N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid
Cap Growth(/4/)......... N/A N/A N/A May 1, 2000
WRL Salomon All
Cap(/4/)................ N/A N/A N/A May 1, 2000
WRL T. Rowe Price
Dividend Growth(/4/).... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/4/)................ N/A N/A N/A May 1, 2000
</TABLE>
(/1/)Effective September 16, 1996, 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.
(/2/)Effective April 30, 1999, shares of the WRL Janus Growth Portfolio were
removed and replaced with shares of the Endeavor Janus Growth Portfolio.
The Endeavor Janus Growth Portfolio has the same investment objectives,
the same investment adviser (Janus Capital Corporation) and the same
advisory fees as the WRL Janus Growth Portfolio. Performance prior to May
1, 1999 reflects performance of the annuity subaccount while it was
invested in the WRL Janus Growth Portfolio.
(/3/)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).
(/4/)The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund(R) Subaccount, Fidelity - VIP III
Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap Subaccount,
WRL Alger Aggressive Growth Subaccount, WRL Goldman Sachs Growth
Subaccount, WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount,
WRL Pilgrim Baxter Mid Cap Growth Subaccount, WRL Salomon All Cap
Subaccount, WRL T. Rowe Price Dividend Growth Subaccount, and WRL T. Rowe
Price Small Cap Subaccount had not commenced operations as of December 31,
1999, therefore, comparable information is not available.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
53
<PAGE>
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.
Adjusted Historical Performance Data of the Portfolios. The following
performance data for the periods prior to the date the subaccount commenced
operations is based on the performance of the corresponding portfolio and the
assumption that the applicable subaccount was in existence for the same period
as the corresponding portfolio with a level of charges equal to those currently
assessed against the subaccount or against owner's policy values.
In addition, PFL may present historic performance data for the portfolios since
their inception reduced by some or all the fees and charges under the policy.
Such adjusted historic performance includes data that precedes the inception
dates on the subaccounts. This data is designed to show the performance that
would have resulted if the policy had been in existence during that time.
For instance, as shown in Table 3 below, PFL may disclose average annual total
returns for the portfolios reduced by all fees and charges under the policy, as
if the policy had been in existence. Such fees and charges include the
mortality and expense risk fee and the administrative charge.
TABLE 3--A
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.55%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(/2/)... 27.41% 16.09% 12.99% May 4, 1993
Dreyfus U.S. Government
Securities.................... (2.38%) 4.84% 4.01% May 13, 1994
Endeavor Asset Allocation...... 24.46% 19.24% 13.91% April 8, 1991
Endeavor Enhanced Index........ 16.36% N/A 25.45% May 1, 1997
Endeavor High Yield............ 4.20% N/A 0.05% June 1, 1998
Endeavor Janus Growth.......... N/A N/A 35.08% May 1, 1999
Endeavor Opportunity Value..... 3.19% N/A 6.99% November 18, 1996
Endeavor Value Equity.......... (4.54%) 14.99% 11.88% May 27, 1993
Endeavor Select................ 45.59% N/A 24.96% February 3, 1998
T. Rowe Price Equity Income.... 1.89% N/A 15.94% January 3, 1995
T. Rowe Price Growth Stock..... 20.33% N/A 25.45% January 3, 1995
T. Rowe Price International
Stock(/3/).................... 30.34% 13.09% 8.10% April 8, 1991
Transamerica VIF
Growth(/4/)(/5/).............. 35.72% 45.88% 27.77%+ February 26, 1969
Fidelity - VIP Equity-Income -
Service Class 2(/4/)(/6/).... 4.63% 16.76% 12.72%+ October 9, 1986
Fidelity - VIP II
Contrafund(R) - Service
Class 2(/4/)(/6/)............. 22.27% N/A 25.76% January 3, 1995
Fidelity - VIP III Growth
Opportunities - Service Class
2(/4/)(/6/)................... 2.58% N/A 19.66% January 3, 1995
Fidelity - VIP III Mid Cap -
Service Class 2(/4/)(/6/).... 46.72% N/A 50.74% December 28, 1998
WRL Alger Aggressive
Growth(/4/)................... 66.50% 34.56% 28.38% March 1, 1994
WRL Goldman Sachs Growth(/4/).. N/A N/A 16.62% May 3, 1999
WRL Janus Global(/4/).......... 68.58% 30.94% 25.98% December 3, 1992
WRL NWQ Value Equity(/4/)...... 6.29% N/A 9.07% May 1, 1996
WRL Pilgrim Baxter Mid Cap
Growth(/4/)................... N/A N/A 76.30% May 3, 1999
WRL Salomon All Cap(/4/)....... N/A N/A 14.41% May 3, 1999
WRL T. Rowe Price Dividend
Growth(/4/)................... N/A N/A (8.36%) May 3, 1999
WRL T. Rowe Price Small
Cap(/4/)...................... N/A N/A 37.13% May 3, 1999
- -------------------------------------------------------------------------------
+ Ten Year Date
</TABLE>
54
<PAGE>
TABLE 3 - B
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(/2/).... 27.60% 16.26% 13.16% May 4, 1993
Dreyfus U.S. Government
Securities..................... (2.39%) 4.96% 4.14% May 13, 1994
Endeavor Asset Allocation....... 24.65% 19.42% 14.08% April 8, 1991
Endeavor Enhanced Index......... 16.53% N/A 25.63% May 1, 1997
Endeavor High Yield............. 4.36% N/A 0.19% June 1, 1998
Endeavor Janus Growth........... N/A N/A 35.21% May 1, 1999
Endeavor Opportunity Value...... 3.35% N/A 7.15% November 18, 1996
Endeavor Value Equity........... (4.39%) 15.14% 12.02% May 27, 1993
Endeavor Select................. 45.80% N/A 25.15% February 3, 1998
T. Rowe Price Equity Income..... 2.04% N/A 16.10% January 3, 1995
T. Rowe Price Growth Stock...... 20.51% N/A 25.63% January 3, 1995
T. Rowe Price International
Stock(/3/)..................... 30.53% 13.25% 8.26% April 8, 1991
Transamerica VIF
Growth(/4/)(/5/)............... 35.92% 39.58% 25.07%+ February 26, 1969
Fidelity - VIP Equity-Income -
Service Class 2(/4/)(/6/)..... 4.78% 16.94% 12.89%+ October 9, 1986
Fidelity - VIP II
Contrafund(R) - Service Class
2(/4/)(/6/).................... 22.45% N/A 25.95% January 3, 1995
Fidelity - VIP III Growth
Opportunities - Service Class
2(/4/)(/6/).................... 2.74% N/A 19.83% January 3, 1995
Fidelity - VIP III Mid Cap -
Service Class 2(/4/)(/6/)..... 46.94% N/A 50.96% December 28, 1998
WRL Alger Aggressive
Growth(/4/).................... 66.75% 34.76% 28.57% March 1, 1994
WRL Goldman Sachs Growth(/4/)... N/A N/A 16.74% May 3, 1999
WRL Janus Global(/4/)........... 68.82% 31.13% 26.17% December 3, 1992
WRL NWQ Value Equity(/4/)....... 6.45% N/A 9.24% May 1, 1996
WRL Pilgrim Baxter Mid Cap
Growth(/4/).................... N/A N/A 76.46% May 3, 1999
WRL Salomon All Cap(/4/)........ N/A N/A 14.52% May 3, 1999
WRL T. Rowe Price Dividend
Growth(/4/).................... N/A N/A (8.26%) May 3, 1999
WRL T. Rowe Price Small
Cap(/4/)....................... N/A N/A 37.26% May 3, 1999
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
+ Ten Year Date
</TABLE>
(/1/)The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
(/2/)Effective September 16, 1996, 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.
(/3/)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).
(/4/)The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund(R) Subaccount, Fidelity - VIP III
Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap Subaccount,
WRL Alger Aggressive Growth Subaccount, WRL Goldman Sachs Growth
Subaccount, WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount,
WRL Pilgrim Baxter Mid Cap Growth Subaccount, WRL Salomon All Cap
Subaccount, WRL T. Rowe Price Dividend Growth Subaccount, and WRL T. Rowe
Price Small Cap Subaccount had not commenced operations as of December 31,
1999, therefore, comparable information is not available.
55
<PAGE>
(/5/)The Growth Portfolio of the Transamerica Variable Insurance Fund, Inc., is
the successor to Separate Account Fund C of Transamerica Occidental Life
Insurance Company, a management investment company funding variable
annuities, through a reorganization on November 1, 1996. Accordingly, the
performance data for the Transamerica VIF Growth Portfolio include
performance of its predecessor.
(/6/)Returns prior to January 12, 2000 for the portfolios are based on
historical returns for Initial Class Shares.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
The figures for the "five year" and "from inception" periods in the above
tables reflect waiver of advisory fees and reimbursement of other expenses for
all portfolios except the T. Rowe Price Equity Income Portfolio and the T. Rowe
Price Growth Stock Portfolio. In the absence of such waivers, the average
annual total return figures above from the five year and from inception periods
would have been lower.
56
<PAGE>
HISTORICAL PERFORMANCE DATA
THE TARGET STRATEGIES AND THE DOW JONES INDUSTRIAL AVERAGE SM
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 any charges (eg.,
brokerage commissions, management fees) were reflected in the hypothetical
returns, the returns would be lower than those presented here.
57
<PAGE>
COMPARISON OF TOTAL RETURN(/2/)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strategy Total Returns
--------------------------------
10 Highest 5 Lowest Priced
Dividend of the 10 Highest Index
Yielding Dividend Total Return
Stocks(/1/) Yielding Stocks(/1/) DJIA
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1975.............................. 56.10% 64.77% 44.46%
1976.............................. 35.18% 40.96% 22.80%
1977.............................. (1.95%) 5.49% (12.91%)
1978.............................. 0.03% 1.23% 2.66%
1979.............................. 13.01% 9.84% 10.60%
1980.............................. 27.90% 41.69% 21.90%
1981.............................. 7.46% 3.19% (3.61%)
1982.............................. 27.12% 43.37% 26.85%
1983.............................. 39.07% 36.38% 25.82%
1984.............................. 6.22% 11.12% 1.29%
1985.............................. 29.54% 38.34% 33.28%
1986.............................. 35.63% 30.89% 27.00%
1987.............................. 5.59% 10.69% 5.66%
1988.............................. 24.57% 21.47% 16.03%
1989.............................. 26.97% 10.55% 32.09%
1990.............................. (7.82%) (15.74%) (0.73%)
1991.............................. 34.20% 62.03% 24.19%
1992.............................. 7.69% 22.90% 7.39%
1993.............................. 27.08% 34.01% 16.87%
1994.............................. 4.21% 8.27% 5.03%
1995.............................. 36.85% 30.50% 36.67%
1996.............................. 28.35% 26.20% 28.71%
1997.............................. 21.68% 19.97% 24.82%
1998.............................. 10.59% 12.36% 18.03%
1999.............................. 5.06% (7.28%) 27.06%
- --------------------------------------------------------------------------------
</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 19.01%, while
the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding Stocks
in the DJIA achieved an average annual total return of 20.97%. In addition,
over this period, the individual strategies achieved a greater average
annual total return than that of the DJIA, which was 16.83%. 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.
58
<PAGE>
The performance shown for the strategies does not guarantee future success, nor
should it be used as a predictor of returns. The Dow SM Target 5 strategy and
The Dow SM Target 10 strategy under-performed the DJIA in 8 and 10,
respectively, of the 25 years shown. There can be no assurance that the
strategies will outperform a given index over any time period, or that they
will have positive results. They have the potential for loss.
The results of the strategies do not represent actual investment advice of
First Trust Advisors L.P. or any actual trading using client assets. They were
achieved by the retroactive application of a model designed with the benefit of
hindsight and should not be considered indicative of the competence or skill of
First Trust Advisors L.P. In addition, the strategy results do not reflect the
impact material, economic, and market factors might have had on First Trust
Advisors L.P.'s decision making, if First Trust Advisors L.P. had actually
managed client money during the period indicated.
First Trust Advisors L.P. advisory services, though currently offered for the
strategies, were not offered during the entire 25 year period since First Trust
Advisors L.P. was founded in 1991, and began supervising unit investment trusts
invested in the strategies in 1994. First Trust Advisors L.P.'s investment
advisory clients have received results different from that set forth above.
Past Performance of the DJIA
[CHART]
[GRAPH]
DOLLAR GROWTH TABLE
Years Date Target 5 Target 10 DJIA
- -------------------------------------------------------------------------
10,000.00 10,000.00 10,000.00
25 1975 16,477.50 15,610.28 14,445.61
24 1976 23,226.83 21,101.61 17,739.92
23 1977 24,502.77 20,690.36 15,450.07
22 1978 24,803.49 20,697.25 15,860.59
21 1979 27,243.25 23,390.00 17,542.51
20 1980 38,600.30 29,914.68 21,384.19
19 1981 39,832.12 32,146.62 20,611.71
18 1982 57,108.82 40,865.53 26,146.56
17 1983 77,885.96 56,829.99 32,898.88
16 1984 86,546.21 60,365.54 33,324.47
15 1985 119,729.03 78,195.39 44,414.62
14 1986 156,714.81 106,054.79 56,407.70
13 1987 173,465.60 111,978.77 59,600.35
12 1988 210,716.53 139,487.78 69,157.00
11 1989 232,942.95 177,102.89 91,349.45
10 1990 196,274.44 163,254.24 90,678.66
9 1991 318,021.74 219,082.90 112,610.66
8 1992 390,845.72 235,938.07 120,927.31
7 1993 523,770.46 299,821.78 141,323.93
6 1994 567,095.36 312,444.26 148,436.23
5 1995 740,054.37 427,578.12 202,871.80
4 1996 933,942.14 548,806.20 261,116.65
3 1997 1,120,490.59 667,785.96 325,925.03
2 1998 1,259,031.57 738,473.55 384,689.23
1 1999 1,167,393.86 775,811.93 488,796.72
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, 1975 through December 31, 1999 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.
59
<PAGE>
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 SAI.
Based on the method of calculation described in the SAI, the average annual
total returns for periods from inception of the subaccounts to December 31,
1999, and for the one and five year periods ended December 31, 1999 are shown
in Table 1 below. Total returns shown reflect deductions for the mortality and
expense risk fee and the administrative charges. Performance figures may
reflect the 1.40% mortality and expense risk fee for the 5% Annually
Compounding and Double Enhanced Death Benefits, or the 1.25% 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 reflects the rider charge for
the optional family income protector.
TABLE 1
Standardized Average Annual Total Returns
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Separate Account Annual Expenses: 1.55%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year of the
Ended Subaccount Subaccount
Subaccount 12/31/99 to 12/31/99 Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
The DowSM Target 10 (January Series)...... N/A (8.74%) January 4, 1999
The DowSM Target 5 (January Series)....... N/A (16.03%) January 4, 1999
The DowSM Target 10 (July Series)......... (7.73%) (2.96%) July 1, 1998
The DowSM Target 5 (July Series).......... (19.68%) (6.24%) July 1, 1998
- -------------------------------------------------------------------------------
Return of Premium Death Benefit*
(Total Separate Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------
<CAPTION>
Inception
1 Year of the
Ended Subaccount Subaccount
Subaccount 12/31/99 to 12/31/99 Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
The DowSM Target 10 (January Series)...... N/A (8.60%) January 4, 1999
The DowSM Target 5 (January Series)....... N/A (15.90%) January 4, 1999
The DowSM Target 10 (July Series)......... (7.59%) (2.81%) July 1, 1998
The DowSM Target 5 (July Series).......... (19.56%) (6.09%) July 1, 1998
- -------------------------------------------------------------------------------
</TABLE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
60
<PAGE>
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-standardized data may assume that the policy remains in force and therefore
not reflect the surrender charge. The non-standardized 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-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
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 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%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year of the
Ended Subaccount Subaccount
Subaccount 12/31/99 to 12/31/99 Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
The DowSM Target 10 (January Series)...... N/A (1.71%) January 4, 1999
- -------------------------------------------------------------------------------
The DowSM Target 5 (January Series)....... N/A (8.99%) January 4, 1999
- -------------------------------------------------------------------------------
The DowSM Target 10 (July Series)......... (2.28%) .069% July 1, 1998
- -------------------------------------------------------------------------------
The DowSM Target 5 (July Series).......... (14.16%) (2.51%) July 1, 1998
- -------------------------------------------------------------------------------
RETURN OF PREMIUM DEATH BENEFIT*
(Total Mutual Fund Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------
<CAPTION>
Inception
1 Year of the
Ended Subaccount Subaccount
Subaccount 12/31/99 to 12/31/99 Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
The DowSM Target 10 (January Series)...... N/A (1.56%) January 4, 1999
- -------------------------------------------------------------------------------
The DowSM Target 5 (January Series)....... N/A (8.86%) January 4, 1999
- -------------------------------------------------------------------------------
The DowSM Target 10 (July Series)......... (2.14%) .084% July 1, 1998
- -------------------------------------------------------------------------------
The DowSM Target 5 (July Series).......... (14.03%) (2.37%) July 1, 1998
- -------------------------------------------------------------------------------
</TABLE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
61
<PAGE>
APPENDIX C
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>
<C> <S>
Approximate First Issue
Policy Form/Endorsement............................ Date
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
AV432 101 114 199 (Group Policy Form).............. May 2000
AV494 101 124 100 (Individual Policy Form)......... May 2000
</TABLE>
62
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Product AV201 101 65 189 AV201 101 AV201 101 65 189, AV254 101 87 196,
Feature 65 189, AE847 394, and AE909 496, and
AE830 292, AE871 295 AE890 196
and
AE847 394
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Product AV320 101 99 197 and AV376 101 106 1197 and AV432 101 114 199 and
Feature AE945 197 AE 945 197 AV494 101 124 100
- ------------------------------------------------------------------------------------------------------------
Excess N/A N/A N/A Yes
Interest
Adjustment
- ------------------------------------------------------------------------------------------------------------
Excess Yes Yes Yes
Interest
Adjustment
- ------------------------------------------------------------------------------------------------------------
Guaranteed Total premiums paid, 5% Annually 5% Annually 5% Annually
Minimum less any partial Compounding Compounding Compounding
Death Benefit withdrawals and (Option A). (Option A) or Annual (Option A) or Annual
Option(s) any surrender Step-Up (Option B). Step-Up (Option B).
charges made before Option A is only Option A is only
death, accumulated at available if owner and available if owner
4% to the date we annuitant are both and annuitant are both
receive due proof of death under age 75. under age 75.
or the policy value on the
date we receive due
proof of death,
which ever is greater.
- ------------------------------------------------------------------------------------------------------------
Guaranteed 5% Annually 5% Annually 5% Annually
Minimum Compounding Compounding (Option Compounding
Death Benefit (Option A), Annual A), Double Enhanced (Option A), Greater of
Option(s) Step-Up (Option B), (Option B), or Return of 5% Annually
or Return of Premium Premium (Option C). Compounding through
(Option C). Option A is Option A is only age 80 or Annual
only available if owner available if owner Step-Up through age 80
and annuitant are both and annuitant (Option B), Return of
under age 75. Option B are both under Age 75. Premium (Option C),
is only available if owner Option B is only and Monthly Step-Up
and annuitant are available if owner through age 80 (Option
under age 81. and annuitant are D). Option A is only
both under age 81. available if owner and
annuitant are both under
age 75. Option B and D
are only available if
owner and annuitant are
both under age 81.
- ------------------------------------------------------------------------------------------------------------
Guaranteed 1 and 3 year guaranteed 1 and 3 year 1 and 3 year 1, 3, 5, and 7 year
Period periods available. guaranteed guaranteed guaranteed periods
Options periods available. periods available. available.
(available in
the fixed
account)
- ------------------------------------------------------------------------------------------------------------
Guaranteed 1, 3, 5 and 7 year 1, 3, 5, and 7 year 1, 3, 5, and 7 year
Period guaranteed periods guaranteed periods guaranteed periods
Options available. available. available.
(available in
the fixed
account)
- ------------------------------------------------------------------------------------------------------------
Minimum 4% 4% 4% 3%
effective
annual
interest rate
applicable to
the
fixed account
- ------------------------------------------------------------------------------------------------------------
Minimum 3% 3% 3%
effective
annual
interest rate
applicable to
the
fixed account
- ------------------------------------------------------------------------------------------------------------
Asset N/A N/A N/A Yes
Rebalancing
- ------------------------------------------------------------------------------------------------------------
Asset Yes Yes Yes
Rebalancing
- ------------------------------------------------------------------------------------------------------------
Death Proceeds Greater of 1) the policy Greater of (a) Greatest of (a) policy Greatest of (a) annuity
value on the date we policy value and purchase value, (b)
receive due proof of value and (b) (b) guaranteed cash value, and
death, or 2) the total 5% minimum (c) guaranteed
premiums paid for this Annually death benefit minimum death
policy, less any partial Compounding benefit.
withdrawals and any Death Benefit
surrender charges made
before death, accumulated
at 4% interest per annum
to the date we receive due
proof of death
- ------------------------------------------------------------------------------------------------------------
Death Proceeds Greatest of (a) policy Greatest of (a) policy Greatest of (a) policy
value, (b) cash value, and value, (b) cash value, value, (b) cash value,
(c) guaranteed minimum and (c) guaranteed and (c) guaranteed
death benefit. minimum minimum death benefit.
death benefit.
- ------------------------------------------------------------------------------------------------------------
Distribution N/A N/A N/A N/A
Financing
Charge
Distribution Applicable Applicable N/A
Financing
Charge
</TABLE>
63
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Is Mortality & No No No No No
Expense
Risk Fee
different
after the
annuity
commencement
date?
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Is Mortality & Yes (1.10%, plus Yes (1.25%, plus
Expense administrative charge, administrative charge,
Risk Fee regardless of death regardless of death
different benefit chosen prior benefit chosen prior to
after the to the annuity the annuity
annuity commencement date) commencement date.)
commencement
date?
- ------------------------------------------------------------------------------------------------------------------
Product AV201 101 65 189 AV201 101 65 AV201 101 65 189, AV254 101 87 196, AV320 101 99 197
Feature 189, AE830 292, AE847 394, and AE909 496, and and AE945 197
and AE847 394 AE871 295 AE890 196
- ------------------------------------------------------------------------------------------------------------------
Product AV376 101 106 1197 AV432 101 114 199
Feature and AE 945 197 and AV494 101 124 100
- ------------------------------------------------------------------------------------------------------------------
Dollar Cost N/A N/A N/A Yes Yes
Averaging
Fixed Account
Option
- ------------------------------------------------------------------------------------------------------------------
Dollar Cost Yes Yes
Averaging
Fixed Account
Option
- ------------------------------------------------------------------------------------------------------------------
Service Charge $35 assessed on $35 assessed Assessed only on a Assessed only on a Assessed either on a
each policy on each policy policy anniversary; policy anniversary; policy anniversary or
anniversary. Not anniversary. Waived if sum of Waived if sum of on surrender; Waived
deducted from Not deducted premium payments premium if sum of premium
the fixed from the fixed less partial payments less payments less partial
account. account. withdrawals is at partial withdrawals withdrawals or the
least $50,000 on is at least policy value is at least
the policy $50,000 on the $50,000 on the policy
anniversary. Not policy anniversary. anniversary or at the
deducted from the Not deducted time of surrender.
fixed account. from the fixed The service charge is
account. deducted pro-rata
from the investment
options.
- ------------------------------------------------------------------------------------------------------------------
Service Charge Assessed either on a Assessed either on a
policy anniversary or policy anniversary or
on surrender; on surrender; Waived
Waived if sum of if sum of premium
premium payments payments less partial
less partial withdrawals or the
withdrawals or the policy value is at least
policy value is at $50,000 on The policy
least $50,000 on the anniversary or at the ti
policy anniversary or me of surrender. The
at the time of service charge is
surrender. The service deducted pro-rata from
charge is deducted the investment options.
pro-rata from the
investment options.
- ------------------------------------------------------------------------------------------------------------------
Nursing Care N/A Yes Yes Yes Yes
and
Terminal
Condition
Withdrawal
Option
- ------------------------------------------------------------------------------------------------------------------
Nursing Care Yes Yes
and
Terminal
Condition
Withdrawal
Option
- ------------------------------------------------------------------------------------------------------------------
Unemployment N/A Yes
WaiverUnemployment N/A N/A N/A N/A N/A
Waiver
</TABLE>
64
<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, 2000 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 (SAI) is not a prospectus and should
be read only in conjunction with the prospectuses for the policy and the
underlying fund portfolios.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 4
THE POLICY--GENERAL PROVISIONS............................................. 7
Owner.................................................................... 7
Entire Policy............................................................ 7
Misstatement of Age or Sex............................................... 8
Addition, Deletion or Substitution of Investments........................ 8
Excess Interest Adjustment............................................... 9
Reallocation of Annuity Units After the Annuity Commencement Date........ 13
Annuity Payment Options.................................................. 13
Death Benefit............................................................ 14
Death of Owner........................................................... 16
Assignment............................................................... 16
Evidence of Survival..................................................... 17
Non-Participating........................................................ 17
Amendments............................................................... 17
Employee and Agent Purchases............................................. 17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 17
Tax Status of the Policy................................................. 18
Taxation of PFL.......................................................... 21
INVESTMENT EXPERIENCE...................................................... 21
Accumulation Units....................................................... 21
Annuity Unit Value and Annuity Payment Rates............................. 23
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION............................ 24
HISTORICAL PERFORMANCE DATA................................................ 27
Money Market Yields...................................................... 27
Other Subaccount Yields.................................................. 28
Total Returns............................................................ 29
Other Performance Data................................................... 29
Adjusted Historical Performance Data--The Mutual Fund Account............ 30
THE TARGET ACCOUNT......................................................... 30
What is the Investment Strategy?......................................... 30
Determination of Unit Value; Valuation of Securities..................... 31
The Board of Managers.................................................... 32
The Investment Advisory Services......................................... 35
The Manager.............................................................. 35
Operating Expenses....................................................... 36
Transfer Agent and Custodian............................................. 36
Brokerage Allocation..................................................... 36
Investment Restrictions.................................................. 37
Fundamental Policies..................................................... 37
Operating Policies....................................................... 37
Options and Futures Strategies........................................... 38
Securities Lending....................................................... 40
Tax Limitation........................................................... 40
PUBLISHED RATINGS.......................................................... 40
STATE REGULATION OF PFL.................................................... 41
ADMINISTRATION............................................................. 41
RECORDS AND REPORTS........................................................ 41
DISTRIBUTION OF THE POLICIES............................................... 41
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
VOTING RIGHTS.............................................................. 42
The Mutual Fund Account.................................................. 42
The Target Account....................................................... 42
OTHER PRODUCTS............................................................. 43
CUSTODY OF ASSETS.......................................................... 43
LEGAL MATTERS.............................................................. 44
INDEPENDENT AUDITORS....................................................... 44
OTHER INFORMATION.......................................................... 44
FINANCIAL STATEMENTS....................................................... 44
</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 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 annual service charge, and less any applicable premium
taxes, surrender charge, and family income protector rider fee.
Code--The Internal Revenue Code of 1986, as amended.
DJIA--The Dow Jones Industrial AverageSM. Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of
American industry.
Enrollment form--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
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
PFL's general assets and which are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account, which PFL may offer, into which premiums may be paid or amounts
may be transferred.
-4-
<PAGE>
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--PFL Endeavor VA Separate Account, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"), as amended, to which premium payments
under the policies may be allocated.
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--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Participant--A person who makes premium payments or for whom premium payments
are made under the policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including any applicable excess interest adjustments
and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the mutual fund account and the target
account; minus
. service charges, premium taxes, rider fees, and transfer fees, if any.
Policy Year--A policy year begins on the date in which the policy becomes
effective and on each anniversary thereof.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
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."
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.
-5-
<PAGE>
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 specified stock selection date.
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.
-6-
<PAGE>
In order to supplement the description in the prospectus, the following
provides additional information about PFL and the policy, which may be of
interest to a prospective purchaser.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an enrollment form 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 enrollment form, 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 received written notice of the trust as a
successor owner signed prior to the owner's death, that trust may not exercise
ownership rights to the policy. It may be necessary to open a probate estate in
order to exercise ownership rights to the policy if no contingent owner is
named in a written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded, it will take
effect as of the date the owner signs the written notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the owner or naming a new successor owner cancels any prior choice of
successor owner, but does not change the designation of the beneficiary or the
annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the 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, any endorsements thereon, the enrollment form, or information
provided in lieu thereof, constitute the entire contract between PFL and the
owner. All statements in the enrollment form 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 enrollment form or information
provided in lieu thereof.
-7-
<PAGE>
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 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 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.
-8-
<PAGE>
Excess Interest Adjustment
Money that you withdraw from, transfer out of, or apply to an annuity payment
option from a guaranteed period option of the fixed account before the end of
its guaranteed period (the number of years you specified the money would remain
in the guaranteed period option) may be subject to an excess interest
adjustment. At the time you request a withdrawal, if interest rates 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.
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the premium payments and transfers to that
guaranteed period option, less any prior partial withdrawals and transfers from
the guaranteed period option, plus interest at the policy's minimum guaranteed
effective annual interest rate of 3%. This is referred to as the excess
interest adjustment floor.
The formula that will be used to determine the excess interest adjustment is:
S* (G-C)* (M/12)
S = Gross amount being withdrawn that is subject to the excess interest
adjustment
G = Guaranteed interest rate 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
-9-
<PAGE>
Example 1 (Surrender, rates increase by 3%):
<TABLE>
<S> <C>
Single premium: $50,000.00
- ------------------------------------------------------------------------------------------
Guarantee period: 5 Years
- ------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ------------------------------------------------------------------------------------------
Surrender: middle of contract year 2
- ------------------------------------------------------------------------------------------
Policy value at middle of contract year 2 = 50,000.00* (1.055)/\1.5 = 54,181.21
- ------------------------------------------------------------------------------------------
Penalty free amount at middle of contract = 50,000.00* .10 = 5,000.00
year 2
- ------------------------------------------------------------------------------------------
(assume any gain in the policy is less than
10% of premium)
- ------------------------------------------------------------------------------------------
Amount subject to excess interest = 54,181.21 - 5,000.00 = 49,181.21
adjustment
- ------------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000.00* (1.03)/\1.5 = 52,266.79
- ------------------------------------------------------------------------------------------
Excess interest adjustment
G = .055
C = .085
M = 18
- ------------------------------------------------------------------------------------------
Excess interest adjustment = S* (G-C)* (M/12)
- ------------------------------------------------------------------------------------------
= 49,181.21* (.055-.085)* (18/12)
- ------------------------------------------------------------------------------------------
= - 2,213.15, but excess interest
adjustment cannot cause the adjusted policy
value to fall below the excess interest
adjustment floor, so the adjustment is
limited to 52,266.79 - 54,181.21 =
-1,914.42
- ------------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest
adjustment
= 54,181.21 + ( - 2,213.15) = 51,968.06
- ------------------------------------------------------------------------------------------
Surrender charges = (50,000.00 - 5,000.00)* .07 = 3,150.00
- ------------------------------------------------------------------------------------------
Net surrender value at middle of contract = 54,181.21 - 3,150.00 = 51,031.21
year 2
</TABLE>
-10-
<PAGE>
Example 2 (Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Surrender: middle of contract year 2
- -----------------------------------------------------------------------------------------
Policy value at middle of contract year 2 = 50,000.00* (1.055)/\1.2 = 54,181.21
- -----------------------------------------------------------------------------------------
Penalty free amount at middle of contract = 50,000.00* .10 = 5,000.00
year 2
- -----------------------------------------------------------------------------------------
(assume any gain in the policy is less than
10% of premium)
- -----------------------------------------------------------------------------------------
Amount subject to excess interest = 54,181.21 - 5,000.00 = 49,181.21
adjustment
- -----------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000.00* (1.03)/\.15 = 52,266.79
- -----------------------------------------------------------------------------------------
Excess interest adjustment
G= .055
C= .045
M= 18
- -----------------------------------------------------------------------------------------
Excess interest adjustment = S* (G-C)* (M/12)
- -----------------------------------------------------------------------------------------
= 49,181.21* (.055-.045) * (18/12)
= 737.72
- -----------------------------------------------------------------------------------------
Adjusted policy value = 54,181.21 + 737.72 = 54,918.93
- -----------------------------------------------------------------------------------------
Surrender charges = (50,000.00 - 5,000.00)* .07 = 3,150.00
- -----------------------------------------------------------------------------------------
Net surrender value at middle of contract = 54,918.93 - 3,150.00 = 51,768.93
year 3
</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
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.
-11-
<PAGE>
Example 3 (Partial Withdrawal, rates increase by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
- ------------------------------------------------------------------------------------------
Guarantee period: 5 Years
- ------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ------------------------------------------------------------------------------------------
Partial withdrawal: $20,000; middle of contract year 2
- ------------------------------------------------------------------------------------------
Policy value at middle of contract year 2 = 50,000.00* (1.055)/\1.2 = 54,181.21
- ------------------------------------------------------------------------------------------
Penalty free amount at middle of contract = 50,000.00* .10 = 5,000.00
year 2
- ------------------------------------------------------------------------------------------
(assume any gain in policy is less than 10%
of premium)
- ------------------------------------------------------------------------------------------
Excess interest adjustment/surrender charge
- ------------------------------------------------------------------------------------------
S =20,000 - 5,000.00 = 15,000.00
- ------------------------------------------------------------------------------------------
G =.055
- ------------------------------------------------------------------------------------------
C =.065
- ------------------------------------------------------------------------------------------
M =18
- ------------------------------------------------------------------------------------------
E =15,000.00* (.055 - .065)* (18/12) = -
225.00
- ------------------------------------------------------------------------------------------
EPW=20,000.00 - 5,000.00 = 15,000.00
- ------------------------------------------------------------------------------------------
SC = .07* (15,000.00 - ( -225.00)) = 1,065.75
- ------------------------------------------------------------------------------------------
Remaining policy value at middle of = 54,181.21 - (R - E + surrender charge)
contract year 2
- ------------------------------------------------------------------------------------------
= 54,181.21 - (20,000.00 -
( - 225.00) + 1,065.75) = 32,890.46
</TABLE>
Example 4 (Partial Withdrawal, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
- ----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- ----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ----------------------------------------------------------------------------------------
Partial withdrawal: $20,000; middle of contract year 2
- ----------------------------------------------------------------------------------------
Policy value at middle of contract year 2 = 50,000.00* (1.055)/\1.5 = 54,181.21
- ----------------------------------------------------------------------------------------
Penalty free amount at middle of contract = 50,000.00* .10 = 5,000.00
year 2
- ----------------------------------------------------------------------------------------
(assume any gain in the policy is less than
10% of premium)
- ----------------------------------------------------------------------------------------
Excess interest adjustment/surrender charge
- ----------------------------------------------------------------------------------------
S=20,000 - 5,000.00 = 15,000.00
- ----------------------------------------------------------------------------------------
G=.055
- ----------------------------------------------------------------------------------------
C=.045
- ----------------------------------------------------------------------------------------
M=18
- ----------------------------------------------------------------------------------------
E=15,000.00* (.055 - .045)*
(18/12) = 225.00
- ----------------------------------------------------------------------------------------
EPW= 20,000.00 - 5,000.00 = 15,000.00
- ----------------------------------------------------------------------------------------
SC= .07* (15,000.00 - 225.00) = 1,034.25
- ----------------------------------------------------------------------------------------
Remaining policy value at middle of = 54,181.21 - (R - E + surrender charge)
contract year 2
- ----------------------------------------------------------------------------------------
= 54,181.21 - (20,000.00 -
225.00 + 1,034.25) = 33,371.96
</TABLE>
-12-
<PAGE>
Reallocation of Annuity Units After the Annuity Commencement Date
After the annuity commencement date, you may reallocate the value of a
designated number of annuity units of a mutual fund subaccount or of a target
series subaccount then credited to a policy into an equal value of annuity
units of one or more other mutual fund subaccounts, target series 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. A reallocation of annuity
units may be made up to four times in any given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the mutual fund account or the target 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 and the target 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 with projection using
projection Scale G factors, assuming a maturity date in the year 2000. ("The
1983 Table a" mortality rates are adjusted based on improvements in mortality
since 1983 to more appropriately reflect increased longevity. This is
accomplished using a set of improvement factors referred to as projection scale
G.) The dollar amount of additional variable annuity payments will vary based
on the investment performance of the subaccount(s) of the mutual fund account
and the target account selected by the annuitant or beneficiary.
-13-
<PAGE>
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>
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.
-14-
<PAGE>
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
Example 1
(Assumed Facts for Example)
<TABLE>
- -------------------------------------------------------------------------------
<C> <S>
$75,000 current guaranteed minimum death benefit before withdrawal
- -------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- -------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum
death benefit)
- -------------------------------------------------------------------------------
6% current surrender charge percentage
- -------------------------------------------------------------------------------
$15,000 requested withdrawal
- -------------------------------------------------------------------------------
$ 5,000 surrender charge-free amount (assumes penalty free withdrawal is
available)
- -------------------------------------------------------------------------------
$10,000 excess partial withdrawal (amount subject to surrender charge)
- -------------------------------------------------------------------------------
$ 100 excess interest adjustment (assumes interest rates have decreased
since initial guarantee)
- -------------------------------------------------------------------------------
$ 594 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 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 guaranteed minimum death benefit (after withdrawal) = 75,000 -
23,241
- -------------------------------------------------------------------------------
$34,506 New policy value (after withdrawal) = 50,000 - 15,494
</TABLE>
<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.
Example 2
(Assumed Facts for Example)
<TABLE>
- -----------------------------------------------------------------------------------------
<C> <S>
$50,000 current guaranteed minimum death benefit before withdrawal
- -----------------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- -----------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum death
benefit)
- -----------------------------------------------------------------------------------------
6% current surrender charge percentage
- -----------------------------------------------------------------------------------------
$15,000 requested withdrawal
- -----------------------------------------------------------------------------------------
$ 7,500 surrender charge-free amount (assumes penalty free withdrawal is available)
- -----------------------------------------------------------------------------------------
$ 7,500 excess partial withdrawal (amount subject to surrender charge)
- -----------------------------------------------------------------------------------------
$ -100 excess interest adjustment (assumes interest rates have increased since initial
guarantee)
- -----------------------------------------------------------------------------------------
$ 456 surrender charge on (excess partial withdrawal less excess interest adjustment)
= 0.06* [(7500 - (-100)]
- -----------------------------------------------------------------------------------------
$ 8,056 reduction in policy value due to excess partial withdrawal
= 7500 - (-100) + 456 = 7500 + 100 + 456
- -----------------------------------------------------------------------------------------
$15,556 adjusted partial withdrawal = (7,500 + 8056) * (75,000 / 75,000)
- -----------------------------------------------------------------------------------------
$34,444 New guaranteed minimum death benefit (after withdrawal) = 50,000 - 15,556
- -----------------------------------------------------------------------------------------
$59,444 New policy value (after withdrawal) = 75,000 - 15,556
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $15,556
Reduction in policy value = $15,556
</TABLE>
Note, the guaranteed minimum death benefit and policy value are reduced by the
same amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
-15-
<PAGE>
Due proof of death of the annuitant is proof that the annuitant that is the
owner died prior to the commencement of annuity payments. A certified copy of a
death certificate, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, a written statement by the attending
physician, or any other proof satisfactory to PFL will constitute due proof of
death. Upon receipt of this proof and an election of a method of settlement and
return of the policy, the death benefit generally will be paid within seven
days, or as soon thereafter as PFL has sufficient information about the
beneficiary to make the payment. The 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
period certain does not exceed the beneficiary's life expectancy). Death
proceeds, which are not paid to or for the benefit of a natural person, must be
distributed within five years of the date of the deceased owner's death. If the
sole beneficiary is the deceased owner's surviving spouse, such spouse may
elect to continue the policy as the new annuitant and owner instead of
receiving the death benefit.
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 enrollment form 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 more information about 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 if your policy is a nonqualified policy. An assignment
will not be binding on PFL until a copy has been filed at its administrative
and service office. 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
-16-
<PAGE>
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.
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 annual service charge, the surrender charges, the
mortality and expense risk fee and the administrative charge for certain sales
under circumstances which may result in savings of certain costs and expenses.
In addition, there may be other circumstances of which PFL is not presently
aware which could result in reduced sales or distribution expenses. Credits to
the policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a policy, based on the Code, 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.
-17-
<PAGE>
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.
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 an owner
and any death or change of such primary annuitant shall be treated as the death
of an 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. The withholding rate varies according to the type of distribution and the
owner's tax status. For qualified policies, "eligible rollover distributions"
from Section 401(a) plans, Section 403(a) annuities, and Section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding
of 20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA. Different
withholding requirements may apply in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; and in other specified circumstances. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into the policies or our policy administration procedures. Owners, participants
and beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the policies comply with
applicable law.
-18-
<PAGE>
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 traditional individual retirement
annuities under Section 408(b) of the Code contain such provisions. Amounts in
the IRA (other than nondeductible contributions) are taxed when distributed
from the IRA. Distributions prior to age 59 1/2 (unless certain exceptions
apply) are subject to a 10% penalty tax.
No part of the funds for an individual retirement account (including a Roth
IRA) or annuity 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 as an IRA. The Internal Revenue Service has not reviewed the policy for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether an enhanced death benefit provision, such as the
provision in the policy, comports with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply to the rollover or
conversion and to distributions attributable thereto. You should consult a tax
adviser before combining any converted amounts with any other Roth IRA
contributions, including any other conversion amounts from other tax years. The
Roth IRA is available to individuals with earned income and whose modified
adjusted gross income is under $110,000 for single filers, $160,000 for married
filing jointly, and $10,000 for married filing separately. The amount per
individual that may be contributed to all IRAs (Roth and traditional) is
$2,000. Secondly, the distributions are taxed differently. The Roth IRA offers
tax-free distributions when made 5 tax years after the first contribution to
any Roth IRA of the individual and made after attaining age 59 1/2, to pay for
qualified first time homebuyer expenses (lifetime maximum of $10,000) or due to
death or disability. All other distributions are subject to income tax when
made from earnings and may be subject to a premature withdrawal penalty tax
unless an exception applies. Unlike the traditional IRA, there are no minimum
required distributions during the owner's lifetime; however, required
distributions at death are generally the same.
-19-
<PAGE>
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under Section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, 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 a
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. For non-governmental Section 457 plans, 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, a non-government 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 where
the nominal owner is not a natural person but the beneficial owner of which is
a natural person, (ii) a policy acquired by the estate of a decedent by reason
of such decedent's death, (iii) a qualified policy (other than one qualified
under Section 457) or
-20-
<PAGE>
(iv) a single-payment annuity where the annuity commencement date 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."
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 series
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 enrollment form is completed, whichever
is later. The value of an accumulation unit for each mutual fund subaccount was
arbitrarily established at $1 and at $10 for each target series subaccount at
the inception of each subaccount. Thereafter, the value of an accumulation unit
is determined as of the close of trading on each day the New York Stock
Exchange is open for business.
For the mutual fund account and the target 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.
-21-
<PAGE>
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
(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 1.40% (for each of the 5% Annually
Compounding Death Benefit, the Greater of 5% Annually Compounding through
age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit, and
the Monthly Step-Up through age 80 Death Benefit) and 1.25% (for the Return
of Premium Death Benefit) of the daily net asset value of the subaccount,
plus the 0.15% administrative charge.
Illustration of Separate Account Accumulation Unit Value Calculations
(Assumes 5% Annually Compounding Death Benefit)
Formula and Illustration for Determining the Net Investment Factor
Net Investment Factor = (A + B - C) - E
-----------
D
<TABLE>
<C> <S> <C>
Where: A = The net asset value of an underlying fund share as of the end of
the current valuation period.
Assume.....................................A = $11.57
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding valuation period.
Assume..........................................B = 0
C = The per share charge or credit for any taxes reserved for at the
end of the current valuation period.
Assume..........................................C = 0
D = The net asset value of an underlying fund share at the end of the
immediately preceding valuation period.
Assume.....................................D = $11.40
E = The daily deduction for the mortality and expense risk fee and the
administrative charge, which totals 1.55% on an annual basis. On a
daily basis, E equals .0000421409.
</TABLE>
Then, the net
investment factor = (11.57 + 0 - 0) -.0000421409 = Z = 1.0148701398
---------------
(11.40)
-22-
<PAGE>
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<C> <S> <C>
Where: A = The accumulation unit value for the immediately preceding valuation
period.
Assume............................................ = $X
B = The net investment factor for the current valuation period.
Assume............................................. = Y
</TABLE>
Then, the accumulation unit value = $X * Y = $Z
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 mutual fund 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 series 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
Annuity Unit Value = A * B * C
-23-
<PAGE>
<TABLE>
<C> <S> <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>
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>
<C> <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>
<C> <S> <C>
Where: A = The dollar amount of the first monthly variable annuity payment.
Assume............................................= $X
B = The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume............................................= $Y
</TABLE>
Then, the number of annuity units = $X = Z
--
$Y
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
. there were no subsequent premium payments or withdrawals;
. there were no premium taxes;
. the $100,000 premium is subject to the family income protector;
. the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 6.0% (once established, an annual growth rate
will not change during the life of the family income protector rider);
and
. there was no upgrade of the minimum annuitization value.
-24-
<PAGE>
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10-Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
Life Only = Life Annuity with No Period Certain
Life 10 = Life Annuity with 10 Years
Certain
<TABLE>
<CAPTION>
Rider Anniversary at
Exercise Date Male Female Joint & Survivor
- ------------------------------------------------------------------------------
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.
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
Example 1
Assumptions
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy $10,000
anniversary:
- --------------------------------------------------------------------------------
. minimum annuitization value at time of $10,500
distribution:
- --------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- --------------------------------------------------------------------------------
. distribution amount: $500
- --------------------------------------------------------------------------------
. prior distribution in current policy year: None
- --------------------------------------------------------------------------------
Calculations
- --------------------------------------------------------------------------------
. maximum annual free amount: $10,000 X 6% = $600
- --------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $500 = $14,500
- --------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - $500 = $10,000
</TABLE>
-25-
<PAGE>
Example 2
Assumptions
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
. minimum annuitization value on last policy $10,000
anniversary:
- -------------------------------------------------------------------------------------------
. minimum annuitization value at time of $10,500
distribution:
- -------------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- -------------------------------------------------------------------------------------------
. distribution amount: $1,500
- -------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- -------------------------------------------------------------------------------------------
Calculations
- -------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
- -------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year
free amount of $600 [$10,000 X 6% = $600])
- -------------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $1,500 = $13,500
- -------------------------------------------------------------------------------------------
(since the policy value is reduced 10%
($1,500/$15,000), the minimum annuitization value
is also reduced 10%)
- -------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (10% X $10,500) = $9,450
</TABLE>
Example 3
Assumptions
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
. minimum annuitization value on last policy $10,000
anniversary:
- -------------------------------------------------------------------------------------------
. minimum annuitization value at time of $10,500
distribution:
- -------------------------------------------------------------------------------------------
. policy value at time of distribution: $7,500
- -------------------------------------------------------------------------------------------
. distribution amount: $1,500
- -------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- -------------------------------------------------------------------------------------------
Calculations
- -------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
- -------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year
free amount of $600 [$10,000 X 6% = $600])
- -------------------------------------------------------------------------------------------
. policy value after distribution: $7,500 - $1,500 = $6,000
- -------------------------------------------------------------------------------------------
(since the policy value is reduced 20%
($1,500/$7,500), the minimum annuitization value is
also reduced 20%)
- -------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (20% X $10,500) = $8,400
</TABLE>
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table with
projection using projection Scale G factors, assuming a maturity date in the
year 2000. Subsequent payments will be calculated as described in the family
income protector rider using a 5% assumed investment return. Subsequent
payments may fluctuate annually in accordance with the investment performance
of the annuity subaccounts. However, subsequent payments are guaranteed to
never be less than the initial payment.
-26-
<PAGE>
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
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 and (ii) the
mortality and expense risk fee. Current yield will be calculated according to
the following formula:
Current Yield = ((NCS * ES)/UV) * (365/7)
Where:
NCS= The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment
income) for the 7-day period attributable to a hypothetical account
having a balance of 1 subaccount unit.
ES= Per unit expenses of the subaccount for the 7-day period.
UV=
The unit value on the first day of the 7-day period.
-27-
<PAGE>
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, 1999, the yield of
the Endeavor Money Market Subaccount was 3.84%, and the effective yield was
3.91% for the 5% Annually Compounding Death Benefit and the Double Enhanced
Death Benefit. For the seven days ended December 31, 1999, the yield of the
Endeavor Money Market Subaccount was 3.99%, and the effective yield was 4.07%
for the Return of Premium Death Benefit.
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 series 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 and (ii) the mortality and expense risk fee. The 30-day
yield is calculated according to the following formula:
Yield = 2 * ((((NI - ES)/(U - UV)) + 1)/6/ -1)
Where:
NI= Net investment income of the subaccount for the 30-day period
attributable to the subaccount's unit.
ES= Expenses of the subaccount for the 30-day period.
U= The average number of units outstanding.
UV=
The unit value at the close (highest) of the last day in the 30-day
period.
-28-
<PAGE>
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 series
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 series 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, the target series subaccount's common shares,
and the deductions for the mortality and expense risk fee and the
administrative charges. The total return for each target series 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
Where:
T= The average annual total return net of subaccount recurring charges.
ERV=
The ending redeemable value of the hypothetical account at the end of
the period.
P= A hypothetical initial payment of $1,000.
N= The number of years in the period.
Other Performance Data
PFL may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
surrender charge percentage will be assumed to be 0%.
-29-
<PAGE>
PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula.
CTR = (ERV / P)-1
Where:
CTR=
The cumulative total return net of subaccount recurring charges for
the period.
ERV=
The ending redeemable value of the hypothetical investment at the end
of the period.
P= A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
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 series subaccounts is to provide an above-
average total return through a combination of dividend income and capital
appreciation. While the objectives of the target series subaccounts are the
same, each target series subaccount follows a different investment strategy
(set forth below) in order to achieve its stated objective.
Each target series subaccount will initially invest in equal amounts in the
common stock described below for each target series subaccount (the common
shares) determined as of a specified business day (initial stock selection
date). The DowSM Target 10 Subaccount will invest in the common stock of the
ten companies in the DJIA that have the highest dividend yield. The DowSM
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 DowSM Target 10
Subaccount. These stocks will be held for approximately one year.
At the initial stock selection date, a percentage relationship among the number
of common shares in a target series subaccount will be established. When
additional funds are deposited into the target series 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
series subaccount will likewise attempt to replicate the percentage
relationship of common shares. The percentage relationship among the number of
common shares in the target series 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 series 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
-30-
<PAGE>
number of common shares described above for each target series subaccount on
such date. Common shares may be sold or new equity securities bought so that
the target series subaccount is equally invested in the common stock of each
company meeting the target series subaccount's investment criteria. Thus the
target series 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 series 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 series 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
series 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 series
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 series subaccount's
selection criteria at that time, and therefore, such common shares would no
longer be chosen for inclusion in the target series 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 series
subaccount until the next annual stock selection date.
Determination of Unit Value; Valuation of Securities
PFL determines the unit value of each target series 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 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 account.
-31-
<PAGE>
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
--------------------- -------------------------- ---------------------------------
<C> <C> <S>
*+Vincent J. McGuinness, President and Chief From February 1997 to December
Jr. (34) Financial Officer 1997, Executive Vice-President,
(Treasurer) Chief of Operations, from March
1997 to October 1999, Director,
from December 1997 to October
1999, Chief Operating Officer and
from June 1998 to October 1999,
Chief Financial Officer, from
July 1999 to October 1999, Chief
Executive Officer of Endeavor
Group; from September 1996 to
June 1997, and from June 1998 to
October 1999, Chief Financial
Officer, from May 1996 to
December 31, 1999, Director, and
from June 1997 to October 1998,
Executive Vice President--
Administration, from October 1998
to October 1999, President, and
from July 1999 to October 1999
Chief Executive Officer of
Endeavor Management Co.; since
August 1996, Chief Financial
Officer of VJM Corporation (oil
and gas); 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; President, Chief
Financial Officer, and Trustee of
Endeavor Series Trust.
*Vincent J. McGuinness Manager Until December 31, 1999. Director
(65) of Endeavor Group and Endeavor
1901 Ocean Way Management Co.; President of VJM
Laguna Beach, CA 92651 Corporation (oil and gas); since
February 1996, President of
McGuinness and Associates; until
July 1999, Chairman, Chief
Executive Officer and Director of
McGuinness & Associates and VJM
Corporation ; until July 1996,
Chairman, Chief Executive Officer
and Director of McGuinness Group
(insurance marketing); from
September 1988 to July 1999,
Chief Executive Officer of
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
--------------------- -------------------------- ---------------------------------
<C> <C> <S>
Endeavor Management Co.; until
October 1998, President of
Endeavor Management Co.; Trustee,
Endeavor Series Trust.
Timothy A. Devine (65) Manager President, Chief Executive
1424 Dolphin Terrace officer, Devine Properties, Inc.
Corona del Mar, (landscape contracting and
California 92625 maintenance); Consultant, Plant
Control, Inc.; Trustee, Endeavor
Series Trust.
Thomas J. Hawekotte (64) Manager President, Thomas Hawekotte, P.C.
6007 North Sheridan Road (law practice); Trustee, Endeavor
Chicago, Illinois 60660 Series Trust.
Steven L. Klosterman (48) Manager Since July 1995, President of
5973 Avenida Encinas, Klosterman Capital Corporation
#300 (investment adviser); Investment
Carlsbad, California Counselor, Robert J. Metcalf &
92008 Associates, Inc. (investment
adviser) from August 1990 to June
1995; Trustee, Endeavor Series
Trust.
Halbert D. Lindquist (53) Manager President, Lindquist and
1650 E. Fort Lowell Road Associates (investment adviser)
Suite 203 and since December 1987 Tucson
Tucson, Arizona Asset Management Inc. (commodity
85719-2324 trading advisor), and since
November 1987, Presidio
Government Securities,
Incorporated (broker-dealer);
from January 1998 to January
1999, Chief Investment Officer
and since January 1999,
Consultant, Blackstone
Alternative Asset Management,
Trustee, Endeavor Series Trust.
Keith H. Wood (63) Manager Since 1972, Chairman and Chief
Executive Officer of Jamison,
Eaton & Wood (investment adviser)
and from 1978 to December 1997,
President of Ivory & Sime
International, Inc. (investment
adviser); since 1999, President,
Wood & Anthony, LLC (investment
advisor); Trustee, Endeavor
Series Trust.
Peter F. Muratore (67) Manager From June 1989 to March 1998,
Too Far President of OCC Distributors
Posthouse Road (broker/dealer), a subsidiary of
Morristown, NJ 07960 Oppenheimer Capital; Trustee,
Endeavor Series Trust.
*Larry N. Norman (47) Manager Executive Vice-President, PFL
4333 Edgewood Road N.E. Life Insurance Company.
Cedar Rapids, Iowa 52499-
0001
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
--------------------- -------------------------- ---------------------------------
<C> <C> <S>
Michael Pond (46) Executive Vice President-- Since November 1, 1998, Executive
Administration and Vice President--Administrator and
Compliance Compliance of Endeavor Group;
from November 1, 1998 to October
1999, Executive Vice President-
Administration and Compliance and
Chief Investment Officer of
Endeavor Management Co.; since
October 1999, President, Chief
Executive Officer and Chief
Investment Officer of Endeavor
Management Co.; from November
1991 to November 1996, Chairman
and President, the Preferred
Group of Mutual Funds; from
October 1989 to November 1996,
President of Caterpillar
Securities, Inc. and Caterpillar
Investment Manager, Ltd.
Gail A. Hanson (57) Secretary Since September 1994, Vice
President for PFPC Inc. (formerly
known as First Data Investor
Services Group, Inc.) (mutual
fund administration).
</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 ended December 31, 1999, the following
compensation was paid to members of the Board of Managers:
<TABLE>
<CAPTION>
Total
Compensation
From Account
Aggregate and Fund
Compensation Complex Paid
Name of Person From Account Managers
- -------------- ------------ ------------
<S> <C> <C>
Vincent J. McGuinness............................... -0- -0-
Timothy A. Devine................................... $1,400 $19,400
Thomas J. Hawekotte................................. $1,400 $19,900
Steven L. Klosterman................................ $1,400 $20,400
Halbert D. Lindquist................................ $1,300 $19,300
Keith H. Wood....................................... $1,400 $19,900
Vincent J. McGuinness, Jr........................... -0- -0-
William L. Busler (resigned as of November 15,
1999).............................................. -0- -0-
Peter F. Muratore................................... $1,400 $19,900
Larry N. Norman..................................... -0- -0-
</TABLE>
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<PAGE>
The Investment Advisory Services
First Trust Advisors L.P. (the "adviser") is the target account's investment
adviser. The adviser manages the assets of each target series subaccount,
consistent with the investment objective and policies described herein and in
the prospectus, pursuant to investment advisory agreements (the "advisory
agreements") with Endeavor Management Co., the target account's manager.
The 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. Nike
Securities Corporation is an Illinois corporation controlled by the Robert
Donald Van Kampen family.
Under the advisory agreements, the investment adviser provides each target
series subaccount with discretionary investment services. Specifically, the
adviser is responsible for supervising and directing the investments of each
target series subaccount in accordance with each target series 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
series subaccount.
As compensation for its services, the adviser receives a fee of 0.35% of the
average daily net assets of each target series subaccount, which is paid by the
manager. The amount that Endeavor Management Co. paid to the adviser during
1999 and 1998 was $160,506 and $19,594, respectively. No fees were paid prior
to 1998 because the target account had not commenced operations. Each target
series subaccount's advisory agreement provides that the adviser, its
directors, officers, employees, and certain other persons performing specific
functions for the target series subaccounts will only be liable to the target
series subaccount for losses resulting from willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty.
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. All of the outstanding common stock of
Endeavor Management Co. is owned by AUSA Holding Company, an affiliate of PFL.
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 series 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, PFPC, Inc.
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<PAGE>
assists the manager in the performance of its administrative responsibilities
to the target account. For its administrative responsibilities, the target
account pays PFPC, Inc. 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 series subaccount. The amount that
the target account paid the manager during 1999 and 1998 was $343,942 and
$38,590, respectively. No fees were paid prior to 1998 because the target
account had not commenced operations.
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 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 and administrative charge.)
Transfer Agent and Custodian
Boston Safe Deposit and Trust Company holds all cash and securities of each
target series subaccount as custodian. PFPC, Inc., 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 series subaccounts in common stock
and incurs brokerage costs in connection therewith.
Allocations of transactions by the target series 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 series 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
series 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 commissions paid by the target series subaccounts
may be allocated or credited to the distributor or other entities marketing the
policies, to help finance sales activities.
The target account did not pay compensation to any affiliated broker of
Endeavor Management Co. or First Trust Advisors L.P. during 1999 or 1998.
-36-
<PAGE>
Investment Restrictions
Fundamental policies of the target series 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 series subaccount may not:
. Borrowing. Borrow money, except each target series 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 market.
Each target series subaccount will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might
otherwise require untimely investment liquidations;
. Loans. Make loans, although the target series subaccounts may purchase
money market securities and enter into repurchase agreements; and they
may lend their common shares.
. Margin. Purchase securities on margin;
. Mortgaging. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the target series 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 series subaccount's total assets,
valued at market;
. Real Estate. Purchase or sell real estate;
. Senior Securities. Issue senior securities (except permitted borrowings);
. Short Sales. Effect short sales of securities; or
. Underwriting. Underwrite securities issued by other persons, except to
the extent the target series 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 series subaccount
may engage in futures and options transactions and hold warrants.
The investment objective of each target series subaccount is also a fundamental
policy and may not be changed without the necessary approval described above.
Operating Policies
As a matter of operating policy, each target series subaccount may not:
. Control of Companies. Invest in companies for the purpose of exercising
management or control;
. Illiquid Securities. Purchase a security if, as a result of such
purchase, more than 15% of the value of each target series subaccount's
net assets would be invested in illiquid securities or other securities
that are not readily marketable.
. Oil and Gas Programs. Purchase participations or other direct interests
or enter into leases with respect to, oil, gas, other mineral exploration
or development programs.
-37-
<PAGE>
Options and Futures Strategies
A target series 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 target series subaccount's current return.
The ability of a target series 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 target series subaccount will be able to utilize these
instruments effectively for the purposes stated below.
Writing Covered Options on Securities. A target series 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 target series subaccount's
investment objective. Call options written by a target series subaccount give
the holder the right to buy the underlying security from the target series
subaccount at a stated exercise price; put options give the holder the right to
sell the underlying security to the target series subaccount at a stated price.
A target series 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 target series 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
target series 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 target series
subaccount owns or has the right to acquire. In the case of a call written for
cross-hedging purposes or a put option, the target series subaccount will
maintain in a segregated account at the target series subaccount's custodian
bank cash or short-term U.S. government securities with a value equal to or
greater than the target series subaccount's obligation under the option. A
target series subaccount may also write combinations of covered puts and
covered calls on the same underlying security.
A target series subaccount will receive a premium from writing an option, which
increases the target series 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 target series 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 target series
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 target series 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 target
series 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
-38-
<PAGE>
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 target series subaccount.
Purchasing Put and Call Options on Securities. A target series 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 target series 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
target series 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 target series 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 target series 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 manner, any
profit which the target series 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 target series subaccount intends to purchase put or call options if, as a
result of any such transaction, the aggregate cost of options held by the
target series subaccount at the time of such transaction would exceed 5% of its
total assets.
Limitations. A target series 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 target series
subaccount unless the transaction meets certain "bona fide hedging" criteria.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on a target series subaccount's
ability to terminate options and futures positions at times when the adviser
deems it desirable to do so. Although a target series 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
target series 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 target series subaccounts will be
conducted on recognized exchanges. In certain instances, however, a target
series 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
target series 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
target series 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 target series 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 target series subaccount diverges from the composition of the relevant
option or futures contract.
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<PAGE>
Securities Lending
Each target series subaccount may also lend common shares to broker-dealers and
financial institutions to realize additional income. As an operating policy,
the target series 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 series subaccount must receive any dividends or interest paid by the
issuer on such securities; (c) each target series 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 series subaccount must
receive either interest from the investment of collateral or a fixed fee from
the borrower.
Securities loaned by a target series subaccount remain subject to fluctuations
in market value. A target series 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 series subaccount may experience delays in, or be prevented
from, recovering the collateral. During the period that the target series
subaccount seeks to enforce its rights against the borrower, the collateral and
the securities loaned remain subject to fluctuations in market value. The
target series subaccount does not have the right to vote securities on loan,
but would terminate the loan and regain the right to vote if it was considered
important with respect to the investment. A target series subaccount may also
incur expenses in enforcing its rights. If a target series 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.
The target account, through the target series subaccounts, intends to comply
with the section 817(h) diversification requirements. 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 be operated in compliance
with Treasury regulations. Therefore, 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
-40-
<PAGE>
claims-paying ability of PFL. The ratings should not be considered as bearing
on the safety or 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 1940 Act, 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 do so.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. During 1999 and 1998 the amount paid to AFSG
Securities Corporation was $25,271,316.00 and $13,075,039.78, respectively.
Prior to April 30, 1998, AEGON USA Securities, Inc. (also an affiliate of PFL)
was the principal underwriter. During 1998 and 1997, the amount paid to AEGON
USA Securities, Inc. and/or the broker-dealers for their services was
$8,891,105.79 and $29,678,498, respectively.
-41-
<PAGE>
The target account has adopted a distribution plan in accordance with Rule
12b-1 under the 1940 Act (the "distribution plan") because a portion of the
mortality and expense risk fee (0.15% of separate account assets) may be
deemed to be a distribution charge. 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 special shareholder meetings of the underlying
funds in accordance with instructions received from persons having voting
interests in the portfolios, although none of the underlying funds hold
regular annual shareholder meetings. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result PFL determines that it is permitted to
vote the underlying funds shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount. The number of votes that
you have the right to instruct for a particular subaccount will be determined
by dividing your policy value in the subaccount by the net asset value per
share of the corresponding portfolio in which the subaccount invests.
Fractional shares will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying fund for determining shareholders eligible to vote at the meeting
of the underlying fund. PFL will solicit voting instructions by sending you,
or other persons entitled to vote, written requests for instructions prior to
that meeting in accordance with procedures established by the underlying fund.
Portfolio shares as to which no timely instructions are received and shares
held by PFL in which you, or other persons entitled to vote, have no
beneficial interest will be voted in proportion to the voting instructions
that are received with respect to all policies participating in the same
subaccount.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
The Target Account
The target account is the legal owner of the common stock held in the target
series 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 target series
subaccounts. Matters on which persons holding voting interests may vote
include the following:
-42-
<PAGE>
(1) approval of any change in the investment advisory agreement corresponding
to a target series subaccount; (2) any change in the fundamental investment
policies of a target series subaccount; or (3) any other matter requiring a
vote of persons holding voting interests in the target series subaccount. With
respect to approval of the investment advisory agreements or any change in a
fundamental investment policy, owners participating in that target series
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 target series subaccounts. The number of votes that you have will be
calculated separately for each target series subaccount. The number of votes
that you have for a target series subaccount will be determined by dividing
your policy value in the target series subaccount into the total assets of the
target series 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 target series 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 target series
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 target series subaccounts, or to
approve or disapprove an investment adviser or principal underwriter for one or
more of the target series subaccounts. In addition, PFL may disregard proxies
that would require changes in the investment objectives or policies of any
target series 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
PFL holds assets of each of the mutual fund subaccounts and the target series
subaccounts. 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
series 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.
-43-
<PAGE>
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C. has provided legal advice
to PFL relating to certain matters under the federal securities laws applicable
to the issue and sale of the policies.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, and the financial statements of certain subaccounts of PFL Endeavor
VA Separate Account, which are available for investment by The Endeavor
Variable Annuity policyowners, as of December 31, 1999 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.
The financial statements of the PFL Endeavor Target Account as of December 31,
1999 and December 31, 1998, and for the year ended December 31, 1999 and for
the period July 1, 1998 (commencement of operations through December 31, 1998,
included in this Statement of Additional Information have been audited by Ernst
& Young LLP.
OTHER INFORMATION
A registration statement has been filed with the SEC, under the Securities Act
of 1933 as amended, with respect to the policies discussed in this SAI. Not all
of the information set forth in the Registration Statement, amendments and
exhibits thereto has been included in the prospectus or this SAI. Statements
contained in the prospectus and this SAI concerning the content of the policies
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the SEC.
FINANCIAL STATEMENTS
The values of 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 certain subaccounts of The PFL Endeavor
VA Separate Account, which are available for investment by the PFL Endeavor
Variable Annuity contract owners, and the financial statements of The PFL
Endeavor Target Account are contained herein. The statutory-basis financial
statements of PFL, which are included in this SAI, should be considered only as
bearing on the ability of PFL to meet its obligations under the policies. They
should not be considered as bearing on the investment performance of the assets
held in the mutual fund account or the target account.
-44-
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included
the accompanying statutory-basis financial statement schedules required by
Article 7 of Regulation S-X. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States also are described in Note
1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $2,660 $154,129 $261,558 $418,347
Capital contribution.................... -- 153 -- 153
Net income.............................. -- -- 85,991 85,991
Change in net unrealized capital gains.. -- -- 3,592 3,592
Change in non-admitted assets........... -- -- (481) (481)
Change in asset valuation reserve....... -- -- (14,974) (14,974)
Dividend to stockholder................. -- -- (62,000) (62,000)
Surplus effect of sale of a division.... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division............................... -- -- 5 5
Amendment of reinsurance agreement...... -- -- 389 389
Surplus effect of reinsurance
agreement.............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................. -- -- (1,901) (1,901)
------ -------- -------- --------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income.............................. -- -- 65,498 65,498
Change in net unrealized capital gains.. -- -- 4,504 4,504
Change in non-admitted assets........... -- -- (260) (260)
Change in asset valuation reserve....... -- -- (21,763) (21,763)
Dividend to stockholder................. -- -- (120,000) (120,000)
Increase in liability for reinsurance in
unauthorized companies................. -- -- 2,036 2,036
Tax benefit on stock options exercised.. -- -- 2,476 2,476
Change in surplus in separate accounts.. -- -- 675 675
------ -------- -------- --------
Balance at December 31, 1998 2,660 154,282 205,586 362,528
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
Nature of Business
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia and Guam. Sales of the Company's products
are primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
are based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
adjustments to federal income taxes of prior years are charged or credited
directly to unassigned surplus, rather than reported as a component of expense
in the statement of operations; (n) gains or losses on dispositions of
business are charged or credited directly to unassigned surplus rather than
being reported in the statement of operations; and (o) a liability is
established for "unauthorized reinsurers" and changes in this liability are
charged or credited directly to unassigned surplus. The effects of these
variances have not been determined by the Company but are presumed to be
material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification") effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is anticipated that the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased
to be short-term investments.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for
potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve ("IMR"), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreement
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the contract owners and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner at the market value of the underlying assets
less the current surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities, including affiliated mutual funds and real estate investment
trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- -------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- -------- ----------
$4,837,196 $132,213 $ 54,155 $4,915,254
========== ======== ======== ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 related to these mortgage loans was
excluded from investment income. The Company requires all mortgaged properties
to carry fire insurance equal to the value of the underlying property.
At December 31, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate swaps and caps. All involve elements of
credit and market risks in excess of the amounts recognized in the
accompanying financial statements at a given point in time. The contract or
notional amounts of those instruments reflect the extent of involvement in the
various types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract)
that would result in an accounting loss and replacement cost risk (i.e., the
cost to replace the contract at current market rates should the counterparty
default prior to settlement date). Credit loss exposure resulting from
nonperformance by a counterparty for commitments to extend credit is
represented by the contractual amounts of the instruments.
At December 31, 1999 and 1998, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
Notional Amount
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 60,000
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. Reinsurance
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. Income Taxes
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1999). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1999 and 1998, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, respectively, in which the gross premiums are less than
the net premiums required by the standard valuation standards established by
the Insurance Division, Department of Commerce, of the State of Iowa. The
Company established policy reserves of $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
7. Dividend Restrictions
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, respectively.
8. Retirement and Compensation Plans
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
SFAS No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, respectively.
9. Related Party Transactions
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
During 1998, the Company issued life insurance policies to certain affiliated
companies, covering the lives of certain employees of those affiliates.
Premiums of $174,000 related to these policies were recognized during the
year, and aggregate reserves for policies and contracts are $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- --------- ---------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States Government and government
agencies and authorities............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</TABLE>
- -------------------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
30
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
Year ended December 31,
1998
Life insurance in
force.................. $6,384,095 $ 438,590 $ 39,116 $5,984,621 .6%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health..... 76,438 7,475 -- 68,963 --
Group life and
health............... 255,848 144,301 -- 111,547 --
Annuity............... 686,372 18,096 -- 668,276 --
---------- --------- -------- ---------- ---
$1,533,822 $ 173,564 $ 2,366 $1,362,624 .2%
========== ========= ======== ========== ===
Year ended December 31,
1997
Life insurance in
force.................. $5,025,027 $ 420,519 $ 35,486 $4,639,994 .8%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health..... 73,593 10,045 -- 63,548 --
Group life and
health............... 339,269 192,575 -- 146,694 --
Annuity............... 697,893 40,198 -- 657,695 --
---------- --------- -------- ---------- ---
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
Financial Statements
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Financial Statements
Year ended December 31, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors...................................... 1
Financial Statements
Balance Sheets...................................................... 2
Statements of Operations............................................ 4
Statements of Changes in Contract Owners' Equity.................... 6
Notes to Financial Statements....................................... 11
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of The Endeavor Variable Annuity,
PFL Life Insurance Company
We have audited the accompanying balance sheets of certain subaccounts of PFL
Endeavor VA Separate Account (comprised of the 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, Endeavor High Yield, and Endeavor Janus
Growth subaccounts), which are available for investment by contract owners of
The Endeavor Variable Annuity, as of December 31, 1999, and the related
statements of operations for the year then ended and changes in contract owners'
equity for the periods indicated thereon. These financial statements are the
responsibility of the Separate Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund shares owned as of December 31,
1999, by correspondence with the mutual fund's transfer agent. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts of PFL Endeavor VA Separate Account which are available for
investment by contract owners of The Endeavor Variable Annuity at December 31,
1999, and the results of their operations for the year then ended and changes in
their contract owners' equity for the periods indicated thereon in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 28, 2000
1
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
Endeavor Endeavor T. Rowe Price Dreyfus
Money Asset International Endeavor Small Cap
Market Allocation Stock Value Equity Value
Subaccount Subaccount Subaccount Subaccount Subaccount
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash $ 306 $ 49 $ 52 $ - $ 14
Investments in mutual funds,
at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio 87,769,493 - - - -
Endeavor Asset Allocation Portfolio - 349,305,454 - - -
T. Rowe Price International Stock - - 170,059,268 - -
Portfolio
Endeavor Value Equity Portfolio - - - 159,758,990 -
Dreyfus Small Cap Value Portfolio - - - - 133,104,632
Dreyfus U.S. Government Securities
Portfolio - - - - -
T. Rowe Price Equity Income Portfolio - - - - -
T. Rowe Price Growth Stock Portfolio - - - - -
Endeavor Opportunity Value Portfolio - - - - -
Endeavor Enhanced Index Portfolio - - - - -
Endeavor Select 50 Portfolio - - - - -
Endeavor High Yield Portfolio - - - - -
Endeavor Janus Growth Portfolio - - - - -
Total investments in mutual funds 87,769,493 349,305,454 170,059,268 159,758,990 133,104,632
----------- ------------ ------------ ------------ ------------
Total assets $87,769,799 $349,305,503 $170,059,320 $159,758,990 $133,104,646
=========== ============ ============ ============ ============
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ - $ - $ - $ 19 $ -
----------- ------------ ------------ ------------ ------------
Total liabilities - - - 19 -
Contract owners' equity:
Deferred annuity contracts terminable
by owners 87,769,799 349,305,503 170,059,320 159,758,971 133,104,646
----------- ------------ ------------ ------------ ------------
Total liabilities and contract owners'
equity $87,769,799 $349,305,503 $170,059,320 $159,758,990 $133,104,646
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
Dreyfus U.S. T. Rowe T. Rowe Endeavor Endeavor Endeavor
Government Price Equity Price Growth Opportunity Enhanced Endeavor Endeavor Janus
Securities Income Stock Value Index Select 50 High Yield Growth
Subaccount Subaccount Subaccount Subaccount Sub-account Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 117 $ 23 $ - $ - $ - $ - $ 21 $ 151
- - - - - - - -
- - - - - - - -
- - - - - - - -
- - - - - - - -
- - - - - - - -
56,544,417 - - - - - - -
- 188,863,195 - - - - - -
- - 163,533,646 - - - - -
- - - 30,177,386 - - - -
- - - - 68,447,367 - - -
- - - - - 21,942,904 - -
- - - - - - 12,353,885 -
- - - - - - - 793,541,887
- ------------------------------------------------------------------------------------------------------------------------------------
56,544,417 188,863,195 163,533,646 30,177,386 68,447,367 21,942,904 12,353,885 793,541,887
- ------------------------------------------------------------------------------------------------------------------------------------
$56,544,534 $188,863,218 $163,533,646 $30,177,386 $68,447,367 $21,942,904 $12,353,906 $793,542,038
====================================================================================================================================
$ - $ - $ 24 $ 9 $ 4 $ 454 $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
- - 24 9 4 454 - -
56,544,534 188,863,218 163,533,622 30,177,377 68,447,363 21,942,450 12,353,906 793,542,038
- ------------------------------------------------------------------------------------------------------------------------------------
$56,544,534 $188,863,218 $163,533,646 $30,177,386 $68,447,367 $21,942,904 $12,353,906 $793,542,038
====================================================================================================================================
</TABLE>
3
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
Endeavor Endeavor Dreyfus
Money Asset T. Rowe Price Endeavor Small Cap
Market Allocation International Value Equity Value
Subaccount Subaccount Stock Subaccount Subaccount Subaccount
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income (loss)
Income:
Dividends $ 3,548,603 $ 76,602,884 $ 3,681,637 $ 9,540,409 $12,224,080
Expenses:
Administrative, mortality and
expense risk charges 1,088,322 4,609,654 2,105,452 2,583,033 1,737,153
----------------------------------------------------------------------------------------
Net investment income (loss) 2,460,281 71,993,230 1,576,185 6,957,376 10,486,927
Net realized and unrealized capital
gain (loss) from investments
Net realized capital gain (loss)
from sales of investments:
Proceeds from sales 59,680,010 54,875,239 25,328,592 33,738,458 24,494,652
Cost of investments sold 59,680,010 36,918,146 18,224,997 17,534,592 18,879,862
----------------------------------------------------------------------------------------
Net realized capital gain (loss)
from sales of investments - 17,957,093 7,103,595 16,203,866 5,614,790
Net change in unrealized
appreciation/depreciation of
investments:
Beginning of the period - 94,839,308 29,398,690 47,733,402 610,980
End of the period - 76,366,310 61,364,281 17,161,909 13,780,787
----------------------------------------------------------------------------------------
Net change in unrealized
appreciation/depreciation of
investments - (18,472,998) 31,965,591 (30,571,493) 13,169,807
----------------------------------------------------------------------------------------
Net realized and unrealized capital
gain (loss) from investments - (515,905) 39,069,186 (14,367,627) 18,784,597
----------------------------------------------------------------------------------------
Increase (decrease) from operations $ 2,460,281 $ 71,477,325 $40,645,371 $ (7,410,251) $29,271,524
========================================================================================
</TABLE>
(1) For the period January 1, 1999 through April 30, 1999, activity reflected in
this subaccount is related to investments in the Growth Portfolio of the WRL
Series Fund, Inc. As of the close of business on April 30, 1999, the
investments in the Growth Portfolio of the WRL Series Fund, Inc. were
replaced by investments in the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust. The investment results of the Endeavor Janus Growth
Portfolio of the Endeavor Series Trust are reflected in this subaccount for
the period May 1, 1999 through December 31, 1999.
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
T. Rowe
Dreyfus U.S Price T. Rowe Endeavor Endeavor Endeavor
Government Equity Price Growth Opportunity Enhanced Endeavor Endeavor Janus
Securities Income Stock Value Index Select 50 High Yield Growth
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount (1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,456,066 $ 12,641,601 $11,815,554 $ 618,805 $ 2,174,860 $ - $170,102 $ -
854,883 2,882,892 2,083,598 459,082 746,374 218,284 149,944 8,711,294
- -----------------------------------------------------------------------------------------------------------------------
2,601,183 9,758,709 9,731,956 159,723 1,428,486 (218,284) 20,158 (8,711,294)
13,840,180 26,989,554 20,040,306 5,864,428 5,820,430 4,230,767 1,787,696 60,582,739
13,010,488 17,640,149 10,860,992 4,818,708 4,049,743 3,692,961 1,797,166 22,521,113
- -----------------------------------------------------------------------------------------------------------------------
829,692 9,349,405 9,179,314 1,045,720 1,770,687 537,806 (9,470) 38,061,626
3,299,771 32,402,901 40,241,014 1,717,937 5,456,345 367,289 (101,578) 230,450,414
(1,515,521) 17,553,340 49,303,492 1,559,779 10,085,427 6,324,425 248,969 489,322,707
- -----------------------------------------------------------------------------------------------------------------------
(4,815,292) (14,849,561) 9,062,478 (158,158) 4,629,082 5,957,136 350,547 258,872,293
- -----------------------------------------------------------------------------------------------------------------------
(3,985,600) (5,500,156) 18,241,792 887,562 6,399,769 6,494,942 341,077 296,933,919
- -----------------------------------------------------------------------------------------------------------------------
$(1,384,417) $ 4,258,553 $27,973,748 $1,047,285 $ 7,828,255 $6,276,658 $361,235 $288,222,625
=======================================================================================================================
</TABLE>
5
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Statements of Changes in Contract Owners' Equity
Years ended December 31, 1999 and 1998, except as noted
<TABLE>
<CAPTION>
Endeavor Money
Market Subaccount
--------------------------------------
1999 1998
--------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) $ 2,460,281 $ 1,850,977
Net realized capital gain (loss) - -
Net change in unrealized appreciation/depreciation of investments - -
--------------------------------------
Increase (decrease) from operations 2,460,281 1,850,977
Contract transactions:
Net contract purchase payments 4,184,404 10,252,467
Transfer payments from (to) other subaccounts or general account 47,398,164 48,735,402
Contract terminations, withdrawals and other deductions (34,541,331) (28,079,774)
--------------------------------------
Increase (decrease) from contract transactions 17,041,237 30,908,095
--------------------------------------
Net increase (decrease) in contract owners' equity 19,501,518 32,759,072
Contract owners' equity:
Beginning of the period 68,268,281 35,509,209
--------------------------------------
End of the period $ 87,769,799 $ 68,268,281
======================================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998 activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth Portfolio
of the WRL Series Fund, Inc. were replaced by investments in the Endeavor
Janus Growth Portfolio of the Endeavor Series Trust. The investment results
and contract transactions of the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust are reflected in this subaccount for the period May 1,
1999 through December 31, 1999.
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Endeavor Asset T. Rowe Price International Stock Endeavor Value Equity Dreyfus Small Cap
Allocation Subaccount Subaccount Subaccount Value Subaccount
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 71,993,230 $ 25,143,462 $ 1,576,185 $ 24,018 $ 6,957,376 $ 2,551,531 $ 10,486,927 $ 14,348,570
17,957,093 15,368,540 7,103,595 5,372,820 16,203,866 10,309,441 5,614,790 4,605,936
(18,472,998) 5,120,954 31,965,591 13,186,784 (30,571,493) (2,402,866) 13,169,807 (23,635,805)
- -----------------------------------------------------------------------------------------------------------------------------------
71,477,325 45,632,956 40,645,371 18,583,622 (7,410,251) 10,458,106 29,271,524 (4,681,299)
6,364,673 7,751,120 2,805,336 3,549,278 3,362,496 7,892,609 3,670,073 4,884,428
1,734,481 9,885,194 (5,687,984) (1,391,049) (8,727,249) 8,030,869 (5,159,567) 5,631,072
(43,171,489) (30,807,589) (16,570,536) (11,831,109) (19,605,766) (11,097,586) (13,561,181) (8,711,899)
- -----------------------------------------------------------------------------------------------------------------------------------
(35,072,355) (13,171,275) (19,453,184) (9,672,880) (24,970,519) 4,825,892 (15,050,675) 1,803,601
- -----------------------------------------------------------------------------------------------------------------------------------
36,404,990 32,461,681 21,192,187 8,910,742 (32,380,770) 15,283,998 14,220,849 (2,877,698)
312,900,513 280,438,832 148,867,133 139,956,391 192,139,741 176,855,743 118,883,797 121,761,495
- -----------------------------------------------------------------------------------------------------------------------------------
$349,305,503 312,900,513 $170,059,320 $148,867,133 $159,758,971 $192,139,741 $133,104,646 $118,883,797
===================================================================================================================================
</TABLE>
7
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Dreyfus U. S. Government T. Rowe Price Equity
Securities Subaccount Income Subaccount
----------------------------------------- ----------------------------------------
1999 1998 1999 1998
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 2,601,183 $ 810,004 $ 9,758,709 $ 6,381,651
Net realized capital gain (loss) 829,692 718,636 9,349,405 6,137,656
Net change in unrealized appreciation/
depreciation of investments (4,815,292) 1,220,284 (14,849,561) (196,177)
----------------------------------------- ----------------------------------------
Increase (decrease) from operations (1,384,417) 2,748,924 4,258,553 12,323,130
Contract transactions:
Net contract purchase payments 1,716,035 2,893,052 6,428,097 10,487,935
Transfer payments from (to) other
subaccounts or general account 2,442,635 20,635,333 (5,080,402) 24,359,021
Contract terminations, withdrawals and other
deductions (5,861,230) (4,191,885) (15,380,492) (9,469,152)
----------------------------------------- ----------------------------------------
Increase (decrease) from contract transactions (1,702,560) 19,336,500 (14,032,797) 25,377,804
----------------------------------------- ----------------------------------------
Net increase (decrease) in contract owners'
equity (3,086,977) 22,085,424 (9,774,244) 37,700,934
Contract owners' equity:
Beginning of the period 59,631,511 37,546,087 198,637,462 160,936,528
----------------------------------------- ----------------------------------------
End of the period $56,544,534 $59,631,511 $188,863,218 $198,637,462
========================================= ========================================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998 activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth Portfolio
of the WRL Series Fund, Inc. were replaced by investments in the Endeavor
Janus Growth Portfolio of the Endeavor Series Trust. The investment results
and contract transactions of the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust are reflected in this subaccount for the period May 1,
1999 through December 31, 1999.
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price Growth Endeavor Opportunity Endeavor Enhanced Endeavor Select 50
Stock Subaccount Value Subaccount Index Subaccount Subaccount
- ------------------------- -------------------------- ----------------------------- ------------------------------
1999 1998 1999 1998 1999 1998 1999 1998 (1)
- ------------------------- -------------------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9,731,956 $ 3,348,013 $ 159,723 $ (76,618) $ 1,428,486 $ (237,009) $ (218,284) $ (148,106)
9,179,314 5,402,575 1,045,720 332,516 1,770,687 2,009,971 537,806 6,008
9,062,478 18,529,523 (158,158) 436,100 4,629,082 4,248,929 5,957,136 367,289
- ------------------------- -------------------------- ----------------------------- ------------------------------
27,973,748 27,280,111 1,047,285 691,998 7,828,255 6,021,891 6,276,658 225,191
8,010,794 8,063,881 1,303,197 2,772,444 12,507,712 5,091,422 1,452,753 5,104,909
3,127,443 12,046,608 339,147 7,579,451 16,950,842 9,494,972 1,496,379 8,520,254
(12,068,091) (5,988,744) (3,118,939) (1,036,786) (2,415,680) (770,341) (987,398) (146,296)
- ------------------------- -------------------------- ----------------------------- ------------------------------
(929,854) 14,121,745 (1,476,595) 9,315,109 27,042,874 13,816,053 1,961,734 13,478,867
- ------------------------- -------------------------- ----------------------------- ------------------------------
27,043,894 41,401,856 (429,310) 10,007,107 34,871,129 19,837,944 8,238,392 13,704,058
136,489,728 95,087,872 30,606,687 20,599,580 33,576,234 13,738,290 13,704,058 -
- ------------------------- -------------------------- ----------------------------- ------------------------------
$163,533,622 $136,489,728 $ 30,177,377 $30,606,687 $ 68,447,363 $ 33,576,234 $ 21,942,450 $ 13,704,058
========================= ========================== ============================= ==============================
</TABLE>
9
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Endeavor High Endeavor Janus
Yield Subaccount Growth Subaccount
-------------------------- ---------------------------
1999 1998 (2) 1999 (3) 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 20,158 $ (44,824) $ (8,711,294) $ (1,416,394)
Net realized capital gain (loss) (9,470) (9,818) 38,061,626 19,922,296
Net change in unrealized appreciation/ depreciation
of investments 350,547 (101,578) 258,872,293 179,762,559
-------------------------- ---------------------------
Increase (decrease) from operations 361,235 (156,220) 288,222,625 198,268,461
Contract transactions:
Net contract purchase payments 1,140,835 915,210 33,583,885 13,619,696
Transfer payments from (to) other subaccounts or
general account 4,234,193 6,321,348 33,455,083 5,207,304
Contract terminations, withdrawals and other
deductions (435,785) (26,910) (73,853,110) (32,150,881)
-------------------------- ---------------------------
Increase (decrease) from contract transactions 4,939,243 7,209,648 (6,814,142) (13,323,881)
-------------------------- ---------------------------
Net increase (decrease) in contract owners' equity 5,300,478 7,053,428 281,408,483 184,944,580
Contract owners' equity:
Beginning of the period 7,053,428 - 512,133,555 327,188,975
-------------------------- ---------------------------
End of the period $12,353,906 $7,053,428 $793,542,038 $512,133,555
========================== ===========================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998 activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth Portfolio
of the WRL Series Fund, Inc. were replaced by investments in the Endeavor
Janus Growth Portfolio of the Endeavor Series Trust. The investment results
and contract transactions of the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust are reflected in this subaccount for the period May 1,
1999 through December 31, 1999.
See accompanying notes.
10
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
The PFL Endeavor VA Separate Account (the "Mutual Fund Account") is a segregated
investment account of PFL Life Insurance Company ("PFL Life"), an indirect
wholly-owned subsidiary of AEGON N.V., a holding company organized under the
laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of sixteen investment
subaccounts, thirteen of which are invested in specified portfolios of the
Endeavor Series Trust (the "Series Fund"). Activity in these thirteen investment
subaccounts is available to contract owners of The Endeavor Variable Annuity,
The Endeavor Platinum Variable Annuity and The Endeavor ML Variable Annuity,
also issued by PFL Life. The amounts reported herein represent the activity
related to contract owners of The Endeavor Variable Annuity only. The remaining
three subaccounts (not included herein), are available to the contract owners of
The Endeavor ML Variable Annuity.
Prior to April 30, 1999, the Growth Portfolio of the WRL Series Fund, Inc. was
available to contract owners of the AUSA Endeavor Variable Annuity as an
investment option. As of the close of business on April 30, 1999, all shares of
the Growth Portfolio of the WRL Series Fund, Inc. were exchanged for shares of
the Endeavor Janus Growth Portfolio of the Endeavor Series Trust. This exchange
had no impact at the date of transfer on investments in mutual funds or total
contract owners' equity. The Endeavor Select 50 Subaccount and the Endeavor High
Yield Subaccount commenced operations on February 2, 1998 and June 2, 1998,
respectively.
Investments
Net purchase payments received by the Mutual Fund Account for the Endeavor
Variable Annuity are invested in the portfolios of the Series Fund as selected
by the contract owner. Investments are stated at the closing net asset values
per share on December 31, 1999.
Realized capital gains and losses from sale of shares in the Series Fund are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the Series Funds are credited or charged to contract owners'
equity.
Dividend Income
Dividends received from the Series Fund investments are reinvested to purchase
additional mutual fund shares.
11
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
2. Investments
A summary of the mutual fund investments at December 31, 1999 follows:
<TABLE>
<CAPTION>
Net Asset
Number of Value Per
Shares Held Share Market Value Cost
----------------------------------------------------------------------------------
Endeavor Series Trust:
<S> <C> <C> <C> <C>
Endeavor Money Market Portfolio 87,769,493.420 $ 1.00 $ 87,769,493 $ 87,769,493
Endeavor Asset Allocation Portfolio 15,260,177.093 22.89 349,305,454 272,939,144
T. Rowe Price International Stock
Portfolio 8,144,600.937 20.88 170,059,268 108,694,987
Endeavor Value Equity Portfolio 7,991,945.475 19.99 159,758,990 142,597,081
Dreyfus Small Cap Value Portfolio 8,062,061.314 16.51 133,104,632 119,323,845
Dreyfus U. S. Government Securities
Portfolio 4,904,112.530 11.53 56,544,417 58,059,938
T. Rowe Price Equity Income Portfolio 9,685,292.055 19.50 188,863,195 171,309,855
T. Rowe Price Growth Stock Portfolio 5,690,105.985 28.74 163,533,646 114,230,154
Endeavor Opportunity Value Portfolio 2,402,658.133 12.56 30,177,386 28,617,607
Endeavor Enhanced Index Portfolio 3,769,128.129 18.16 68,447,367 58,361,940
Endeavor Select 50 Portfolio 1,392,316.226 15.76 21,942,904 15,618,479
Endeavor High Yield Portfolio 1,224,369.214 10.09 12,353,885 12,104,916
Endeavor Janus Growth Portfolio 8,320,665.694 95.37 793,541,887 304,219,180
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period ended December 31
1999 1998
------------------------------------------ ----------------------------------------
Purchases Sales Purchases Sales
------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C>
Endeavor Series Trust:
Endeavor Money Market Portfolio $79,180,868 $59,680,010 $82,754,569 $49,994,502
Endeavor Asset Allocation Portfolio 91,796,111 54,875,239 52,695,950 40,723,979
T. Rowe Price International Stock
Portfolio 7,451,505 25,328,592 13,850,183 23,499,007
Endeavor Value Equity Portfolio 15,725,334 33,738,458 27,742,865 20,365,515
Dreyfus Small Cap Value Portfolio 19,930,871 24,494,652 34,791,919 18,639,922
Dreyfus U. S. Government Securities
Portfolio 14,738,690 13,840,180 28,831,445 8,684,956
T. Rowe Price Equity Income Portfolio 22,715,419 26,989,554 46,857,838 15,098,466
T. Rowe Price Growth Stock Portfolio 28,842,407 20,040,306 29,825,835 12,356,125
Endeavor Opportunity Value Portfolio 4,547,566 5,864,428 11,936,643 2,698,237
Endeavor Enhanced Index Portfolio 34,291,788 5,820,430 21,223,496 7,644,832
Endeavor Select 50 Portfolio 5,974,395 4,230,767 14,447,584 1,116,547
Endeavor High Yield Portfolio 6,747,061 1,787,696 7,387,605 222,766
Endeavor Janus Growth Portfolio 45,057,140 60,582,739 32,159,664 46,900,164
</TABLE>
12
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity
Contract owners' equity in the Endeavor Money Market and Endeavor High Yield
Subaccounts include amounts of $1,837,619 and $4,012,308, respectively, which
represent the current market value of PFL Life's capital contribution to the
Subaccounts. A summary of deferred annuity contracts terminable by owners at
December 31, 1999 follows:
<TABLE>
<CAPTION>
Return of Premium Death Benefit
--------------------------------------------------------------------
Accumulation Accumulation Total Contract
Subaccount Units Owned Unit Value Value
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Money Market 57,250,677.280 $ 1.280646 $ 73,317,851
Endeavor Asset Allocation 100,119,683.393 3.160924 316,470,710
T. Rowe Price International Stock 77,283,279.960 2.001071 154,649,330
Endeavor Value Equity 66,030,029.169 2.115695 139,699,403
Dreyfus Small Cap Value 49,653,848.359 2.278888 113,155,559
Dreyfus U. S. Government Securities 38,368,703.838 1.255919 48,187,984
T. Rowe Price Equity Income 74,445,822.349 2.107761 156,914,001
T. Rowe Price Growth Stock 42,063,488.642 3.124914 131,444,785
Endeavor Opportunity Value 16,283,827.424 1.240246 20,195,952
Endeavor Enhanced Index 20,376,496.984 1.838549 37,463,188
Endeavor Select 50 8,189,238.812 1.534754 12,568,467
Endeavor High Yield 8,977,276.504 1.003083 9,004,953
Endeavor Janus Growth 13,723,324.372 50.054351 686,912,095
</TABLE>
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit and
Double Enhanced Death Benefit
--------------------------------------------------------------------
Accumulation Accumulation Total Contract
Subaccount Units Owned Unit Value Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Money Market 11,328,428.234 $ 1.275724 $ 14,451,948
Endeavor Asset Allocation 10,427,868.661 3.148754 32,834,793
T. Rowe Price International Stock 7,730,718.841 1.993345 15,409,990
Endeavor Value Equity 9,518,037.409 2.107532 20,059,568
Dreyfus Small Cap Value 8,787,718.359 2.270110 19,949,087
Dreyfus U. S. Government Securities 6,668,600.311 1.253119 8,356,550
T. Rowe Price Equity Income 15,216,376.264 2.099660 31,949,217
T. Rowe Price Growth Stock 10,308,335.059 3.112902 32,088,837
Endeavor Opportunity Value 8,078,978.665 1.235481 9,981,425
Endeavor Enhanced Index 16,917,672.030 1.831468 30,984,175
Endeavor Select 50 6,125,056.867 1.530432 9,373,983
Endeavor High Yield 3,346,479.952 1.000739 3,348,953
Endeavor Janus Growth 2,138,499.285 49.862043 106,629,943
</TABLE>
13
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Endeavor Endeavor T. Rowe Price Endeavor Dreyfus
Money Asset International Value Small Cap
Market Allocation Stock Equity Value
Subaccount Subaccount Subaccount Subaccount Subaccount
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at January 1, 1998 29,680,499 129,120,246 103,938,710 84,779,299 65,775,715
Units purchased 8,780,066 5,319,799 3,151,691 4,863,625 3,936,590
Units redeemed and transferred 16,623,834 (11,034,077) (9,969,270) (2,797,418) (3,128,145
----------------------------------------------------------------------------------------
Units outstanding December 31, 1998 55,084,399 123,405,968 97,121,131 86,845,506 66,584,160
Units purchased 3,406,737 2,967,300 2,046,384 1,734,534 2,019,432
Units redeemed and transferred 10,087,970 (15,825,716) (14,153,516) (13,031,973) (10,162,025)
Units outstanding December 31, 1999 68,579,106 110,547,552 85,013,999 75,548,067 58,441,567
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus U. S. T. Rowe T. Rowe Endeavor Endeavor
Government Price Equity Price Growth Opportunity Enhanced
Securities Income Stock Value Index
Subaccount Subaccount Subaccount Subaccount Subaccount
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at January 1, 1998 30,902,060 83,605,957 46,533,877 17,806,975 11,284,439
Units purchased 3,937,425 7,850,910 5,170,894 3,193,899 4,678,116
Units redeemed and transferred 11,516,022 4,735,878 947,291 4,519,888 5,336,246
---------------------------------------------------------------------------------------
Units outstanding December 31, 1998 46,355,507 96,192,745 52,652,062 25,520,762 21,298,801
Units purchased 1,567,405 3,381,703 3,431,517 1,334,281 8,076,870
Units redeemed and transferred (2,885,608) (9,912,249) (3,711,755) (2,492,237) 7,918,498
Units outstanding December 31, 1999 45,037,304 89,662,199 52,371,824 24,362,806 37,294,169
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Endeavor Select Endeavor High Endeavor Janus
50 Subaccount Yield Subaccount Growth Subaccount
---------------------------------------------------------
<S> <C> <C> <C>
Units outstanding at January 1, 1998 - - 16,638,302
Units purchased 5,148,085 1,503,092 769,674
Units redeemed and transferred 7,878,677 5,836,012 (1,350,291)
---------------------------------------------------------
Units outstanding December 31, 1998 13,026,762 7,339,104 16,057,685
Units purchased 1,268,526 1,300,049 965,658
Units redeemed and transferred 19,008 3,684,603 (1,161,519)
Units outstanding December 31, 1999 14,314,296 12,323,756 15,861,824
=========================================================
</TABLE>
14
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
4. Administrative, Mortality and Expense Risk Charges
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owner's account. For policies issued on or after
May 1, 1995, this charge is waived if the sum of the premium payments less the
sum of all partial withdrawals equals or exceeds $50,000 on the policy
anniversary. Charges for administrative fees to the variable annuity contracts
are an expense of the Mutual Fund Account. PFL Life also deducts a daily charge
equal to an annual rate .15% of the contract owner's account for administrative
expenses. For certain policies sold on or after May 1, 1997 during the first
seven policy years, PFL Life deducts a daily distribution finance charge equal
to an effective rate of .15% of the contract owner's account.
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annual Compounding Death Benefit and the Double Enhanced Death
Benefit, this charge is equal to an effective annual rate of 1.25% of the value
of the contract owner's individual account. For the Retirement Premium Death
Benefit, the corresponding charge is equal to an effective annual rate of 1.10%
of the value of the contract owner's individual account.
5. Taxes
Operations of the Mutual Fund Account form a part of PFL Life, which is taxed as
a life insurance company under Subchapter L of the Internal Revenue Code of
1986, as amended (the "Code"). The operations of the Mutual Fund Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Mutual Fund Account is not separately taxable as a
regulated investment company under Subchapter M of the Code and is not otherwise
taxable as an entity separate from PFL Life. Under existing federal income tax
laws, the income of the Mutual Fund Account, to the extent applied to increase
reserves under the variable annuity contracts, is not taxable to PFL Life.
<PAGE>
PFL Endeavor Target Account
Annual Report
December 31, 1999
<PAGE>
Policyholder Letter
Dear Valued Policyholder:
We are pleased to present you with the market activity information on PFL
Endeavor Target Account for the period ending December 31, 1999. We hope that
you will find the underlying investment information interesting and
informative.
This correspondence is also an opportunity to remind you that we welcome your
comments and ideas as to how we can serve you even better. If you have any
questions or comments, please call the Variable Annuity Department at 800-525-
6205.
You can be assured of our continuing commitment to providing quality products
and excellent service to our policyholders.
Sincerely yours,
/s/ Vincent J. McGuinness, Jr.
Vincent J. McGuinness, Jr.
President and Chief Executive Officer
PFL Endeavor Target Account
-1-
<PAGE>
Portfolio Manager Letter
Despite a rising interest rate environment, 1999 was generally positive for US
stocks. The stock market rose strongly in the first six months of the year and
then suffered through a correction lasting from mid-July through mid-October as
investors digested a couple of Federal Reserve interest rate hikes and their
potential impact of slowing corporate earnings growth. But the stock market
staged an impressive rally through the end of the year led by technology shares
as the nation's economy remained strong and investors' fears of Y2K subsided.
The trading during the latter part of this period was characterized by heavy
investor demand for early stage growth companies, particularly technology and
communications-related shares, at the expense of value stocks.
The DowSM July Target 5 Subaccount was rebalanced at mid year. Eastman Kodak
and Sears replaced AT&T and International Paper. Otherwise, Caterpillar,
General Motors and Philip Morris remained in the portfolio for the entire year.
The Subaccount has been hurt by substantial weakness in Philip Morris (down
54%) and Sears (down 31% in H2). In addition, Eastman Kodak (down 1% in H2),
Caterpillar (up 5%), and GM (up 20%) have all lagged the Dow Jones Industrial
Average in 1999.
The DowSM July Target 10 Subaccount has been hurt in 1999 as investors put
their faith in a glitzy high-tech future and moved away from the "smokestack
companies" that dominate the Dogs of the Dow strategy. The portfolio was
rebalanced at mid year and DuPont and Sears replaced AT&T and International
Paper. The rest of the stocks in the portfolio remained the same. Substantial
weakness occurred in Philip Morris (down 54%), Sears (down 31% in H2), and
Eastman Kodak (down 6%). Of the remaining seven components of the subaccount,
Caterpillar (up 5%), Chevron (up 7%), DuPont (down 3% in H2), Exxon Mobil (up
13%), GM (up 20%) and J.P. Morgan (up 24%) have all lagged the DJIA return.
Only Minnesota Mining (up 41%), has managed to beat the DJIA return for 1999.
Chevron was removed from the Dow Jones Industrial Average on November 1, 1999
and Exxon Corp. completed the purchase of Mobil Corp. on November 30, 1999.
The DowSM January Target 5 Subaccount has been hurt by substantial weakness in
two of its five components. Philip Morris has been hit hard (down 54%) due to
concerns about the tobacco industry's mounting legal battles. Goodyear Tire
(down 42%) has been punished due to disappointment over its fourth straight
quarter of declining earnings. In addition, Goodyear was removed from the Dow
Jones Industrial Average (DJIA) on November 1, 1999. Caterpillar, although up
for the year (up 5%), has lagged the index after announcing significantly lower
year over year third quarter profits and repeatedly warning analysts about 1999
full year earnings. DuPont (up 27%) has matched the DJIA return for the year
and only Minnesota Mining & Mfg. has outperformed the index, up 41%.
The DowSM January Target 10 Subaccount has been hurt in 1999 as investors put
their faith in a glitzy high-tech future and moved away from the "smokestack
companies" that dominate the Dogs of the Dow strategy. Substantial weakness
occurred in three of its ten components. Philip Morris has been hit hard (down
54%) due to concerns about the tobacco industry's mounting legal battles.
Goodyear Tire (down 42%) has been punished due to disappointment over its
fourth straight quarter of declining earnings. In addition, Goodyear was
removed from the Dow Jones Industrial Average (DJIA) effective November 1,
1999. Eastman Kodak (down 6%) has had a tough fight with rival Fuji Photo in
the traditional film marketplace and has not convinced investors that its
vision of digital imaging will be realized. Of the remaining seven components
of the subaccount, five have underperformed the DJIA, one has matched the index
return, and only one has managed to beat the index. Caterpillar (up 5%),
Chevron (up 7%), Exxon Mobil (up 13%), GM (up 20%) and J.P. Morgan (up 24%)
have all lagged the market return. (Exxon Corp. purchased Mobil Corp. in
November for $85.2 billion.) Only DuPont (up 27%) and Minnesota Mining (up
41%), have managed to match or beat the DJIA return for 1999.
-2-
<PAGE>
Portfolio Manager Letter
The outlook for US stocks remains bullish as we enter 2000 due in large part to
the booming US economy. While negative factors such as the likelihood of
further Federal Reserve interest rate hikes, lofty valuation levels and the
perceived narrowness of the market may result in a correction sometime during
the next year, the expected continuing strength in US corporate earnings should
ultimately result in higher stock prices.
The Target Subaccounts identifies strong, established companies that are
currently out of favor on Wall Street and likely to rebound. We believe these
companies are well positioned to benefit from either a broadening of the
current market rally, or a rotation out of the speculative, high-tech names
that have been leading the market. Therefore, we expect the subaccount to
perform well going forward and reward the patient value-oriented investor.
PFPC Inc. Advisors, L.P.
-3-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 5--July Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------- -----------
<S> <C> <C>
COMMON STOCK--100.1%
Automotives--26.7%
General Motors Corporation.............................. 62,875 $ 4,570,227
-----------
Consumer Products--14.0%
Philip Morris Companies, Inc. .......................... 103,272 2,394,619
-----------
Machinery--19.1%
Caterpillar, Inc. ...................................... 69,167 3,255,172
-----------
Miscellaneous Manufacturing Industries--23.7%
Eastman Kodak Company................................... 61,242 4,057,283
-----------
Retail--16.6%
Sears Roebuck & Company................................. 93,029 2,831,570
-----------
Total Common Stock
(Cost $20,270,762)............................................. 17,108,871
-----------
TOTAL INVESTMENTS
(Cost $20,270,762*)...................................... 100.1% 17,108,871
OTHER ASSETS AND LIABILITIES (Net)........................ -0.1% (3,242)
------- -----------
NET ASSETS................................................ 100.0% $17,105,629
======= ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-4-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 10--July Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK--100.2%
Automotives--12.2%
General Motors Corporation............................... 27,585 $ 2,005,084
-----------
Consumer Products--6.4%
Philip Morris Companies, Inc............................. 45,312 1,050,672
-----------
Diversified Chemical--10.7%
duPont (E.I.) de Nemours & Company....................... 26,650 1,755,569
-----------
Diversified Manufacturing--12.4%
Minnesota Mining & Manufacturing Company................. 20,944 2,049,894
-----------
Financial Services--10.0%
J.P. Morgan & Company, Inc............................... 12,950 1,639,794
-----------
Machinery--8.7%
Caterpillar, Inc......................................... 30,351 1,428,394
-----------
Miscellaneous Manufacturing Industries--10.8%
Eastman Kodak Company.................................... 26,860 1,779,475
-----------
Oil & Gas Extraction--11.5%
Exxon Mobil Corporation.................................. 23,611 1,902,161
-----------
Petroleum Refining--10.0%
Chevron Corporation...................................... 19,118 1,656,097
-----------
Retail--7.5%
Sears Roebuck & Company.................................. 40,780 1,241,241
-----------
Total Common Stock
(Cost $17,345,759)............................................. 16,508,381
-----------
TOTAL INVESTMENTS
(Cost $17,345,759*)....................................... 100.2% 16,508,381
OTHER ASSETS AND LIABILITIES (Net)......................... -0.2% (31,457)
------ -----------
NET ASSETS................................................. 100.0% $16,476,924
====== ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-5-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 5--January Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK--98.7%
Consumer Products--9.2%
Philip Morris Companies, Inc. ............................ 32,667 $ 757,466
----------
Diversified Chemicals--26.5%
duPont (E.I.) de Nemours & Company........................ 33,054 2,177,432
----------
Diversified Manufacturing--29.3%
Minnesota Mining & Manufacturing Company.................. 24,653 2,412,912
----------
Machinery--21.8%
Caterpillar, Inc. ........................................ 38,147 1,795,293
----------
Tires & Rubber--11.9%
Goodyear Tire & Rubber Company............................ 34,823 981,573
----------
Total Common Stock
(Cost $9,438,803)............................................... 8,124,677
----------
TOTAL INVESTMENTS
(Cost $9,438,803*)......................................... 98.7% 8,124,677
OTHER ASSETS AND LIABILITIES (Net).......................... 1.3% 107,955
------ ----------
NET ASSETS.................................................. 100.0% $8,232,632
====== ==========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-6-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 10--January Series Subaccount
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK--94.1%
Automotives--7.6%
Delphi Automotive Systems Corporation.................... 4,045 $ 63,709
General Motors Corporation............................... 10,198 741,267
-----------
Total Automotive................................................ 804,976
-----------
Consumer Products--4.2%
Philip Morris Companies, Inc. ........................... 19,056 441,861
-----------
Diversified Chemicals--12.0%
duPont (E.I.) de Nemours & Company....................... 19,232 1,266,908
-----------
Diversified Manufacturing--13.3%
Minnesota Mining & Manufacturing Company................. 14,344 1,403,919
-----------
Financial Services--11.7%
J.P. Morgan & Company, Inc. ............................. 9,711 1,229,655
-----------
Machinery--9.9%
Caterpillar, Inc. ....................................... 22,214 1,045,446
-----------
Miscellaneous Manufacturing Industries--8.9%
Eastman Kodak Company.................................... 14,167 938,564
-----------
Oil & Gas Extraction--11.0%
Exxon Mobil Corporation.................................. 14,421 1,161,792
-----------
Petroleum Refining--10.1%
Chevron Corporation...................................... 12,306 1,066,007
-----------
Tires & Rubber--5.4%
Goodyear Tire & Rubber Company........................... 20,218 569,895
-----------
Total Common Stock
(Cost $10,627,046)............................................. 9,929,023
-----------
TOTAL INVESTMENTS
(Cost $10,627,046*)....................................... 94.1% 9,929,023
OTHER ASSETS AND LIABILITIES (Net)......................... 5.9% 620,101
------ -----------
NET ASSETS................................................. 100.0% $10,549,124
====== ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-7-
<PAGE>
Statements of Assets and Liabilities
PFL Endeavor Target Account
December 31, 1999
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Assets
Investment in
securities, at market
value $17,108,871 $16,508,381 $8,124,677 $ 9,929,023
Cash 74,325 187,531 222,282 874,172
Receivable from
investment securities
sold -- -- 50,036 --
Dividends and/or
interest receivable 98,367 56,181 16,527 25,480
----------- ----------- ---------- -----------
Total assets $17,281,563 $16,752,093 $8,413,522 $10,828,675
=========== =========== ========== ===========
Liabilities and
contract owners'
equity
Liabilities:
Payable for investment
securities purchased $ 155,135 $ 254,064 $ 164,853 $ 265,835
Management fee payable 10,705 10,267 5,071 6,273
Accrued Expenses
payable 10,094 10,838 8,390 7,443
Fund redemption payable -- -- 2,576 --
----------- ----------- ---------- -----------
Total liabilities 175,934 275,169 180,890 279,551
Deferred annuity
contracts terminable
by owners 17,105,629 16,476,924 8,232,632 10,549,124
----------- ----------- ---------- -----------
Total liabilities and
contract owners'
equity $17,281,563 $16,752,093 $8,413,522 $10,828,675
=========== =========== ========== ===========
</TABLE>
Contract owners'
equity:
See accompanying notes
-8-
<PAGE>
Statements of Operations
PFL Endeavor Target Account
For the year ended December 31, 1999, except as noted
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount(1) Subaccount(1)
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net investment income
(loss)
Investment income:
Dividends $ 514,982 $ 390,790 $ 175,211 $ 185,730
Interest -- -- -- --
----------- ----------- ----------- ---------
Total investment income 514,982 390,790 175,211 185,730
----------- ----------- ----------- ---------
Expenses:
Investment management fee 136,816 106,745 48,864 51,517
Administration fees 9,547 9,664 10,001 10,001
Custodian fees 7,798 6,985 4,944 5,543
Transfer agent fees 95 61 24 34
Legal fees 11,417 10,120 5,018 4,018
Audit fees 5,400 5,399 2,051 2,051
Trustee fees and expenses 4,399 7,080 1,227 1,309
Printing 15,518 10,947 7,588 8,714
Other 4,124 4,124 3,551 3,560
Policy Fees 7,136 2,943 446 125
Mortality and expense risk
charge 279,294 219,700 99,443 106,663
----------- ----------- ----------- ---------
Total gross expenses 481,544 383,768 183,157 193,535
Less:
Waiver/reimbursement from
investment manager -- -- (3,180) (3,430)
Credits allowed by
custodian (4,698) (1,621) (3,852) (4,944)
----------- ----------- ----------- ---------
Total net expenses 476,846 382,147 176,125 185,161
----------- ----------- ----------- ---------
Net investment income
(loss) 38,136 8,643 (914) 569
----------- ----------- ----------- ---------
Net realized and unrealized
capital (loss) from
investments
Proceeds from sale of
investments 16,651,910 5,495,778 7,350,304 1,317,414
Cost of investments sold 15,557,731 4,983,508 7,224,187 1,309,601
----------- ----------- ----------- ---------
Net realized capital gain
on investments 1,094,179 512,270 126,117 7,813
Net change in unrealized
appreciation/depreciation
of investments:
Beginning of the period 1,220,253 389,358 -- --
End of the period (3,161,891) (837,378) (1,314,126) (698,023)
----------- ----------- ----------- ---------
Net change in unrealized
appreciation/depreciation
of investments (4,382,144) (1,226,736) (1,314,126) (698,023)
----------- ----------- ----------- ---------
Net realized and
unrealized capital
(loss) from investments (3,287,965) (714,466) (1,188,009) (690,210)
Decrease from operations $(3,249,829) $ (705,823) $(1,188,923) $(689,641)
=========== =========== =========== =========
</TABLE>
(1) Commencement of operations, January 4, 1999.
See accompanying notes
-9-
<PAGE>
Statements of Changes in Contract Owners' Equity
PFL Endeavor Target Account
For the year ended December 31, 1999 and for the period July 1, 1998
(commencement of operations) through December 31, 1998, except as noted
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
1999 1998 1999 1998 1999(1) 1999(1)
----------- ----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income
(loss) $ 38,136 $ 4,821 $ 8,643 $ 5,440 $ (914) $ 569
Net realized capital
gain 1,094,179 -- 512,270 -- 126,117 7,813
Net change in
unrealized
appreciation/
depreciation of
investments (4,382,144) 1,220,253 (1,226,736) 389,358 (1,314,126) (698,023)
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease)
from operations (3,249,829) 1,225,074 (705,823) 394,798 (1,188,923) (689,641)
----------- ----------- ----------- ----------- ----------- -----------
Contract transactions
Net contract purchase
payments 6,265,956 9,410,629 5,640,536 6,950,064 6,605,239 7,479,940
Transfer payments from
other subaccounts or
general account 803,957 3,801,466 2,238,202 2,952,437 2,961,916 3,874,139
Contract terminations,
withdrawals, and
other deductions (971,056) (180,568) (923,723) (69,567) (145,600) (115,314)
----------- ----------- ----------- ----------- ----------- -----------
Increase from contract
transactions 6,098,857 13,031,527 6,955,015 9,832,934 9,421,555 11,238,765
----------- ----------- ----------- ----------- ----------- -----------
Net increase in
contract owners'
equity 2,849,028 14,256,601 6,249,192 10,227,732 8,232,632 10,549,124
Beginning of the
period 14,256,601 -- 10,227,732 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
End of the period $17,105,629 $14,256,601 $16,476,924 $10,227,732 $ 8,232,632 $10,549,124
=========== =========== =========== =========== =========== ===========
</TABLE>
Contract owner's equity
(1) Commencement of operations, January 4, 1999
See accompanying notes
-10-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
1.Organization and Summary of Significant Accounting Policies
Organization:
The PFL Endeavor Target Account (the Target Account) is a segregated investment
subaccount of PFL Life Insurance Company (PFL Life), an indirect wholly-owned
subsidiary of AEGON N.V., a holding company organized under the laws of The
Netherlands.
The Target Account is registered with the Securities and Exchange Commission
(SEC) as an open-end management investment company pursuant to provisions of
the Investment Company Act of 1940. The SEC, however, does not supervise the
management or the investment practices or policies of the Target Account. The
Target Account is currently divided into four investment subaccounts, DOW
Target 5--July Series (Target 5--July), DOW Target 10--July Series (Target 10--
July), DOW Target 5--January Series (Target 5--January) and DOW Target 10--
January Series (Target 10--January). These four investment subaccounts are
collectively referred to as the subaccounts. Investment activity in these
investment subaccounts is available for investment to contract owners of The
Endeavor Variable Annuity, The Endeavor Platinum Variable Annuity, and The
Endeavor ML Variable Annuity (the Variable Annuities), issued by PFL Life. Net
purchase payments received by the Target Account for the Variable Annuities are
invested in the subaccounts as selected by the contract owner. The Target 5--
July and Target 10--July commenced operations on July 1, 1998. The Target 5--
January and Target 10--January commenced operations on January 4, 1999.
Portfolio Valuation:
The Target Account's investments are valued at market value as determined using
the last reported sale price at the close of the New York Stock Exchange on
December 31, 1999.
Securities Transactions and Investment Income:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments are credited or charged to contract owners' equity.
Concentration of Risk:
An investment in the Target Account may be subject to additional risk due to
the relative lack of diversity in its portfolio.
Income Taxes:
Operations of the Target Account form a part of PFL Life, which is taxed as a
life insurance company under Subchapter L of the Internal Revenue Code of 1986,
as amended (the "Code"). The operations of the Target Account are accounted for
separately from other operations of PFL Life for purposes of federal income
taxation. The Target Account is not separately taxable as a regulated
investment company under Subchapter M of the Code and is not otherwise taxable
as an entity separate from PFL Life. Under existing federal income tax laws,
the income of the Target Account, to the extent applied to increase reserves
under the variable annuity contracts, is not taxable to PFL Life.
2.Fees and Expenses
The Target Account is managed by Endeavor Management Company, (the Investment
Manager), an affiliate of PFL Life pursuant to a management agreement. The
Investment Manager is responsible for providing
-11-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
2.Fees and Expenses (continued)
investment management and administrative services to the Target Account. First
Trust Advisers L.P. (the Adviser) is the Account's investment Adviser. As
compensation for these services, the Target Account pays the Investment Manager
a monthly fee based on a percentage of the average daily net assets at the
annual rate of 0.75% for each Subaccount. In addition, the Investment Manager
pays the Adviser a fee equal to 0.35% of the average daily net assets.
The Subaccounts pay all expenses not assumed by the Investment Manager. PFPC
Inc. (PFPC), formerly First Data Investor Services Group, Inc., a majority-
owned subsidiary of PNC Bank Corp, serves as Administrator to the Subaccounts
and is paid a flat fee of $10,000 per annum for each Subaccount. PFPC also
serves as the Fund's transfer agent.
From time to time the Investment Manager may waive a portion or all of the fees
otherwise payable to it and/or reimburse the Target Account for expenses. The
Investment Manager has voluntarily undertaken to waive its fees and has agreed
to bear certain expenses to ensure that total expenses do not exceed 1.30% of
the Subaccount's average daily net assets. For the period ended December 31,
1999, the Investment Manager waived and reimbursed expenses of $3,180 for the
Target 5--January and $3,430 for the Target 10--January. Boston Safe Deposit
and Trust Company (BSDT), an indirect wholly-owned subsidiary of Mellon Bank
Corporation, serves as the Subaccounts' custodian. BSDT has agreed to
compensate the Target Account and decrease custody fees for cash balances left
uninvested by the Subaccounts. For the period ended December 31, 1999, the
Target Account's expenses were reduced as follows: DOW Target 5--July Series
$4,698, DOW Target 10--July Series $1,621, DOW Target 5--January Series $3,852,
DOW Target 10--January Series $4,944.
No director, officer or employee of the Investment Manager, Endeavor Management
Co., the Advisers or PFPC received any compensation from the Fund for serving
as an officer or Trustee of the Fund. The Target Account pays each Trustee who
is not a director, officer or employee of the Investment Manager, Endeavor
Management Co., the Advisers, PFPC or any of their affiliates $1,000 per annum
plus $100 per regularly scheduled meeting attended and reimburses them for
travel and out-of-pocket expenses.
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owner's account. For policies issued on or after
May 1, 1995, the fee is waived if the sum of the premium payments less the sum
of all partial withdrawals is at least $50,000 on the policy anniversary.
Charges for administrative fees to the variable annuity contracts are an
expense of the Target Account.
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annually Compounding Death Benefit and the Annual Step-Up
Death Benefit, this charge is equal to an effective annual rate of 1.25% of the
value of the contract owners' individual account. For the Return of Premium
Death Benefit, the corresponding charge is equal to an effective annual rate of
1.10% of the value of the contract owners' individual account. PFL Life also
deducts a daily administrative charge equal to an annual rate of .15% of the
contract owners' account for administrative expenses. For certain policies of
Endeavor Variable Annuity and of Endeavor ML Variable annuity sold on or after
May 1, 1997, during the first seven policy years, PFL Life deducts a daily
Distribution Finance Charge equal to an effective annual rate of .15% of the
contract owners' account. For certain policies of Endeavor Platinum Variable
Annuity sold on or after May 1, 1997, during the first ten policy years, PFL
Life deducts a daily Distribution Finance Charge equal to an effective annual
rate of .25% of the contract owners' account.
-12-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
3.Securities Transactions
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period Ended December 31,
-----------------------------------------
1999 1998
----------------------- -----------------
Purchases Sales Purchases Sales
----------- ----------- ----------- -----
<S> <C> <C> <C> <C>
Dow Target 5--July Series Subaccount $22,486,933 $16,651,910 $13,341,560 $--
Dow Target 10--July Series
Subaccount 12,059,101 5,495,778 10,270,166 --
Dow Target 5--January Series
Subaccount 16,662,993 7,350,304 -- --
Dow Target 10--January Series
Subaccount 11,936,647 1,317,414 -- --
</TABLE>
Net unrealized appreciation (depreciation) of investments at December 31, 1999
was composed of the following:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) (Depreciation)
------------ -------------- --------------
<S> <C> <C> <C>
Dow Target 5--July Series
Subaccount $459,735 $(3,621,626) $(3,161,891)
Dow Target 10--July Series
Subaccount 985,324 (1,822,702) (837,378)
Dow Target 5--January Series
Subaccount 126,429 (1,440,555) (1,314,126)
Dow Target 10--January Series
Subaccount 316,006 (1,014,029) (698,023)
</TABLE>
4.Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit
Return of Premium Death Benefit or Annual Step-Up Death Benefit
------------------------------------------ -----------------------------------------
Accumulation Accumulation Total Accumulation Accumulation Total
Units Owned Unit Value Contract Value Units Owned Unit Value Contract Value
--------------------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Dow Target 5 July Series Subaccount:
PFL Endeavor Variable
Annuity 3,560,121.053 $0.964682 $3,434,385 6,044,673.955 $0.9625370 $ 5,818,222
PFL ML Endeavor
Variable Annuity 316,390.762 0.964682 305,216 1,693,185.989 0.9625370 1,629,754
Platinum Endeavor
Variable Annuity 2,408,403.037 0.963257 2,319,911 3,743,680.459 0.9611240 3,598,141
---------- -----------
$6,059,512 $11,046,117
========== ===========
Dow Target 10 July Series Subaccount:
PFL Endeavor Variable
Annuity 2,604,042.102 $1.012659 $2,637,007 3,802,468.359 $1.0104070 $ 3,842,041
PFL ML Endeavor
Variable Annuity 687,276.775 1.012659 695,977 3,364,745.488 1.0104070 3,399,762
Platinum Endeavor
Variable Annuity 674,029.923 1.011156 681,549 5,174,488.123 1.0089090 5,220,588
---------- -----------
$4,014,533 $12,462,391
========== ===========
Dow Target 5 January Series
Subaccount:
PFL Endeavor Variable
Annuity 2,262,326.395 $0.911385 $2,061,850 2,552,038.211 $0.9100510 $ 2,322,485
PFL ML Endeavor
Variable Annuity 46,507.851 0.911385 42,387 1,633,364.991 0.9100510 1,486,445
Platinum Endeavor
Variable Annuity 712,871.386 0.910498 649,068 1,837,280.736 0.9091680 1,670,397
---------- -----------
$2,753,305 $ 5,479,327
========== ===========
Dow Target 10 January Series
Subaccount:
PFL Endeavor Variable
Annuity 1,479,044.370 $0.984382 $1,455,945 2,676,674.440 $0.9829410 $ 2,631,013
PFL ML Endeavor
Variable Annuity 343,714.780 0.984382 338,347 2,389,259.511 0.9829410 2,348,501
Platinum Endeavor
Variable Annuity 352,436.88 0.983416 346,592 3,491,645.413 0.9819800 3,428,726
---------- -----------
$2,140,884 $ 8,408,240
========== ===========
</TABLE>
-13-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
4.Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Units outstanding--July
1, 1998 -- -- -- --
Units purchased 9,327,979 7,452,618 -- --
Units redeemed and
transferred 3,385,907 2,438,951 -- --
---------- ---------- --------- ----------
Units outstanding Decem-
ber 31, 1998 12,713,886 9,891,569 -- --
Units purchased 5,700,605 5,395,473 6,590,696 7,280,357
Units redeemed and
transferred (648,036) 1,020,008 2,453,693 3,452,418
---------- ---------- --------- ----------
Units outstanding Decem-
ber 31, 1999 17,766,455 16,307,050 9,044,389 10,732,775
========== ========== ========= ==========
</TABLE>
-14-
<PAGE>
Report of Ernst & Young, LLP, Independent Auditors
The Board of Directors and Contract Owners
of the PFL Endeavor Target Account
We have audited the accompanying statements of assets and liabilities,
including the schedule of investments, of PFL Endeavor Target Account
(comprised of the Dow Target 5 July Series, Dow Target 10 July Series, Dow
Target 5 January Series, Dow Target 10 January Series subaccounts), as of
December 31, 1999, and the related statements of operations for the period
indicated thereon and changes in contract owners' equity for the periods
indicated thereon. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of investments referred
to above present fairly, in all material respects, the financial position of
each of the respective subaccounts constituting the PFL Endeavor Target Account
at December 31, 1999, and the results of their operations for the period
indicated thereon and changes in their contract owners' equity for the periods
indicated thereon in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
-15-
<PAGE>
THE ENDEAVOR ML
VARIABLE ANNUITY
Issued Through
PFL ENDEAVOR VA SEPARATE ACCOUNT
and
PFL ENDEAVOR TARGET ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 2000
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 ML Variable Annuity
policy, you can obtain a free copy of the Statement of Additional Information
(SAI) dated May 1, 2000. Please call us at (800) 525-6205 or write us at: PFL
Life Insurance Company, Financial Markets Division, Variable Annuity
Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A
registration statement, including the SAI, has been filed with the Securities
and Exchange Commission (SEC) and is incorporated herein by reference.
Information about this variable annuity can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. You may obtain information
about the operation of the public reference room by calling the SEC at 1-800-
SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains
the prospectus, the SAI, material incorporated by reference, and other
information. The table of contents of the SAI is included at the end of this
prospectus.
Please note that the policies and the separate account investment choices:
. 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.
This flexible premium deferred (group or individual) annuity policy has many
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 below. You bear the entire investment risk for
all amounts you put in either separate account. There is also a fixed account,
which offers interest at rates that are guaranteed by PFL Life Insurance
Company (PFL). You can choose any combination of these investment choices.
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Basic Value Focus Fund
Merrill Lynch High Current Income Fund
Merrill Lynch Developing Capital Markets Focus Fund
ENDEAVOR SERIES TRUST
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND (VIP) - SERVICE CLASS 2
Fidelity - VIP Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II (VIP II) - SERVICE CLASS 2
Fidelity - VIP II Contrafund(R) Portfolio
VARIABLE INSURANCE PRODUCTS FUND III (VIP III) - SERVICE CLASS 2
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth
WRL Janus Global
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
THE TARGET ACCOUNT
The DowSM Target 10 (January Series)
The DowSM Target 5 (January Series)
The DowSM Target 10 (July Series)
The DowSM Target 5 (July Series)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
SUMMARY.................................................................... 5
ANNUITY POLICY FEE TABLE................................................... 9
EXAMPLES................................................................... 14
1.THE ANNUITY POLICY....................................................... 16
2.PURCHASE................................................................. 16
Policy Issue Requirements................................................ 16
Premium Payments......................................................... 16
Initial Premium Requirements............................................. 16
Additional Premium Payments.............................................. 17
Maximum Total Premium Payments........................................... 17
Allocation of Premium Payments........................................... 17
Policy Value............................................................. 17
3.INVESTMENT CHOICES....................................................... 17
The Separate Accounts.................................................... 17
The Mutual Fund Account.................................................. 17
The Target Account....................................................... 18
The Fixed Account........................................................ 24
Transfers................................................................ 24
4.PERFORMANCE.............................................................. 25
5.EXPENSES................................................................. 26
Surrender Charges........................................................ 26
Excess Interest Adjustment............................................... 26
Mortality and Expense Risk Fee........................................... 26
Administrative Charges................................................... 27
Premium Taxes............................................................ 27
Federal, State and Local Taxes........................................... 27
Transfer Fee............................................................. 27
Family Income Protector.................................................. 27
Portfolio Management Fees................................................ 27
Target Account Fees...................................................... 27
6.ACCESS TO YOUR MONEY..................................................... 28
Surrenders............................................................... 28
Delay of Payment and Transfers........................................... 28
Excess Interest Adjustment............................................... 28
7. ANNUITY PAYMENTS (THE INCOME PHASE)..................................... 29
Annuity Payment Options.................................................. 29
8.DEATH BENEFIT............................................................ 31
When We Pay A Death Benefit.............................................. 31
When We Do Not Pay A Death Benefit....................................... 31
Amount of Death Benefit.................................................. 31
Guaranteed Minimum Death Benefit......................................... 32
Adjusted Partial Withdrawal.............................................. 33
9.TAXES.................................................................... 33
Annuity Policies in General.............................................. 33
Qualified and Nonqualified Policies...................................... 33
</TABLE>
<TABLE>
<S> <C>
Withdrawals--Qualified Policies.......................................... 34
Withdrawals--403(b) Policies............................................. 34
Tax Status of the Policy................................................. 34
Withdrawals--Nonqualified Policies....................................... 35
Taxation of Death Benefit Proceeds....................................... 35
Annuity Payments......................................................... 35
Transfers, Assignments or Exchanges of Policies.......................... 36
Possible Tax Law Changes................................................. 36
10.ADDITIONAL FEATURES..................................................... 36
Systematic Payout Option................................................. 36
Family Income Protector.................................................. 36
Nursing Care and Terminal Condition Withdrawal Option.................... 38
Unemployment Waiver...................................................... 38
Telephone Transactions................................................... 39
Dollar Cost Averaging Program............................................ 39
Asset Rebalancing........................................................ 39
11.OTHER INFORMATION....................................................... 40
Ownership................................................................ 40
Assignment............................................................... 40
PFL Life Insurance Company............................................... 40
The Mutual Fund Account.................................................. 40
The Target Account....................................................... 40
Mixed and Shared Funding................................................. 41
Reinstatements........................................................... 41
Voting Rights............................................................ 41
Distributor of the Policies.............................................. 42
Variations in Policy Provisions.......................................... 42
IMSA..................................................................... 42
Legal Proceedings........................................................ 42
Financial Statements..................................................... 42
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............... 42
APPENDIX A
Condensed Financial Information The Mutual Fund Account.................... 43
Condensed Financial Information The Target Account......................... 47
APPENDIX B
Historical Performance Data The Mutual Fund Account........................ 49
Historical Performance Data The Target Strategies and the Dow Jones
Industrial AverageSM.................................................... 60
APPENDIX C
Policy Variations.......................................................... 65
</TABLE>
2
<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.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. 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 annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fee.
DJIA--The Dow Jones Industrial AverageSM. 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, transfers, or to amounts
applied to annuity payment options, from the guaranteed period options. The
adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by, or an amount was transferred to, the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the mutual fund account or the target
account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may offered 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.
Monthly Anniversary--The same date in each succeeding month as the policy date.
For purposes of the variable account, whenever the monthly anniversary falls on
a date other than the valuation date, the monthly anniversary will be deemed to
be the next valuation date.
Mutual Fund Account--PFL Endeavor VA Separate Account, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"), to which premium payments
under the policies may be allocated.
Mutual Fund Subaccount--A subdivision within the mutual fund account, the
assets of which are invested in a specified portfolio of the underlying funds.
Owner--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest
3
<PAGE>
adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the mutual fund account and the target
account; minus
. service charges, rider fees, premium taxes, and transfer fees, if any.
Policy Year--A policy year begins on the policy date and on each policy
anniversary.
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.
(Note: The SAI contains a more extensive Glossary.)
4
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail.
1. THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us or our) provides a way for you to invest on a tax-deferred
basis in the following investment choices: twenty-nine 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 thirty-three subaccounts in both the mutual fund account and
the target account that are listed in Section 3. Each mutual fund subaccount
invests exclusively in shares of one of the portfolios of the underlying funds.
Each target series subaccount invests directly in individual stocks 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 PFL guarantees. We guarantee to
return your investment with interest credited for all amounts allocated to the
fixed account.
You can transfer money between any of the investment choices. We reserve the
right to impose a $10 fee for each transfer in excess of 12 transfers per
policy year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate
during the accumulation phase will largely determine the income payments you
receive during the income phase.
2. PURCHASE
You can buy 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.
3. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the investment choices
listed below.
The following twenty-nine mutual fund portfolios are described in the
underlying fund prospectuses:
Merrill Lynch Basic Value Focus Fund
Merrill Lynch High Current Income Fund
Merrill Lynch Developing Capital Markets Focus Fund
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select Portfolio (/1/)
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Transamerica VIF Growth Portfolio
Fidelity - VIP Equity-Income Portfolio - Service Class 2
Fidelity - VIP II Contrafund(R) Portfolio - Service Class 2
Fidelity - VIP III Growth Opportunities Portfolio - Service Class 2
Fidelity - VIP III Mid Cap Portfolio - Service Class 2
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth
WRL Janus Global
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
(/1/)--Formerly known as Endeavor Select 50.
5
<PAGE>
The following four target series subaccounts are described later in this
prospectus:
The DowSM Target 10 (January Series)
The DowSM Target 5 (January Series)
The DowSM Target 10 (July Series)
The DowSM Target 5 (July 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 payments to the fixed account.
4. 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 SAI. This
data does not indicate future performance.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
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,
we consider the premium you paid to come out before any earnings.
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 at
an annual rate of 1.40% (if you choose the "Return of Premium Death Benefit")
or 1.55% (if you choose any other death benefit option) from the 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.
We will deduct state premium taxes, which currently range from 0% to 3.50%,
upon total surrender, payment of a death benefit, or when annuity payments
begin.
If you elect the "family income protector" rider, then there is an annual fee
during the accumulation phase of 0.30% of the minimum annuitization value. If
you receive annuity payments under the rider, then there is a guaranteed
payment fee at an annual rate of 1.25% of the daily net asset value in the
separate account.
The value of the net assets of the mutual fund subaccounts will reflect the
management fee and other expenses incurred by the underlying portfolios. 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 management fee and other expenses incurred by the
manager in operating each target series subaccount.
6. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase (except
under certain qualified policies). After one year, you may, free of surrender
charges once each policy year, take out the greater of:
. up to 10% of your premium; or
. any gains in the policy.
The gains in the policy are the amount equal to the policy value, minus the sum
of all premium payments, reduced by all prior partial withdrawals.
6
<PAGE>
If you have policy value in the fixed account, you may take the 10% free of
surrender charges and free of excess interest adjustments. Amounts withdrawn in
the first year, or in excess of the 10% free amount, 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.
Access to amounts held in qualified policies may be restricted or prohibited.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options,
or a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
8.DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You generally may choose one of the following guaranteed minimum death
benefits:
. 5% Annually Compounding
. Greater of 5% Annually Compounding through age 80 or Annual Step-Up through
age 80
. Monthly Step-Up through age 80
. Return of Premium
Charges are lower for the Return of Premium Death Benefit than they are for the
other three.
These choices are restricted for annuitants and owners over age 74.
If the owner is not the annuitant, no death benefit is paid if the owner dies.
9.TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as ordinary income. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase may be considered partly a return of
your original investment so that part of each payment would not be taxable as
income.
10.ADDITIONAL FEATURES
This policy has additional features that might interest you. These include the
following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector." There is an
extra charge for this rider and the rider may vary by state.
. Under certain medically related circumstances, 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."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money (at least $500)
automatically transferred from the fixed account, the
7
<PAGE>
Dreyfus U.S. Government Securities Subaccount, or the Endeavor Money Market
Subaccount, either monthly or quarterly, into your choice of mutual fund
subaccounts or target series subaccounts. This feature is called "dollar
cost averaging."
. 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."
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.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. It is generally only 20 days. 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 or less than 20 days to
return a policy, or receive a refund of more (or less) than the policy value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
Who should purchase the Policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or
other long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most attractive to people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund
a qualified plan. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of losing the money that
you put in.
There are various fees and charges associated with variable annuities. You
should consider whether the features and benefits of this policy, such as the
opportunity for lifetime income payments, a guaranteed death benefit, the
guaranteed level of certain charges, and the family income protector, make this
policy appropriate for your needs.
Financial Statements. Financial Statements for PFL and the mutual fund
subaccounts and target series subaccounts are in the SAI.
12.INQUIRIES
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
You may check your policy at www.pfllife.com/fmd. Follow the logon
procedures. You will need your pre-assigned Personal Identification Number
("PIN") to access information about your policy.
8
<PAGE>
ANNUITY POLICY FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Policy Owner Transaction Expenses
- ---------------------------------------------
<C> <S> <C>
Sales Load On Purchase Payments.... 0
Maximum Surrender Charge
(as a % of Premium Payments
Surrendered)(/1/)(/2/)............ 7%
Annual Service
Charge(/1/).............. $35 Per Policy
Transfer Fee(/1/)......... Currently No Fee
</TABLE>
<TABLE>
<CAPTION>
Separate Account Annual Expenses
(as a percentage of average account
value)
<S> <C>
Mortality and Expense Risk
Fee(/3/).................... 1.40%
Administrative Charge........ 0.15%
-----
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES............. 1.55%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Portfolio Annual Expenses(/4/)
(as a percentage of average net assets and after expense reimbursements)
- --------------------------------------------------------------------------------
Total
Total Account
Rule Portfolio and
Management Other 12b-1 Annual Portfolio
Fees Expenses Fees(/5/) Expenses Expenses
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Basic Value
Focus Fund(/6/)........... 0.60% 0.06% -- 0.66% 2.21%
Merrill Lynch High Current
Income Fund(/6/).......... 0.50% 0.02% -- 0.52% 2.07%
Merrill Lynch Developing
Capital Markets
Focus Fund(/6/)(/7/)...... 0.58% 0.67% -- 1.25% 2.80%
Dreyfus Small Cap Value
Portfolio(/8/)............ 0.80% 0.10% 0.32% 1.22% 2.77%
Dreyfus U.S. Government
Securities Portfolio(/9/). 0.65% 0.12% -- 0.77% 2.32%
Endeavor Asset Allocation
Portfolio(/10/)........... 0.75% 0.10% 0.02% 0.87% 2.42%
Endeavor Money Market
Portfolio................. 0.50% 0.05% -- 0.55% 2.10%
Endeavor Enhanced Index
Portfolio................. 0.75% 0.03% -- 0.78% 2.33%
Endeavor High Yield
Portfolio(/11/)........... 0.746% 0.504% -- 1.25% 2.80%
Endeavor Janus Growth
Portfolio(/12/)........... 0.775% 0.05% -- 0.83% 2.38%
Endeavor Opportunity Value
Portfolio(/13/)........... 0.80% 0.05% 0.06% 0.91% 2.46%
Endeavor Value Equity
Portfolio(/14/)........... 0.80% 0.07% 0.08% 0.95% 2.50%
Endeavor Select Portfolio.. 1.00% 0.39% -- 1.39% 2.94%
T. Rowe Price Equity Income
Portfolio(/15/)........... 0.80% 0.07% 0.01% 0.88% 2.43%
T. Rowe Price Growth Stock
Portfolio(/16/)........... 0.80% 0.07% 0.01% 0.88% 2.43%
T. Rowe Price International
Stock Portfolio(/17/)..... 0.90% 0.10% -- 1.00% 2.55%
Transamerica VIF Growth
Portfolio(/18/)........... 0.70% 0.15% -- 0.85% 2.40%
Fidelity - VIP Equity-
Income Portfolio -
Service Class 2(/19/)..... 0.48% 0.10% 0.25% 0.83% 2.38%
Fidelity - VIP II
Contrafund(R) - Service
Class 2(/19/)............. 0.58% 0.12% 0.25% 0.95% 2.50%
Fidelity - VIP III Growth
Opportunities -
Service Class 2(/19/)..... 0.58% 0.13% 0.25% 0.96% 2.51%
Fidelity - VIP III Mid Cap
- Service Class 2(/19/)... 0.57% 0.43% 0.25% 1.25% 2.80%
WRL Alger Aggressive
Growth.................... 0.80% 0.09% -- 0.89% 2.44%
WRL Goldman Sachs
Growth(/20/)(/21/)........ 0.90% 0.10% -- 1.00% 2.55%
WRL Janus Global(/22/)..... 0.80% 0.12% -- 0.92% 2.47%
WRL NWQ Value Equity....... 0.80% 0.10% -- 0.90% 2.45%
WRL Pilgrim Baxter Mid Cap
Growth(/20/)(/23/)........ 0.90% 0.10% -- 1.00% 2.55%
WRL Salomon All
Cap(/20/)(/24/)........... 0.90% 0.10% -- 1.00% 2.55%
WRL T. Rowe Price Dividend
Growth(/20/)(/25/)........ 0.90% 0.10% -- 1.00% 2.55%
WRL T. Rowe Price Small
Cap(/20/)(/26/)........... 0.75% 0.25% -- 1.00% 2.55%
The Dow SM Target 10
(January)(/27/)(/28/)..... 0.69% 0.51% -- 1.20% 2.75%
The Dow SM Target 5
(January)(/27/)(/29/)..... 0.69% 0.52% -- 1.21% 2.76%
The Dow SM Target 10
(July)(/27/)(/30/)........ 0.75% 0.38% -- 1.13% 2.68%
The Dow SM Target 5
(July)(/27/)(/31/)........ 0.75% 0.32% -- 1.07% 2.62%
</TABLE>
9
<PAGE>
(/1/)The surrender charge and transfer fee, if any are 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 pro rata 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/)Mortality and expense risk fees shown (1.40%) are for the "5% Annually
Compounding Death Benefit," the "Greater of 5% Annually Compounding
through age 80 Death Benefit or Annual Step-Up through age 80 Death
Benefit", and the Monthly Step-Up through age 80 Death Benefit." This
reflects a fee that is 0.15% per year higher than the 1.25% corresponding
fee for the "Return of Premium Death Benefit."
(/4/)The fee table information relating to the underlying funds was provided to
PFL by the underlying funds, their investment advisers or managers, and
PFL has not independently verified such information. Actual future
expenses of the portfolios may be greater or less than those shown in the
Table.
(/5/)The Board of Trustees of Endeavor Series Trust (the "Trust") and the Board
of Managers of the target account have authorized an arrangement whereby,
subject to best price and execution, executing brokers will share
commissions with the Trust's or the target account's affiliated broker.
Under supervision of the Trustees and the Managers, the affiliated broker
will use the "recaptured commissions" to promote marketing of the Trust's
shares and investments in the target account. The staff of the Securities
and Exchange Commission believes that, through the use of these recaptured
commissions, the Trust and the target account are indirectly paying for
distribution expenses and such amounts are shown as 12b-1 fees in the
above table. This use of recaptured commissions to promote the sale of the
Trust's shares and investments in the target account involves no
additional costs to the Trust, to the target account or any owner.
Endeavor Series Trust and the target account, based on advice of counsel,
do not believe that recaptured brokerage commissions should be treated as
12b-1 fees. For more information on the Trust's Brokerage Enhancement
Plan, see the Trust's prospectus accompanying this Prospectus. For more
information on the target account's Brokerage Enhancement Plan, see the
target account's section of this prospectus.
(/6/)These reflect expenses on Class A shares for the year ended December 31,
1999. Reimbursement agreements are in effect that limit operating expenses
exclusive of any distribution fees imposed on shares of Class B Common
Stock, paid by each portfolio of the Merrill Lynch Variable Series Funds,
Inc. in a given year to 1.25% of its average daily net assets. Any such
expenses in excess of 1.25% of the average daily net assets will be
reimbursed to the portfolio by MLAM, which in turn will be reimbursed by
Merrill Lynch Life Agency, Inc., an affiliate of MLAM.
(/7/)For the Merrill Lynch Developing Capital Markets Focus Fund, the
management fees before waivers were 1.00% and other expenses before
reimbursements were 0.67%. Therefore, Total Portfolio Annual Expenses
before waivers and other
10
<PAGE>
expenses before reimbursements (reduced by custodial offset arrangements)
for the period ended December 31, 1999 were 1.67%.
(/8/)For the Dreyfus Small Cap Value Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.10%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.90%.
(/9/)For the Dreyfus U.S. Government Securities Portfolio, the management fees
were 0.65% and other expenses (reduced by custodial offset arrangements)
were 0.08%. Therefore, Total Portfolio Annual Expenses for the period
ended December 31, 1999 were 0.73%.
(/10/)For the Endeavor Asset Allocation Portfolio, the management fees were
0.75% and other expenses before reimbursements were 0.09%. Therefore,
Total Portfolio Annual Expenses and other expenses before reimbursements
(reduced by custodial offset arrangements) for the period ended December
31, 1999 were 0.84%.
(/11/)For the Endeavor High Yield Portfolio, the management fees before
waivers were 0.775% (after waivers 0.746%) and other expenses were
0.47%. Therefore, Total Portfolio Annual Expenses after waivers (reduced
by custodial offset arrangements) for the period ended December 31, 1999
were 1.22%.
(/12/)For the Endeavor Janus Growth Portfolio, the management fees before
waivers were 0.80% (after waivers 0.775%) and other expenses were
0.055%. Therefore, Total Portfolio Annual Expenses after waivers
(reduced by custodial offset arrangements) for the period ended December
31, 1999 were 0.83%.
(/13/)For the Endeavor Opportunity Value Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.05%. Therefore,
Total Portfolio Annual Expenses before reimbursements (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 0.85%.
(/14/)For the Endeavor Value Equity Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.88%.
(/15/)For the T. Rowe Price Equity Income Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.07%. Therefore,
Total Portfolio Annual Expenses before reimbursements (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 0.87%.
(/16/)For the T. Rowe Price Growth Stock, the management fees were 0.80% and
other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.87%.
(/17/)For the T. Rowe Price International Stock Portfolio, the management fees
were 0.90% and other expenses (reduced by custodial offset arrangements)
were 0.01%. Therefore, Total Portfolio Annual Expenses for the period
ended December 31, 1999 were 0.91%.
(/18/)For the Transamerica VIF Growth Portfolio, the management fees before
waivers were 0.75% and other expenses before reimbursements were 0.15%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 0.90%.
(/19/)Service Class 2 expenses are based on estimated expenses for the first
year. VIP expenses are without any reimbursements.
11
<PAGE>
(/20/)Because WRL Goldman Sachs Growth, WRL Pilgrim Baxter Mid Cap Growth, WRL
Salomon All Cap, WRL T. Rowe Price Dividend Growth, and WRL T. Rowe
Price Small Cap commenced operations on May 3, 1999, the percentages set
forth as "Other Expenses" and "Total Portfolio Annual Expenses" are
estimated.
(/21/)For WRL Goldman Sachs Growth, the management fees before waivers were
0.90% and other expenses before reimbursements were 1.78%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.68%.
(/22/)For WRL Janus Global, the investment adviser currently waives 0.025% of
its advisory fee on portfolio average daily net assets over $2 billion
(net fee 0.775%). This waiver is voluntary and will be terminated on
June 25, 2000.
(/23/)For WRL Pilgrim Baxter Mid Cap Growth, the management fees before
waivers were 0.90% and other expenses before reimbursements were 0.50%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 1.40%.
(/24/)For WRL Salomon All Cap, the management fees before waivers were 0.90%
and other expenses before reimbursements were 1.97%. Therefore, Total
Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.87%.
(/25/)For WRL T. Rowe Price Dividend Growth, the management fees before
waivers were 0.90% and other expenses before reimbursements were 1.45%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 2.35%.
(/26/)For WRL T. Rowe Price Small Cap, the management fees before waivers were
0.75% and other expenses before reimbursements were 1.71%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.46%.
(/27/)For the target account, 0.15% of the mortality and expense risk fee
included under "Total Separate Account Annual Expenses" in this table is
deducted pursuant to a 12b-1 plan.
(/28/)For The DowSM Target 10 (January), the management fees before waivers
were 0.75% and other expenses before reimbursements were 0.43%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 1.18%.
12
<PAGE>
(/29/)For The DowSM Target 5 (January), the management fees before waivers
were 0.75% and other expenses before reimbursements were 0.46%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 1.21%.
(/30/)For The DowSM Target 10 (July), the management fees before waivers were
0.75% and other expenses before reimbursements were 0.37%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 1.12%.
(/31/)For The DowSM Target 5 (July), the management fees before waivers were
0.75% and other expenses before reimbursements were 0.29%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 1.04%.
13
<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 benefit has not been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.25%)
B = 5% Annually Compounding Death Benefit, Greater of 5% Annually Compounding
through age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit, or
Monthly Step-Up through age 80 Death Benefit (1.40%)
<TABLE>
<CAPTION>
If the Policy is
If the Policy is annuitized at the end of
surrendered at the the applicable time period
end of the applicable or if the Policy is still in
time period. the accumulation phase.
----------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch Basic
Value Focus............ A $ 91 $119 $157 $242 $ 21 $ 66 $ 112 $ 242
B $ 93 $124 $164 $257 $ 23 $ 70 $ 120 $ 257
- -----------------------------------------------------------------------------------
Merrill Lynch High
Current Income......... A $ 90 $115 $149 $228 $ 20 $ 61 $ 105 $ 228
B $ 91 $119 $157 $243 $ 21 $ 66 $ 113 $ 243
- -----------------------------------------------------------------------------------
Merrill Lynch Developing
Capital Markets A $ 97 $137 $186 $301 $ 27 $ 83 $ 142 $ 301
Focus.................. B $ 99 $141 $194 $316 $ 29 $ 88 $ 149 $ 316
- -----------------------------------------------------------------------------------
Dreyfus Small Cap Value. A $ 97 $136 $185 $298 $ 27 $ 82 $ 141 $ 298
B $ 98 $140 $192 $313 $ 28 $ 87 $ 148 $ 313
- -----------------------------------------------------------------------------------
Dreyfus U.S. Government
Securities............. A $ 92 $122 $162 $253 $ 22 $ 69 $ 118 $ 253
B $ 94 $127 $170 $269 $ 24 $ 73 $ 126 $ 269
- -----------------------------------------------------------------------------------
Endeavor Asset
Allocation............. A $ 93 $125 $167 $264 $ 23 $ 72 $ 123 $ 264
B $ 95 $130 $175 $279 $ 25 $ 76 $ 131 $ 279
- -----------------------------------------------------------------------------------
Endeavor Money Market... A $ 90 $116 $151 $231 $ 20 $ 62 $ 107 $ 231
B $ 92 $120 $159 $246 $ 22 $ 67 $ 114 $ 246
- -----------------------------------------------------------------------------------
Endeavor Enhanced Index. A $ 92 $123 $163 $254 $ 22 $ 69 $ 118 $ 254
B $ 94 $127 $170 $270 $ 24 $ 74 $ 126 $ 270
- -----------------------------------------------------------------------------------
Endeavor High Yield..... A $ 97 $137 $186 $301 $ 27 $ 83 $ 142 $ 301
B $ 99 $141 $194 $316 $ 29 $ 88 $ 149 $ 316
- -----------------------------------------------------------------------------------
Endeavor Janus Growth... A $ 93 $124 $165 $260 $ 23 $ 71 $ 121 $ 260
B $ 94 $129 $173 $275 $ 24 $ 75 $ 129 $ 275
- -----------------------------------------------------------------------------------
Endeavor Opportunity
Value.................. A $ 94 $127 $169 $268 $ 24 $ 73 $ 125 $ 268
B $ 95 $131 $177 $283 $ 25 $ 78 $ 133 $ 283
- -----------------------------------------------------------------------------------
Endeavor Value Equity... A $ 94 $128 $171 $272 $ 24 $ 74 $ 127 $ 272
B $ 96 $132 $179 $287 $ 26 $ 79 $ 135 $ 287
- -----------------------------------------------------------------------------------
Endeavor Select......... A $ 99 $141 $193 $315 $ 29 $ 87 $ 149 $ 315
B $100 $145 $201 $329 $ 30 $ 92 $ 156 $ 329
- -----------------------------------------------------------------------------------
T. Rowe Price Equity
Income................. A $ 93 $126 $168 $265 $ 23 $ 72 $ 124 $ 265
B $ 95 $130 $175 $280 $ 25 $ 77 $ 131 $ 280
- -----------------------------------------------------------------------------------
T. Rowe Price Growth
Stock.................. A $ 93 $126 $168 $265 $ 23 $ 72 $ 124 $ 265
B $ 95 $130 $175 $280 $ 25 $ 77 $ 131 $ 280
- -----------------------------------------------------------------------------------
T. Rowe Price
International Stock.... A $ 95 $129 $174 $277 $ 25 $ 76 $ 130 $ 277
B $ 96 $134 $181 $292 $ 26 $ 80 $ 137 $ 292
- -----------------------------------------------------------------------------------
Transamerica VIF Growth. A $ 93 $125 $166 $262 $ 23 $ 71 $ 122 $ 262
B $ 95 $129 $174 $277 $ 25 $ 76 $ 130 $ 277
- -----------------------------------------------------------------------------------
Fidelity - VIP Equity-
Income Service Class 2. A $ 93 $124 $165 $260 $ 23 $ 71 $ 121 $ 260
B $ 94 $129 $173 $275 $ 24 $ 75 $ 129 $ 275
- -----------------------------------------------------------------------------------
Fidelity - VIP II
Contrafund(R) Service
Class 2................ A $ 94 $128 $171 $272 $ 24 $ 74 $ 127 $ 272
B $ 96 $132 $179 $287 $ 26 $ 79 $ 135 $ 287
</TABLE>
14
<PAGE>
EXAMPLES continued
<TABLE>
<CAPTION>
If the Policy is
If the Policy is annuitized at the end of
surrendered at the the applicable time period
end of the applicable or if the Policy is still in
time period. the accumulation phase.
----------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity - VIP III
Growth Opportunities A $94 $128 $172 $273 $ 24 $ 75 $ 128 $ 273
Service Class 2........ B $96 $133 $179 $288 $ 26 $ 79 $ 135 $ 288
- -----------------------------------------------------------------------------------
Fidelity - VIP III Mid
Cap Service Class 2.... A $97 $137 $186 $301 $ 27 $ 83 $ 142 $ 301
B $99 $141 $194 $316 $ 29 $ 88 $ 149 $ 316
- -----------------------------------------------------------------------------------
WRL Alger Aggressive
Growth................. A $94 $126 $168 $266 $ 24 $ 72 $ 124 $ 266
B $95 $130 $176 $281 $ 25 $ 77 $ 132 $ 281
- -----------------------------------------------------------------------------------
WRL Goldman Sachs
Growth................. A $95 $129 $174 $277 $ 25 $ 76 $ 130 $ 277
B $96 $134 $181 $292 $ 26 $ 80 $ 137 $ 292
- -----------------------------------------------------------------------------------
WRL Janus Global........ A $94 $127 $170 $269 $ 24 $ 73 $ 126 $ 269
B $95 $131 $177 $284 $ 25 $ 78 $ 133 $ 284
- -----------------------------------------------------------------------------------
WRL NWQ Value Equity.... A $94 $126 $169 $267 $ 24 $ 73 $ 125 $ 267
B $95 $131 $176 $282 $ 25 $ 77 $ 132 $ 282
- -----------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid
Cap Growth............. A $95 $129 $174 $277 $ 25 $ 76 $ 130 $ 277
B $96 $134 $181 $292 $ 26 $ 80 $ 137 $ 292
- -----------------------------------------------------------------------------------
WRL Salomon All Cap..... A $95 $129 $174 $277 $ 25 $ 76 $ 130 $ 277
B $96 $134 $181 $292 $ 26 $ 80 $ 137 $ 292
- -----------------------------------------------------------------------------------
WRL T. Rowe Price
Dividend Growth........ A $95 $129 $174 $277 $ 25 $ 76 $ 130 $ 277
B $96 $134 $181 $292 $ 26 $ 80 $ 137 $ 292
- -----------------------------------------------------------------------------------
WRL T. Rowe Price Small
Cap.................... A $95 $129 $174 $277 $ 25 $ 76 $ 130 $ 277
B $96 $134 $181 $292 $ 26 $ 80 $ 137 $ 292
- -----------------------------------------------------------------------------------
The DowSM Target 10
(January Series)....... A $97 $135 $184 $296 $ 27 $ 82 $ 140 $ 296
B $98 $140 $191 $311 $ 28 $ 86 $ 147 $ 311
- -----------------------------------------------------------------------------------
The DowSM Target 5
(January Series)....... A $97 $136 $184 $297 $ 27 $ 82 $ 140 $ 297
B $98 $140 $192 $312 $ 28 $ 87 $ 147 $ 312
- -----------------------------------------------------------------------------------
The DowSM Target 10
(July Series).......... A $96 $133 $180 $290 $ 26 $ 80 $ 136 $ 290
B $97 $138 $188 $304 $ 27 $ 84 $ 144 $ 304
- -----------------------------------------------------------------------------------
The DowSM Target 5 (July
Series)................ A $95 $131 $177 $284 $ 25 $ 78 $ 133 $ 284
B $97 $136 $185 $298 $ 27 $ 82 $ 141 $ 298
</TABLE>
The above tables will assist you in understanding the costs and expenses that
you will bear, directly or indirectly. These include the 1999 expenses of the
underlying portfolios, except for Endeavor Janus Growth, WRL Goldman Sachs
Growth, WRL Pilgrim Baxter Mid Cap Growth, WRL Salomon All Cap, WRL T. Rowe
Price Dividend Growth, and WRL T. Rowe Price Small Cap, (whose expenses listed
above are estimated for the first full year of operations). 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
0.0299% based on average policy value of $116,930.00.
These examples do not reflect the annual fee of 0.30% of the minimum
annuitization value for the family income protector rider. The above expense
figures would be approximately $3 per year higher if you elected that rider.
Financial Information. Condensed financial information for the mutual fund
subaccounts and target series subaccounts are in Appendix A to this prospectus.
15
<PAGE>
1.THE ANNUITY POLICY
This prospectus describes The Endeavor ML 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 (if any) are
tax deferred. Tax deferral means you generally are not taxed on your annuity
until you take money out of your annuity. After the annuity commencement date,
your annuity switches to the income phase.
The Endeavor ML Variable Annuity consists of either:
. a group annuity contract that we, PFL Life Insurance Company, issue to the
contract holder and an individual certificate that we issue to you; or
. an individual policy that we issue to you.
This prospectus describes your individual certificate or policy (both are
referred to as policy in this prospectus). 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. Your individual investment and
your rights are determined primarily by your own policy.
The policy is a "flexible premium" policy because after you purchase it, you
can generally make additional investments of any amount of $50 or more, until
the annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest
in the mutual fund account or the target account, 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 mutual fund account or the target
account also depends upon the investment performance of your investment choices
for the income phase. However, if you annuitize under the family income
protector rider, then PFL will guarantee a minimum amount of your annuity
payments. There is an extra charge for this rider.
The policy also contains a fixed account. The fixed account offers interest at
rates that we guarantee will not decrease during the selected guaranteed
period. There may be different interest rates for each different guaranteed
period that you select.
2.PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. The annuitant and any joint owner are age 90 or younger.
Premium Payments
You should make checks for premium payments payable only to PFL Life Insurance
Company and send them to the administrative and service office. Your check must
be honored in order for PFL to pay any associated payments and benefits due
under the policy.
Initial Premium Requirements
The initial premium payment for 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,
16
<PAGE>
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.
Additional premium payments must be received before the New York Stock Exchange
closes to get same-day pricing of the additional premium payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
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 percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
If you allocate premium payments to the dollar cost averaging fixed account,
you must give us instructions 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 on or after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to
valuation period. A valuation period begins at the close of trading at the New
York Stock Exchange on each business day and ends at the close of trading on
the next succeeding business day. A business day is each day that the New York
Stock Exchange is open. The New York Stock Exchange generally closes at 4:00
p.m. eastern time. Holidays are generally not business days.
3.INVESTMENT CHOICES
The Separate Accounts
There are currently thirty-three variable subaccounts available under the
policies. There are twenty-nine 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 mutual fund subaccounts invest in shares of the various underlying fund
portfolios. The companies that provide investment advice and administrative
services for the underlying fund portfolios offered through this policy are
listed below. The following mutual fund investment choices are currently
offered through this policy:
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Managed by Merrill Lynch Asset Management, L.P.
Merrill Lynch Basic Value Focus Fund
Merrill Lynch High Current Income Fund
Merrill Lynch Developing Capital Markets Focus Fund
ENDEAVOR SERIES TRUST
Subadvised by The Dreyfus Corporation
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Subadvised by Morgan Stanley Asset Management
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
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Subadvised by J.P. Morgan Investment Management Inc.
Endeavor Enhanced Index Portfolio
Subadvised by Massachusetts Financial Services Company
Endeavor High Yield Portfolio
Subadvised by Janus Capital Corporation
Endeavor Janus Growth Portfolio
Subadvised by OpCap Advisors
Endeavor Opportunity Value
Endeavor Value Equity Portfolio
Subadvised by Montgomery Asset Management, LLC
Endeavor Select 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
TRANSAMERICA VARIABLE NSURANCE FUND, INC.
Managed by Transamerica Investment Management, LLC
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP II Contrafund(R) Portfolio
VARIABLE INSURANCE PRODUCTS FUND III - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
Subadvised by Fred Alger Management, Inc.
WRL Alger Aggressive Growth
Subadvised by Goldman Sachs Asset Management
WRL Goldman Sachs Growth
Subadvised by Janus Capital Corporation
WRL Janus Global
Subadvised by NWQ Investment Management Company, Inc.
WRL NWQ Value Equity
Subadvised by Pilgrim Baxter & Associates, Ltd.
WRL Pilgrim Baxter Mid Cap Growth
Subadvised by Salomon Brothers Asset Management Inc
WRL Salomon All Cap
Subadvised by T. Rowe Price Associates, Inc.
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
The general public may not purchase shares of these underlying fund portfolios.
The investment objectives and policies may be similar to other portfolios and
mutual funds managed by the same investment adviser or manager that are sold
directly to the public. You should not expect that the investment results of
the underlying fund portfolios to be the same as those of other portfolios or
mutual funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current prospectus for the
underlying funds, which are attached to this prospectus. You should read the
prospectuses for the underlying funds carefully before you invest.
We may receive expense reimbursements or other revenues from the underlying
funds or their managers. The amount of these reimbursements or revenues, if
any, may be different for different funds and portfolios and may be based on
the amount of assets that PFL or the mutual fund account invests in the
underlying fund portfolios.
We do not guarantee that any of the mutual fund subaccounts will always be
available for premium payments, allocations, or transfers. See the SAI for more
information concerning the possible addition, deletion or substitution of
investments.
The Target Account
This section gives information on the target account, including the management
and
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investment strategies, and policies. The following target account investment
choices are currently offered through this policy:
THE TARGET ACCOUNT
Subadvised by First Trust Advisors L.P.
The DowSM Target 10 (January Series)
The DowSM Target 5 (January Series)
The DowSM Target 10 (July Series)
The DowSM Target 5 (July 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 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, 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 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
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, and an affiliate of PFL, 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. The manager has the ultimate responsibility to
oversee the adviser and recommend its hiring, termination and replacement.
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. Each of The DowSM Target 10 Subaccounts 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.
Each of The DowSM Target 5 Subaccounts will invest in the common stock of the
five companies with the lowest per share stock price 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 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
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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 DowSM
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.
There are currently four target series subaccounts. There are two "The DowSM
Target 10 Subaccounts," which contain a January Series (a December 31, 1998
initial stock selection date) and a July Series (a June 30, 1998 initial stock
selection date). Similarly, there are two "The DowSM Target 5 Subaccounts,"
which contain a January Series (December 31, 1998 initial stock selection date)
and a July Series (June 30, 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).
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.
As of each 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 shares bought 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 shares 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 9, "TAXES--Diversification and
Distribution Requirements".)
The DowSM Target 10 Subaccounts and The DowSM Target 5 Subaccounts have not
been designed so that their prices will parallel or correlate with movements in
the DJIA. It is expected that their pr will not do so.
An investment in a target series subaccount is an investment in a portfolio of
equity securities 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 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 AverageSM. 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
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<PAGE>
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 New York 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. 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 as of March 23, 2000.
ALCOA Inc.
American Express Company
AT&T Corporation
Boeing Company
Caterpillar Inc.
Citigroup Inc.
Coca Cola Company Walt Disney Company
E.I. du Pont de Nemours & Company
Eastman Kodak Company
Exxon Mobil Corporation
General Electric Company
General Motors Corporation
Hewlett Packard Company
Home Depot Inc.
Honeywell International
Intel Corporation
International Business Machines Corporation
International Paper Company
Johnson & Johnson
J.P. Morgan & Company, Inc.
McDonald's Corporation
Merck & Company, Inc.
Microsoft Corporation
Minnesota Mining & Manufacturing Company
Philip Morris Companies, Inc.
Procter & Gamble Company
S B C Communications Inc.
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 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 AverageSM. 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 policy. 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 AverageSM 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 person
or entity from the use of the Dow Jones Industrial AverageSM 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 AverageSM 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
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<PAGE>
in each of the target series subaccounts and of each target series subaccount's
fees and expenses is contained in the SAI. You should read the SAI carefully
before investing in a target series subaccount.
Each subaccount 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 subaccount 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.
Even though 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.
. The investment policies of each target subaccount are narrow and innovative,
and the Internal Revenue Service has not addressed them. If you are deemed
to have investment control of the assets in a target subaccount, then you
could be treated as the owner of those assets. If so, income and gains from
the subaccount's assets would be includable (pro rata) in your taxable
income each year.
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 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
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<PAGE>
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 DowSM 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 only contains five stocks.
No target series subaccount is 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.
Neither PFL nor the manager shall be liable in any way for any default, failure
or defect in any common share.
The target account is also available as an investment option in other types of
variable annuity policies sold by PFL. Those other policies may have different
features and different charges than the policy described in this prospectus,
and therefor are accounted for through a different class of accumulation or
annuity units. PFL does not believe there are any disadvantages to this
arrangement; rather, it leads to larger pools of assets which can result in
economies of scale.
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.
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.
Brokerage Enhancement Plan. The target account has adopted, but is not
currently participating in, a Brokerage Enhancement Plan (the "Plan") for each
of its subaccounts in accordance with the substantive provisions of Rule 12b-1
under the 1940 Act. The Plan uses available brokerage commissions to promote
the sale and distribution of interests in the subaccount's shares. Under the
Plan, the target account may use recaptured commissions to pay for distribution
expenses. Except for recaptured commissions (unlike asset based charges imposed
by many mutual funds for sales expenses) the subaccounts do not incur any asset
based or additional fees or charges under the Plan.
Under the Plan, the manager is authorized to direct investment advisers to use
certain broker/dealers for securities transactions. (The duty of best price and
execution still applies to these transactions.) These broker/dealers have
agreed to give a percentage of their commission from the sale and purchase of
securities to Transamerica Capital, Inc, the target account's distributor and
an affiliate of PFL.
Transamerica Capital, Inc. will not make any profit from participating in the
Plan. It is obligated to use any money given to it under the Plan for
distribution expenses (other than a minimal amount to defray its legal and
administrative costs). The rest will be spent on activities that are meant to
result in the sale of the policies, including:
. holding or participating in seminars and sales meetings promoting the
subaccounts;
. paying marketing fees requested by broker/dealers who sell policies;
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. training sales personnel;
. compensating broker/dealers and/or registered representatives in connection
with the allocation of cash values and premiums to the target account;
. printing and mailing prospectuses, statements of additional information and
reports to prospective owners; and
. creating and mailing advertising and sales literature.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general account. Interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the
general account registered as an investment company under the 1940 Act.
Accordingly, neither the general account nor any interests therein are
generally subject to the provisions of the 1933 or 1940 Acts. PFL has been
advised that the staff of the SEC has not reviewed the disclosures in this
prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next shorter period if
the same period is no longer offered) at the current interest rate for that
period. You can transfer to another investment choice by giving us notice
within 30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest adjustment will not decrease the interest credited to your policy
below 3% per year, however. You bear the risk that we will not credit interest
greater than 3% per year. We determine credited rates, which are guaranteed for
at least one year, in our sole discretion.
If you select the fixed account, your money will be placed with PFL's other
general assets. The amount of money you are able to accumulate in the fixed
account during the accumulation phase depends upon the total interest credited.
The amount of annuity payments you receive during the income phase from the
fixed portion of your policy will remain level for the entire income phase.
Transfers
During the accumulation phase, you may make transfers to or from any mutual
fund subaccount, target series subaccount, or fixed account as often as you
wish within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. Within 30 days prior to the end of the guaranteed period you must notify us
that you wish to transfer the amount in that guaranteed period option to
another investment choice. No excess interest adjustment will apply.
. Transfers of amounts equal to interest credited. 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 transfers 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
option except through the dollar cost averaging program.
Transfers out of a mutual fund subaccount or target series subaccount must be
at least $500, or the entire mutual fund subaccount or target series subaccount
value. Transfers of
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guaranteed period option amounts equal to interest credited must be at least
$50. If less than $500 remains, then we reserve the right to either deny the
transfer or include that amount in the transfer. Transfers must be received
while the New York Stock Exchange is open to get same-day pricing of the
transaction.
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 and no limit on the number of
transfers during the accumulation phase. However, in the future, the number of
transfers permitted may be limited and a $10 charge per transfer may apply. We
reserve the right to prohibit transfers to the fixed account if we are
crediting an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies or would otherwise be potentially adversely affected or
if an underlying portfolio would reject our purchase order.
4.PERFORMANCE
PFL periodically advertises performance of the various 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 mutual fund subaccounts, 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, for mutual fund subaccounts, 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.
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.
Additional performance information regarding the target series subaccounts is
in Appendix B and in the SAI.
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5.EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value
(restrictions may apply to qualified policies). Cash value is the policy value
increased or decreased by any excess interest adjustment, less the annual
service charge, and less any applicable surrender charge, premium taxes, and
family income protector rider fees. We may apply a surrender charge to
compensate us for expenses relating to policy sales, including commissions to
registered representatives and other promotional expenses. 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 and is
determined at the time of withdrawal. (The free percentage is not cumulative,
so not withdrawing anything in one year does not increase the free withdrawal
amount in subsequent years.) If you withdraw money in excess of 10% of your
policy value, you might have to pay a surrender charge, which is a contingent
deferred sales charge, on the excess amount. The following schedule shows the
surrender charges that apply during the seven years following each premium
payment:
<TABLE>
<CAPTION>
Surrender Charge
Number of Years Since (as a percentage of
Premium Payment Date premium withdrawn)
- --------------------------------------------
<S> <C>
0-1 7%
- --------------------------------------------
1-2 7%
- --------------------------------------------
2-3 6%
- --------------------------------------------
3-4 6%
- --------------------------------------------
4-5 5%
- --------------------------------------------
5-6 4%
- --------------------------------------------
6-7 2%
</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).
You receive the full amount of a requested partial withdrawal because we deduct
any applicable surrender charge (and any negative excess interest adjustment)
from your remaining policy value. You receive your cash value upon full
surrender.
For surrender charge purposes, the oldest premium is considered to be withdrawn
first.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2,
may be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or the unemployment waiver.
Excess Interest Adjustment
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce the interest
credited in the fixed account to the guaranteed minimum of 3% per year. See
"Excess Interest Adjustment" in Section 6 of this prospectus.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the
current charges will be insufficient in the future to cover costs of
administering the policy. For the Return of Premium Death Benefit the mortality
and expense risk fee is at an annual rate of 1.25% of assets. During the
accumulation phase, for the 5% Annually Compounding Death Benefit, the Greater
of 5% Annually Compounding through age 80 Death Benefit or the Annual Step-Up
through age 80 Death Benefit, and the Monthly Step-Up through age 80 Death
Benefit, the mortality and expense risk fee is at an annual rate of 1.40% of
assets. During the income phase, the mortality and expense risk fee always is
at an annual rate of 1.25% of assets. This annual fee is assessed daily based
on the net
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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
policy. This charge is equal to an annual rate of 0.15% 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 premiums, less
all partial withdrawals, is at least $50,000.
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 before the annuity
commencement date. If you make more than 12 transfers per year, we reserve the
right to charge $10 for each additional transfer. Premium payments, asset
rebalancing and dollar cost averaging transfers are not considered transfers.
All transfer requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual rider fee is also deducted
if you surrender the policy. We may raise these fees in the future.
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 prospectuses for the underlying funds.
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 the
adviser's 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:
. legal expenses;
. accounting and auditing services;
. interest;
. taxes;
. costs of printing and distributing reports to shareholders;
. proxy materials and prospectuses;
. custodian, transfer agent and dividend disbursing agent charges;
. registration fees;
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. 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.
6.ACCESS TO YOUR MONEY
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 systematic payouts.
Surrenders
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment; minus
. surrender charges; minus
. any applicable premium taxes, service charges, and family income protector
rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of
the investment choices in proportion to the policy value.
After one year, you may take the greater of 10% of your premium or any gains in
the policy free of surrender charges once each policy year. Remember that any
withdrawal you take will reduce the policy value, and might reduce the amount
of the death benefit. See Section 8, Death Benefit, for more details.
Withdrawals may be subject to a surrender charge. Withdrawals from the fixed
account may also be subject to an excess interest adjustment. Income taxes,
federal tax penalties and certain restrictions may apply to any withdrawals you
make.
Withdrawals from qualified policies may be restricted or prohibited.
During the income phase, you will receive annuity payments under the annuity
payment option you select; however, you generally may not take any other
withdrawals, either complete or partial.
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 PFL receives all
required information. PFL may 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;
. 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. We
may defer payment of any amount until your premium check has cleared your bank.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in the guaranteed period option) may be subject to
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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.
Generally, all withdrawals from a guaranteed payment option during the first
policy year are subject to an excess interest adjustment. Any amount withdrawn
during a subsequent policy year in excess of the free percentage amount is also
generally subject to an excess interest adjustment. Beginning in the second
policy year, you can, however, withdraw up to the free percentage amount once
each policy year without an excess interest adjustment.
There will be no excess interest adjustment on any of the following:
. a lump sum withdrawal of up to the free percentage amount;
. nursing care and terminal condition withdrawals;
. unemployment waivers;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed 10% of the premium.
Please note that in these circumstances you will not receive a higher cash
value if interest rates have fallen nor will you receive a lower cash value if
interest rates have risen.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
written notice 30 days before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85 (in
certain cases, we may allow the date to be up to the last day of the month
following the month in which the annuitant attains age 95).
Election of Annuity Payment Option. Before the annuity commencement date, if
the annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one
of the annuity payment options (unless you become the new annuitant).
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may choose any combination of annuity payment options. We will use your
"adjusted policy value" to provide these annuity payments. The adjusted policy
value is the policy value increased or decreased by any applicable excess
interest adjustment. If the adjusted policy value on the annuity commencement
date is less than $2,000, PFL reserves the right to pay it in one lump sum in
lieu of applying it under an annuity payment option. You can receive annuity
payments monthly, quarterly, semi-annually, or annually. (We reserve the right
to change the frequency if payments would be less than $50.)
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive 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
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performance exceeds the assumed investment return, the amount of the variable
annuity payments would increase. Conversely, if actual investment performance
is lower than the assumed investment return, the amount of the variable annuity
payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
use to provide annuity payments in equal payments, or this amount may be left
to accumulate for a period of time you and PFL agree to. You and PFL will agree
on withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
Fixed Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second (third, fourth,
etc.) annuity payment;
THEN:
. we may make only one (two, three, etc.) annuity payments.
IF:
. you choose Income for a Specified Period, Life Income with 10 years Certain,
Life Income with Guaranteed Return of Policy Proceeds, or Income of a
Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible for
keeping PFL informed of their current address.
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8.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
an owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below). The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and an owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any
owner. These requirements are detailed in the SAI.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner (unless it is your spouse) must generally surrender the policy
within five years of your death for the policy value increased or decreased
by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice 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 (this could be
more
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than the policy value if there is a positive excess interest adjustment that
exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the four guaranteed
minimum death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A. 5% Annually Compounding Death Benefit
The 5% Annually Compounding Death Benefit is:
. the total premium payments; less
. any adjusted partial withdrawals; plus
. interest at an effective annual rate of 5% from the premium payment date
or withdrawal date to the date of death.
The 5% Annually Compounding Death Benefit is not available if the owner or
annuitant is 75 or older on the policy date. There is an extra charge for
this death benefit.
B. Greater of 5% Annually Compounding through age 80 Death Benefit or Annual
Step-Up through age 80 Death Benefit
The death benefit under this option is the greater of:
1. The 5% Annually Compounding through age 80 Death Benefit is:
. the total premium payments; less
. any adjusted partial withdrawals; plus
. interest at an effective annual rate of 5% from the premium payment
date or withdrawal date to the earlier of the annuitant's date of
death or the annuitant's 81st birthday.
2. The Annual Step-Up through age 80 Death Benefit is:
. the largest policy value on the policy date or on any policy
anniversary prior to the earlier of the annuitant's date of death or
the annuitant's 81st birthday; plus
. any premium payments subsequent to the date of any policy anniversary
with the largest policy value; minus
. any adjusted partial withdrawals subsequent to the date of the policy
anniversary with the largest policy value.
These benefits are not available if the owner or annuitant is age 81 or
older on the policy date.
C. Monthly Step-Up through age 80 Death Benefit
The Monthly Step-Up through age 80 Death Benefit is:
. the largest policy value on the policy date or on any monthly
anniversary prior to the earlier of the annuitant's date of death or the
annuitant's 81st birthday; plus
. any premium payments subsequent to the date of any monthly anniversary
with the largest policy value; minus
. any adjusted partial withdrawals subsequent to the date of the monthly
anniversary with the largest policy value.
This benefit is not available if the owner or annuitant is age 81 or older
on the policy date.
D.Return of Premium Death Benefit
The Return of Premium Death Benefit is:
. 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 death benefit options on the policy application. The
charges are lower for this option than for the other three.
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IF, under all four death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
9.TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in the
SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that 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).
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.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals to
make contributions, which may be deductible, to the policy. A Roth IRA also
allows individuals to make contributions to the policy, but it does not
allow a deduction for contributions, and distributions may be tax-free if
the owner meets certain rules.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the policy on a pre-tax basis.
. Corporate Pension and Profit-Sharing and H.R. 10 Plan: Employers and self-
employed individuals can establish pension or profit-sharing plans for their
employees or themselves and make contributions to the policy on a pre-tax
basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the policy.
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.
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Withdrawals--Qualified Policies
The information herein describing the taxation of nonqualified policies does
not apply to qualified policies. There are special rules that govern with
respect to qualified policies. Generally, these rules restrict:
. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policies.
In addition, a penalty tax may be assessed on amounts withdrawn from the policy
prior to the date you reach age 59 1/2, unless you meet one of the exceptions
to this rule. You may also be required to begin taking minimum distributions
from the policy by a certain date. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more
information in the SAI. You should consult your legal counsel or tax adviser if
you are considering purchasing a policy for use with any retirement plan.
Withdrawals--403(b) Policies
The Internal Revenue Code limits withdrawal from certain 403(b) policies.
Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. declares hardship. However, in the case of hardship, the owner can only
withdraw the premium payments and not any earnings.
Tax Status of the Policy
The following discussion is based on the assumption that the policy is a non-
qualified policy that 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 with each underlying fund 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. The adviser reserves the right to
depart from either target series subaccount's investment strategy in order to
meet these diversification requirements.
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.
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 target account. PFL 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 policy must meet certain distribution
requirements at the
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death of an owner in order to be treated as an annuity policy. These
distribution requirements are discussed in the SAI. PFL may modify the policy
to attempt to maintain favorable tax treatment.
Withdrawals--Nonqualified Policies
If you make a withdrawal from your policy before the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed
on the amount of the withdrawal that is earnings. (The excess interest
adjustment resulting from the withdrawal may affect the amount on which you are
taxed. The tax treatment of excess interest adjustments is uncertain. You
should consult a tax adviser if a withdrawal results in an excess interest
adjustment.) Different rules apply for annuity payments. See "Annuity Payments"
below.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after an owner dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified annuity policies that are issued by PFL (or its
affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distributions occurs.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments (less amounts received which were not
includable in gross income). The same tax treatment applies to any amounts
distributed after an owner's death.
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
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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 an annuitant died, the
excess (if any) of the "investment in the contract" as of the annuity
commencement date over the aggregate amount of annuity payments received that
was excluded from gross income is generally allowable as a deduction for your
last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant or payee or other beneficiary who is not also the owner, the
selection of certain annuity commencement dates, or a change of annuitant, may
result in certain income or gift tax consequences to the owner that are beyond
the scope of this discussion. An owner contemplating any such transfer,
assignment, selection, or change should contact a competent tax adviser with
respect to the potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the policy could change by
legislation or otherwise. You should consult a tax adviser with respect to
legal developments and their effect on the policy.
10. ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time (during the accumulation phase) to receive regular
payments from your policy by using the systematic payout option. Under this
option, you can receive the greater of:
. up to 10% (annually) of your premium; and
. any gains in the policy, divided by the number of payouts made per year.
This amount may be taken free of surrender charges (and excess interest
adjustments). Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50. Monthly and quarterly payments
must be made by electronic funds transfer directly to your checking or savings
account. There is no charge for this benefit.
Family Income Protector
The family income protector may vary by state and may not be available in all
states.
The optional "family income protector" rider assures you of a minimum level of
income in the future by guaranteeing a minimum annuitization value (discussed
below) after 10 years. You may elect to purchase this benefit, which guarantees
the total amount you will have to apply to a family income protector payment
option and which guarantees a minimum amount for those payments once you begin
to receive them. By electing this benefit, you can participate in the gains of
the underlying variable investment options you select while knowing that you
are guaranteed a minimum level of income in the future, regardless of the
performance of the underlying variable investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the adjusted policy value or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
. the policy value on the date the rider is issued; plus
. any additional premium payments; minus
. an adjustment for any withdrawals made after the date the rider is issued;
. which is accumulated at the annual growth rate written on page one of the
rider; minus
. any premium taxes.
The annual growth rate is currently 6% per year. PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per
year. Once the rider is added to your policy, the annual growth rate will not
vary during the life of that rider. Withdrawals may reduce the minimum
annuitization value on a basis greater than dollar-for-dollar. See the SAI for
more information.
36
<PAGE>
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in Section 7 of this prospectus. The family income
protector payment options are:
. Life Income--An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of the
chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor--An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant or
joint annuitant is living. In the event of the death of both the annuitant
and joint annuitant prior to the end of the chosen period certain, the
remaining period certain payments will be continued to the beneficiary.
The minimum annuitization value is used solely to calculate the family income
protector annuity payments. The family income protector does not establish or
guarantee policy value or guarantee performance of any investment option.
Because this benefit is based on conservative actuarial factors, the level of
lifetime income that it guarantees may be less than the level that would be
provided by application of the policy value at otherwise applicable annuity
factors. Therefore, the family income protector should be regarded as a safety
net. The costs of annuitizing under the family income protector include the
guaranteed payment fee, and also the lower payout levels inherent in the
annuity tables used for those minimum payouts. These costs should be balanced
against the benefits of a minimum payout level.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, the guaranteed payment fee, and the
waiting period before the family income protector can be exercised) are also
guaranteed not to change after the rider is added. However, all of these
benefit specifications may change if you select 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 85th birthday (earlier if required by state law). For your convenience, we
will put the last date to upgrade on page one of the rider.
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the
family income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy anniversary.
Conditions of Exercise of the Family Income Protector. You can only annuitize
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade. PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully--If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family
income protector are guaranteed to never be less than the initial payment. See
the SAI for information concerning the calculation of the initial payment. The
payments will also be "stabilized" or held constant during each policy year.
37
<PAGE>
During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized payment will increase or
decrease depending on the performance of the investment options you selected
(but will never be less than the initial payment), and then be held constant
at that amount for that policy year. The stabilized payment on each policy
anniversary will equal the greater of the initial payment or the payment
supportable by the annuity units in the selected investment options. See the
SAI for additional information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
annuitization value on the policy anniversary, is charged annually prior to
annuitization. We will also charge this fee if you take a complete withdrawal.
The rider fee is deducted from each variable investment option in proportion
to the amount of policy value in each mutual fund subaccount and target series
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.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
effective annual rate of 1.25% of the daily net asset value in the mutual fund
account and/or the target account, is reflected in the amount of the variable
payments you receive if you annuitize under the family income protector rider.
The guaranteed payment fee is included on page one of the rider.
Termination. The family income protector is irrevocable. You have the option
not to use the benefit but you will not receive a refund of any fees you have
paid. The family income protector will terminate upon the earliest of the
following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94th birthday (earlier if
required by state law).
Nursing Care and Terminal Condition Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
Unemployment Waiver
No surrender charges or excess interest adjustment will apply to withdrawals
if you or your spouse is unemployed. In order to qualify, you (or your spouse,
whichever is applicable) must have been:
. employed full time for at least two years prior to becoming unemployed; and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of the withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
38
<PAGE>
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy enrollment form or enrollment information; or
. you later complete an authorization form.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone and we may record your telephone
call. 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 get same-day pricing of the transaction. We may discontinue this option at
any time.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option, the Dreyfus U.S.
Government Securities Subaccount, or the Endeavor Money Market Subaccount, into
any other mutual fund subaccounts and/or target series subaccounts. There is no
charge for this program.
Complete and clear instructions must be received before a dollar cost averaging
program will begin. The instructions must include:
. the subaccounts into which money from the dollar cost averaging fixed
account (or other subaccount(s) used for dollar cost averaging) is to be
transferred; and
. either the dollar amount to transfer monthly or quarterly (each transfer
must be at least $500) or the number of transfers (minimum of 6 monthly or 4
quarterly and maximum of 24 monthly or 8 quarterly).
Transfers must begin within 30 days. We will make the transfers on the 28th day
of the applicable month. You may change your allocations at anytime.
Only one dollar cost averaging program can run at one time. This means that any
addition to a dollar cost averaging program must change either the length of
the program or the dollar amount of the transfers. New instructions must be
received each time there is an addition to a dollar cost averaging program.
Any amount in the dollar cost averaging fixed account (or other subaccount(s)
used for dollar cost averaging) for which we have not received complete and
clear instructions will remain in the dollar cost averaging fixed account (or
other such subaccount) until we receive the instructions. If we have not
received complete and clear instructions within 30 days, the interest credited
in the dollar cost averaging fixed account may be adjusted downward, but not
below the guaranteed effective annual interest rate of 3%.
Dollar cost averaging buys more accumulation units when prices are low and
fewer accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance
the amounts in your 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
39
<PAGE>
program or if any other transfer is requested. If a transfer is requested, we
will honor the requested transfer and discontinue asset rebalancing. New
instructions are required to start asset rebalancing. Asset rebalancing ignores
amounts in the fixed account. You can choose to rebalance monthly, quarterly,
semi-annually, or annually.
11. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying 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. There may be limitations on your ability to assign a qualified
policy. An assignment may have tax consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc. is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily
in the insurance business. PFL is licensed in the District of Columbia, Guam,
and in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The 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 1940 Act. However, the SEC does not supervise the
management, the investment practices, or the policies of the mutual fund
account or PFL. Income, gains and losses, whether or not realized, from assets
allocated to the mutual fund account are, in accordance with the policies,
credited to or charged against the mutual fund account without regard to PFL's
other income, gains or losses.
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.
The Target Account
PFL established the PFL Endeavor Target Account under the laws of the state of
Iowa on September 15, 1997. The target account is registered with the SEC under
the 1940 Act, 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.
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.
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<PAGE>
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular mutual fund subaccount, please read the prospectuses for the
underlying funds. The underlying funds are not limited to selling their shares
to this mutual fund account and can accept investments from any separate
account or qualified retirement plan of an insurance company. Since the
portfolios of the underlying funds are available to registered separate
accounts offering variable annuity products of PFL, as well as variable annuity
and variable life products of other insurance companies, and qualified
retirement plans, there is a possibility that a material conflict may arise
between the interests of this mutual fund account and one or more of the other
accounts of another participating insurance company. In the event of a material
conflict, the affected insurance companies, including PFL, agree to take any
necessary steps to resolve the matter. This includes removing their 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 management agreement;
. changes in the fundamental investment policies;
. any other matter requiring a vote of persons holding voting interests; and
. matters pursuant to the requirements of Rules 12b-1 and 18f-2 of the
Investment Company Act of 1940.
In response to an exemptive application filed by the manager, the SEC has
issued an exemptive order that will permit the manager, subject to certain
conditions, and without the approval of owners who have an interest in a target
series subaccount to: (a) employ a new unaffiliated investment adviser for a
target series subaccount pursuant to the terms of a new investment advisory
agreement, in each case either as a replacement for an existing investment
adviser or as an additional investment adviser; (b) change the terms of any
investment advisory agreement; and (c) continue the employment of an existing
investment adviser on the same advisory contract terms where a contract has
been assigned because of a change in control of the investment adviser. In such
circumstances, owners who have an interest in a target series subaccount would
receive notice of such action, including the information concerning the
investment adviser that normally is provided in a proxy statement. The
exemptive order also permits disclosure of fees paid to multiple unaffiliated
investment advisers on an aggregate basis only.
On certain matters, each target series subaccount may vote separately. Each
person
41
<PAGE>
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 a Transamerica Company and an indirect wholly owned subsidiary of
AEGON USA, Inc. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG Securities Corporation is registered as a broker/dealer under
the Securities Exchange Act of 1934. It is a member of the National Association
of Securities Dealers, Inc.
Commissions of up to 6.25% 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.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or
in riders or endorsements attached to your policy.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of individual life
insurance and annuity products. Companies must undergo a rigorous self and
independent assessment of their practices to become a member of IMSA. The IMSA
logo in our sales literature shows our ongoing commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the 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 subaccounts, and the target
series subaccounts are included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Special Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Family Income Protector--Additional Information
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
42
<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 at End Units at
of Year of Year End of Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch Basic Value Focus ML
Subaccount
1999.............................. $1.128892 $1.343442 10,438,672.328
1998.............................. $1.045149 $1.128892 1,297,000.676
1997(/1/)......................... $1.000000 $1.045149 1,158,912.186
- -------------------------------------------------------------------------------
Merrill Lynch High Current Income
ML Subaccount
1999.............................. $0.991602 $1.032293 6,868,040.687
1998.............................. $1.036753 $0.991602 1,798,460.840
1997(/1/)......................... $1.000000 $1.036753 1,515,274.846
- -------------------------------------------------------------------------------
Merrill Lynch Developing Capital
Markets Focus ML Subaccount
1999.............................. $0.540808 $0.0879578 1,905,288.618
1998.............................. $.776036 $0.540808 265,187.471
1997(/1/)......................... $1.000000 $0.776036 731,215.174
- -------------------------------------------------------------------------------
Dreyfus Small Cap Value ML
Subaccount
1999.............................. $1.785929 $2.270485 6,466,464.732
1998.............................. $1.849865 $1.785929 767,224.503
1997(/1/)......................... $1.763002 $1.849865 1,303,710.955
- -------------------------------------------------------------------------------
Dreyfus U.S. Government Securities
ML Subaccount
1999.............................. $1.286733 $1.253314 4,528,567.266
1998.............................. $1.214143 $1.286733 1,216,510.180
1997(/1/)......................... $1.156486 $1.214143 250,859.166
- -------------------------------------------------------------------------------
Endeavor Asset Allocation ML
Subaccount
1999.............................. $2.535888 $3.149277 5,298,098.838
1998.............................. $2.170350 $2.535888 581,570.894
1997(/1/)......................... $2.073492 $2.170350 560,006.492
- -------------------------------------------------------------------------------
Endeavor Money Market ML Subaccount
1999.............................. $1.239556 $1.275932 4,284,434.467
1998.............................. $1.195541 $1.239556 358,756.987
1997(/1/)......................... $1.174747 $1.195541 237,144.180
- -------------------------------------------------------------------------------
Endeavor Enhanced Index ML
Subaccount
1999.............................. $1.577775 $1.831774 15,093,778.210
1998.............................. $1.216754 $1.577775 972,108.717
1997(/1/)......................... $1.140312 $1.216754 842,854.350
- -------------------------------------------------------------------------------
Endeavor High Yield ML Subaccount
1999.............................. $0.961203 $1.000739 2,298,661.602
1998(/3/)......................... $1.000000 $0.961203 121,411.851
</TABLE>
43
<PAGE>
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
continued
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning at End Units at
of Year of Year End of Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Janus Growth ML Subaccount
1999............................... $31.898334 $49.870147 1,363,436.730
1998............................... $19.650673 $31.898334 90,917.724
1997(/1/).......................... $19.367467 $19.650673 134,838.617
- -------------------------------------------------------------------------------
Endeavor Opportunity Value ML
Subaccount
1999............................... $1.200101 $1.235669 4,272,750.319
1998............................... $1.156145 $1.200101 602,380.346
1997(/1/).......................... $1.103566 $1.156145 823,035.993
- -------------------------------------------------------------------------------
Endeavor Value Equity ML Subaccount
1999............................... $2.212928 $2.107887 4,454,289.314
1998............................... $2.084599 $2.212928 504,437.700
1997(/1/).......................... $1.951455 $2.084599 695,791.985
- -------------------------------------------------------------------------------
Endeavor Select ML Subaccount
1999............................... $1.052609 $1.530432 3,024,268.788
1998(/2/).......................... $1.000000 $1.052609 282,424.968
- -------------------------------------------------------------------------------
T. Rowe Price Equity Income ML
Subaccount
1999............................... $2.065623 $2.099984 8,897,631.087
1998............................... $1.923605 $2.065623 1,136,105.291
1997(/1/).......................... $1.757991 $1.923605 1,205,031.181
- -------------------------------------------------------------------------------
T. Rowe Price Growth Stock ML
Subaccount
1999............................... $2.593121 $3.113428 7,893,482.303
1998............................... $2.041994 $2.593121 648,309.723
1997(/1/).......................... $1.905196 $2.041994 863,752.125
- -------------------------------------------------------------------------------
T. Rowe Price International Stock ML
Subaccount
1999............................... $1.533035 $1.993671 5,444,716.625
1998............................... $1.345562 $1.533035 716,581.848
1997(/1/).......................... $1.490376 $1.345562 1,418,820.061
</TABLE>
44
<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 at End Units at
of Year of Year End of Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch Basic Value Focus ML
Subaccount
1999.............................. $1.126397 $1.348411 2,454,557.131
1998.............................. $1.045922 $1.126397 5,316,789.797
1997(/1/)......................... $1.000000 $1.045922 279,869.269
- -------------------------------------------------------------------------------
Merrill Lynch High Current Income
ML Subaccount
1999.............................. $0.989413 $1.036111 1,743,155.373
1998.............................. $1.037515 $0.989413 5,690,546.719
1997(/1/)......................... $1.000000 $1.037515 296,791.692
- -------------------------------------------------------------------------------
Merrill Lynch Developing Capital
Markets Focus ML Subaccount
1999.............................. $0.539622 $0.882824 423,799.182
1998.............................. $0.776606 $0.539622 1,369,352.447
1997(/1/)......................... $1.000000 $0.776606 190,773.375
- -------------------------------------------------------------------------------
Dreyfus Small Cap Value ML
Subaccount
1999.............................. $1.781970 $2.278888 $1,327,060.532
1998.............................. $1.851229 $1.781970 4,007,192.724
1997(/1/)......................... $1.763002 $1.851229 427,723.238
- -------------------------------------------------------------------------------
Dreyfus U.S. Government Securities
ML Subaccount
1999.............................. $1.283878 $1.255919 1,667,132.394
1998.............................. $1.215033 $1.283878 2,530,595.105
1997(/1/)......................... $1.156486 $1.215033 142,705.078
- -------------------------------------------------------------------------------
Endeavor Asset Allocation ML
Subaccount
1999.............................. $2.530280 $3.160924 1,189,043.271
1998.............................. $2.171948 $2.530280 2,567,841.512
1997(/1/)......................... $2.073492 $2.171948 146,972.115
- -------------------------------------------------------------------------------
Endeavor Money Market ML Subaccount
1999.............................. $1.236824 $1.280646 547,317.665
1998.............................. $1.196418 $1.236824 1,488,032.472
1997(/1/)......................... $1.174747 $1.196418 186,769.997
1997(/1/)......................... $1.757991 $1.925022 399,676.687
- -------------------------------------------------------------------------------
Endeavor Enhanced Index ML
Subaccount
1999.............................. $1.574288 $1.838549 3,001,172.313
1998.............................. $1.217647 $1.574288 4,212,857.466
1997(/1/)......................... $1.140312 $1.217647 517,261.206
- -------------------------------------------------------------------------------
Endeavor High Yield ML Subaccount
1999.............................. $0.960378 $1.003083 625,739.546
1998(/3/)......................... $1.000000 $0.960378 277,923.144
- -------------------------------------------------------------------------------
Endeavor Janus Growth ML Subaccount
1999.............................. $31.827882 $50.054351 292,621.286
1998.............................. $19.665157 $31.827882 468,647.981
1997(/1/)......................... $19.367467 $19.665157 22,707.469
- -------------------------------------------------------------------------------
Endeavor Opportunity Value ML
Subaccount
1999.............................. $1.197456 $1.240246 941,150.633
1998.............................. $1.156993 $1.197456 4,355,754.613
1997(/1/)......................... $1.103566 $1.156993 278,938.732
</TABLE>
45
<PAGE>
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
continued.......
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning at End Units at
of Year of Year End of Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Value Equity ML Subaccount
1999............................... $2.208027 $2.115695 961,278.161
1998............................... $2.086130 $2.208027 3,058,826.681
1997(/1/).......................... $1.951455 $2.086130 185,606.823
- -------------------------------------------------------------------------------
Endeavor Select ML Subaccount
1999............................... $1.051197 $1.534754 447,744.356
1998(/2/).......................... $1.000000 $1.051197 2,154,769.996
- -------------------------------------------------------------------------------
T. Rowe Price Equity Income ML
Subaccount
1999............................... $2.061049 $2.107761 1,871,943.660
1998............................... $1.925022 $2.061049 5,183,438.967
1997(/1/).......................... $1.757991 $1.925022 399,676.687
- -------------------------------------------------------------------------------
T. Rowe Price Growth Stock ML
Subaccount
1999............................... $2.587405 $3.124914 1,602,288.797
1998............................... $2.043487 $2.587405 3,959,439.113
1997(/1/).......................... $1.905196 $2.043487 275,873.510
- -------------------------------------------------------------------------------
T. Rowe Price International Stock ML
Subaccount
1999............................... $1.529630 $2.001071 1,186,858.494
1998............................... $1.346560 $1.529630 3,171,012.285
1997(/1/).......................... $1.490376 $1.346560 396,884.393
</TABLE>
(/1/Period)from July 3, 1997 through December 31, 1997.
(/2/Period)from February 2, 1998 through December 31, 1998.
(/3/Period)from June 2, 1998 through December 31, 1998.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the corresponding unit values for each death benefit did
not change.
The Transamerica VIF Growth Subaccount, Fidelity--VIP Equity-Income Subaccount,
Fidelity--VIP II Contrafund(R) Subaccount, Fidelity--VIP III Growth
Opportunities Subaccount, Fidelity--VIP III Mid Cap Subaccount, WRL Alger
Aggressive Growth Subaccount, WRL Goldman Sachs Growth Subaccount, WRL Janus
Global Subaccount, WRL NWQ Value Equity Subaccount, WRL Pilgrim Baxter Mid Cap
Growth Subaccount, WRL Salomon All Cap Subaccount, WRL T. Rowe Price Dividend
Growth Subaccount, and WRL T. Rowe Price Small Cap Subaccount had not commenced
operations as of December 31, 1999, therefore, comparable data is not
available.
46
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Target Account
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
<TABLE>
<CAPTION>
The Dow The Dow The Dow The Dow
Target 10 Target 5 Target 10 Target 5
Subaccount Subaccount Subaccount Subaccount
(January Series) (January Series) (July Series) (July Series)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
1999(/2/).............. .0281795 .0290533 .0284733 .0308102
1998(/1/).............. N/A N/A .0090092 .0049654
- -----------------------------------------------------------------------------------------
Expenses
1999(/2/).............. (.0269546) (.026245) (.0273769) (.0280579)
1998(/1/).............. N/A N/A (.0081752) (.0021646)
- -----------------------------------------------------------------------------------------
Net investment income
1999(/2/).............. .00122489 .00280831 .00109642 .00275228
1998(/1/).............. N/A N/A .0083407 .00280077
- -----------------------------------------------------------------------------------------
Net realized and
unrealized gains
(losses) on securities
1999(/2/).............. (.0182839) (.0927573) (.241121) (.1615493)
1998(/1/).............. N/A N/A .0331629 .1185332
- -----------------------------------------------------------------------------------------
Net increase (decrease)
in Accumulation unit
value
1999(/2/).............. (.017059) (.089949) (.023590) (.158797)
1998(/1/).............. N/A N/A .033997 .121334
- -----------------------------------------------------------------------------------------
Accumulation unit value
at beginning of period
1999(/2/).............. 1.000000 1.000000 1.033997 1.121334
1998(/1/).............. N/A N/A 1.000000 1.000000
- -----------------------------------------------------------------------------------------
Accumulation unit value
at end of period
1999(/2/).............. .982941 .910051 1.010407 .962537
1998(/1/).............. N/A N/A 1.033997 1.121334
- -----------------------------------------------------------------------------------------
Expenses to average net
assets
1999(/2/).............. 1.18% 1.21% 1.12% 1.04%
1998(/1/).............. N/A N/A 1.30% 1.30%
- -----------------------------------------------------------------------------------------
Portfolio turnover rates
1999(/2/).............. 0% 0% 0% 0%
1998(/1/).............. N/A N/A 0% 0%
- -----------------------------------------------------------------------------------------
Number of accumulation
units Outstanding at
end of period
1999(/2/).............. 2,389,260 1,633,365 3,364,745 1,693,186
1998(/1/).............. N/A N/A 1,304,684 662,269
</TABLE>
47
<PAGE>
Return of Premium Death Benefit*
<TABLE>
<CAPTION>
The Dow The Dow The Dow The Dow
Target 10 Target 5 Target 10 Target 5
Subaccount Subaccount Subaccount Subaccount
(January Series) (January Series) (July Series) (July Series)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
1999(/2/).............. .0283014 .0294578 .0284609 .0310449
1998(/1/).............. N/A N/A .0013818 .0009835
- -----------------------------------------------------------------------------------------
Expenses
1999(/2/).............. (.0252287) (.02606110) (.0256598) (.0270384)
1998(/1/).............. N/A N/A (.0011218) (.0004288)
- -----------------------------------------------------------------------------------------
Net investment income
1999(/2/).............. .00307277 .00339671 .00280113 .00400651
1998(/1/).............. N/A N/A .00026003 .00055475
- -----------------------------------------------------------------------------------------
Net realized and
unrealized gains
(losses) on securities
1999(/2/).............. (.0186908) (.0920117) (.0249061) (.1614945)
1998(/1/).............. N/A N/A .0345040 .1216153
- -----------------------------------------------------------------------------------------
Net increase (decrease)
in Accumulation unit
value
1999(/2/).............. (.015618) (.088615) (.022105) .157488
1998(/1/).............. N/A N/A .034764 .122170
- -----------------------------------------------------------------------------------------
Accumulation unit value
at beginning of period
1999(/2/).............. 1.000000 1.000000 1.034764 1.122170
1998(/1/).............. N/A N/A 1.000000 1.000000
- -----------------------------------------------------------------------------------------
Accumulation unit value
at end of period
1999(/2/).............. .984382 .911385 1.012659 .964682
1998(/1/).............. N/A N/A 1.034764 1.122170
- -----------------------------------------------------------------------------------------
Expenses to average net
assets
1999(/2/).............. 1.18% 1.21% 1.12% 1.04%
1998(/1/).............. N/A N/A 1.30% 1.30%
- -----------------------------------------------------------------------------------------
Portfolio turnover rates
1999(/2/).............. 0% 0% 0% 0%
1998(/1/).............. N/A N/A 0% 0%
- -----------------------------------------------------------------------------------------
Number of accumulation
units Outstanding at
end of period
1999(/2/).............. 343,715 46,508 687,277 316,391
1998(/1/).............. N/A N/A 141,796 175,738
</TABLE>
(/1/)Period from July 1, 1998 through December 31, 1998 for The DowSM Target 10
(July Series) and The DowSM Target 5 (July Series). The DowSM Target 10
(January Series) and The DowSM Target 5 (January Series) had not commenced
operations as of December 31, 1998, therefore there was no Condensed
Financial Information to report for that period.
(/2/)Period from January 1, 1999 through December 31, 1999 for The DowSM Target
10 (January Series), The DowSM Target 5 (January Series), The DowSM Target
10 (July Series), and The DowSM Target 5 (July Series).
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the corresponding unit values for each death benefit did
not change.
48
<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 SAI, the average annual
total returns for periods from inception of the subaccounts to December 31,
1999, and for the one and five year periods ended December 31, 1999 are shown
in Table 1 below. Total returns shown reflect deductions for the mortality and
expense risk fee and the administrative charges. Performance figures may
reflect the 1.40% mortality and expense risk fee for the 5% Annually
Compounding and Double Enhanced Death Benefits, or the 1. 25% 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.
49
<PAGE>
TABLE 1--A
Standard Average Annual Total Returns
(Assuming A Surrender Charge and No Family Income Protector)
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.55%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date(/6/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value
Focus(/1/).................. 13.95% N/A 11.04% July 2, 1997
Merrill Lynch High Current
Income(/1/)................. (1.08%) N/A (0.54%) July 2, 1997
Merrill Lynch Developing
Capital Markets Focus(/1/).. 57.94% N/A (7.05%) July 2, 1997
Dreyfus Small Cap Value(/2/). 22.14% 15.88% 12.90% May 4, 1993
Dreyfus U.S. Government
Securities.................. (7.83%) 4.51% 3.72% May 9, 1994
Endeavor Asset Allocation.... 19.17% 19.05% 13.88% April 8, 1991
Endeavor Enhanced Index...... 11.02% N/A 24.36% May 1, 1997
Endeavor High Yield.......... (1.21%) N/A (3.44%) June 2, 1998
Endeavor Janus Growth(/3/)... 51.59% 37.56% 23.72% July 1, 1992
Endeavor Value Equity........ (10.00%) 14.76% 11.78% May 27, 1993
Endeavor Opportunity Value... (2.23%) N/A 5.97% November 18, 1996
Endeavor Select.............. 40.42% N/A 22.73% February 2, 1998
T. Rowe Price Equity Income.. (3.54%) N/A 15.63% January 3, 1995
T. Rowe Price Growth Stock... 15.01% N/A 25.24% January 3, 1995
T. Rowe Price International
Stock(/4/).................. 25.08% 12.85% 8.06% April 8, 1991
Transamerica VIF Growth(/5/). N/A N/A N/A May 1, 2000
Fidelity - VIP Equity-Income
- Service Class 2(/5/)...... N/A N/A N/A May 1, 2000
Fidelity - VIP II
Contrafund(R) -
Service Class 2(/5/)........ N/A N/A N/A May 1, 2000
Fidelity - VIP III Growth
Opportunities - Service
Class 2(/5/)................ N/A N/A N/A May 1, 2000
Fidelity - VIP III Mid Cap -
Service Class 2(/5/)........ N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Janus Global(/5/)........ N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/5/).... N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/5/)..... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/5/).................... N/A N/A N/A May 1, 2000
</TABLE>
50
<PAGE>
TABLE 1--B
Standard Average Annual Total Returns
(Assuming A Surrender Charge and No Family Income Protector)
Return of Premium Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date(/6/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value
Focus(/1/)................ 14.12% N/A 11.22% July 2, 1997
Merrill Lynch High Current
Income(/1/)............... (0.92%) N/A (0.39%) July 2, 1997
Merrill Lynch Developing
Capital
Markets Focus(/1/)........ 58.18% N/A (6.91%) July 2, 1997
Dreyfus Small Cap
Value(/2/)................ 22.33% 16.05% 13.06% May 4, 1993
Dreyfus U.S. Government
Securities................ (7.85%) 4.64% 3.84% May 9, 1994
Endeavor Asset Allocation.. 19.36% 19.23% 14.04% April 8, 1991
Endeavor Enhanced Index.... 11.19% N/A 24.54% May 1, 1997
Endeavor High Yield........ (1.05%) N/A (3.29%) June 2, 1998
Endeavor Janus Growth(/3/). 51.82% 37.77% 23.90% July 1, 1992
Endeavor Opportunity Value. (2.07%) N/A 6.13% November 18, 1996
Endeavor Value Equity...... (9.86%) 14.92% 11.92% May 27, 1993
Endeavor Select............ 40.64% N/A 22.92% February 2, 1998
T. Rowe Price Equity
Income.................... (3.39%) N/A 15.80% January 3, 1995
T. Rowe Price Growth Stock. 15.19% N/A 25.42% January 3, 1995
T. Rowe Price International
Stock(/4/)................ 25.28% 13.02% 8.23% April 8, 1991
Transamerica VIF
Growth(/5/)............... N/A N/A N/A May 1, 2000
Fidelity - VIP Equity-
Income - Service Class
2(/5/).................... N/A N/A N/A May 1, 2000
Fidelity - VIP II
Contrafund(R) -
Service Class 2(/5/)...... N/A N/A N/A May 1, 2000
Fidelity - VIP III Growth
Opportunities - Service
Class 2(/5/).............. N/A N/A N/A May 1, 2000
Fidelity - VIP III Mid Cap
- Service Class 2(/5/).... N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/5/)............... N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/5/)............... N/A N/A N/A May 1, 2000
WRL Janus Global(/5/)...... N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/5/).. N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/5/)... N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/5/)............... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/5/)............... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/5/).................. N/A N/A N/A May 1, 2000
</TABLE>
(/1/)The Subaccounts invest in Class A shares of Merrill Lynch Variable Series
Funds, Inc. portfolios. There are no 12b-1 fees deducted from Class A
shares.
(/2/)Effective September 16, 1996, 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.
51
<PAGE>
(/3/)EffectiveTApril 30, 1999, shares of the WRL Janus Growth Portfolio were
removed and replaced with shares of the Endeavor Janus Growth Portfolio.
The Endeavor Janus Growth Portfolio has the same investment objectives,
the same investment adviser (Janus Capital Corporation) and the same
advisory fees as the WRL Janus Growth Portfolio. Performance prior to May
1, 1999 reflects performance of the annuity subaccount while it was
invested in the WRL Janus Growth Portfolio.
(/4/)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).
(/5/)The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II ContraFund(R) Subaccount, Fidelity - VIP III
Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap Subaccount,
WRL Alger Aggressive Growth Subaccount, WRL Goldman Sachs Growth
Subaccount, WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount,
WRL Pilgrim Baxter Mid Cap Growth Subaccount, WRL Salomon All Cap
Subaccount, WRL T. Rowe Price Dividend Growth Subaccount, and WRL T. Rowe
Price Small Cap Subaccount had not commenced operations as of December 31,
1999, therefore, comparable information is not available.
(/6/)Performance prior to July 3, 1997, reflects performance of PFL Endeavor VA
Separate Account subaccounts prior to the offering of the PFL Endeavor ML
version of the policies.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
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 standardized data discussed above, similar performance data
for other periods may also be shown.
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-standardized 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-standardized performance data will be advertised only if the
standardized 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.
52
<PAGE>
TABLE 2--A
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge or Family Income Protector)
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.55%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date(/6/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value
Focus(/1/).................. 19.27% N/A 12.54% July 2, 1997
Merrill Lynch High Current
Income(/1/)................. 4.33% N/A 1.28% July 2, 1997
Merrill Lynch Developing
Capital Markets Focus(/1/).. 63.00% N/A (5.01%) July 2, 1997
Dreyfus Small Cap Value(/2/). 27.41% 16.09% 12.99% May 4, 1993
Dreyfus U.S. Government
Securities.................. (2.38%) 4.84% 4.01% May 9, 1994
Endeavor Asset Allocation.... 24.46% 19.27% 13.91% April 8, 1991
Endeavor Enhanced Index...... 16.36% N/A 25.45% May 1, 1997
Endeavor High Yield.......... 4.20% N/A 0.05% June 2, 1998
Endeavor Janus Growth(/3/)... 56.69% 37.66% 23.76% July 1, 1992
Endeavor Opportunity Value... 3.19% N/A 6.99% November 18, 1996
Endeavor Value Equity........ (4.54%) 14.99% 11.88% May 27, 1993
Endeavor Select.............. 45.59% N/A 24.96% February 2, 1998
T. Rowe Price Equity Income.. 1.89% N/A 15.94% January 3, 1995
T. Rowe Price Growth Stock... 20.33% N/A 25.45% January 3, 1995
T. Rowe Price International
Stock(/4/).................. 30.34% 13.09% 8.10% April 8, 1991
Transamerica VIF Growth(/5/). N/A N/A N/A May 1, 2000
Fidelity - VIP Equity-Income
- Service Class 2(/5/)...... N/A N/A N/A May 1, 2000
Fidelity - VIP II
Contrafund(R) -
Service Class 2(/5/)........ N/A N/A N/A May 1, 2000
Fidelity - VIP III Growth
Opportunities -
Service Class 2(/5/)........ N/A N/A N/A May 1, 2000
Fidelity - VIP III Mid Cap -
Service Class 2(/5/)........ N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Janus Global(/5/)........ N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/5/).... N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/5/)..... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/5/).................... N/A N/A N/A May 1, 2000
</TABLE>
53
<PAGE>
TABLE 2--B
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge and Family Income Protector)
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date(/6/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value
Focus(/1/).................. 19.45% N/A 12.72% July 2, 1997
Merrill Lynch High Current
Income(/1/)................. 4.49% N/A 1.43% July 2, 1997
Merrill Lynch Developing
Capital Markets Focus(/1/).. 63.24% N/A (4.87%) July 2, 1997
Dreyfus Small Cap Value(/2/). 27.60% 16.26% 13.16% May 4, 1993
Dreyfus U.S. Government
Securities.................. (2.39%) 4.96% 4.14% May 9, 1994
Endeavor Asset Allocation.... 24.65% 19.42% 14.08% April 8, 1991
Endeavor Enhanced Index...... 16.53% N/A 25.63% May 1, 1997
Endeavor High Yield.......... 4.36% N/A 0.19% June 2, 1998
Endeavor Janus Growth(/3/)... 56.92% 37.86% 23.94% July 1, 1992
Endeavor Opportunity Value... 3.35% N/A 7.15% November 18, 1996
Endeavor Value Equity........ (4.39%) 15.14% 12.02% May 27, 1993
Endeavor Select.............. 45.80% N/A 25.15% February 2, 1998
T. Rowe Price Equity Income.. 2.04% N/A 16.10% January 3, 1995
T. Rowe Price Growth Stock... 20.51% N/A 25.63% January 3, 1995
T. Rowe Price International
Stock(/4/).................. 30.53% 13.25% 8.26% April 8, 1991
Transamerica VIF Growth(/5/). N/A N/A N/A May 1, 2000
Fidelity - VIP Equity-Income
- Service Class 2(/4/)...... N/A N/A N/A May 1, 2000
Fidelity - VIP II
Contrafund(R) -
Service Class 2(/5/)........ N/A N/A N/A May 1, 2000
Fidelity - VIP III Growth
Opportunities -
Service Class 2(/5/)........ N/A N/A N/A May 1, 2000
Fidelity - VIP III Mid Cap -
Service Class 2(/5/)........ N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Janus Global(/5/)........ N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/5/).... N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/5/)..... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/5/)................. N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/5/).................... N/A N/A N/A May 1, 2000
</TABLE>
(/1/) The Subaccounts invest in Class A shares of Merrill Lynch Variable Series
Funds, Inc. portfolios. There are no 12b-1 fees deducted from Class A
shares.
(/2/) Effective September 16, 1996, 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.
54
<PAGE>
(/3/) Effective April 30, 1999, shares of the WRL Janus Growth Portfolio were
removed and replaced with shares of the Endeavor Janus Growth Portfolio.
The Endeavor Janus Growth Portfolio has the same investment objectives,
the same investment adviser (Janus Capital Corporation) and the same
advisory fees as the WRL Janus Growth Portfolio. Performance prior to May
1, 1999 reflects performance of the annuity subaccount while it was
invested in the WRL Janus Growth Portfolio.
(/4/) 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).
(/5/) The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund(R) Subaccount, Fidelity - VIP
III Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap
Subaccount, WRL Alger Aggressive Growth Subaccount, WRL Goldman Sachs
Growth Subaccount, WRL Janus Global Subaccount, WRL NWQ Value Equity
Subaccount, WRL Pilgrim Baxter Mid Cap Growth Subaccount, WRL Salomon All
Cap Subaccount, WRL T. Rowe Price Dividend Growth Subaccount, and WRL T.
Rowe Price Small Cap Subaccount had not commenced operations as of
December 31, 1999, therefore, comparable information is not available.
(/6/) Performance prior to July 3, 1997, reflects performance of PFL Endeavor
Variable Annuity Subaccounts prior to the offering of the Policies
through Merrill Lynch.
* As of May 1, 2000 the death benefits available under this policy have
been changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of
5% Annually Compounding through age 80 Death Benefit or Annual Step-Up
through age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4)
Return of Premium. However, the total separate account annual expenses
for each death benefit did not change.
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.
Adjusted Historical Performance Data of the Portfolios. The following
performance data for the periods prior to the date the subaccount commenced
operations is based on the performance of the corresponding portfolio and the
assumption that the applicable subaccount was in existence for the same period
as the corresponding portfolio with a level of charges equal to those currently
assessed against the subaccount or against owner's policy values.
In addition, PFL may present historic performance data for the portfolios since
their inception reduced by some or all the fees and charges under the policy.
Such adjusted historic performance includes data that precedes the inception
dates on the subaccounts. This data is designed to show the performance that
would have resulted if the policy had been in existence during that time.
For instance, as shown in Table 3 below, PFL may disclose average annual total
returns for the portfolios reduced by all fees and charges under the policy, as
if the policy had been in existence. Such fees and charges include the
mortality and expense risk fee and the administrative charge.
55
<PAGE>
TABLE 3--A
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/98 12/31/98 12/31/98 Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap
Value(/2/)................ 27.41% 16.09% 12.99% May 4, 1993
Dreyfus U.S. Government
Securities................ (2.38%) 4.84% 4.01% May 13, 1994
Endeavor Asset Allocation.. 24.46% 19.24% 13.91% April 8, 1991
Endeavor Enhanced Index.... 16.36% N/A 25.45% May 1, 1997
Endeavor High Yield........ 4.20% N/A 0.05% June 1, 1998
Endeavor Janus Growth...... 56.69% 37.66% 35.08% May 1, 1999
Endeavor Opportunity Value. 3.19% N/A 6.99% November 18, 1996
Endeavor Value Equity...... (4.54%) 14.99% 11.88% May 27, 1993
Endeavor Select............ 45.59% N/A 24.96% February 3, 1998
T. Rowe Price Equity
Income.................... 1.89% N/A 15.94% January 3, 1995
T. Rowe Price Growth Stock. 20.33% N/A 25.45% January 3, 1995
T. Rowe Price International
Stock(/3/)................ 30.34% 13.09% 8.10% April 8, 1991
Transamerica VIF
Growth(/4/)(/5/).......... 35.72% 45.88% 27.77%+ February 26, 1969
Fidelity - VIP Equity-
Income -
Service Class 2(/4/)(/6/). 4.63% 16.76% 12.72%+ October 9, 1986
Fidelity - VIP II
Contrafund(R) -
Service Class 2(/4/)(/6/). 22.27% N/A 25.76% January 3, 1995
Fidelity - VIP III Growth
Opportunities -
Service Class 2(/4/)(/6/). 2.58% N/A 19.66% January 3, 1995
Fidelity - VIP III Mid Cap
-
Service Class 2(/4/)(/6/). 46.72% N/A 50.74% December 28, 1998
WRL Alger Aggressive
Growth(/4/)............... 66.50% 34.56% 28.38% March 1, 1994
WRL Goldman Sachs
Growth(/4/)............... N/A N/A 16.82% May 3, 1999
WRL Janus Global(/4/)...... 68.58% 30.94% 25.98% December 3, 1992
WRL NWQ Value Equity(/4/).. 6.29% N/A 9.07% May 1, 1996
WRL Pilgrim Baxter Mid Cap
Growth(/4/)............... N/A N/A 76.30% May 3, 1999
WRL Salomon All Cap(/4/)... N/A N/A 14.41% May 3, 1999
WRL T. Rowe Price Dividend
Growth(/4/)............... N/A N/A (8.36%) May 3, 1999
WRL T. Rowe Price Small
Cap(/4/).................. N/A N/A 37.13% May 3, 1999
</TABLE>
- -------------------------------------------------------------------------------
+Ten Year Date
56
<PAGE>
TABLE 3--B
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
Return of Premium Death Benefit*
(Total Mutual Fund Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(/2/)... 27.60% 16.26% 13.16% May 4, 1993
Dreyfus U.S. Government
Securities.................... (2.39%) 4.96% 4.14% May 13, 1994
Endeavor Asset Allocation...... 24.65% 19.42% 14.08% April 8, 1991
Endeavor Enhanced Index........ 16.53% N/A 25.63% May 1, 1997
Endeavor High Yield............ 4.36% N/A 0.19% June 1, 1998
Endeavor Janus Growth.......... 56.92% 37.86% 35.21% May 1, 1999
Endeavor Opportunity Value..... 3.35% N/A 7.15% November 18, 1996
Endeavor Value Equity.......... (4.39%) 15.14% 12.02% May 27, 1993
Endeavor Select................ 45.80% N/A 25.15% February 3, 1998
T. Rowe Price Equity Income.... 2.04% N/A 16.10% January 3, 1995
T. Rowe Price Growth Stock..... 20.51% N/A 25.63% January 3, 1995
T. Rowe Price International
Stock(/3/).................... 30.53% 13.25% 8.26% April 8, 1991
Transamerica VIF
Growth(/4/)(/5/).............. 35.92% 39.58% 25.07%+ February 26, 1969
Fidelity - VIP Equity-Income -
Service Class 2(/4/)(/6/)..... 4.78% 16.94% 12.89%+ October 9, 1986
Fidelity - VIP II Contrafund(R)
- Service Class 2(/4/)(/6/)... 22.45% N/A 25.95% January 3, 1995
Fidelity - VIP III Growth
Opportunities -
Service Class 2(/4/)(/6/)..... 2.74% N/A 19.83% January 3, 1995
Fidelity - VIP III Mid Cap -
Service Class 2(/4/)(/6/)..... 46.94% N/A 50.96% December 28, 1998
WRL Alger Aggressive
Growth(/4/)................... 66.75% 34.76% 28.57% March 1, 1994
WRL Goldman Sachs Growth(/4/).. N/A N/A 16.74% May 3, 1999
WRL Janus Global(/4/).......... 68.82% 31.13% 26.17% December 3, 1992
WRL NWQ Value Equity(/4/)...... 6.45% N/A 9.24% May 1, 1996
WRL Pilgrim Baxter Mid Cap
Growth(/4/)................... N/A N/A 76.46% May 3, 1999
WRL Salomon All Cap(/4/)....... N/A N/A 14.52% May 3, 1999
WRL T. Rowe Price Dividend
Growth(/4/)................... N/A N/A (8.26%) May 3, 1999
WRL T. Rowe Price Small
Cap(/4/)...................... N/A N/A 37.26% May 3, 1999
</TABLE>
- -------------------------------------------------------------------------------
+Ten Year Date
(/1/)The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
(/2/)Effective September 16, 1996, 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.
57
<PAGE>
(/3/)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).
(/4/)The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund(R) Subaccount, Fidelity - VIP III
Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap Subaccount,
WRL Alger Aggressive Growth Subaccount, WRL Goldman Sachs Growth
Subaccount, WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount,
WRL Pilgrim Baxter Mid Cap Growth Subaccount, WRL Salomon All Cap
Subaccount, WRL T. Rowe Price Dividend Growth Subaccount, and WRL T. Rowe
Price Small Cap Subaccount had not commenced operations as of December 31,
1999, therefore, comparable information is not available.
(/5/)The Growth Portfolio of the Transamerica Variable Insurance Fund, Inc., is
the successor to Separate Account Fund C of Transamerica Occidental Life
Insurance Company, a management investment company funding variable
annuities, through a reorganization on November 1, 1996. Accordingly, the
performance data for the Transamerica VIF Growth Portfolio include
performance of its predecessor.
(/6/)Returns prior to January 12, 2000 for the portfolios are based on
historical returns for Initial Class Shares.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up
through age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4)
Return of Premium. However, the total separate account annual expenses for
each death benefit did not change.
The figures for the "five year" and "from inception" periods in the above
tables reflect waiver of advisory fees and reimbursement of other expenses for
all portfolios except the T. Rowe Price Equity Income Portfolio and the T. Rowe
Price Growth Stock Portfolio. In the absence of such waivers, the average
annual total return figures above from the five year and from inception periods
would have been lower.
Merrill Lynch Variable Series Funds, Inc.--Adjusted Historical Data. Prior to
July 3, 1997, the Merrill Lynch Basic Value Focus Subaccount, the Merrill Lynch
Developing Capital Markets Focus Subaccount and the Merrill Lynch High Current
Income Subaccount (the "Merrill Lynch Subaccounts") had not yet commenced
operations. However, Table 3 shows average annual total return information
based on the hypothetical assumption that those subaccounts have been available
to the PFL Endeavor ML Variable Annuity Account since inception of the
underlying portfolios.
58
<PAGE>
TABLE 3
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Assuming No Family Income Protector)
(Total Separate Account Annual Expenses: 1.55%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date(/1/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus. 19.27% 17.67% 14.92% July 1, 1993
Merrill Lynch High Current
Income......................... 4.33% 6.46% 8.60%+ April 20, 1982
Merrill Lynch Developing Capital
Markets Focus.................. 63.00% 2.04% 0.72% May 2, 1994
- --------------------------------------------------------------------------------
Return of Premium Death Benefit*
(Assuming No Family Income Protector)
(Total Separate Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------
<CAPTION>
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date(/1/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus. 19.45% 17.85% 15.09% July 1, 1993
Merrill Lynch High Current
Income......................... 4.49% 6.62% 8.76%+ April 20, 1982
Merrill Lynch Developing Capital
Markets Focus.................. 63.24% 2.20% 0.87% May 2, 1994
</TABLE>
- -------------------------------------------------------------------------------
+Ten Year Date
(/1/)The Subaccounts invest in Class A shares of the Merrill Lynch Variable
Series Funds, Inc. portfolios. The performance data for periods prior to
the date the Merrill Lynch Subaccounts commenced operations is based on
the performance of the underlying portfolios and the assumption that the
Merrill Lynch Subaccounts were in existence for the same period as the
corresponding portfolios, with a level of charges equal to those currently
assessed against the Subaccount or against owners' policy values under the
Policies. The Merrill Lynch Basic Value Focus Fund commenced operations on
July 1, 1993; the Merrill Lynch Developing Capital Markets Focus Fund
commenced operations on May 2, 1994; and the Merrill Lynch High Current
Income Fund commenced operations on April 20, 1982. For purposes of the
calculation of the performance data prior to dates of inception of the
subaccounts, the deductions for the mortality and expense risk fee, and
administrative charge are made on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and in
PFL's opinion generally approximates the performance that would have
resulted if the Merrill Lynch Subaccounts had actually been in existence
since the inception of the underlying portfolios. Performance data for
periods of less than seven years reflect deduction of the surrender
charge.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
59
<PAGE>
HISTORICAL PERFORMANCE DATA
THE TARGET STRATEGIES AND THE DOW JONES INDUSTRIAL AVERAGESM
The total return for each target series subaccount will also reflect the
managers 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 any charges (eg.,
brokerage commissions, management fees) were reflected in the hypothetical
returns, the returns would be lower than those presented here.
60
<PAGE>
COMPARISON OF TOTAL RETURN(/2/)
<TABLE>
<CAPTION>
Index
Strategy Total Returns Total Returns
----------------------------------------- -------------
5 Lowest Priced
of the 10
10 Highest Dividend Highest Dividend
Year Yielding Stocks(/1/) Yielding Stocks(/1/) DJIA
- ---- -------------------- -------------------- -------------
<S> <C> <C> <C>
1975.................... 56.10% 64.77% 44.46%
1976.................... 35.18% 40.96% 22.80%
1977.................... (1.95)% 5.49% (12.91)%
1978.................... 0.03% 1.23% 2.66%
1979.................... 13.01% 9.84% 10.60%
1980.................... 27.90% 41.69% 21.90%
1981.................... 7.46% 3.19% (3.61)%
1982.................... 27.12% 43.37% 26.85%
1983.................... 39.07% 36.38% 25.82%
1984.................... 6.22% 11.12% 1.29%
1985.................... 29.54% 38.34% 33.28%
1986.................... 35.63% 30.89% 27.00%
1987.................... 5.59% 10.69% 5.66%
1988.................... 24.57% 21.47% 16.03%
1989.................... 26.97% 10.55% 32.09%
1990.................... (7.82)% (15.74)% (0.73)%
1991.................... 34.20% 62.03% 24.19%
1992.................... 7.69% 22.90% 7.39%
1993.................... 27.08% 34.01% 16.87%
1994.................... 4.21% 8.27% 5.03%
1995.................... 36.85% 30.50% 36.67%
1996.................... 28.35% 26.20% 28.71%
1997.................... 21.68% 19.97% 24.82%
1998.................... 10.59% 12.36% 18.03%
1999.................... 5.06% (7.28)% 27.06%
</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 19.01%,
while the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding
Stocks in the DJIA achieved an average annual total return of 20.97%. In
addition, over this period, the individual strategies achieved a greater
average annual total return than that of the DJIA, which was 16.83%.
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.
61
<PAGE>
The performance shown for the strategies do not guarantee future success, nor
should it be used as a predictor of returns. The DowSM Target 5 strategy and
The DowSM Target 10 strategy under-performed the DJIA in 8 and 10,
respectively, of the 25 years shown. There can be no assurance that the
strategies will outperform a given index over any time period, or that they
will have positive results. They have the potential for loss.
The results of the strategies do not represent actual investment advice of
First Trust Advisors L.P. or any actual trading using client assets. They were
achieved by the retroactive application of a model designed with the benefit of
hindsight and should not be considered indicative of the competence or skill of
First Trust Advisors L.P. In addition, the strategy results do not reflect the
impact material, economic, and market factors might have had on First Trust
Advisors L.P.'s decision making, if First Trust Advisors L.P. had actually
managed client money during the period indicated.
First Trust Advisors L.P. advisory services, though currently offered for the
strategies, were not offered during the entire 25 year period since First Trust
Advisors L.P. was founded in 1991, and began supervising unit investment trusts
invested in the strategies in 1994. First Trust Advisors L.P.'s investment
advisory clients have received results different from that set forth above.
Past Performance of the DJIA
[GRAPH]
DOLLAR GROWTH TABLE
Years Date Target 5 Target 10 DJIA
- -------------------------------------------------------------------------
10,000.00 10,000.00 10,000.00
25 1975 16,477.50 15,610.28 14,445.61
24 1976 23,226.83 21,101.61 17,739.92
23 1977 24,502.77 20,690.36 15,450.07
22 1978 24,803.49 20,697.25 15,860.59
21 1979 27,243.25 23,390.00 17,542.51
20 1980 38,600.30 29,914.68 21,384.19
19 1981 39,832.12 32,146.62 20,611.71
18 1982 57,108.82 40,865.53 26,146.56
17 1983 77,885.96 56,829.99 32,898.88
16 1984 86,546.21 60,365.54 33,324.47
15 1985 119,729.03 78,195.39 44,414.62
14 1986 156,714.81 106,054.79 56,407.70
13 1987 173,465.60 111,978.77 59,600.35
12 1988 210,716.53 139,487.78 69,157.00
11 1989 232,942.95 177,102.89 91,349.45
10 1990 196,274.44 163,254.24 90,678.66
9 1991 318,021.74 219,082.90 112,610.66
8 1992 390,845.72 235,938.07 120,927.31
7 1993 523,770.46 299,821.78 141,323.93
6 1994 567,095.36 312,444.26 148,436.23
5 1995 740,054.37 427,578.12 202,871.80
4 1996 933,942.14 548,806.20 261,116.65
3 1997 1,120,490.59 667,785.96 325,925.03
2 1998 1,259,031.57 738,473.55 384,689.23
1 1999 1,167,393.86 775,811.93 488,796.72
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 DowSM Target 10 Subaccount or The
DowSM Target 5 Subaccount) from January 1, 1975 through December 31, 1999 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 DowSM Target 10
Subaccount or The DowSM 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.
62
<PAGE>
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 SAI.
Based on the method of calculation described in the SAI, the average annual
total returns for periods from inception of the subaccounts to December 31,
1999, and for the one and five year periods ended December 31, 1999 are shown
in Table 1 below. Total returns shown reflect deductions for the mortality and
expense risk fee and the administrative charges. Performance figures may
reflect the 1.40% mortality and expense risk fee for the 5% Annually
Compounding and Double Enhanced Death Benefits, or the 1.25% 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.
TABLE 1
Standard Average Annual Total Returns
(Assuming No Family Income Protector)
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Separate Account Annual Expenses: 1.55%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year of the
Ended Subaccount Subaccount
Subaccount 12/31/99 to 12/31/99 Inception Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow SM Target 10 (January Series).... N/A (8.74%) January 4, 1999
The Dow SM Target 5 (January Series)..... N/A (16.03%) January 4, 1999
The Dow SM Target 10 (July Series)....... (7.73%) (2.96%) July 1, 1998
The Dow SM Target 5 (July Series)........ (19.68%) (6.24%) July 1, 1998
- --------------------------------------------------------------------------------
Return of Premium Death Benefit*
(Total Separate Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------
<CAPTION>
Inception
1 Year of the
Ended Subaccount Subaccount
Subaccount 12/31/99 to 12/31/99 Inception Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow SM Target 10 (January Series).... N/A (8.60%) January 4, 1999
The Dow SM Target 5 (January Series)..... N/A (15.90%) January 4, 1999
The Dow SM Target 10 (July Series)....... (7.59%) (2.81%) July 1, 1998
The Dow SM Target 5 (July Series)........ (19.56%) (6.09%) July 1, 1998
</TABLE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
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-standardized data may assume that the policy remains in force and therefore
not reflect the surrender charge. The non-standardized
63
<PAGE>
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-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
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 2
Average Annual Total Returns
(Assuming No Surrender Charge or Family Income Protector)
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit*
(Total Separate Account Annual Expenses: 1.55%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
1 Year of the Subaccount
Ended Subaccount Inception
Subaccount 12/31/99 to 12/31/99 Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow SM Target 10 (January Series).... N/A (1.71%) January 4, 1999
The Dow SM Target 5 (January Series)..... N/A (8.99%) January 4, 1999
The Dow SM Target 10 (July Series)....... (2.28%) 0.69% July 1, 1998
The Dow SM Target 5 (July Series)........ (14.16%) (2.51%) July 1, 1998
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.40%)*
- --------------------------------------------------------------------------------
<CAPTION>
Inception
1 Year of the Subaccount
Ended Subaccount Inception
Subaccount 12/31/99 to 12/31/99 Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow SM Target 10 (January Series).... N/A (1.56%) January 4, 1999
The Dow SM Target 5 (January Series)..... N/A (8.86%) January 4, 1999
The Dow SM Target 10 (July Series)....... (2.14%) 0.84% July 1, 1998
The Dow SM Target 5 (July Series)........ (14.03%) (2.37%) July 1, 1998
</TABLE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
64
<PAGE>
APPENDIX C
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>
- ------------------------------------------------------------------------
<S> <C>
Policy Form/Endorsement Approximate First Issue Date
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
AV432 101 114 199 (Group Policy Form) May 2000
AV494 101 124 100 (Individual Policy Form) May 2000
- ------------------------------------------------------------------------
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
AV201 101 65 AV201 101 65 AV254 101 87 AV320 101 99 AV376 101 106 AV432 101 114
AV201 101 65 189, AE830 292, 189, AE847 394, 196, AE909 496, 197 and AE945 1197 and AE 945 199 and AV494
Product Feature 189 and AE847 394 and AE871 295 and AE890 196 197 197 101 124 100
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Excess Interest N/A N/A N/A Yes Yes Yes Yes
Adjustment
- ---------------------------------------------------------------------------------------------------------------------------------
Guaranteed Total premiums 5% Annually 5% Annually 5% Annually 5% Annually 5% Annually 5% Annually
Minimum Death paid, less any Compounding Compounding Compounding Compounding Compounding Compounding
Benefit partial (Option A). (Option A) or (Option A) or (Option A), (Option A), (Option A),
Option(s) withdrawals Annual Step-Up Annual Step-Up Annual Step-Up Double Greater of 5%
and any (Option B). (Option B). (Option B), or Enhanced Annually
surrender Option A is Option A is Return of (Option B), or Compounding
charges made only available only available Premium Return of through age 80
before death, if owner and if owner and (Option C). Premium or Annual
accumulated at annuitant are annuitant are Option A is (Option C). Step-Up
4% to the date both under age both under age only available Option A is through age 80
we receive due 75. 75. if owner and only available (Option B),
proof of death annuitant are if owner and Return of
or the policy both under age annuitant are Premium
value on the 75. Option B both under Age (Option C),
date we is only 75. Option B and Monthly
receive due available if is only Step-Up
proof of owner and available if through age 80
death, which annuitant are owner and (Option D).
ever is under age 81. annuitant are Option A is
greater. both under age only available
81. if owner and
annuitant are
both under age
75. Option B
and D are only
available if
owner and
annuitant are
both under age
81.
- ---------------------------------------------------------------------------------------------------------------------------------
Guaranteed 1 and 3 year 1 and 3 year 1 and 3 year 1, 3, 5, and 7 1, 3, 5 and 7 1, 3, 5, and 7 1, 3, 5, and 7
Period Options guaranteed guaranteed guaranteed year year year year
(available in periods periods periods guaranteed guaranteed guaranteed guaranteed
the fixed available. available. available. periods periods periods periods
account) available. available. available. available.
- ---------------------------------------------------------------------------------------------------------------------------------
Minimum 4% 4% 4% 3% 3% 3% 3%
effective annual
interest rate
applicable to
the fixed
account
- ---------------------------------------------------------------------------------------------------------------------------------
Asset N/A N/A N/A Yes Yes Yes Yes
Rebalancing
- ---------------------------------------------------------------------------------------------------------------------------------
Death Proceeds Greater of 1) Greater of (a) Greatest of Greatest of Greatest of Greatest of Greatest of
the policy policy value (a) policy (a) annuity (a) policy (a) policy (a) policy
value on the and (b) 5% value and (b) purchase value, (b) value, (b) value, (b)
date we Annually guaranteed value, (b) cash value, cash value, cash value,
receive due Compounding minimum death cash value, and (c) and (c) and (c)
proof of Death Benefit benefit and (c) guaranteed guaranteed guaranteed
death, or 2) guaranteed minimum death minimum death minimum death
the total minimum death benefit. benefit. benefit.
premiums paid benefit.
for this
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
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
AV201 101 65 AV201 101 65 AV254 101 87 AV320 101 99 AV376 101 106 AV432 101 114
AV201 101 65 189, AE830 292, 189, AE847 394, 196, AE909 496, 197 and AE945 1197 and AE 945 199 and AV494
Product Feature 189 and AE847 394 and AE871 295 and AE890 196 197 197 101 124 100
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Distribution N/A N/A N/A N/A Applicable Applicable N/A
Financing Charge
- ---------------------------------------------------------------------------------------------------------------------------------
Is Mortality & No No No No No Yes (1.10%, Yes (1.25%,
Expense Risk Fee plus plus
different after administrative administrative
the annuity charge, charge,
commencement regardless of regardless of
date? death benefit death benefit
chosen prior chosen prior
to the annuity to the annuity
commencement commencement
date) date).
- ---------------------------------------------------------------------------------------------------------------------------------
Dollar Cost N/A N/A N/A Yes Yes Yes Yes
Averaging Fixed
Account Option
- ---------------------------------------------------------------------------------------------------------------------------------
Service Charge $35 assessed $35 assessed Assessed only Assessed only Assessed Assessed Assessed
on each policy on each policy on a policy on a policy either on a either on a either on a
anniversary. anniversary. anniversary; anniversary; policy policy policy
Not deducted Not deducted Waived if sum Waived if sum anniversary or anniversary or anniversary or
from the fixed from the fixed of premium of premium on surrender; on surrender; on surrender;
account. account. payments less payments less Waived if sum Waived if sum Waived if sum
partial partial of premium of premium of premium
withdrawals is withdrawals is payments less payments less payments less
at least at least partial partial partial
$50,000 on the $50,000 on the withdrawals or withdrawals or withdrawals or
policy policy the policy the policy the policy
anniversary. anniversary. value is at value is at value is at
Not deducted Not deducted least $50,000 least $50,000 least $50,000
from the fixed from the fixed on the policy on the policy on The policy
account. account. anniversary or anniversary or anniversary or
at the time of at the time of at the time of
surrender. The surrender. The surrender. The
service charge service charge service charge
is deducted is deducted is deducted
pro-rata from pro-rata from pro-rata from
the investment the investment the investment
options. options. options.
- ---------------------------------------------------------------------------------------------------------------------------------
Nursing Care and N/A Yes Yes Yes Yes Yes Yes
Terminal
Condition
Withdrawal
Option
- ---------------------------------------------------------------------------------------------------------------------------------
Unemployment N/A N/A N/A N/A N/A N/A Yes
Waiver
</TABLE>
67
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR ML 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 ML Variable Annuity offered by PFL Life
Insurance Company. You may obtain a copy of the prospectus dated May 1, 2000 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 (SAI) is not a prospectus and should
be read only in conjunction with the prospectuses for the policy and the
underlying fund portfolios.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
THE POLICY--GENERAL PROVISIONS............................................. 6
Owner.................................................................... 6
Entire Policy............................................................ 6
Misstatement of Age or Sex............................................... 7
Addition, Deletion or Substitution of Investments........................ 7
Excess Interest Adjustment............................................... 8
Reallocation of Annuity Units After the Annuity Commencement Date........ 12
Annuity Payment Options.................................................. 12
Death Benefit............................................................ 14
Death of Owner........................................................... 16
Assignment............................................................... 16
Evidence of Survival..................................................... 17
Non-Participating........................................................ 17
Amendments............................................................... 17
Employee and Agent Purchases............................................. 17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 18
Tax Status of the Policy................................................. 18
Taxation of PFL.......................................................... 21
INVESTMENT EXPERIENCE...................................................... 21
Accumulation Units....................................................... 21
Annuity Unit Value and Annuity Payment Rates............................. 23
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION............................ 25
HISTORICAL PERFORMANCE DATA................................................ 28
Money Market Yields...................................................... 28
Other Subaccount Yields.................................................. 29
Total Returns............................................................ 29
Other Performance Data................................................... 30
Adjusted Historical Performance Data--The Mutual Fund Account............ 30
THE TARGET ACCOUNT......................................................... 30
What is the Investment Strategy?......................................... 30
Determination of Unit Value; Valuation of Securities..................... 32
The Board of Managers.................................................... 32
The Investment Advisory Services......................................... 35
The Manager.............................................................. 36
Operating Expenses....................................................... 36
Transfer Agent and Custodian............................................. 36
Brokerage Allocation..................................................... 36
Investment Restrictions.................................................. 37
Fundamental Policies..................................................... 37
Operating Policies....................................................... 38
Options and Futures Strategies........................................... 38
Securities Lending....................................................... 40
Tax Limitation........................................................... 40
PUBLISHED RATINGS.......................................................... 41
STATE REGULATION OF PFL.................................................... 41
ADMINISTRATION............................................................. 41
RECORDS AND REPORTS........................................................ 42
DISTRIBUTION OF THE POLICIES............................................... 42
VOTING RIGHTS.............................................................. 42
The Mutual Fund Account.................................................. 42
The Target Account....................................................... 43
OTHER PRODUCTS............................................................. 44
CUSTODY OF ASSETS.......................................................... 44
LEGAL MATTERS.............................................................. 44
INDEPENDENT AUDITORS....................................................... 44
OTHER INFORMATION.......................................................... 44
FINANCIAL STATEMENTS....................................................... 45
</TABLE>
-2-
<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 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 annual service charge, and less any applicable premium
taxes, surrender charge, and family income protector rider fee.
Code--The Internal Revenue Code of 1986, as amended.
DJIA--The Dow Jones Industrial AverageSM. Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of
American industry.
Enrollment Form--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
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
PFL's general assets and which are not in the separate accounts.
-3-
<PAGE>
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account, which PFL may offer, 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.
Mutual Fund Account--PFL Endeavor VA Separate Account, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"), to which premium payments
under the policies may be allocated.
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--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Participant--A person who makes premium payments or for whom premium payments
are made under the policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the mutual fund account and the target
account; minus
. service charges, premium taxes, rider fees, and transfer fees, if any.
Policy Year--A policy year begins on the policy date in which the policy
becomes effective 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.
-4-
<PAGE>
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."
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 specified stock selection date.
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.
-5-
<PAGE>
In order to supplement the description in the prospectus, the following
provides additional information about PFL and the policy, which may be of
interest to a prospective purchaser.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an enrollment form 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 enrollment form, 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 received written notice of the trust as a
successor owner signed prior to the owner's death, that trust may not exercise
ownership rights to the policy. It may be necessary to open a probate estate in
order to exercise ownership rights to the policy if no contingent owner is
named in a written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded, it will take
effect as of the date the owner signs the written notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the owner or naming a new successor owner cancels any prior choice of
successor owner, but does not change the designation of the beneficiary or the
annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the 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, any endorsements thereon, the enrollment form, or information
provided in lieu thereof, constitute the entire contract between PFL and the
owner. All statements in the enrollment form 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 enrollment form or information
provided in lieu thereof.
-6-
<PAGE>
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 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 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 1940 Act,
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 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. 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, transfer out of, or apply to an annuity payment
option from a guaranteed period option of the fixed account before the end of
its guaranteed period (the number of
-7-
<PAGE>
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.
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the premium payments and transfers to that
guaranteed period option, less any prior partial withdrawals and transfers from
the guaranteed period option, plus interest at the policy's minimum guaranteed
effective annual interest rate of 3%. This is referred to as the excess
interest adjustment floor.
The formula that will be used to determine the excess interest adjustment is:
S*(G-C)* (M/12)
S = Gross amount being withdrawn that is subject to the excess interest
adjustment
G = Guaranteed Interest Rate 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
-8-
<PAGE>
Example 1 (Surrender, rates increase by 3%):
<TABLE>
<S> <C>
Single premium: $50,000.00
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Surrender: middle of contract year 2
- -----------------------------------------------------------------------------------------
Policy value at middle of contract year 2 = 50,000.00* (1.055)/\/\ 1.5 = 54,181.21
- -----------------------------------------------------------------------------------------
Penalty fee amount at middle of contract = 50,000.00* .10 = 5,000.00
year 2
- -----------------------------------------------------------------------------------------
(assume any gains in the policy is less
than 10% of premium)
- -----------------------------------------------------------------------------------------
Amount subject to excess interest = 54,181.21 - 5,000.00 = 49,181.21
adjustment
- -----------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000.00* (1.03)/\/\ 1.5 = 52,266.79
- -----------------------------------------------------------------------------------------
Excess interest adjustment
- -----------------------------------------------------------------------------------------
G = .055
- -----------------------------------------------------------------------------------------
C = .085
- -----------------------------------------------------------------------------------------
M = 18
- -----------------------------------------------------------------------------------------
Excess interest adjustment = S* (G-C)* (M/12)
- -----------------------------------------------------------------------------------------
= 49,181.21* (.055 - .085)* (18/12)
- -----------------------------------------------------------------------------------------
= -2,213.15, but excess interest adjustment
cannot cause the adjusted policy value to
fall below the excess interest adjustment
floor, so the adjustment is limited to
52,266.79 - 54,181.21 = -1,914.42
- -----------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest adjustment
= 54,181.21 + (- 2,213.15) = 51,968.06
- -----------------------------------------------------------------------------------------
Surrender charges = (50,000.00 - 5,000.00)* .07 = 3,150.00
- -----------------------------------------------------------------------------------------
Net surrender value at middle of contract = 54,181.21 - 3,150.00 = 51,031.21
year 2
</TABLE>
-9-
<PAGE>
Example 2 (Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
- ---------------------------------------------------------------------------------------
Guarantee period: 5 Years
- ---------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ---------------------------------------------------------------------------------------
Surrender: middle of contract year 2
- ---------------------------------------------------------------------------------------
Policy value at middle of contract year 2 = 50,000.00* (1.055)/\/\ 1.2 = 54,181.21
- ---------------------------------------------------------------------------------------
Penalty free amount at middle of contract = 50,000.00* .10 = 5,000.00
year 2
- ---------------------------------------------------------------------------------------
(assume any gain in the policy is less than
10% of premium)
- ---------------------------------------------------------------------------------------
Amount subject to excess interest = 54,181.21 - 5,000.00 = 49,181.21
adjustment
- ---------------------------------------------------------------------------------------
EIA Floor = 50,000.00* (1.03)/\/\ 1.5 = 52,266.79
- ---------------------------------------------------------------------------------------
Excess interest adjustment
- ---------------------------------------------------------------------------------------
G = .055
- ---------------------------------------------------------------------------------------
C = .045
- ---------------------------------------------------------------------------------------
M = 18
- ---------------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
- ---------------------------------------------------------------------------------------
= 49,181.21* (.055 - .045)* (18/12) =
737.72
- ---------------------------------------------------------------------------------------
Adjusted policy value = 54,181.21 + 737.72 = 54,918.93
- ---------------------------------------------------------------------------------------
Surrender charges = (50,000.00 - 5,000.00)* .07 = 3,150.00
- ---------------------------------------------------------------------------------------
Net surrender value at middle of contract = 54,918.93 - 3,150.00 = 51,768.93
year 2
</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
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.
-10-
<PAGE>
Example 3 (Partial Withdrawal, rates increase by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
- --------------------------------------------------------------------------------------
Guarantee period: 5 Years
- --------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- --------------------------------------------------------------------------------------
Partial withdrawal: $20,000.00; middle of contract year 2
- --------------------------------------------------------------------------------------
Policy value at middle of contract year 2 = 50,000.00* (1.055)/\/\1.2 = 54,181.21
- --------------------------------------------------------------------------------------
Penalty Free Amount at middle of contract = 50,000.00* .10 = 5,000.00
year 2
- --------------------------------------------------------------------------------------
(assume any gain in the policy is less than
10% of premium)
- --------------------------------------------------------------------------------------
Excess interest adjustment / surrender
charge
- --------------------------------------------------------------------------------------
S = 20,000 - 5,000.00 = 15,000.00
- --------------------------------------------------------------------------------------
G = .055
- --------------------------------------------------------------------------------------
C = .065
- --------------------------------------------------------------------------------------
M = 18
- --------------------------------------------------------------------------------------
E = 15,000.00* (.055 - .065)* (18/12) = -
225.00
- --------------------------------------------------------------------------------------
EPW = 20,000.00 - 5,000.00 = 15,000.00
- --------------------------------------------------------------------------------------
SC = .07* (15,000.00 - (-225.00) = 1,065.75
- --------------------------------------------------------------------------------------
Remaining policy value at middle of = 54,181.21 - (R-E + surrender charge)
contract year 2
- --------------------------------------------------------------------------------------
= 54,181.21 - (20,000 - (-
225.00) + 1,065.75) = 32,890.46
</TABLE>
-11-
<PAGE>
Example 4 (Partial Withdrawal, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
- ---------------------------------------------------------------------------------------
Guarantee period: 5 Years
- ---------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ---------------------------------------------------------------------------------------
Partial withdrawal: $20,000.00; middle of contract year 2
- ---------------------------------------------------------------------------------------
Policy value at middle of contract year 2 = 50,000.00* (1.055)/\/\ 1.5 = 54,181.21
- ---------------------------------------------------------------------------------------
Penalty free amount at middle of contract = 50,000.00* .10 = 5,000.00
year 2
- ---------------------------------------------------------------------------------------
(assume any gain in the policy is less than
10% of premium)
- ---------------------------------------------------------------------------------------
Excess interest adjustment/surrender charge
- ---------------------------------------------------------------------------------------
S = 20,000.00 - 5,000.00 = 15,000.00
- ---------------------------------------------------------------------------------------
G = .055
- ---------------------------------------------------------------------------------------
C = .045
- ---------------------------------------------------------------------------------------
M = 18
- ---------------------------------------------------------------------------------------
E = 15,000.00* (.055 - .045)* (18/12) =
225.00
- ---------------------------------------------------------------------------------------
EPW = 20,000.00 - 5,000.00 = 15,000.00
- ---------------------------------------------------------------------------------------
SC = .07* (15,000.00 - 225.00) = 1,034.25
- ---------------------------------------------------------------------------------------
Remaining policy value at middle of = 54,181.21 - (R - E + surrender charge)
contract year 2
- ---------------------------------------------------------------------------------------
= 54,181.21 - (20,000.00 -
225.00 + 1,034.25) = 33,371.96
</TABLE>
Reallocation of Annuity Units After the Annuity Commencement Date
After the annuity commencement date, you may reallocate the value of a
designated number of annuity units of a mutual fund subaccount or of a target
series subaccount then credited to a policy into an equal value of annuity
units of one or more other mutual fund subaccounts, target series 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. A reallocation of annuity
units may be made up to four times in any given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the mutual fund account or the target 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
-12-
<PAGE>
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 and the target 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 with projection using
projection Scale G factors, assuming a maturing date in the year 2000. ("The
1983 Table a" mortality rates are adjusted based on improvements in mortality
since 1983 to more appropriately reflect increased longevity. This is
accomplished using a set of improvement factors referred to as projection scale
G.) The dollar amount of additional variable annuity payments will vary based
on the investment performance of the subaccount(s) of the mutual fund account
and the target 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>
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 that 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
-13-
<PAGE>
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 (1) multiplied by (2), where:
(1) is the gross partial withdrawals, where gross partial
withdrawal = requested withdrawal minus excess interest adjustment plus
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.
EXAMPLE 1
(Assumed Facts for Example)
<TABLE>
- -------------------------------------------------------------------------------
<C> <S>
$75,000 current guaranteed minimum death benefit before withdrawal
- -------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- -------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum
death benefit)
- -------------------------------------------------------------------------------
6% current surrender charge percentage
- -------------------------------------------------------------------------------
$15,000 requested withdrawal
- -------------------------------------------------------------------------------
$ 5,000 surrender charge-free amount (assumes penalty free withdrawal is
available)
- -------------------------------------------------------------------------------
$10,000 excess partial withdrawal--(amount subject to surrender charge)
- -------------------------------------------------------------------------------
$ 100 excess interest adjustment (assumes interest rates have decreased
since initial guarantee)
- -------------------------------------------------------------------------------
$ 594 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 0.06* (10,000 - 100)
- -------------------------------------------------------------------------------
$10,494 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 guaranteed minimum death benefit (after withdrawal) = 75,000 -
23,241
- -------------------------------------------------------------------------------
$34,506 New policy value (after withdrawal) = 50,000 - 15,494
</TABLE>
<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.
-14-
<PAGE>
EXAMPLE 2
(Assumed Facts for Example)
<TABLE>
- ------------------------------------------------------------------------------
<C> <S>
$50,000 current guaranteed minimum death benefit before withdrawal
- ------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- ------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum
death benefit)
- ------------------------------------------------------------------------------
6% current surrender charge percentage
- ------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------
$ 7,500 surrender charge-free amount (assumes penalty free withdrawal is
available)
- ------------------------------------------------------------------------------
$ 7,500 excess partial withdrawal--(amount subject to surrender charge)
- ------------------------------------------------------------------------------
$ -100 excess interest adjustment (assumes interest rates have increased
since initial guarantee)
- ------------------------------------------------------------------------------
$ 456 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 0.06* [(7500 -(-100)]
- ------------------------------------------------------------------------------
$ 8,056 reduction in policy value due to excess partial withdrawal = 7,500 -
(-100) + 456 = 7,500 + 100 + 456
- ------------------------------------------------------------------------------
$15,556 adjusted partial withdrawal = (7,500 + 8,056)* (75,000/75,000)
- ------------------------------------------------------------------------------
$34,444 New guaranteed minimum death benefit (after withdrawal) = 50,000 -
15,556
- ------------------------------------------------------------------------------
$59,444 New policy value (after withdrawal) = 75,000 - 15,556
</TABLE>
Summary:
<TABLE>
<S> <C>
Reduction in guaranteed minimum death benefit = $15,556
Reduction in policy value = $15,556
</TABLE>
-15-
<PAGE>
Note, the guaranteed minimum death benefit and policy value are reduced by the
same amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant that is the
owner died prior to the commencement of annuity payments. A certified copy of a
death certificate, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, a written statement by the attending
physician, or any other proof satisfactory to PFL will constitute due proof of
death. Upon receipt of this proof and an election of a method of settlement and
return of the policy, the death benefit generally will be paid within seven
days, or as soon thereafter as PFL has sufficient information about the
beneficiary to make the payment. The 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
period certain does not exceed the beneficiary's life expectancy). Death
Proceeds, which are not paid to or for the benefit of a natural person, must be
distributed within five years of the date of the deceased owner's death. If the
sole beneficiary is the deceased owner's surviving spouse, such spouse may
elect to continue the policy as the new annuitant and owner instead of
receiving the death benefit.
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 enrollment form 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 more information about 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 if your policy is a nonqualified policy. An assignment
will not be binding on PFL until a copy has been
-16-
<PAGE>
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.
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 annual service charge, the surrender charges, the
mortality and expense risk fee and the administrative charge for certain sales
under circumstances which may result in savings of certain costs and expenses.
In addition, there may be other circumstances of which PFL is not presently
aware which could result in reduced sales or distribution expenses. Credits to
the policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
-17-
<PAGE>
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 Code, 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.
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 an owner
and any death or change of such primary annuitant shall be treated as the death
of an 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. The withholding rate varies according to the type of distribution and the
owner's tax status. For qualified policies, "eligible rollover distributions"
from Section 401(a) plans, Section 403(a) annuities, and Section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding
of 20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA. Different
withholding requirements may apply in the case of non-United States persons.
-18-
<PAGE>
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; and in other specified circumstances. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into the policies or our policy administration procedures. Owners, participants
and beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the policies comply with
applicable law.
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 traditional individual retirement
annuities under Section 408(b) of the Code contain such provisions. Amounts in
the IRA (other than nondeductible contributions) are taxed when distributed
from the IRA. Distributions prior to age 59 1/2 (unless certain exceptions
apply) are subject to a 10% penalty tax.
No part of the funds for an individual retirement account (including a Roth
IRA) or annuity 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 as an IRA. The Internal Revenue Service has not reviewed the policy for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether an enhanced death benefit provision, such as the
provision in the policy, comports with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject
-19-
<PAGE>
to tax and other special rules may apply to the rollover or conversion and to
distributions attributable thereto. You should consult a tax adviser before
combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose modified adjusted gross
income is under $110,000 for single filers, $160,000 for married filing
jointly, and $10,000 for married filing separately. The amount per individual
that may be contributed to all IRAs (Roth and traditional) is $2,000. Secondly,
the distributions are taxed differently. The Roth IRA offers tax-free
distributions when made 5 tax years after the first contribution to any Roth
IRA of the individual and made after attaining age 59 1/2, to pay for qualified
first time homebuyer expenses (lifetime maximum of $10,000) or due to death or
disability. All other distributions are subject to income tax when made from
earnings and may be subject to a premature withdrawal penalty tax unless an
exception applies. Unlike the traditional IRA, there are no minimum required
distributions during the owner's lifetime; however, required distributions at
death are generally the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under Section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, 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. For non-governmental Section 457 plans, 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, a non-government 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.
-20-
<PAGE>
Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity contract
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the Code; accordingly, an owner who is not a natural
person will recognize as ordinary income for a taxable year the excess of (i)
the sum of the policy value as of the close of the taxable year and all
previous distributions under the policy over (ii) the sum of the premium
payments paid for the taxable year and any prior taxable year and the amounts
includable in gross income for any prior taxable year with respect to the
policy. For these purposes, the policy value at year-end may have to be
increased by any positive excess interest adjustment, which could result from a
full surrender at such time. There is, however, no definitive guidance on the
proper tax treatment of excess interest adjustments, and the owner should
contact a competent tax adviser with respect to the potential tax consequences
of an excess interest adjustment. Notwithstanding the preceding sentences in
this paragraph, Section 72(u) of the Code does not apply to (i) a policy where
the nominal owner is not a natural person but the beneficial owner of which is
a natural person, (ii) a policy acquired by the estate of a decedent by reason
of such decedent's death, (iii) a qualified policy (other than one qualified
under Section 457) or (iv) a single-payment annuity where the annuity
commencement date 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."
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 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 or
target series subaccount by the accumulation unit value of the mutual fund or
target series subaccount as of the end of the valuation period during which the
allocation is made. For each mutual fund 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 series
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 enrollment form is completed, whichever
is later. The value of an accumulation unit for each
-21-
<PAGE>
mutual fund subaccount was arbitrarily established at $1 and at $10 for each
target series subaccount at the inception of each subaccount. Thereafter, the
value of an accumulation unit is determined as of the close of trading on each
day the New York Stock Exchange is open for business.
For the mutual fund account and the target 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
(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 1.40% (for each of the 5% Annually
Compounding Death Benefit, the Greater of 5% Annually Compounding through
age 80 Death Benefit or Annual Step-Up Death Benefit, and the Monthly Step-
Up through age 80 Death Benefit) and 1.25% (for the Return of Premium Death
Benefit) of the daily net asset value of the subaccount, plus the 0.15%
administrative charge.
Illustration of Separate Account Accumulation Unit Value Calculations
(Assumes 5% Annually Compounding Death Benefit)
Formula and Illustration for Determining the Net Investment Factor
Net Investment Factor = (A + B - C) - E
---------
D
<TABLE>
<C> <S> <C>
Where: A = The net asset value of an underlying fund share as of the end of
the current valuation Period.
Assume......................................A = $11.57
B = The per share amount of any dividend or capital gains distribution
since the end of the Immediately preceding valuation period.
Assume...........................................B = 0
C = The per share charge or credit for any taxes reserved for at the
end of the current Valuation period.
Assume...........................................C = 0
D = The net asset value of an underlying fund share at the end of the
immediately preceding Valuation period.
Assume......................................D = $11.40
</TABLE>
-22-
<PAGE>
E = The daily deduction for the mortality and expense risk fee and the
administrative charge, which totals 1.55% on an annual basis. On a daily
basis, E equals .0000421409.
Then, the net investment factor = (11.57 + 0 - 0)-.0000421409 = Z = 1.0148701398
-------------
(11.40)
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<C> <S> <C>
Where: A = The accumulation unit value for the immediately preceding valuation
period.
Assume...........................................A = $X
B = The net investment factor for the current valuation period.
Assume............................................B = Y
</TABLE>
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 mutual fund 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 series 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.
-23-
<PAGE>
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity Unit Value = A * B * C
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
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
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
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
Where: A = The dollar amount of the first monthly variable annuity payment.
Assume........................................... = $X
B = The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume........................................... = $Y
Then, the number of annuity units = $X = Z
--
$Y
-24-
<PAGE>
FAMILY INCOME PROTECTOR -- ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
. there were no subsequent premium payments, or withdrawals;
. there were no premium taxes;
. the $100,000 premium is subject to the family income protector;
. the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 6.0% (once established, an annual growth rate will
not change during the life of the family income protector rider); and
. there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10-Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
Life Only = Life Annuity with No Period Certain
Life 10 = Life Annuity with 10 Years Certain
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Rider Anniversary at Exercise Date Male Female Joint & Survivor
- -------------------------------------------------------------------------------------------
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.
-25-
<PAGE>
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
EXAMPLE 1
Assumptions
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy $10,000
anniversary:
- --------------------------------------------------------------------------------
. minimum annuitization value at time of $10,500
distribution:
- --------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- --------------------------------------------------------------------------------
. distribution amount: $500
- --------------------------------------------------------------------------------
. prior distribution in current policy year: None
- --------------------------------------------------------------------------------
Calculations
- --------------------------------------------------------------------------------
. maximum annual free amount: $10,000 X 6% = $600
- --------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $500 = $14,500
- --------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - $500 = $10,000
</TABLE>
EXAMPLE 2
Assumptions
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy $10,000
anniversary:
- ------------------------------------------------------------------------------------------
. minimum annuitization value at time of $10,500
distribution:
- ------------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- ------------------------------------------------------------------------------------------
. distribution amount: $1,500
- ------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- ------------------------------------------------------------------------------------------
Calculations
- ------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
- ------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year
free amount of $600 [$10,000 X 6% = $600])
- ------------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $1,500 = $13,500
(since the policy value is reduced 10%
($1,500/$15,000), the minimum annuitization value
is also reduced 10%)
- ------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (10% X $10,500) = $9,450
</TABLE>
EXAMPLE 3
Assumptions
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy $10,000
anniversary:
- -------------------------------------------------------------------------------------------
. minimum annuitization value at time of $10,500
distribution:
- -------------------------------------------------------------------------------------------
. policy value at time of distribution: $7,500
- -------------------------------------------------------------------------------------------
. distribution amount: $1,500
- -------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- -------------------------------------------------------------------------------------------
Calculations
- -------------------------------------------------------------------------------------------
. maximum annual fee amount: $0.0
- -------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year
fee amount of $600 [$10,000 X 6% = $600])
- -------------------------------------------------------------------------------------------
. policy value after distribution: $7,500 - $1,500 = $6,000
- -------------------------------------------------------------------------------------------
(since the policy value is reduced 20%
($1,500/$7,500),
the minimum annuitization value is also reduced 20%)
- -------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (20% X $10,500) = $8,400
</TABLE>
-26-
<PAGE>
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 with
projection using projection Scale G factors, assuming a maturity date in the
year 2000. Subsequent payments will be calculated as described in the family
income protector rider using a 5% assumed investment return. Subsequent
payments may fluctuate annually in accordance with the investment performance
of the annuity subaccounts. However, subsequent payments are guaranteed to
never be less than the initial payment.
The stabilized payment on each subsequent policy anniversary after
annuitization using the family income protector will equal the greater of the
initial payment or the payment supportable by the annuity units in the selected
subaccounts. The supportable payment is equal to the number of variable annuity
units in the selected subaccounts multiplied by the variable annuity unit
values in those subaccounts on the date the payment is made. The variable
annuity unit values used to calculate the supportable payment will assume a 5%
assumed investment return. If the supportable payment at any payment date
during a policy year is greater than the stabilized payment for that policy
year, the excess will be used to purchase additional annuity units. Conversely,
if the supportable payment at any payment date during a policy year is less
than the stabilized payment for that policy year, there will be a reduction in
the number of annuity units credited to the policy to fund the deficiency. In
the case of a reduction, you will not participate as fully in the future
investment performance of the subaccounts you selected since fewer annuity
units are credited to your policy. Purchases and reductions will be allocated
to each subaccount on a proportionate basis.
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a 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 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; and (ii) the mortality
and expense risk fee. Current yield will be calculated according to the
following formula:
Current Yield = ((NCS - ES)/UV) * (365/7)
-27-
<PAGE>
Where:
<TABLE>
<C> <S>
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.
</TABLE>
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:
<TABLE>
<C> <S>
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.
</TABLE>
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, 1999, the yield of
the Endeavor Money Market Subaccount was 3.84%, and the effective yield was
3.91% for the 5% Annually Compounding Death Benefit and the Double Enhanced
Death Benefit. For the seven days ended December 31, 1999, the yield of the
Endeavor Money Market Subaccount was 3.99%, and the effective yield was 4.07%
for the Return of Premium Death Benefit.
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 series 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)
-28-
<PAGE>
Where:
<TABLE>
<C> <S>
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 series
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 series 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 series 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 series 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
Where:
<TABLE>
<C> <S>
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%.
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PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula.
CTR = (ERV/P) - 1
Where:
<TABLE>
<C> <S>
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-standardized performance data will only be advertised if the
standardized 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 series subaccounts is to provide an above-
average total return through a combination of dividend income and capital
appreciation. While the objectives of the target series subaccounts are the
same, each target series subaccount follows a different investment strategy
(set forth below) in order to achieve its stated objective.
Each target series subaccount will initially invest in equal amounts in the
common stock described below for each target series subaccount (the "common
shares") determined as of a specified business day (initial stock selection
date). The Dow Target 10 Subaccount will invest in the common stock of the ten
companies in the Dow Jones Industrial Average (DJIA) that have the highest
dividend yield. The Dow 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 Target 10 Subaccount. These stocks will be held for approximately
one year.
At the initial stock selection date, a percentage relationship among the number
of common shares in a target series subaccount will be established. When
additional funds are deposited into the target series 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
series subaccount will likewise attempt to replicate the percentage
relationship of common shares. The percentage relationship among the number of
common shares in the target series 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 series 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
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<PAGE>
number of common shares described above for each target series subaccount on
such date. Common shares may be sold or new equity securities bought so that
the target series subaccount is equally invested in the common stock of each
company meeting the target series subaccount's investment criteria. Thus the
target series 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, or First
Trust Advisers L.P. and have not participated in the creation of the target
series 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 series 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
series 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 series
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 series subaccount's
selection criteria at that time, and therefore, such common shares would no
longer be chosen for inclusion in the target series 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 series
subaccount until the next annual stock selection date.
Determination of Unit Value; Valuation of Securities
PFL determines the unit value of each target series 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 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 account.
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<PAGE>
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 and From February 1997 to December 1997,
Jr. (34) Chief Financial Executive Vice-President, Chief of
Officer Operations, from March 1997 to October
(Treasurer) 1999, Director, from December 1997 to
October 1999, Chief Operating Officer,
and from June 1998 to October 1999,
Chief Financial Officer, from July
1999 to October 1999, Chief Executive
Officer of Endeavor Group; from
September 1996 to June 1997, and from
June 1998 to October 1999, Chief
Financial Officer, from May 1996 to
December 31, 1999, Director, and from
June 1997 to October 1998, Executive
Vice President--Administration, from
October 1998 to October 1999,
President, and from July 1999 to
October 1999, Chief Executive Officer
of Endeavor Management Co.; since
August 1996, Chief Financial Officer
of VJM Corporation (oil and gas); 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;
President, Chief Financial Officer,
and Trustee of Endeavor Series Trust.
*Vincent J. McGuinness Manager Until December 31, 1999,Director of
(65) Endeavor Group and Endeavor Management
1901 Ocean Way Co.; President of VJM Corporation (oil
Laguna Beach, CA 92651 and gas); since February 1996,
President of McGuinness and
Associates; until July 1999, Chairman,
Chief Executive Office and Director of
McGuinness & Associates and VJM
Corporation; until July 1996,
Chairman, Chief Executive Officer and
Director of McGuinness Group
(insurance marketing); from September
1988 to July 1999, Chief Executive
Officer of Endeavor Management Co.;
until October 1998, President of
Endeavor Management Co.; Trustee,
Endeavor Series Trust.
Timothy A. Devine (65) Manager President, Chief Executive Officer,
1424 Dolphin Terrace Devine Properties, Inc., (landscape
Corona del Mar, contracting and maintenance);
California 92625 Consultant, Plant Control, Inc.;
Trustee, Endeavor Series Trust.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
--------------------- -------------------- -------------------
<S> <C> <C>
Thomas J. Hawekotte (64) Manager President, Thomas Hawekotte, P.C. (law
1200 Lake Shore Drive practice); Trustee, Endeavor Series
Chicago, Illinois 60610 Trust.
Steven L. Klosterman Manager Since July 1995, President of
(48) Klosterman Capital Corporation
5973 Avenida Encinas, (investment adviser); Investment
#300 Counselor, Robert J. Metcalf &
Carlsbad, California Associates, Inc. (investment adviser)
92008 from August 1990 to June 1995;
Trustee, Endeavor Series Trust.
Halbert D. Lindquist Manager President, Lindquist and Associates
(53) (investment adviser) and since
1650 E. Fort Lowell Road December 1987 Tucson Asset Management
Suite 203 Inc. (commodity trading advisor), and
Tucson, Arizona 85719- since November 1987, Presidio
2324 Government Securities, Incorporated
(broker/dealer); from January 1998 to
January 1999, Chief Investment Officer
and since January 1999, Consultant,
Blackstone Alternative Asset
Management, Trustee, Endeavor Series
Trust.
Keith H. Wood (63) Manager Since 1972, Chairman and Chief
Executive Officer of Jamison, Eaton &
Wood (investment adviser) and from
1978 to December 1997, President of
Ivory & Sime International, Inc.
(investment adviser); since 1999,
President, Wood & Anthony, LLC
(investment advisory); Trustee,
Endeavor Series Trust.
Peter F. Muratore (67) Manager From June, 1989 to March 1998,
Too Far Posthouse Road President of OCC Distributors
Morristown, NJ 07960 (broker/dealer), a subsidiary of
Oppenheimer Capital; Trustee, Endeavor
Series Trust.
*Larry N. Norman (47) Manager Executive Vice-President, PFL Life
4333 Edgewood Road N.E. Insurance Company.
Cedar Rapids, Iowa
52499-0001
Michael Pond (46) Executive Vice Since November 1, 1998, Executive Vice
President-- President--Administrator and
Administration Compliance of Endeavor Group; from
and Compliance November 1, 1998 to October 1999,
Executive Vice President--
Administration and Compliance and
Chief Investment Officer of Endeavor
Management Co.; since October 1999,
President, Chief Executive Officer and
Chief Investment Officer of Endeavor
Management Co.; from November 1991 to
November 1996, Chairman and President,
the Preferred Group of Mutual Funds;
from October 1989 to November 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>
Gail A. Hanson (57) Secretary Since September 1994, Vice President
for PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)
(mutual fund administration).
</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 ended December 31, 1999, 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 Managers
- -------------- ------------ ------------------------
<S> <C> <C>
Vincent J. McGuinness................... -0- -0-
Timothy A. Devine....................... $1,400 $19,400
Thomas J. Hawekotte..................... $1,400 $19,900
Steven L. Klosterman.................... $1,400 $20,400
Halbert D. Lindquist.................... $1,300 $19,300
Keith H. Wood........................... $1,400 $19,900
Vincent J. McGuinness, Jr............... -0- -0-
William L. Busler (resigned as of
November 15, 1999)..................... -0- -0-
Peter F. Muratore....................... $1,400 $19,900
Larry N. Norman......................... -0- -0-
</TABLE>
The Investment Advisory Services
First Trust Advisors L.P. (the "adviser") is the target account's investment
adviser. The adviser manages the assets of each target series subaccount,
consistent with the investment objective and policies described herein and in
the prospectus, pursuant to investment advisory agreements (the "advisory
agreements") with Endeavor Management Co., the target account's manager.
The 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. Nike
Securities Corporation is an Illinois corporation controlled by the Robert
Donald Van Kampen family.
Under the advisory agreements, the adviser provides each target series
subaccount with discretionary investment services. Specifically, the adviser is
responsible for supervising and directing the investments of each target series
subaccount in accordance with each target series subaccount's investment
objective, program, and restrictions as provided in the prospectus and this
SAI. The
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<PAGE>
adviser is also responsible for effecting all security transactions on behalf
of each target series subaccount.
As compensation for its services, the adviser receives a fee of 0.35% of the
average daily net assets of each target series subaccount, which is paid by the
manager. The amount that Endeavor Management Co. paid to the adviser during
1999 and 1998 was $160,506 and $19,594, respectively. No fees were paid prior
to 1998 because the target account had not commenced operations. Each target
series subaccount's advisory agreement provides that the adviser, its
directors, officers, employees, and certain other persons performing specific
functions for the target series subaccounts will only be liable to the target
series subaccount for losses resulting from willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty.
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. All of the outstanding common stock of
Endeavor Management Co. is owned by AUSA Holding Company, an affiliate of PFL.
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 series 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, PFPC, Inc. assists the
manager in the performance of its administrative responsibilities to the target
account. For its administrative responsibilities, the target account pays PFPC,
Inc. a flat 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 series subaccount. The amount that
the target account paid the manager during 1999 and 1998 was $343,942 and
$38,590, respectively. No fees were paid prior to 1998 because the target
account had not commenced operations.
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 expenses. All general target
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<PAGE>
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 and administrative
charge.)
Transfer Agent and Custodian
Boston Safe Deposit and Trust Company hold all cash and securities of each
target series subaccount as custodian. PFPC, Inc., 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 series subaccounts in common stock
and incurs brokerage costs in connection therewith.
Allocations of transactions by the target series 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 series 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
series 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 commissions paid by the target series subaccounts
may be allocated or credited to the distributor or other entities marketing the
policies, to help finance sales activities.
The target account did not pay compensation to any affiliated broker of
Endeavor Management Co. or First Trust Advisors L.P. during 1999 or 1998.
Investment Restrictions
Fundamental policies of the target series 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 series subaccount may not:
. Borrowing. Borrow money, except each target series subaccount may borrow as a
temporary measure for extraordinary or emergency purposes, and then only in
amounts not exceeding 30% of
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<PAGE>
its total assets valued at market. Each target series subaccount will not
borrow in order to increase income (leveraging), but only to facilitate
redemption requests which might otherwise require untimely investment
liquidations;
. Loans. Make loans, although the target series subaccounts may purchase money
market securities and enter into repurchase agreements; and they may lend
their common shares;
. Margin. Purchase securities on margin;
. Mortgaging. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the target series 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 series subaccount's total assets, valued at market;
. Real Estate. Purchase or sell real estate;
. Senior Securities. Issue senior securities (except permitted borrowings);
. Short Sales. Effect short sales of securities; or
. Underwriting. Underwrite securities issued by other persons, except to the
extent the target series 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 series subaccount
may engage in futures and options transactions and hold warrants.
The investment objective of each target series subaccount is also a
fundamental policy and may not be changed without the necessary approval
described above.
Operating Policies
As a matter of operating policy, each target series subaccount may not:
. Control of Companies. Invest in companies for the purpose of exercising
management or control;
. Illiquid Securities. Purchase a security if, as a result of such purchase,
more than 15% of the value of each target series subaccount's net assets
would be invested in illiquid securities or other securities that are not
readily marketable;
. Oil and Gas Programs. Purchase participations or other direct interests or
enter into leases with respect to, oil, gas, other mineral exploration or
development programs.
Options and Futures Strategies.
A target series 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 target series subaccount's current return.
The ability of a target series 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 target series subaccount will be able to utilize
these instruments effectively for the purposes stated below.
Writing Covered Options on Securities. A target series 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
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<PAGE>
time as the adviser determines is appropriate in seeking to attain the target
series subaccount's investment objective. Call options written by a target
series subaccount give the holder the right to buy the underlying security from
the target series subaccount at a stated exercise price; put options give the
holder the right to sell the underlying security to the target series
subaccount at a stated price.
A target series 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 target series 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
target series 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 target series
subaccount owns or has the right to acquire. In the case of a call written for
cross-hedging purposes or a put option, the target series subaccount will
maintain in a segregated account at the target series subaccount's custodian
bank cash or short-term U.S. government securities with a value equal to or
greater than the target series subaccount's obligation under the option. A
target series subaccount may also write combinations of covered puts and
covered calls on the same underlying security.
A target series subaccount will receive a premium from writing an option, which
increases the target series 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 target series 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 target series
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 target series 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 target
series 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 target series subaccount.
Purchasing Put and Call Options on Securities. A target series 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 target series 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
target series 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 target series 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 target series subaccount,
as holder of the call, is able to buy the underlying security at the exercise
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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 manner, any
profit which the target series 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 target series subaccount intends to purchase put or call options if, as a
result of any such transaction, the aggregate cost of options held by the
target series subaccount at the time of such transaction would exceed 5% of its
total assets.
Limitations. A target series 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 target series
subaccount unless the transaction meets certain "bona fide hedging" criteria.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on a target series subaccount's
ability to terminate options and futures positions at times when the adviser
deems it desirable to do so. Although a target series 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
target series 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 target series subaccounts will be
conducted on recognized exchanges. In certain instances, however, a target
series 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
target series 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
target series 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 target series 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 target series subaccount diverges from the composition of the relevant
option or futures contract.
Securities Lending
Each target series subaccount may also lend common shares to broker-dealers and
financial institutions to realize additional income. As an operating policy,
the target series 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 series subaccount must receive any dividends or interest paid by the
issuer on such securities; (c) each target series 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 series subaccount must
receive either interest from the investment of collateral or a fixed fee from
the borrower.
Securities loaned by a target series subaccount remain subject to fluctuations
in market value. A target series subaccount may pay reasonable finders,
custodian and administrative fees in connection with a
-39-
<PAGE>
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 series subaccount may experience delays
in, or be prevented from, recovering the collateral. During the period that the
target series subaccount seeks to enforce its rights against the borrower, the
collateral and the securities loaned remain subject to fluctuations in market
value. The target series subaccount does not have the right to vote securities
on loan, but would terminate the loan and regain the right to vote if it was
considered important with respect to the investment. A target series subaccount
may also incur expenses in enforcing its rights. If a target series 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 target series subaccounts. 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.
The target account, through the target series subaccounts, intends to comply
with the section 817(h) diversification requirements. 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 be operated in compliance
with Treasury regulations. Therefore, each target series subaccount may deviate
from its 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).
-40-
<PAGE>
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the mutual fund account and the target
account will be maintained by PFL. As presently required by the 1940 Act, 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 do so.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker/dealers for the
distribution of the policies. During 1999 and 1998 the amount paid to AFSG
Securities Corporation was $6,309,434.00 and $13,075,039.78, respectively.
Prior to April 30, 1998, AEGON USA Securities, Inc. (also an affiliate of PFL)
was the principal underwriter. During 1998 and 1997, the amount paid to AEGON
USA Securities, Inc. and/or the broker/dealers for their services was
$8,891,105.79 and $29,678,498, respectively.
The target account has adopted a distribution plan in accordance with Rule 12b-
1 under the 1940 Act (the "distribution plan") because a portion of the
mortality and expense risk fee (0.15% of separate account assets) may be deemed
to be a distribution charge. 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.
-41-
<PAGE>
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 special shareholder meetings of the underlying
funds in accordance with instructions received from persons having voting
interests in the portfolios, although none of the underlying funds hold regular
annual shareholder meetings. If, however, the 1940 Act or any regulation
thereunder should be amended or if the present interpretation thereof should
change, and as a result PFL determines that it is permitted to vote the
underlying funds shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount.
The number of votes that you have the right to instruct for a particular
subaccount will be determined by dividing your policy value in the subaccount
by the net asset value per share of the corresponding portfolio in which the
subaccount invests. Fractional shares will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying fund for determining shareholders eligible to vote at the meeting of
the underlying fund. PFL will solicit voting instructions by sending you, or
other persons entitled to vote, written requests for instructions prior to that
meeting in accordance with procedures established by the underlying fund.
Portfolio shares as to which no timely instructions are received and shares
held by PFL in which you, or other persons entitled to vote, have no beneficial
interest will be voted in proportion to the voting instructions that are
received with respect to all policies participating in the same subaccount.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
The Target Account
The target account is the legal owner of the common stock held in the target
series 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 target series subaccounts.
Matters on which persons holding voting interests may vote include the
following: (1) approval of any change in the management agreement corresponding
to a target series subaccount (but not investment advisory agreements); (2) any
change in the fundamental investment policies of a target series subaccount; or
(3) any other matter requiring a vote of persons holding voting interests in
the target series subaccount. With respect to approval of the investment
advisory agreements or any change in a fundamental investment policy, owners
participating in that target series 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 target series subaccounts. The number of votes that you have will be
calculated separately for each target series subaccount. The number of votes
that you have for a target series subaccount will be determined by dividing
your policy value in the target series subaccount into the total assets of the
target series subaccount and multiplying this by the total number of votes.
-42-
<PAGE>
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 target series subaccount into the total assets of the target series
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 target series
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 target series subaccounts, or to
approve or disapprove an investment adviser or principal underwriter for one or
more of the target series subaccounts. In addition, PFL may disregard proxies
that would require changes in the investment objectives or policies of any
target series 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
PFL holds the assets of each of the mutual fund subaccounts and the target
series subaccounts. 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
series 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. has provided legal advice
relating to certain matters under the federal securities laws applicable to the
issue and sale of the policies to PFL.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, and the financial statements of the subaccounts of PFL Endeavor VA
Separate Account, which are available for investment by The Endeavor ML
Variable Annuity policyowners, as of December 31, 1999 and for the two years in
the period then ended, included in this SAI have been audited by Ernst & Young
LLP, Independent Auditors, 801 Grand Avenue, Suite 3400, Des Moines, Iowa
50309.
-43-
<PAGE>
The financial statements of the PFL Endeavor Target Account as of December 31,
1999 and December 31, 1998, and the year ended December 31, 1999 and for the
period July 1, 1998 (commencement of operations) through December 31, 1998,
included in this SAI 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 SAI. Not all of the information set forth in the
Registration Statement, amendments and exhibits thereto has been included in
the prospectus or this SAI. Statements contained in the prospectus and this SAI
concerning the content of the policies and other legal instruments are intended
to be summaries. For a complete statement of the terms of these documents,
reference should be made to the instruments filed with the 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 certain subaccounts of The PFL Endeavor
VA Separate Account, which are available for investment by the PFL Endeavor ML
Variable Annuity contract owners, and the financial statements of The PFL
Endeavor Target Account are contained herein. The statutory-basis financial
statements of PFL, which are included in this SAI, should be considered only as
bearing on the ability of PFL to meet its obligations under the policies. They
should not be considered as bearing on the investment performance of the assets
held in the mutual fund account or the target account.
-44-
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included
the accompanying statutory-basis financial statement schedules required by
Article 7 of Regulation S-X. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States also are described in Note
1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $2,660 $154,129 $261,558 $418,347
Capital contribution.................... -- 153 -- 153
Net income.............................. -- -- 85,991 85,991
Change in net unrealized capital gains.. -- -- 3,592 3,592
Change in non-admitted assets........... -- -- (481) (481)
Change in asset valuation reserve....... -- -- (14,974) (14,974)
Dividend to stockholder................. -- -- (62,000) (62,000)
Surplus effect of sale of a division.... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division............................... -- -- 5 5
Amendment of reinsurance agreement...... -- -- 389 389
Surplus effect of reinsurance
agreement.............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................. -- -- (1,901) (1,901)
------ -------- -------- --------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income.............................. -- -- 65,498 65,498
Change in net unrealized capital gains.. -- -- 4,504 4,504
Change in non-admitted assets........... -- -- (260) (260)
Change in asset valuation reserve....... -- -- (21,763) (21,763)
Dividend to stockholder................. -- -- (120,000) (120,000)
Increase in liability for reinsurance in
unauthorized companies................. -- -- 2,036 2,036
Tax benefit on stock options exercised.. -- -- 2,476 2,476
Change in surplus in separate accounts.. -- -- 675 675
------ -------- -------- --------
Balance at December 31, 1998 2,660 154,282 205,586 362,528
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
Nature of Business
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia and Guam. Sales of the Company's products
are primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
are based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
adjustments to federal income taxes of prior years are charged or credited
directly to unassigned surplus, rather than reported as a component of expense
in the statement of operations; (n) gains or losses on dispositions of
business are charged or credited directly to unassigned surplus rather than
being reported in the statement of operations; and (o) a liability is
established for "unauthorized reinsurers" and changes in this liability are
charged or credited directly to unassigned surplus. The effects of these
variances have not been determined by the Company but are presumed to be
material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification") effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is anticipated that the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased
to be short-term investments.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for
potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve ("IMR"), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreement
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the contract owners and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner at the market value of the underlying assets
less the current surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities, including affiliated mutual funds and real estate investment
trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- -------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- -------- ----------
$4,837,196 $132,213 $ 54,155 $4,915,254
========== ======== ======== ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 related to these mortgage loans was
excluded from investment income. The Company requires all mortgaged properties
to carry fire insurance equal to the value of the underlying property.
At December 31, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate swaps and caps. All involve elements of
credit and market risks in excess of the amounts recognized in the
accompanying financial statements at a given point in time. The contract or
notional amounts of those instruments reflect the extent of involvement in the
various types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract)
that would result in an accounting loss and replacement cost risk (i.e., the
cost to replace the contract at current market rates should the counterparty
default prior to settlement date). Credit loss exposure resulting from
nonperformance by a counterparty for commitments to extend credit is
represented by the contractual amounts of the instruments.
At December 31, 1999 and 1998, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
Notional Amount
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 60,000
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. Reinsurance
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. Income Taxes
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1999). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1999 and 1998, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, respectively, in which the gross premiums are less than
the net premiums required by the standard valuation standards established by
the Insurance Division, Department of Commerce, of the State of Iowa. The
Company established policy reserves of $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
7. Dividend Restrictions
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, respectively.
8. Retirement and Compensation Plans
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
SFAS No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, respectively.
9. Related Party Transactions
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
During 1998, the Company issued life insurance policies to certain affiliated
companies, covering the lives of certain employees of those affiliates.
Premiums of $174,000 related to these policies were recognized during the
year, and aggregate reserves for policies and contracts are $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- --------- ---------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States Government and government
agencies and authorities............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</TABLE>
- -------------------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
30
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
Year ended December 31,
1998
Life insurance in
force.................. $6,384,095 $ 438,590 $ 39,116 $5,984,621 .6%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health..... 76,438 7,475 -- 68,963 --
Group life and
health............... 255,848 144,301 -- 111,547 --
Annuity............... 686,372 18,096 -- 668,276 --
---------- --------- -------- ---------- ---
$1,533,822 $ 173,564 $ 2,366 $1,362,624 .2%
========== ========= ======== ========== ===
Year ended December 31,
1997
Life insurance in
force.................. $5,025,027 $ 420,519 $ 35,486 $4,639,994 .8%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health..... 73,593 10,045 -- 63,548 --
Group life and
health............... 339,269 192,575 -- 146,694 --
Annuity............... 697,893 40,198 -- 657,695 --
---------- --------- -------- ---------- ---
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
Financial Statements
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Financial Statements
Year ended December 31, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.......................................... 1
Financial Statements
Balance Sheets.......................................................... 2
Statements of Operations................................................ 6
Statements of Changes in Contract Owners' Equity........................ 10
Notes to Financial Statements........................................... 17
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of The Endeavor ML Variable Annuity,
PFL Life Insurance Company
We have audited the accompanying balance sheets of certain subaccounts of PFL
Endeavor VA Separate Account (comprised of the 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, Endeavor High Yield, Endeavor Janus Growth,
High Current Income, Developing Capital Markets Focus, and Basic Value Focus
subaccounts), which are available for investment by contract owners of The
Endeavor ML Variable Annuity, as of December 31, 1999, and the related
statements of operations for the year then ended and changes in contract owners'
equity for the periods indicated thereon. These financial statements are the
responsibility of the Separate Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund shares owned as of December 31,
1999, by correspondence with the mutual funds' transfer agents. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts of PFL Endeavor VA Separate Account which are available for
investment by contract owners of The Endeavor ML Variable Annuity at December
31, 1999, and the results of their operations for the year then ended and
changes in their contract owners' equity for the periods indicated thereon in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 28, 2000
1
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
Endeavor Money
Market
Subaccount
------------------
Assets
<S> <C>
Cash $ 17
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio 6,167,550
Endeavor Asset Allocation Portfolio -
T. Rowe Price International Stock Portfolio -
Endeavor Value Equity Portfolio -
Dreyfus Small Cap Value Portfolio -
Dreyfus U. S. Government Securities Portfolio -
T. Rowe Price Equity Income Portfolio -
T. Rowe Price Growth Stock Portfolio -
Endeavor Opportunity Value Portfolio -
Endeavor Enhanced Index Portfolio -
Endeavor Select 50 Portfolio -
Endeavor High Yield Portfolio -
Endeavor Janus Growth Portfolio -
Merrill Lynch Variable Series Funds, Inc.:
High Current Income Fund -
Developing Capital Markets Focus Fund -
Basic Value Focus Fund -
------------------
Total investments in mutual funds 6,167,550
------------------
Total assets $6,167,567
==================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ -
------------------
Total liabilities -
Contract owners' equity:
Deferred annuity contracts terminable by owners 6,167,567
------------------
Total liabilities and contract owners' equity $6,167,567
==================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
Endeavor T. Rowe Price Dreyfus Dreyfus U. S.
Asset International Endeavor Small Cap Government T. Rowe Price
Allocation Stock Value Equity Value Securities Equity Income
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3 $ - $ 2 $ 6 $ - $ -
- - - - - -
20,443,653 - - - - -
- 13,229,963 - - - -
- - 11,422,908 - - -
- - - 17,706,227 - -
- - - - 7,769,504 -
- - - - - 22,636,822
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- -------------------------------------------------------------------------------------------------------------
20,443,653 13,229,963 11,422,908 17,706,227 7,769,504 22,636,822
- -------------------------------------------------------------------------------------------------------------
$20,443,656 $13,229,963 $11,422,910 $17,706,233 $7,769,504 $22,636,822
=============================================================================================================
$ - $ 1 $ - $ - $ 4 $ 6
- -------------------------------------------------------------------------------------------------------------
- 1 - - 4 6
20,443,656 13,229,962 11,422,910 17,706,233 7,769,500 22,636,816
- -------------------------------------------------------------------------------------------------------------
$20,443,656 $13,229,963 $11,422,910 $17,706,233 $7,769,504 $22,636,822
=============================================================================================================
</TABLE>
3
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
T. Rowe
Price Endeavor
Growth Opportunity
Stock Value
Subaccount Subaccount
-------------------------------------
Assets
<S> <C> <C>
Cash $ 7 $ -
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio - -
Endeavor Asset Allocation Portfolio - -
T. Rowe Price International Stock Portfolio - -
Endeavor Value Equity Portfolio - -
Dreyfus Small Cap Value Portfolio - -
Dreyfus U. S. Government Securities Portfolio - -
T. Rowe Price Equity Income Portfolio - -
T. Rowe Growth Stock Portfolio 29,582,797 -
Endeavor Opportunity Value Portfolio - 6,446,965
Endeavor Enhanced Index Portfolio - -
Endeavor Select 50 Portfolio - -
Endeavor High Yield Portfolio - -
Endeavor Janus Growth Portfolio - -
Merrill Lynch Variable Series Funds, Inc.:
High Current Income Fund - -
Developing Capital Markets Focus Fund - -
Basic Value Focus Fund - -
-------------------------------------
Total investments in mutual funds 29,582,797 6,446,965
-------------------------------------
Total assets $29,582,804 $6,446,965
=====================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ - $ 2
-------------------------------------
Total liabilities - 2
Contract owners' equity:
Deferred annuity contracts terminable by owners 29,582,804 6,446,963
-------------------------------------
Total liabilities and contract owners' equity $29,582,804 $6,446,965
=====================================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
Developing
Endeavor Endeavor High Capital
Enhanced Endeavor Endeavor Janus Current Markets Basic Value
Index Select 50 High Yield Growth Income Focus Focus
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 48 $ - $ 4 $ 5 $ - $ - $ -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
33,166,144 - - - - - -
- 5,315,729 - - - - -
- - 2,928,025 - - - -
- - - 82,641,754 - - -
- - - - 8,895,938 - -
- - - - - 2,050,022 -
- - - - - - 17,333,740
- ---------------------------------------------------------------------------------------------------------------
33,166,144 5,315,729 2,928,025 82,641,754 8,895,938 2,050,022 17,333,740
- ---------------------------------------------------------------------------------------------------------------
$33,166,192 $5,315,729 $ 2,928,029 $82,641,759 $ 8,895,938 $2,050,022 $17,333,740
===============================================================================================================
$ - $ 113 $ - $ - $ 6 $ 32 $ 237
- ---------------------------------------------------------------------------------------------------------------
- 113 - - 6 32 237
33,166,192 5,315,616 2,928,029 82,641,759 8,895,932 2,049,990 17,333,503
- ---------------------------------------------------------------------------------------------------------------
$33,166,192 $5,315,729 $ 2,928,029 $82,641,759 $ 8,895,938 $2,050,022 $17,333,740
===============================================================================================================
</TABLE>
5
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
Endeavor Money
Market
Subaccount
-----------------
<S> <C>
Net investment income (loss)
Income:
Dividends $ 203,616
Expenses:
Administrative, mortality and expense risk charges 65,851
-----------------
Net investment income (loss) 137,765
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 5,113,007
Cost of investments sold 5,113,007
-----------------
Net realized capital gain (loss) from sales of investments -
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period -
End of the period -
-----------------
Net change in unrealized appreciation/depreciation of investments -
-----------------
Net realized and unrealized capital gain (loss) from investments -
-----------------
Increase (decrease) from operations $ 137,765
=================
</TABLE>
(1) For the period January 1, 1999 through April 30, 1999, activity reflected in
this subaccount is related to investments in the Growth Portfolio of the WRL
Series Fund, Inc. As of the close of business on April 30, 1999, the
investments in the Growth Portfolio of the WRL Series Fund, Inc. were
replaced by investments in the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust. The investment results of the Endeavor Janus Growth
Portfolio of the Endeavor Series Trust are reflected in this subaccount for
the period May 1, 1999 through December 31, 1999.
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Endeavor T. Rowe Price Dreyfus Dreyfus U. S.
Asset International Endeavor Small Cap Government T. Rowe Price
Allocation Stock Value Equity Value Securities Equity Income
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,499,155 $ 169,939 $ 448,242 $ 979,304 $ 326,065 $ 986,858
185,955 117,951 144,533 171,260 92,775 265,465
- ------------------------------------------------------------------------------------------------------
2,313,200 51,988 303,709 808,044 233,290 721,393
971,063 722,472 1,700,474 1,250,831 2,051,925 1,114,035
973,599 663,649 1,658,836 1,443,727 2,085,094 1,019,442
- ------------------------------------------------------------------------------------------------------
(2,536) 58,823 41,638 (192,896) (33,169) 94,593
364,626 410,143 195,745 (552,080) 93,076 453,344
1,240,455 2,980,629 (708,954) 1,760,335 (241,731) (351,116)
- ------------------------------------------------------------------------------------------------------
875,829 2,570,486 (904,699) 2,312,415 (334,807) (804,460)
- ------------------------------------------------------------------------------------------------------
873,293 2,629,309 (863,061) 2,119,519 (367,976) (709,867)
- ------------------------------------------------------------------------------------------------------
$ 3,186,493 $2,681,297 $ (559,352) $2,927,563 $ (134,686) $ 11,526
======================================================================================================
</TABLE>
7
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Statements of Operations (continued)
<TABLE>
<CAPTION>
Endeavor
T. Rowe Price Opportunity
Growth Stock Value
Subaccount Subaccount
-------------------------------------
<S> <C> <C>
Net investment income (loss)
Income:
Dividends $ 1,295,562 $ 104,939
Expenses:
Administrative, mortality and expense risk charges 274,740 87,290
-------------------------------------
Net investment income (loss) 1,020,822 17,649
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 1,831,705 1,824,390
Cost of investments sold 1,433,726 1,772,264
-------------------------------------
Net realized capital gain (loss) from sales of investments 397,979 52,126
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period 1,535,618 14,349
End of the period 4,351,252 104,917
-------------------------------------
Net change in unrealized appreciation/depreciation of investments 2,815,634 90,568
-------------------------------------
Net realized and unrealized capital gain (loss) from investments 3,213,613 142,694
-------------------------------------
Increase (decrease) from operations $ 4,234,435 $ 160,343
=====================================
</TABLE>
(1) For the period January 1, 1999 through April 30, 1999, activity reflected in
this subaccount is related to investments in the Growth Portfolio of the WRL
Series Fund, Inc. As of the close of business on April 30, 1999, the
investments in the Growth Portfolio of the WRL Series Fund, Inc. were
replaced by investments in the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust. The investment results of the Endeavor Janus Growth
Portfolio of the Endeavor Series Trust are reflected in this subaccount for
the period May 1, 1999 through December 31, 1999.
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
Developing
Endeavor Endeavor High Capital
Enhanced Endeavor Endeavor Janus Current Markets Basic Value
Index Select 50 High Yield Growth Income Focus Focus
Subaccount Subaccount Subaccount Subaccount(1) Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 603,045 $ - $ 17,120 $ - $ 904,048 $ 31,573 $ 2,599,691
264,962 49,512 20,510 598,066 124,487 17,257 173,082
- -------------------------------------------------------------------------------------------------------------------
338,083 (49,512) (3,390) (598,066) 779,561 14,316 2,426,609
802,970 659,745 131,769 1,284,341 1,372,212 330,652 625,675
565,959 616,723 125,358 739,205 1,592,342 392,113 724,430
- -------------------------------------------------------------------------------------------------------------------
237,011 43,022 6,411 545,136 (220,130) (61,461) (98,755)
1,157,511 74,974 13,143 4,210,495 (664,011) (217,296) 40,964
3,412,163 1,529,927 53,689 26,009,253 (874,408) 457,571 (612,115)
- -------------------------------------------------------------------------------------------------------------------
2,254,652 1,454,953 40,546 21,798,758 (210,397) 674,867 (653,079)
- -------------------------------------------------------------------------------------------------------------------
2,491,663 1,497,975 46,957 22,343,894 (430,527) 613,406 (751,834)
- -------------------------------------------------------------------------------------------------------------------
$ 2,829,746 $1,448,463 $ 43,567 $21,745,828 $ 349,034 $ 627,722 $ 1,674,775
===================================================================================================================
</TABLE>
9
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Statements of Changes in Contract Owners' Equity
Years ended December 31, 1999 and 1998, except as noted
<TABLE>
<CAPTION>
Endeavor Money Market Subaccount
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) $ 137,765 $ 51,321
Net realized capital gain (loss) - -
Net change in unrealized appreciation/depreciation of investments - -
-----------------------------------
Increase (decrease) from operations 137,765 51,321
Contract transactions:
Net contract purchase payments 4,418,851 1,804,285
Transfer payments from (to) other subaccounts or general account (212,212) 80,181
Contract terminations, withdrawals and other deductions (461,970) (157,625)
-----------------------------------
Increase from contract transactions 3,744,669 1,726,841
-----------------------------------
Net increase in contract owners' equity 3,882,434 1,778,162
Contract owners' equity:
Beginning of the period 2,285,133 506,971
-----------------------------------
End of the period $ 6,167,567 $2,285,133
===================================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998, activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth Portfolio
of the WRL Series Fund, Inc. were replaced by investments in the Endeavor
Janus Growth Portfolio of the Endeavor Series Trust. The investment results
and contract transactions of the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust are reflected in this subaccount for the period May 1,
1999 through December 31, 1999.
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
Endeavor Asset Allocation T. Rowe Price International Endeavor
Subaccount Stock Subaccount Value Equity Subaccount
- --------------------------------- ------------------------------------- -------------------------------------
1999 1998 1999 1998 1999 1998
- --------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,313,200 $ 349,447 $ 51,988 $ (6,200) $ 303,709 $ 45,775
(2,536) 6,356 58,823 (25,050) 41,638 15,209
875,829 354,393 2,570,486 495,006 (904,699) 146,607
- --------------------------------- ------------------------------------- -------------------------------------
3,186,493 710,196 2,681,297 463,756 (559,352) 207,591
4,302,495 2,598,582 3,163,240 1,033,058 2,645,791 3,256,698
5,399,436 3,290,707 1,632,718 2,187,777 1,668,580 2,633,332
(416,925) (162,084) (196,314) (179,109) (202,365) (65,388)
- --------------------------------- ------------------------------------- -------------------------------------
9,285,006 5,727,205 4,599,644 3,041,726 4,112,006 5,824,642
- --------------------------------- ------------------------------------- -------------------------------------
12,471,499 6,437,401 7,280,941 3,505,482 3,552,654 6,032,233
7,972,157 1,534,756 5,949,021 2,443,539 7,870,256 1,838,023
- --------------------------------- ------------------------------------- -------------------------------------
$ 20,443,656 $ 7,972,157 $ 13,229,962 $ 5,949,021 $ 11,422,910 $ 7,870,256
================================= ===================================== =====================================
</TABLE>
11
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Dreyfus Small Cap Value Dreyfus U. S. Government
Subaccount Securities Subaccount
--------------------------------- -----------------------------------
1999 1998 1999 1998
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 808,044 $ 644,027 $ 233,290 $ 31,656
Net realized capital gain (loss) (192,896) (341,963) (33,169) 24,368
Net change in unrealized appreciation/
depreciation of investments 2,312,415 (495,138) (334,807) 80,508
--------------------------------- -----------------------------------
Increase (decrease) from operations 2,927,563 (193,074) (134,686) 136,532
Contract transactions:
Net contract purchase payments 3,545,506 2,579,315 2,438,360 1,840,411
Transfer payments from (to) other
subaccounts or general account 2,923,591 3,192,530 992,545 2,418,528
Contract terminations, withdrawals and
other deductions (201,332) (271,369) (341,018) (59,142)
--------------------------------- -----------------------------------
Increase from contract transactions 6,267,765 5,500,476 3,089,887 4,199,797
--------------------------------- -----------------------------------
Net increase in contract owners' equity 9,195,328 5,307,402 2,955,201 4,336,329
Contract owners' equity:
Beginning of the period 8,510,905 3,203,503 4,814,299 477,970
--------------------------------- -----------------------------------
End of the period $ 17,706,233 $ 8,510,905 $ 7,769,500 $ 4,814,299
================================= ===================================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998, activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth Portfolio
of the WRL Series Fund, Inc. were replaced by investments in the Endeavor
Janus Growth Portfolio of the Endeavor Series Trust. The investment results
and contract transactions of the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust are reflected in this subaccount for the period May 1,
1999 through December 31, 1999.
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price Equity Income T. Rowe Price Growth Stock Endeavor
Subaccount Subaccount Opportunity Value Subaccount
- -------------------------------- ------------------------------------- -------------------------------------
1999 1998 1999 1998 1999 1998
- -------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$ 721,393 $ 224,281 $ 1,020,822 $ 140,477 $ 17,649 $ (12,504)
94,593 48,603 397,979 48,848 52,126 14,324
(804,460) 314,785 2,815,634 1,455,971 90,568 (633)
- -------------------------------- ------------------------------------- -------------------------------------
11,526 587,669 4,234,435 1,645,296 160,343 1,187
5,248,393 4,720,603 8,403,335 4,221,988 1,058,822 2,834,478
4,940,145 4,925,191 5,651,477 3,845,353 (601,328) 1,919,107
(593,335) (290,766) (632,262) (114,339) (109,616) (90,309)
- -------------------------------- ------------------------------------- -------------------------------------
9,595,203 9,355,028 13,422,550 7,953,002 347,878 4,663,276
- -------------------------------- ------------------------------------- -------------------------------------
9,606,729 9,942,697 17,656,985 9,598,298 508,221 4,664,463
13,030,087 3,087,390 11,925,819 2,327,521 5,938,742 1,274,279
- -------------------------------- ------------------------------------- -------------------------------------
$ 22,636,816 $ 13,030,087 $ 29,582,804 $ 11,925,819 $ 6,446,963 $ 5,938,742
================================ ===================================== =====================================
</TABLE>
13
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Endeavor Enhanced Endeavor Select 50
Index Subaccount Subaccount
------------------------------------ ----------------------------------
1999 1998 1999 1998 (1)
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 338,083 $ (47,293) $ (49,512) $ (20,587)
Net realized capital gain (loss) 237,011 56,407 43,022 (6,836)
Net change in unrealized appreciation/
depreciation of investments 2,254,652 1,114,533 1,454,953 74,974
------------------------------------ ----------------------------------
Increase (decrease) from operations 2,829,746 1,123,647 1,448,463 47,551
Contract transactions:
Net contract purchase payments 12,106,597 3,314,042 954,350 1,822,818
Transfer payments from (to) other
subaccounts or general account 10,436,549 2,226,570 391,477 693,965
Contract terminations, withdrawals
and other deductions (372,720) (153,627) (41,045) (1,963)
------------------------------------ ----------------------------------
Increase from contract transactions 22,170,426 5,386,985 1,304,782 2,514,820
------------------------------------ ----------------------------------
Net increase in contract owners' equity 25,000,172 6,510,632 2,753,245 2,562,371
Contract owners' equity:
Beginning of the period 8,166,020 1,655,388 2,562,371 -
------------------------------------ ----------------------------------
End of the period $ 33,166,192 $ 8,166,020 $ 5,315,616 $ 2,562,371
==================================== ==================================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998, activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth Portfolio
of the WRL Series Fund, Inc. were replaced by investments in the Endeavor
Janus Growth Portfolio of the Endeavor Series Trust. The investment results
and contract transactions of the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust are reflected in this subaccount for the period May 1,
1999 through December 31, 1999.
See accompanying notes.
14
<PAGE>
<TABLE>
<CAPTION>
Developing Capital
Endeavor High Yield Endeavor Janus High Current Income Markets Focus
Subaccount Growth Subaccount Subaccount Subaccount
- ------------------------ -------------------------- --------------------------- ---------------------------
1999 1998 (2) 1999 (3) 1998 1999 1998 1999 1998
- ------------------------ -------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (3,390) $ (1,263) $ (598,066) $ (40,959) $ 779,561 $ 396,136 $ 14,316 $ (3,291)
6,411 (1,892) 545,136 118,650 (220,130) (101,819) (61,461) (173,704)
40,546 13,143 21,798,758 4,515,303 (210,397) (658,076) 674,867 (122,464)
- ------------------------ -------------------------- --------------------------- --------------------------
43,567 9,988 21,745,828 4,592,994 349,034 (363,759) 627,722 (299,459)
1,561,899 285,792 25,718,106 5,602,811 942,760 1,724,497 301,942 174,872
977,430 87,832 18,433,931 5,034,772 675,815 4,279,386 275,000 292,614
(38,479) - (1,072,303) (510,596) (485,335) (105,358) (37,023) (1,283)
- ------------------------ -------------------------- --------------------------- --------------------------
2,500,850 373,624 43,079,734 10,126,987 1,133,240 5,898,525 539,919 466,203
- ------------------------ -------------------------- --------------------------- --------------------------
2,544,417 383,612 64,825,562 14,719,981 1,482,274 5,534,766 1,167,641 166,744
383,612 - 17,816,197 3,096,216 7,413,658 1,878,892 882,349 715,605
- ------------------------ -------------------------- --------------------------- --------------------------
$ 2,928,029 $ 383,612 $ 82,641,759 $ 17,816,197 $ 8,895,932 $ 7,413,658 $ 2,049,990 $ 882,349
======================== ========================== =========================== ==========================
</TABLE>
15
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Basic Value Focus Subaccount
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) $ 2,426,609 $ 165,338
Net realized capital gain (loss) (98,755) (97,851)
Net change in unrealized appreciation/depreciation of investments (653,079) 70,811
-----------------------------------
Increase (decrease) from operations 1,674,775 138,298
Contract transactions:
Net contract purchase payments 4,601,605 2,167,226
Transfer payments from (to) other subaccounts or general account 3,938,706 3,731,353
Contract terminations, withdrawals and other deductions (334,573) (87,844)
-----------------------------------
Increase from contract transactions 8,205,738 5,810,735
-----------------------------------
Net increase in contract owners' equity 9,880,513 5,949,033
Contract owners' equity:
Beginning of the period 7,452,990 1,503,957
-----------------------------------
End of the period $ 17,333,503 $ 7,452,990
===================================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998, activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth
Portfolio of the WRL Series Fund, Inc. were replaced by investments in the
Endeavor Janus Growth Portfolio of the Endeavor Series Trust. The
investment results and contract transactions of the Endeavor Janus Growth
Portfolio of the Endeavor Series Trust are reflected in this subaccount for
the period May 1, 1999 through December 31, 1999.
See accompanying notes.
16
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Endeavor VA Separate Account (the "Mutual Fund Account") is a segregated
investment account of PFL Life Insurance Company ("PFL Life"), an indirect
wholly-owned subsidiary of AEGON N.V., a holding company organized under the
laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of sixteen investment
subaccounts, thirteen of which are invested in specified portfolios of the
Endeavor Series Trust and three of which are invested in specified portfolios of
the Merrill Lynch Variable Series Funds, Inc. (each a "Series Fund" and
collectively "The Series Funds"). Activity in these sixteen investment
subaccounts is available to contract owners of The Endeavor ML Variable Annuity.
The Endeavor Series Trust portfolios of the Mutual Fund Account are also
available to the contract owners of The Endeavor Variable Annuity and The
Endeavor Platinum Variable Annuity, also issued by PFL Life. The amounts
reported herein represent the activity related to contract owners of The
Endeavor ML Variable Annuity only.
Prior to April 30, 1999, the Growth Portfolio of the WRL Series Fund, Inc. was
available to contract owners of the AUSA Endeavor Variable Annuity as an
investment option. As of the close of business on April 30, 1999, all shares of
the Growth Portfolio of the WRL Series Fund, Inc. were exchanged for shares of
the Endeavor Janus Growth Portfolio of the Endeavor Series Trust. This exchange
had no impact at the date of transfer on investments in mutual funds or total
contract owners' equity. The Endeavor Select 50 Subaccount and the Endeavor High
Yield Subaccount commenced operations on February 2, 1998 and June 2, 1998,
respectively.
Investments
Net purchase payments received by the Mutual Fund Account for The Endeavor ML
Variable Annuity are invested in the portfolios of the Series Funds as selected
by the contract owner. Investments are stated at the closing net asset values
per share on December 31, 1999.
Realized capital gains and losses from the sale of shares in the Series Funds
are determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from the investments in the Series Funds are credited or charged to contract
owners' equity.
17
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Dividend Income
Dividends received from the Series Funds investments are reinvested to purchase
additional mutual fund shares.
2. Investments
A summary of the mutual fund investments at December 31, 1999 follows:
<TABLE>
<CAPTION>
Net Asset
Number of Value Per Market
Shares Held Share Value Cost
------------------------------------------------------------------------
Endeavor Series Trust:
<S> <C> <C> <C> <C>
Endeavor Money Market Portfolio 6,167,550.240 $ 1.00 $ 6,167,550 $ 6,167,550
Endeavor Asset Allocation Portfolio 893,125.968 22.89 20,443,653 19,203,198
T. Rowe Price International Stock
Portfolio 633,618.913 20.88 13,229,963 10,249,334
Endeavor Value Equity Portfolio 571,431.111 19.99 11,422,908 12,131,862
Dreyfus Small Cap Value Portfolio 1,072,454.711 16.51 17,706,227 15,945,892
Dreyfus U. S. Government Securities
Portfolio 673,851.164 11.53 7,769,504 8,011,235
T. Rowe Price Equity Income Portfolio 1,160,862.663 19.50 22,636,822 22,987,938
T. Rowe Price Growth Stock Portfolio 1,029,324.878 28.74 29,582,797 25,231,545
Endeavor Opportunity Value Portfolio 513,293.414 12.56 6,446,965 6,342,048
Endeavor Enhanced Index Portfolio 1,826,329.518 18.16 33,166,144 29,753,981
Endeavor Select 50 Portfolio 337,292.467 15.76 5,315,729 3,785,802
Endeavor High Yield Portfolio 290,190.768 10.09 2,928,025 2,874,336
Endeavor Janus Growth Portfolio 866,538.265 95.37 82,641,754 56,632,501
Merrill Lynch Variable Series Funds, Inc.:
High Current Income Fund 927,626.444 9.59 8,895,938 9,770,346
Developing Capital Markets Focus Fund 198,261.286 10.34 2,050,022 1,592,451
Basic Value Focus Fund 1,274,539.708 13.60 17,333,740 17,945,855
</TABLE>
18
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Notes to Financial Statements (continued)
2. Investments (continued)
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period ended December 31
1999 1998
------------------------------------- ----------------------------------
Purchases Sales Purchases Sales
------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Endeavor Series Trust:
Endeavor Money Market
Portfolio $ 8,995,415 $5,113,007 $ 3,330,920 $1,552,747
Endeavor Asset Allocation
Portfolio 12,569,264 971,063 6,565,495 488,873
T. Rowe Price International Stock
Portfolio 5,374,107 722,472 3,762,010 726,552
Endeavor Value Equity Portfolio 6,116,187 1,700,474 6,327,438 457,072
Dreyfus Small Cap Value
Portfolio 8,326,631 1,250,831 7,249,271 1,104,863
Dreyfus U. S. Government Securities
Portfolio 5,375,106 2,051,925 4,896,767 665,314
T. Rowe Price Equity Income
Portfolio 11,430,634 1,114,035 10,450,104 870,863
T. Rowe Price Growth Stock
Portfolio 16,275,071 1,831,705 8,591,850 498,442
Endeavor Opportunity Value
Portfolio 2,189,923 1,824,390 4,960,140 309,396
Endeavor Enhanced Index
Portfolio 23,311,429 802,970 5,852,261 512,616
Endeavor Select 50 Portfolio 1,915,073 659,795 2,812,251 317,963
Endeavor High Yield Portfolio 2,629,224 131,769 396,057 23,695
Endeavor Janus Growth Portfolio 43,766,008 1,284,341 11,119,284 1,033,370
Merrill Lynch Variable Series
Funds, Inc.:
High Current Income Fund 3,285,004 1,372,212 7,063,232 768,564
Developing Capital Markets
Focus Fund 884,919 330,652 933,880 471,000
Basic Value Focus Fund 11,258,197 625,675 6,661,744 685,655
</TABLE>
19
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
Return of Premium Death Benefit
------------------------------------------------------
Total
Accumulation Accumulation Contract
Subaccount Units Owned Unit Value Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Money Market 547,317.665 $ 1.280646 $ 700,920
Endeavor Asset Allocation 1,189,043.271 3.160924 3,758,475
T. Rowe Price International Stock 1,186,858.494 2.001071 2,374,988
Endeavor Value Equity 961,278.161 2.115695 2,033,771
Dreyfus Small Cap Value 1,327,060.532 2.278888 3,024,222
Dreyfus U. S. Government Securities 1,667,132.394 1.255919 2,093,783
T. Rowe Price Equity Income 1,874,943.660 2.107761 3,951,933
T. Rowe Price Growth Stock 1,602,288.797 3.124914 5,007,015
Endeavor Opportunity Value 941,150.633 1.240246 1,167,258
Endeavor Enhanced Index 3,001,172.313 1.838549 5,517,802
Endeavor Select 50 447,744.356 1.534754 687,178
Endeavor High Yield 625,739.546 1.003083 627,669
Endeavor Janus Growth 292,621.286 50.054351 14,646,969
High Current Income 1,743,155.373 1.036111 1,806,102
Developing Capital Markets Focus 423,799.182 0.882824 374,140
Basic Value Focus 2,454,557.131 1.348411 3,309,752
</TABLE>
20
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit and Double
Enhanced Death Benefit
--------------------------------------------------------
Total
Accumulation Accumulation Contract
Subaccount Units Owned Unit Value Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Money Market 4,284,434.467 $ 1.275932 $ 5,466,647
Endeavor Asset Allocation 5,298,098.838 3.149277 16,685,181
T. Rowe Price International Stock 5,444,716.625 1.993671 10,854,974
Endeavor Value Equity 4,454,289.314 2.107887 9,389,139
Dreyfus Small Cap Value 6,466,464.732 2.270485 14,682,011
Dreyfus U. S. Government Securities 4,528,567.266 1.253314 5,675,717
T. Rowe Price Equity Income 8,897,631.087 2.099984 18,684,883
T. Rowe Price Growth Stock 7,893,482.303 3.113428 24,575,789
Endeavor Opportunity Value 4,272,750.319 1.235669 5,279,705
Endeavor Enhanced Index 15,093,778.210 1.831774 27,648,390
Endeavor Select 50 3,024,268.788 1.530432 4,628,438
Endeavor High Yield 2,298,661.602 1.000739 2,300,360
Endeavor Janus Growth 1,363,436.730 49.870147 67,994,790
High Current Income 6,868,040.687 1.032293 7,089,830
Developing Capital Markets Focus 1,905,288.618 0.879578 1,675,850
Basic Value Focus 10,438,672.328 1.343442 14,023,751
</TABLE>
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Endeavor Money Endeavor Asset T. Rowe Price Endeavor Dreyfus Small
Market Allocation International Value Equity Cap Value
Subaccount Subaccount Stock Subaccount Subaccount Subaccount
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
January 1, 1998 423,914 707,039 1,815,704 881,579 1,731,434
Units purchased 1,487,348 1,149,076 746,202 1,592,370 1,532,802
Units redeemed and
transferred (64,473) 1,293,297 1,325,688 1,089,315 1,510,181
-----------------------------------------------------------------------------------------
Units outstanding at
December 31, 1998 1,846,789 3,149,412 3,887,594 3,563,264 4,774,417
Units purchased 3,501,097 1,567,446 1,969,645 1,236,337 1,791,102
Units redeemed and
transferred (516,134) 1,770,284 774,336 615,966 1,228,006
-----------------------------------------------------------------------------------------
Units outstanding at
December 31, 1999 4,831,752 6,487,142 6,631,575 5,415,567 7,793,525
=========================================================================================
</TABLE>
21
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
T. Rowe
Dreyfus U. S. T. Rowe Price Endeavor Endeavor
Government Price Equity Growth Opportunity Enhanced
Securities Income Stock Value Index
Subaccount Subaccount Subaccount Subaccount Subaccount
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at
January 1, 1998 393,564 1,604,708 1,139,626 1,101,975 1,360,116
Units purchased 1,744,597 2,522,299 1,957,627 2,399,424 2,402,882
Units redeemed and
transferred 1,608,944 2,192,537 1,510,496 1,456,736 1,421,968
-------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1998 3,747,105 6,319,544 4,607,749 4,958,135 5,184,966
Units purchased 2,058,292 2,521,366 3,146,319 866,656 7,196,921
Units redeemed and
transferred 390,303 1,931,665 1,741,703 (610,890) 5,713,064
-------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1999 6,195,700 10,772,575 9,495,771 5,213,901 18,094,951
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Developing
Endeavor High Capital
Endeavor Endeavor Janus Current Markets Basic Value
Select 50 High Yield Growth Income Focus Focus
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at
January 1, 1998 - - 157,546 1,812,067 921,989 1,438,781
Units purchased 1,757,749 313,529 238,081 1,878,705 249,351 2,100,810
Units redeemed
and transferred 679,446 85,806 163,939 3,798,236 463,200 3,074,199
-------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1998 2,437,195 399,335 559,566 7,489,008 1,634,540 6,613,790
Units purchased 782,406 1,576,601 680,673 934,974 404,915 3,570,339
Units redeemed
and transferred 252,413 948,465 415,819 187,214 289,633 2,709,100
-------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1999 3,472,014 2,924,401 1,656,058 8,611,196 2,329,088 12,893,229
=======================================================================================================
</TABLE>
22
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor ML Variable Annuity
Notes to Financial Statements (continued)
4. Administrative, Mortality and Expense Risk Charges
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owner's account. This charge is waived if the sum
of the premium payments less the sum of the partial withdrawals equals or
exceeds $50,000 on the policy anniversary. PFL Life also deducts a daily charge
equal to an annual rate of .15% of the contract owners' account for
administrative expenses. In addition, during the first seven policy years, PFL
Life deducts a daily distribution finance charge equal to an effective annual
rate of .15% of the contract owners' account.
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annually Compounding Death Benefit and Double Enhanced Death
Benefit, this charge is equal to an effective annual rate of 1.25% of the value
of the contract owners' individual account. For the Return of Premium Death
Benefit, the corresponding charge is equal to an effective annual rate of 1.10%
of the contract owners' individual account.
5. Taxes
Operations of the Mutual Fund Account form a part of PFL Life, which is taxed as
a life insurance company under Subchapter L of the Internal Revenue Code of
1986, as amended (the "Code"). The operations of the Mutual Fund Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Mutual Fund Account is not separately taxable as a
regulated investment company under Subchapter M of the Code and is not otherwise
taxable as an entity separate from PFL Life. Under existing federal income tax
laws, the income of the Mutual Fund Account, to the extent applied to increase
reserves under the variable annuity contracts, is not taxable to PFL Life.
23
<PAGE>
PFL Endeavor Target Account
Annual Report
December 31, 1999
<PAGE>
Policyholder Letter
Dear Valued Policyholder:
We are pleased to present you with the market activity information on PFL
Endeavor Target Account for the period ending December 31, 1999. We hope that
you will find the underlying investment information interesting and
informative.
This correspondence is also an opportunity to remind you that we welcome your
comments and ideas as to how we can serve you even better. If you have any
questions or comments, please call the Variable Annuity Department at 800-525-
6205.
You can be assured of our continuing commitment to providing quality products
and excellent service to our policyholders.
Sincerely yours,
/s/ Vincent J. McGuinness, Jr.
Vincent J. McGuinness, Jr.
President and Chief Executive Officer
PFL Endeavor Target Account
-1-
<PAGE>
Portfolio Manager Letter
Despite a rising interest rate environment, 1999 was generally positive for US
stocks. The stock market rose strongly in the first six months of the year and
then suffered through a correction lasting from mid-July through mid-October as
investors digested a couple of Federal Reserve interest rate hikes and their
potential impact of slowing corporate earnings growth. But the stock market
staged an impressive rally through the end of the year led by technology shares
as the nation's economy remained strong and investors' fears of Y2K subsided.
The trading during the latter part of this period was characterized by heavy
investor demand for early stage growth companies, particularly technology and
communications-related shares, at the expense of value stocks.
The DowSM July Target 5 Subaccount was rebalanced at mid year. Eastman Kodak
and Sears replaced AT&T and International Paper. Otherwise, Caterpillar,
General Motors and Philip Morris remained in the portfolio for the entire year.
The Subaccount has been hurt by substantial weakness in Philip Morris (down
54%) and Sears (down 31% in H2). In addition, Eastman Kodak (down 1% in H2),
Caterpillar (up 5%), and GM (up 20%) have all lagged the Dow Jones Industrial
Average in 1999.
The DowSM July Target 10 Subaccount has been hurt in 1999 as investors put
their faith in a glitzy high-tech future and moved away from the "smokestack
companies" that dominate the Dogs of the Dow strategy. The portfolio was
rebalanced at mid year and DuPont and Sears replaced AT&T and International
Paper. The rest of the stocks in the portfolio remained the same. Substantial
weakness occurred in Philip Morris (down 54%), Sears (down 31% in H2), and
Eastman Kodak (down 6%). Of the remaining seven components of the subaccount,
Caterpillar (up 5%), Chevron (up 7%), DuPont (down 3% in H2), Exxon Mobil (up
13%), GM (up 20%) and J.P. Morgan (up 24%) have all lagged the DJIA return.
Only Minnesota Mining (up 41%), has managed to beat the DJIA return for 1999.
Chevron was removed from the Dow Jones Industrial Average on November 1, 1999
and Exxon Corp. completed the purchase of Mobil Corp. on November 30, 1999.
The DowSM January Target 5 Subaccount has been hurt by substantial weakness in
two of its five components. Philip Morris has been hit hard (down 54%) due to
concerns about the tobacco industry's mounting legal battles. Goodyear Tire
(down 42%) has been punished due to disappointment over its fourth straight
quarter of declining earnings. In addition, Goodyear was removed from the Dow
Jones Industrial Average (DJIA) on November 1, 1999. Caterpillar, although up
for the year (up 5%), has lagged the index after announcing significantly lower
year over year third quarter profits and repeatedly warning analysts about 1999
full year earnings. DuPont (up 27%) has matched the DJIA return for the year
and only Minnesota Mining & Mfg. has outperformed the index, up 41%.
The DowSM January Target 10 Subaccount has been hurt in 1999 as investors put
their faith in a glitzy high-tech future and moved away from the "smokestack
companies" that dominate the Dogs of the Dow strategy. Substantial weakness
occurred in three of its ten components. Philip Morris has been hit hard (down
54%) due to concerns about the tobacco industry's mounting legal battles.
Goodyear Tire (down 42%) has been punished due to disappointment over its
fourth straight quarter of declining earnings. In addition, Goodyear was
removed from the Dow Jones Industrial Average (DJIA) effective November 1,
1999. Eastman Kodak (down 6%) has had a tough fight with rival Fuji Photo in
the traditional film marketplace and has not convinced investors that its
vision of digital imaging will be realized. Of the remaining seven components
of the subaccount, five have underperformed the DJIA, one has matched the index
return, and only one has managed to beat the index. Caterpillar (up 5%),
Chevron (up 7%), Exxon Mobil (up 13%), GM (up 20%) and J.P. Morgan (up 24%)
have all lagged the market return. (Exxon Corp. purchased Mobil Corp. in
November for $85.2 billion.) Only DuPont (up 27%) and Minnesota Mining (up
41%), have managed to match or beat the DJIA return for 1999.
-2-
<PAGE>
Portfolio Manager Letter
The outlook for US stocks remains bullish as we enter 2000 due in large part to
the booming US economy. While negative factors such as the likelihood of
further Federal Reserve interest rate hikes, lofty valuation levels and the
perceived narrowness of the market may result in a correction sometime during
the next year, the expected continuing strength in US corporate earnings should
ultimately result in higher stock prices.
The Target Subaccounts identifies strong, established companies that are
currently out of favor on Wall Street and likely to rebound. We believe these
companies are well positioned to benefit from either a broadening of the
current market rally, or a rotation out of the speculative, high-tech names
that have been leading the market. Therefore, we expect the subaccount to
perform well going forward and reward the patient value-oriented investor.
PFPC Inc. Advisors, L.P.
-3-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 5--July Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------- -----------
<S> <C> <C>
COMMON STOCK--100.1%
Automotives--26.7%
General Motors Corporation.............................. 62,875 $ 4,570,227
-----------
Consumer Products--14.0%
Philip Morris Companies, Inc. .......................... 103,272 2,394,619
-----------
Machinery--19.1%
Caterpillar, Inc. ...................................... 69,167 3,255,172
-----------
Miscellaneous Manufacturing Industries--23.7%
Eastman Kodak Company................................... 61,242 4,057,283
-----------
Retail--16.6%
Sears Roebuck & Company................................. 93,029 2,831,570
-----------
Total Common Stock
(Cost $20,270,762)............................................. 17,108,871
-----------
TOTAL INVESTMENTS
(Cost $20,270,762*)...................................... 100.1% 17,108,871
OTHER ASSETS AND LIABILITIES (Net)........................ -0.1% (3,242)
------- -----------
NET ASSETS................................................ 100.0% $17,105,629
======= ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-4-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 10--July Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK--100.2%
Automotives--12.2%
General Motors Corporation............................... 27,585 $ 2,005,084
-----------
Consumer Products--6.4%
Philip Morris Companies, Inc............................. 45,312 1,050,672
-----------
Diversified Chemical--10.7%
duPont (E.I.) de Nemours & Company....................... 26,650 1,755,569
-----------
Diversified Manufacturing--12.4%
Minnesota Mining & Manufacturing Company................. 20,944 2,049,894
-----------
Financial Services--10.0%
J.P. Morgan & Company, Inc............................... 12,950 1,639,794
-----------
Machinery--8.7%
Caterpillar, Inc......................................... 30,351 1,428,394
-----------
Miscellaneous Manufacturing Industries--10.8%
Eastman Kodak Company.................................... 26,860 1,779,475
-----------
Oil & Gas Extraction--11.5%
Exxon Mobil Corporation.................................. 23,611 1,902,161
-----------
Petroleum Refining--10.0%
Chevron Corporation...................................... 19,118 1,656,097
-----------
Retail--7.5%
Sears Roebuck & Company.................................. 40,780 1,241,241
-----------
Total Common Stock
(Cost $17,345,759)............................................. 16,508,381
-----------
TOTAL INVESTMENTS
(Cost $17,345,759*)....................................... 100.2% 16,508,381
OTHER ASSETS AND LIABILITIES (Net)......................... -0.2% (31,457)
------ -----------
NET ASSETS................................................. 100.0% $16,476,924
====== ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-5-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 5--January Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK--98.7%
Consumer Products--9.2%
Philip Morris Companies, Inc. ............................ 32,667 $ 757,466
----------
Diversified Chemicals--26.5%
duPont (E.I.) de Nemours & Company........................ 33,054 2,177,432
----------
Diversified Manufacturing--29.3%
Minnesota Mining & Manufacturing Company.................. 24,653 2,412,912
----------
Machinery--21.8%
Caterpillar, Inc. ........................................ 38,147 1,795,293
----------
Tires & Rubber--11.9%
Goodyear Tire & Rubber Company............................ 34,823 981,573
----------
Total Common Stock
(Cost $9,438,803)............................................... 8,124,677
----------
TOTAL INVESTMENTS
(Cost $9,438,803*)......................................... 98.7% 8,124,677
OTHER ASSETS AND LIABILITIES (Net).......................... 1.3% 107,955
------ ----------
NET ASSETS.................................................. 100.0% $8,232,632
====== ==========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-6-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 10--January Series Subaccount
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK--94.1%
Automotives--7.6%
Delphi Automotive Systems Corporation.................... 4,045 $ 63,709
General Motors Corporation............................... 10,198 741,267
-----------
Total Automotive................................................ 804,976
-----------
Consumer Products--4.2%
Philip Morris Companies, Inc. ........................... 19,056 441,861
-----------
Diversified Chemicals--12.0%
duPont (E.I.) de Nemours & Company....................... 19,232 1,266,908
-----------
Diversified Manufacturing--13.3%
Minnesota Mining & Manufacturing Company................. 14,344 1,403,919
-----------
Financial Services--11.7%
J.P. Morgan & Company, Inc. ............................. 9,711 1,229,655
-----------
Machinery--9.9%
Caterpillar, Inc. ....................................... 22,214 1,045,446
-----------
Miscellaneous Manufacturing Industries--8.9%
Eastman Kodak Company.................................... 14,167 938,564
-----------
Oil & Gas Extraction--11.0%
Exxon Mobil Corporation.................................. 14,421 1,161,792
-----------
Petroleum Refining--10.1%
Chevron Corporation...................................... 12,306 1,066,007
-----------
Tires & Rubber--5.4%
Goodyear Tire & Rubber Company........................... 20,218 569,895
-----------
Total Common Stock
(Cost $10,627,046)............................................. 9,929,023
-----------
TOTAL INVESTMENTS
(Cost $10,627,046*)....................................... 94.1% 9,929,023
OTHER ASSETS AND LIABILITIES (Net)......................... 5.9% 620,101
------ -----------
NET ASSETS................................................. 100.0% $10,549,124
====== ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-7-
<PAGE>
Statements of Assets and Liabilities
PFL Endeavor Target Account
December 31, 1999
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Assets
Investment in
securities, at market
value $17,108,871 $16,508,381 $8,124,677 $ 9,929,023
Cash 74,325 187,531 222,282 874,172
Receivable from
investment securities
sold -- -- 50,036 --
Dividends and/or
interest receivable 98,367 56,181 16,527 25,480
----------- ----------- ---------- -----------
Total assets $17,281,563 $16,752,093 $8,413,522 $10,828,675
=========== =========== ========== ===========
Liabilities and
contract owners'
equity
Liabilities:
Payable for investment
securities purchased $ 155,135 $ 254,064 $ 164,853 $ 265,835
Management fee payable 10,705 10,267 5,071 6,273
Accrued Expenses
payable 10,094 10,838 8,390 7,443
Fund redemption payable -- -- 2,576 --
----------- ----------- ---------- -----------
Total liabilities 175,934 275,169 180,890 279,551
Deferred annuity
contracts terminable
by owners 17,105,629 16,476,924 8,232,632 10,549,124
----------- ----------- ---------- -----------
Total liabilities and
contract owners'
equity $17,281,563 $16,752,093 $8,413,522 $10,828,675
=========== =========== ========== ===========
</TABLE>
Contract owners'
equity:
See accompanying notes
-8-
<PAGE>
Statements of Operations
PFL Endeavor Target Account
For the year ended December 31, 1999, except as noted
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount(1) Subaccount(1)
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net investment income
(loss)
Investment income:
Dividends $ 514,982 $ 390,790 $ 175,211 $ 185,730
Interest -- -- -- --
----------- ----------- ----------- ---------
Total investment income 514,982 390,790 175,211 185,730
----------- ----------- ----------- ---------
Expenses:
Investment management fee 136,816 106,745 48,864 51,517
Administration fees 9,547 9,664 10,001 10,001
Custodian fees 7,798 6,985 4,944 5,543
Transfer agent fees 95 61 24 34
Legal fees 11,417 10,120 5,018 4,018
Audit fees 5,400 5,399 2,051 2,051
Trustee fees and expenses 4,399 7,080 1,227 1,309
Printing 15,518 10,947 7,588 8,714
Other 4,124 4,124 3,551 3,560
Policy Fees 7,136 2,943 446 125
Mortality and expense risk
charge 279,294 219,700 99,443 106,663
----------- ----------- ----------- ---------
Total gross expenses 481,544 383,768 183,157 193,535
Less:
Waiver/reimbursement from
investment manager -- -- (3,180) (3,430)
Credits allowed by
custodian (4,698) (1,621) (3,852) (4,944)
----------- ----------- ----------- ---------
Total net expenses 476,846 382,147 176,125 185,161
----------- ----------- ----------- ---------
Net investment income
(loss) 38,136 8,643 (914) 569
----------- ----------- ----------- ---------
Net realized and unrealized
capital (loss) from
investments
Proceeds from sale of
investments 16,651,910 5,495,778 7,350,304 1,317,414
Cost of investments sold 15,557,731 4,983,508 7,224,187 1,309,601
----------- ----------- ----------- ---------
Net realized capital gain
on investments 1,094,179 512,270 126,117 7,813
Net change in unrealized
appreciation/depreciation
of investments:
Beginning of the period 1,220,253 389,358 -- --
End of the period (3,161,891) (837,378) (1,314,126) (698,023)
----------- ----------- ----------- ---------
Net change in unrealized
appreciation/depreciation
of investments (4,382,144) (1,226,736) (1,314,126) (698,023)
----------- ----------- ----------- ---------
Net realized and
unrealized capital
(loss) from investments (3,287,965) (714,466) (1,188,009) (690,210)
Decrease from operations $(3,249,829) $ (705,823) $(1,188,923) $(689,641)
=========== =========== =========== =========
</TABLE>
(1) Commencement of operations, January 4, 1999.
See accompanying notes
-9-
<PAGE>
Statements of Changes in Contract Owners' Equity
PFL Endeavor Target Account
For the year ended December 31, 1999 and for the period July 1, 1998
(commencement of operations) through December 31, 1998, except as noted
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
1999 1998 1999 1998 1999(1) 1999(1)
----------- ----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income
(loss) $ 38,136 $ 4,821 $ 8,643 $ 5,440 $ (914) $ 569
Net realized capital
gain 1,094,179 -- 512,270 -- 126,117 7,813
Net change in
unrealized
appreciation/
depreciation of
investments (4,382,144) 1,220,253 (1,226,736) 389,358 (1,314,126) (698,023)
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease)
from operations (3,249,829) 1,225,074 (705,823) 394,798 (1,188,923) (689,641)
----------- ----------- ----------- ----------- ----------- -----------
Contract transactions
Net contract purchase
payments 6,265,956 9,410,629 5,640,536 6,950,064 6,605,239 7,479,940
Transfer payments from
other subaccounts or
general account 803,957 3,801,466 2,238,202 2,952,437 2,961,916 3,874,139
Contract terminations,
withdrawals, and
other deductions (971,056) (180,568) (923,723) (69,567) (145,600) (115,314)
----------- ----------- ----------- ----------- ----------- -----------
Increase from contract
transactions 6,098,857 13,031,527 6,955,015 9,832,934 9,421,555 11,238,765
----------- ----------- ----------- ----------- ----------- -----------
Net increase in
contract owners'
equity 2,849,028 14,256,601 6,249,192 10,227,732 8,232,632 10,549,124
Beginning of the
period 14,256,601 -- 10,227,732 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
End of the period $17,105,629 $14,256,601 $16,476,924 $10,227,732 $ 8,232,632 $10,549,124
=========== =========== =========== =========== =========== ===========
</TABLE>
Contract owner's equity
(1) Commencement of operations, January 4, 1999
See accompanying notes
-10-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
1.Organization and Summary of Significant Accounting Policies
Organization:
The PFL Endeavor Target Account (the Target Account) is a segregated investment
subaccount of PFL Life Insurance Company (PFL Life), an indirect wholly-owned
subsidiary of AEGON N.V., a holding company organized under the laws of The
Netherlands.
The Target Account is registered with the Securities and Exchange Commission
(SEC) as an open-end management investment company pursuant to provisions of
the Investment Company Act of 1940. The SEC, however, does not supervise the
management or the investment practices or policies of the Target Account. The
Target Account is currently divided into four investment subaccounts, DOW
Target 5--July Series (Target 5--July), DOW Target 10--July Series (Target 10--
July), DOW Target 5--January Series (Target 5--January) and DOW Target 10--
January Series (Target 10--January). These four investment subaccounts are
collectively referred to as the subaccounts. Investment activity in these
investment subaccounts is available for investment to contract owners of The
Endeavor Variable Annuity, The Endeavor Platinum Variable Annuity, and The
Endeavor ML Variable Annuity (the Variable Annuities), issued by PFL Life. Net
purchase payments received by the Target Account for the Variable Annuities are
invested in the subaccounts as selected by the contract owner. The Target 5--
July and Target 10--July commenced operations on July 1, 1998. The Target 5--
January and Target 10--January commenced operations on January 4, 1999.
Portfolio Valuation:
The Target Account's investments are valued at market value as determined using
the last reported sale price at the close of the New York Stock Exchange on
December 31, 1999.
Securities Transactions and Investment Income:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments are credited or charged to contract owners' equity.
Concentration of Risk:
An investment in the Target Account may be subject to additional risk due to
the relative lack of diversity in its portfolio.
Income Taxes:
Operations of the Target Account form a part of PFL Life, which is taxed as a
life insurance company under Subchapter L of the Internal Revenue Code of 1986,
as amended (the "Code"). The operations of the Target Account are accounted for
separately from other operations of PFL Life for purposes of federal income
taxation. The Target Account is not separately taxable as a regulated
investment company under Subchapter M of the Code and is not otherwise taxable
as an entity separate from PFL Life. Under existing federal income tax laws,
the income of the Target Account, to the extent applied to increase reserves
under the variable annuity contracts, is not taxable to PFL Life.
2.Fees and Expenses
The Target Account is managed by Endeavor Management Company, (the Investment
Manager), an affiliate of PFL Life pursuant to a management agreement. The
Investment Manager is responsible for providing
-11-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
2.Fees and Expenses (continued)
investment management and administrative services to the Target Account. First
Trust Advisers L.P. (the Adviser) is the Account's investment Adviser. As
compensation for these services, the Target Account pays the Investment Manager
a monthly fee based on a percentage of the average daily net assets at the
annual rate of 0.75% for each Subaccount. In addition, the Investment Manager
pays the Adviser a fee equal to 0.35% of the average daily net assets.
The Subaccounts pay all expenses not assumed by the Investment Manager. PFPC
Inc. (PFPC), formerly First Data Investor Services Group, Inc., a majority-
owned subsidiary of PNC Bank Corp, serves as Administrator to the Subaccounts
and is paid a flat fee of $10,000 per annum for each Subaccount. PFPC also
serves as the Fund's transfer agent.
From time to time the Investment Manager may waive a portion or all of the fees
otherwise payable to it and/or reimburse the Target Account for expenses. The
Investment Manager has voluntarily undertaken to waive its fees and has agreed
to bear certain expenses to ensure that total expenses do not exceed 1.30% of
the Subaccount's average daily net assets. For the period ended December 31,
1999, the Investment Manager waived and reimbursed expenses of $3,180 for the
Target 5--January and $3,430 for the Target 10--January. Boston Safe Deposit
and Trust Company (BSDT), an indirect wholly-owned subsidiary of Mellon Bank
Corporation, serves as the Subaccounts' custodian. BSDT has agreed to
compensate the Target Account and decrease custody fees for cash balances left
uninvested by the Subaccounts. For the period ended December 31, 1999, the
Target Account's expenses were reduced as follows: DOW Target 5--July Series
$4,698, DOW Target 10--July Series $1,621, DOW Target 5--January Series $3,852,
DOW Target 10--January Series $4,944.
No director, officer or employee of the Investment Manager, Endeavor Management
Co., the Advisers or PFPC received any compensation from the Fund for serving
as an officer or Trustee of the Fund. The Target Account pays each Trustee who
is not a director, officer or employee of the Investment Manager, Endeavor
Management Co., the Advisers, PFPC or any of their affiliates $1,000 per annum
plus $100 per regularly scheduled meeting attended and reimburses them for
travel and out-of-pocket expenses.
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owner's account. For policies issued on or after
May 1, 1995, the fee is waived if the sum of the premium payments less the sum
of all partial withdrawals is at least $50,000 on the policy anniversary.
Charges for administrative fees to the variable annuity contracts are an
expense of the Target Account.
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annually Compounding Death Benefit and the Annual Step-Up
Death Benefit, this charge is equal to an effective annual rate of 1.25% of the
value of the contract owners' individual account. For the Return of Premium
Death Benefit, the corresponding charge is equal to an effective annual rate of
1.10% of the value of the contract owners' individual account. PFL Life also
deducts a daily administrative charge equal to an annual rate of .15% of the
contract owners' account for administrative expenses. For certain policies of
Endeavor Variable Annuity and of Endeavor ML Variable annuity sold on or after
May 1, 1997, during the first seven policy years, PFL Life deducts a daily
Distribution Finance Charge equal to an effective annual rate of .15% of the
contract owners' account. For certain policies of Endeavor Platinum Variable
Annuity sold on or after May 1, 1997, during the first ten policy years, PFL
Life deducts a daily Distribution Finance Charge equal to an effective annual
rate of .25% of the contract owners' account.
-12-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
3.Securities Transactions
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period Ended December 31,
-----------------------------------------
1999 1998
----------------------- -----------------
Purchases Sales Purchases Sales
----------- ----------- ----------- -----
<S> <C> <C> <C> <C>
Dow Target 5--July Series Subaccount $22,486,933 $16,651,910 $13,341,560 $--
Dow Target 10--July Series
Subaccount 12,059,101 5,495,778 10,270,166 --
Dow Target 5--January Series
Subaccount 16,662,993 7,350,304 -- --
Dow Target 10--January Series
Subaccount 11,936,647 1,317,414 -- --
</TABLE>
Net unrealized appreciation (depreciation) of investments at December 31, 1999
was composed of the following:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) (Depreciation)
------------ -------------- --------------
<S> <C> <C> <C>
Dow Target 5--July Series
Subaccount $459,735 $(3,621,626) $(3,161,891)
Dow Target 10--July Series
Subaccount 985,324 (1,822,702) (837,378)
Dow Target 5--January Series
Subaccount 126,429 (1,440,555) (1,314,126)
Dow Target 10--January Series
Subaccount 316,006 (1,014,029) (698,023)
</TABLE>
4.Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit
Return of Premium Death Benefit or Annual Step-Up Death Benefit
------------------------------------------ -----------------------------------------
Accumulation Accumulation Total Accumulation Accumulation Total
Units Owned Unit Value Contract Value Units Owned Unit Value Contract Value
--------------------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Dow Target 5 July Series Subaccount:
PFL Endeavor Variable
Annuity 3,560,121.053 $0.964682 $3,434,385 6,044,673.955 $0.9625370 $ 5,818,222
PFL ML Endeavor
Variable Annuity 316,390.762 0.964682 305,216 1,693,185.989 0.9625370 1,629,754
Platinum Endeavor
Variable Annuity 2,408,403.037 0.963257 2,319,911 3,743,680.459 0.9611240 3,598,141
---------- -----------
$6,059,512 $11,046,117
========== ===========
Dow Target 10 July Series Subaccount:
PFL Endeavor Variable
Annuity 2,604,042.102 $1.012659 $2,637,007 3,802,468.359 $1.0104070 $ 3,842,041
PFL ML Endeavor
Variable Annuity 687,276.775 1.012659 695,977 3,364,745.488 1.0104070 3,399,762
Platinum Endeavor
Variable Annuity 674,029.923 1.011156 681,549 5,174,488.123 1.0089090 5,220,588
---------- -----------
$4,014,533 $12,462,391
========== ===========
Dow Target 5 January Series
Subaccount:
PFL Endeavor Variable
Annuity 2,262,326.395 $0.911385 $2,061,850 2,552,038.211 $0.9100510 $ 2,322,485
PFL ML Endeavor
Variable Annuity 46,507.851 0.911385 42,387 1,633,364.991 0.9100510 1,486,445
Platinum Endeavor
Variable Annuity 712,871.386 0.910498 649,068 1,837,280.736 0.9091680 1,670,397
---------- -----------
$2,753,305 $ 5,479,327
========== ===========
Dow Target 10 January Series
Subaccount:
PFL Endeavor Variable
Annuity 1,479,044.370 $0.984382 $1,455,945 2,676,674.440 $0.9829410 $ 2,631,013
PFL ML Endeavor
Variable Annuity 343,714.780 0.984382 338,347 2,389,259.511 0.9829410 2,348,501
Platinum Endeavor
Variable Annuity 352,436.88 0.983416 346,592 3,491,645.413 0.9819800 3,428,726
---------- -----------
$2,140,884 $ 8,408,240
========== ===========
</TABLE>
-13-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
4.Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Units outstanding--July
1, 1998 -- -- -- --
Units purchased 9,327,979 7,452,618 -- --
Units redeemed and
transferred 3,385,907 2,438,951 -- --
---------- ---------- --------- ----------
Units outstanding Decem-
ber 31, 1998 12,713,886 9,891,569 -- --
Units purchased 5,700,605 5,395,473 6,590,696 7,280,357
Units redeemed and
transferred (648,036) 1,020,008 2,453,693 3,452,418
---------- ---------- --------- ----------
Units outstanding Decem-
ber 31, 1999 17,766,455 16,307,050 9,044,389 10,732,775
========== ========== ========= ==========
</TABLE>
-14-
<PAGE>
Report of Ernst & Young, LLP, Independent Auditors
The Board of Directors and Contract Owners
of the PFL Endeavor Target Account
We have audited the accompanying statements of assets and liabilities,
including the schedule of investments, of PFL Endeavor Target Account
(comprised of the Dow Target 5 July Series, Dow Target 10 July Series, Dow
Target 5 January Series, Dow Target 10 January Series subaccounts), as of
December 31, 1999, and the related statements of operations for the period
indicated thereon and changes in contract owners' equity for the periods
indicated thereon. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of investments referred
to above present fairly, in all material respects, the financial position of
each of the respective subaccounts constituting the PFL Endeavor Target Account
at December 31, 1999, and the results of their operations for the period
indicated thereon and changes in their contract owners' equity for the periods
indicated thereon in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
-15-
<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.
(o) Form of Group Master Policy and Optional Riders for the
Endeavor Variable Annuity. Note 20
(p) Form of Group Certificate for the Endeavor Variable
Annuity. Note 20
(q) Form of Individual Policy for the Endeavor Variable
Annuity. Note 20
(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.
(g) Form of Group Master Application for the Endeavor
Variable Annuity. Note 20
(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.
(b)(1) Amendment No. 12 to Participation Agreement among WRL
Series Fund, In., PFL Life Insurance Company, AUSA Life
Insurance Company, Inc., and Peoples Benefit Life
Insurance Company. Note 17
(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.
(h)(1) Amendment No. 6 to Participation Agreement by and between
PFL Life Insurance Company, Endeavor Management Co. and
Endeavor Series Trust. Note 17
(i) Participation Agreement by and between PFL Life Insurance
Company and Transamerica Variable Insurance Fund, Inc.
Note 20
(j) Participation Agreement by and between variable Insurance
Product Funds and Variable Insurance Products Fund II,
Fidelity Distributors Corporation, and PFL Life Insurance
Company, and Addendums thereto. Note 18
(j)(1) Amended Schedule A to Participation Agreement by and
between Variable Insurance Product Funds and Variable
Insurance Products Fund II, Fidelity Distributors
Corporation, and PFL Life Insurance Company. Note 20
(k) Participation Agreement between Variable Insurance
Products Fund III, Fidelity Distributors Corporation, and
PFL Life Insurance Company. Note 19
(k)(1) Amended Schedule A to Participation Agreement between
Variable Insurance Products Fund III, Fidelity
Distributors Corporation, and PFL Life Insurance Company.
Note 20
1
<PAGE>
(9) (a) Opinion and Consent of Counsel. Note 2.
(b) Consent of Counsel. Note 2.
(10) (a) Consent of Independent Auditors. Note 20.
(b) Opinion and Consent of Actuary. Note 20.
(11) Not Applicable.
(12) Not Applicable.
(13) Performance Data Calculations. Note 16.
(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 with Post-Effective Amendment No. 17 to this Form N-4
Registration Statement (File No. 33-33085) on January 25,
1999.
Note 16. Filed with Post-Effective Amendment No. 19 to this Form N-4
Registration Statement (File No. 33-33085) on April
29, 1999.
Note 17. Filed with the Initial filing of Form N-4 Registration
Statement for the Access Variable Annuity (File No. 333-94489)
on January 12, 2000.
Note 18. Incorporated by reference to Pre-Effective Amendment No. 1 to
Form N-4 Registration Statement (File No. 333-07509) on
December 6, 1996.
Note 19. Incorporated by reference to Post-Effective Amendment No. 1 to
Form N-4 Registration Statement (File No. 333-07509) on April
29, 1997.
Note 20. Filed herewith.
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 51.16% of Vereniging Holding company
AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% AEGON N.V. Holding company
AEGON Netherland N.V. Netherlands 100% AEGON N.V. Holding company
AEGON Nevak Holding B.V. Netherlands 100% AEGON N.V. Holding company
AEGON International N.V. Netherlands 100% AEGON N.V. Holding company
Voting Trust Trustees: Delaware Voting Trust
K.J. Storm
Donald J. Shepard H.B.
Van Wijk Dennis Hersch
AEGON U.S. Holding Corporation Delaware 100% Voting Trust Holding company
Short Hills Management Company New Jersey 100% AEGON U.S. Holding company
Holding Corporation
CORPA Reinsurance Company New York 100% AEGON U.S. Holding company
Holding Corporation
AEGON Management Company Indiana 100% AEGON U.S. Holding company
Holding Corporation
RCC North America Inc. Delaware 100% AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
Transamerica Holding Company Delaware 100% AEGON USA, Inc. Holding Company
AEGON Funding Corp. Delaware 100% Transamerica Issue debt securities-net
Holding Company proceeds used to make
loans to affiliates
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 82.33% First AUSA Life Insurance
Company, Inc. Insurance Company
17.67% Veterans Life
Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold the
equity interest of other entities
Great American Insurance Iowa 100% LIICA Marketing
Agency, Inc.
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company 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
AEGON Assignment Corporation Illinois 100% AEGON Financial Administrator of structured
Services Group, Inc. settlements
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
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
And Subsidiaries Assurance Co. of Ohio
ISI Insurance Agency Alabama 100% ISI Insurance Agency, Inc. Insurance Agency
of Alabama, Inc.
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Hawaii 100% ISI Insurance Insurance agency
of Hawaii, Inc. Agency, Inc.
ISI Insurance Agency New Mexico 100% ISI Insurance Insurance agency
New Mexico, Inc. Agency, Inc.
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency
Assurance Co. of Ohio
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
Monumental General Life Puerto Rico 51% First AUSA Life Insurance
Insurance Company of Insurance Company
Puerto Rico 49% Baldrich & Associates
of Puerto Rico
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, 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
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Transamerica Capital, Inc. California 100% AUSA Holding Co. Broker/Dealer
Endeavor Management Company California 100% AUSA Holding Co. Investment Management
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of 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
ADB Corporation Delaware 100% Money Services, Inc. Special purpose limited
Liability company
ORBA Insurance Services, Inc. California 10.56% Money Services, Inc. Insurance agency
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
Zahorik Texas, Inc. Texas 100% Zahorik Company, Inc. Insurance agency
Long, Miller & Associates, L.L.C. California 33-1/3% AUSA Holding Co. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
InterSecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% InterSecurities, Inc. Holding co./management
Group, Inc. services
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 100% AUSA Holding Co. Investment advisor
IDEX Mutual Funds Massachusetts Various Mutual fund
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
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George Beram & Company, Inc. Massachusetts 100% Diversified Investment Employee benefit and
Advisors, Inc. actuarial consulting
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer (De-registered)
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
Weiner Agency, Inc. Maryland 100% Creditor Resources, Inc. Insurance agency
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
AEGON USA Real Estate Delaware 100% AEGON USA Realty Real estate and mortgage
Services, Inc. Advisors, Inc. holding company
QSC Holding, Inc. Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
LRA, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Realty Associates, Inc. Texas 100% Landauer Associates, Inc. Real estate counseling
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
USP Real Estate Investment Trust Iowa 12.89% 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.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin. services
to ins. cos.
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
(de-registered)
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Life Insurance company
Company of America Insurance Company
FED Financial, Inc. Delaware 100% Academy Insurance Special-purpose 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.
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.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
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. services
Services, GmbH Services, Inc.
Capital General Development Delaware 100% CGC Holding company
Corporation
Monumental Life Maryland 73.23% Capital General Insurance company
Insurance Company Development Company
26.77% First AUSA Life
Insurance Company
AEGON Special Markets Maryland 100% Monumental Life Marketing company
Group, Inc. Insurance Company
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20.0% Capital Liberty, L.P.
76.3% Monumental Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
Coverna Direct Insurance Maryland 100% Peoples Benefit Insurance agency
Insurance Services, Inc. Life Insurance Company
Ammest Realty Corporation Texas 100% Monumental Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Monumental Life Real estate holdings
Insurance Company
Capital Liberty, L.P. Delaware 99.0% Monumental Life Holding Company
Insurance Company
1.0% CGC
Transamerica Corporation Delaware 100% AEGON NV Major interest in insurance
and finance
Transamerica Pacific Insurance Hawaii 100% Transamerica Corp. Life insurance
Company, Ltd.
TREIC Enterprises, Inc. Delaware 100% Transamerica Corp. Investments
ARC Reinsurance Corporation Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Transamerica Management, Inc. Delaware 100% ARC Reinsurance Corp. Asset management
Inter-America Corporation California 100% Transamerica Corp. Insurance Broker
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Pyramid Insurance Company, Ltd. Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Pacific Cable Ltd. Bmda. 100% Pyramid Ins. Co., Ltd. Sold 25% of TC Cable, Inc.
stock in 1998
Transamerica Business Tech Corp. Delaware 100% Transamerica Corp. Telecommunications and
data processing
Transamerica CBO I, Inc. Delaware 100% Transamerica Corp. Owns and manages a pool of
high-yield bonds
Transamerica Corporation (Oregon) Oregon 100% Transamerica Corp. Name holding only-Inactive
Transamerica Finance Corp. Delaware 100% Transamerica Corp. Commercial & Consumer
Lending & equip. leasing
TA Leasing Holding Co., Inc. Delaware 100% Transamerica Fin. Corp. Holding company
Trans Ocean Ltd. Delaware 100% TA Leasing Hldg Co. Inc. Holding company
Trans Ocean Container Corp. Delaware 100% Trans Ocean Ltd. Intermodal Leasing
("TOCC")
SpaceWise Inc. Delaware 100% TOCC Intermodal leasing
Trans Ocean Container
Finance Corp. Delaware 100% TOCC Intermodal leasing
Trans Ocean Leasing
Deutschland GmbH Germany 100% TOCC Intermodal leasing
Trans Ocean Leasing PTY Ltd. Austria 100% TOCC Intermodal leasing
Trans Ocean Management S.A. Switzerland 100% TOCC Intermodal leasing
Trans Ocean Regional
Corporate Holdings California 100% TOCC Holding company
Trans Ocean Tank Services Corp. Delaware 100% TOCC Intermodal leasing
Transamerica Leasing Inc. Delaware 100% TA Leasing Holding Co. Leases & Services intermodal
equipment
Transamerica Leasing Holdings Delaware 100% Transamerica Leasing Inc. Holding Company
Inc. ("TLHI")
Greybox Logistics Services Inc. Delaware 100% TLHI Intermodal Leasing
Greybox L.L.C. Delaware 100% TLHI Intermodal freight container
interchange facilitation
service
Transamerica Trailer France 100% Greybox L.L.C. Leasing
Leasing S.N.C.
Greybox Services Limited U.K. 100% TLHI Intermodal Leasing
Intermodal Equipment, Inc. Delaware 100% TLHI Intermodal leasing
Transamerica Leasing N.V. Belg. 100% Intermodal Equipment Inc. Leasing
Transamerica Leasing SRL Italy 100% Intermodal Equipment Inc. Leasing
Transamerica Distribution Delaware 100% TLHI Provided door-to-door
Services, Inc. services for the domestic
transportation of temperature-
sensitive products
Transamerica Leasing Belg. 100% TLHI Leasing
Coordination Center
Transamerica Leasing do Braz. 100% TLHI Container Leasing
Brasil Ltda.
Transamerica Leasing GmbH Germany 100% TLHI Leasing
Transamerica Leasing Limited U.K. 100% TLHI Leasing
ICS Terminals (UK) Limited U.K. 100% Transamerica. Leasing
Leasing Limited
Transamerica Leasing Pty. Ltd. Australia 100% TLHI Leasing
Transamerica Leasing (Canada) Inc. Canada 100% TLHI Leasing
Transamerica Leasing (HK) Ltd. H.K. 100% TLHI Leasing
Transamerica Leasing S. Africa 100% TLHI Intermodal leasing
(Proprietary) Limited
Transamerica Tank Container Australia 100% TLHI The Australian (domestic)
Leasing Pty. Limited leasing of tank containers
Transamerica Trailer Holdings I Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Holdings II, Inc. Delaware 100% TLHI Holding company
</TABLE>
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<TABLE>
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Transamerica Trailer Holdings III, Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Leasing AB Swed. 100% TLHI Leasing
Transamerica Trailer Leasing AG Swetzerland 100% TLHI Leasing
Transamerica Trailer Leasing A/S Denmark 100% TLHI Leasing
Transamerica Trailer Leasing GmbH Germany 100% TLHI Leasing
Transamerica Trailer Leasing Belgium 100% TLHI Leasing
(Belgium) N.V.
Transamerica Trailer Leasing Netherlands 100% TLHI Leasing
(Netherlands) B.V.
Transamerica Trailer Spain S.A. Spain 100% TLHI Leasing
Transamerica Transport Inc. New Jersey 100% TLHI Dormant
Transamerica Commercial Delaware 100% Transamerica Fin. Corp. Holding company for
Finance Corporation, I ("TCFCI") Commercial/consumer
finance subsidiaries
Transamerica Equipment Financial Delaware 100% TCFCI
Services Corporation
BWAC Credit Corporation Delaware 100% TCFCI
BWAC International Corporation Delaware 100% TCFCI
BWAC Twelve, Inc. Delaware 100% TCFCI Holding company for
premium finance subsidiaries
TIFCO Lending Corporation Illinois 100% BWAC Twelve, Inc. General financing & other
services in the US &
elsewhere
Transamerica Insurance Finance Maryland 100% BWAC Twelve, Inc. Provides insurance premium
Corporation ("TIFC") financing in the US with the
exception of CA and HI
Transamerica Insurance Finance Maryland 100% TIFC Provides Insurance premium
Company (Europe) financing in California
Transamerica Insurance Finance California 100% TIFC Disability ins. & holding co.
Corporation, California for various insurance
subsidiaries of Transamerica
Corporation
Transamerica Insurance Finance ON 100% TIFC Provides ins. premium
Corporation, Canada financing in Canada
Transamerica Business Credit Delaware 100% TCFCI Provides asset based lending
Corporation ("TBCC") leasing & equip. financing
Transamerica Mezzanine Delaware 100% TBCC Holds investments in several
Financing, Inc. joint ventures/partnerships
Transamerica Business Advisory Grp. Delaware 100% TBCC
Bay Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Coast Funding Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Transamerica Small Business Delaware 100% TBCC
Capital, Inc. ("TSBC")
Emergent Business Capital Delaware 100% TSBC
Holdings, Inc.
Gulf Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Direct Capital Equity Investment, Inc. Delaware 100% TBCC Small business loans
TA Air East, Corp Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air I, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air II, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air III, Corp. Delaware 100% TBCC special purpose corp. which
hold an ownership interest
or leases aircraft
</TABLE>
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<TABLE>
<S> <C> <C> <C>
TA Air IV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air V, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air VIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air IX, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air X, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Marine I Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TA Marine II Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TBC I, Inc. Delaware 100% TBCC Special purpose corp.
TBC II, Inc. Delaware 100% TBCC Special purpose corp.
TBC III, Inc. Delaware 100% TBCC Special purpose corp.
TBC IV, Inc. Delaware 100% TBCC Special purpose corp.
TBC V, Inc. Delaware 100% TBCC Special purpose corp.
TBC VI, Inc. Delaware 100% TBCC Special purpose corp.
TBC Tax I, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax II, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax III, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IV, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax V, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VI, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VIII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IX, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
</TABLE>
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The Plain Company Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft.
Transamerica Distribution Delaware 100% TCFCI Holding corp. for inventory,
Finance Corporation ("TDFC") comm. Leasing, retail finance
comm. Recovery service and
accounts
Transamerica Accounts Holding Corp. Delaware 100% TDFC
Transamerica Commercial Delaware 100% TDFC Wholesale floor plan for
Finance Corporation ("TCFC") appliances, electronics,
computers, office equip. and
marine equipment.
Transamerica Acquisition Canada 100% TCFC Holding company
Corporation, Canada
Transamerica Distribution Finance Delaware 100% TCFC
Corporation - Overseas, Inc.
("TDFCO")
TDF Mauritius Limited Mauritius 100% TDFCO Mauritius holding company
of our Indian Joint Venture
Inventory Funding Trust Delaware 100% TCFC
Inventory Funding Company, LLC Delaware 100% Inventory Funding Trust
TCF Asset Management Corporation Colorado 100% TCFC A depository for foreclosed
real and personal property
Transamerica Joint Ventures, Inc. Delaware 100% TCFC To enter into general partner-
ships for the ownership of
comm. & finance business
Transamerica Inventory Delaware 100% TDFC Holding co. for inventory
Finance Corporation ("TIFC") finance subsidiaries
Transamerica GmbH, Inc. Delaware 100% TIFC Commercial lending in
Germany
Transamerica Fincieringsmaatschappij
B.V. Netherlands 100% Trans. GmbH, Inc. Commercial lending in
Europe
BWAC Seventeen, Inc. Delaware 100% TIFC Holding co. for principal
Canadian operation, Trans-
America Comm. Finance
Corp, Canada
Transamerica Commercial ON 100% BWAC Seventeen, Inc. Shell corp.- Dormant
Finance Canada, Limited
Transamerica Commercial Canada 100% BWAC Seventeen, Inc. Commercial finance
Finance Corporation, Canada
BWAC Twenty-One, Inc. Delaware 100% TIFC Holding co. for United
Kingdom operation, Trans-
America Comm. Finance
Limited
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Commercial lending in the
Finance Limited ("TCFL") United Kingdom.
Whirlpool Financial Corporation 100% TCFL Inactive commercial finance
Polska Spzoo Company in Poland
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Holding Company
Holdings Limited
Transamerica Commercial Finance U.K. 100% Trans. Commercial
Limited Holdings Limited
Transamerica Commercial Finance France 100% BWAC Twenty-One Inc. Carries out factoring trans-
France S.A. actions in France & abroad
Transamerica GmbH Inc. Delaware 100% BWAC Twenty-One Inc. Holding co. for Transamerica
Financieringsmaatschappij
B.V.
Transamerica Retail Financial Delaware 100% TIFC Provides retail financing
Services Corporation ("TRFSC")
Transamerica Bank, NA Delaware 100% TRFSC Bank (Credit Cards)
Transamerica Consumer Finance Delaware 100% TRFSC Consumer finance holding
Holding Company ("TCFHC") company
Transamerica Mortgage Company Delaware 100% TCFHC Consumer mortgages
Transamerica Consumer Mortgage Delaware 100% TCFHC Securitization company
Receivables Company
Metropolitan Mortgage Company Florida 100% TCFHC Consumer mortgages
</TABLE>
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Easy Yes Mortgage, Inc. Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Easy Yes Mortgage, Inc. Georgia 100% Metropolitan Mtg. Co. No active business/Name
holding only
First Florida Appraisal Services, Inc. Georgia 100% Metropolitan Mtg. Co. Appraisal and inspection
services
First Georgia Appraisal Services, Inc. Georgia 100% First FL App. Srvc, Inc. Appraisal services
Freedom Tax Services, Inc. Florida 100% Metropolitan Mtg. Co. Property tax information
services
J.J. & W. Advertising, Inc. Florida 100% Metropolitan Mtg. Co. Advertising and marketing
services
J.J. & W. Realty Corporation Florida 100% Metropolitan Mtg. Co. To hold problem REO
properties
Liberty Mortgage Company of Florida 100% Metropolitan Mtg. Co. No active business/Name
Ft. Myers, Inc. holding only
Metropolis Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Perfect Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Transamerica Vendor Financial Srvc. Delaware 100% TDFC Provides commercial lease
Transamerica Distribution Finance 100% TCFCI
Corporation de Mexico ("TDFCM")
TDF de Mexico Mexico 100% TDFCM
Transamerica Corporate Services 100% TDFCM
De Mexico
Transamerica Home Loan California 100% TFC Consumer mortgages
Transamerica Lending Company Delaware 100% TFC Consumer lending
Transamerica Financial Products, Inc. California 100% Transamerica Corp. Service investments
Transamerica Insurance Corporation California 100% Transamerica Corp. Provides insurance premium
of California ("TICC") financing in California
Arbor Life Insurance Company Arizona 100% TICC Life insurance, disability
insurance
Plaza Insurance Sales Inc. California 100% TICC Casualty insurance placement
Transamerica Advisors, Inc. California 100% TICC Retail sale of investment
advisory services
Transamerica Annuity Services Corp. New Mexico 100% TICC Performs services required for
structured settlements
Transamerica Financial Resources, Inc. Delaware 100% TICC Retail sale of securities
products
Financial Resources Insurance Texas 100% Transamerica Fin. Res. Retail sale of securities
Agency of Texas products
TBK Insurance Agency of Ohio, Inc. Ohio 100% Transamerica Fin. Res. Variable insurance contract
sales in state of Ohio
Transamerica Financial Resources Alabama 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Alabama, Inc.
Transamerica Financial Resources Ins. Massachusetts 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Massachusetts, Inc.
Transamerica International Insurance Delaware 100% TICC Holding & administering
Services, Inc. ("TIIS") foreign operations
Home Loans and Finance Ltd. U.K. 100% TIIS Inactive
Transamerica Occidental Life California 100% TICC Licensed in all forms of life
Insurance Company ("TOLIC") insurance, accident and
sickness insurance
NEF Investment Company California 100% TOLIC Real estate development
Transamerica Life Insurance and N. Carolina 100% TOLIC Writes life and pension ins.
Annuity Company ("TLIAC") originally incorporated in CA
April 14, 1966
Transamerica Assurance Company Missouri 100% TLIAC Life and disability insurance
Gemini Investments, Inc. Delaware 100% TLIAC Investment subsidiary
Transamerica Life Insurance Company Canada 100% TOLIC Sells individual life insurance
of Canada & investment products in all
provinces and territories of
Canada
</TABLE>
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<TABLE>
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Transamerica Life Insurance Company New York 100% TOLIC Licensed in NY to market life
of New York insurance, annuities and
health
insurance
Transamerica South Park Delaware 100% TOLIC Provide market analysis of
Resources, Inc. certain undeveloped land
holdings held by TOLIC
Transamerica Variable Insurance Maryland 100% TOLIC Mutual Fund
Fund, Inc.
USA Administration Services, Inc. Kansas 100% TOLIC Third party administrator
Transamerica Products, Inc. California 100% TICC Parent co. of various
subsidiary corp. which are
formed to be co-general
partners of proprietary limited
Transamerica Securities Sales Corp. Maryland 100% Transamerica Prod. Inc. Retail sale of the variable life
ins. and variable annuity
products of the Transamerica
life companies
Transamerica Service Company Delaware 100% Transamerica Prod. Inc. Passive loss tax service for
Lloyd's U.S. names
Transamerica Intellitech, Inc. Delaware 100% TICC Real estate information and
technology services
Transamerica International Delaware 100% TICC Investments
Holdings, Inc.
Transamerica Investment Services, Inc. Delaware 100% TICC Investment adviser
Transamerica Income Shares, Inc. Maryland 100% Trans. Invest. Srvc. Inc. Transamerica investment
services
Transamerica LP Holdings Corp. Delaware 100% TICC Limited partnership
Investment (initial
limited partner
of Transamerica
Delaware, L.P.)
Transamerica Real Estate Tax Service N/A 100% TICC Real estate tax reporting and
(A Division of Transamerica Corp) processing services
Transamerica Realty Services, Inc. Delaware 100% TICC Responsible for real estate
investments for Transamerica
Bankers Mortgage Company of CA California 100% Transamerica Realty Srv. Holds bank account and owns
certain residual investments in
certain French real estate
projects which are managed
special purpose company for
the purchase of real estate tax
liens.
Pyramid Investment Corporation Delaware 100% Transamerica Realty Srv. Owns office buildings in San
Francisco and other properties
The Gilwell Company California 100% Transamerica Realty Srv. Ground lessee of 517
Washington Street,
San Francisco
Transamerica Affordable Housing, Inc. California 100% Transamerica Realty Srv. Owns general partnership
interests in low-income
housing tax credit
partnerships
Transamerica Minerals Company California 100% Transamerica Realty Srv. Owner and lessor of oil and
gas properties
Transamerica Oakmont Corporation California 100% Transamerica Realty Srv. General partner in
Transamerica/Oakmont
Retirement Associates
Transamerica Senior Properties, Inc. Delaware 100% TICC Owns congregate care and
assisted living retirement
Properties
Transamerica Senior Living, Inc. Delaware 100% Trans. Sr. Prop. Inc. Manages congregate care and
assisted living retirement
properties.
</TABLE>
<PAGE>
ITEM 27. NUMBER OF POLICYOWNERS
As of December 31, 1999, there were 31,174 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 Ann Spaes
Director and President Director and Vice President
Frank A. Camp Darin Smith
Secretary Assistant Vice President
and Assistant Secretary
Lisa Wachendorf Linda Gilmer
Director, Vice President and Treasurer/Controller
Compliance Officer and Chief
Thomas R. Moriarty 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
</TABLE>
_____________________
/5/ The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
13
<PAGE>
Commissions and Other Compensation Received by Principal Underwriter.
AFSG Securities Corporation, the broker/dealer, received $30,348,568.76 and
$13,075,039.78 from the Registrant for the year ending December 31, 1999 and for
the period from May 1, 1998 through December 31, 1998 respectively, for its
services in distributing the Policies. No other commission or compensation was
received by the principal underwriter, directly or indirectly, from the
Registrant during the fiscal year.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor Variable Annuity Account, the PFL Endeavor Platinum Variable Annuity
Account, the PFL Retirement Builder Variable Annuity Account, the PFL Life
Variable Annuity Account A, the PFL Life Variable Annuity Account C, the PFL
Life Variable Annuity Account D, 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.
14
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 26th day of April, 2000.
PFL ENDEAVOR VA SEPARATE
ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler
------------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
<TABLE>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Patrick S. Baird Director April 26, 2000
- --------------------------------------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 26, 2000
- --------------------------------------------
Craig D. Vermie
/s/ William L. Busler Director April 26, 2000
- -------------------------------------------- (Principal Executive Officer)
William L. Busler
/s/ Larry N. Norman Director April 26, 2000
- --------------------------------------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director April 26, 2000
- --------------------------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and April 26, 2000
- -------------------------------------------- Corporate Controller
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer April 26, 2000
- --------------------------------------------
Brenda K. Clancy
</TABLE>
<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)(o) Form of Group Master Policy and Optional Riders for the
Endeavor Variable Annuity
(4)(p) Form of Group Certificate for the Endeavor Variable Annuity
(4)(q) Form of Individual Policy for the Endeavor Variable Annuity
(5)(g) Form of Group Master Application for the Endeavor Variable
Annuity
(8)(i) Participation Agreement by and between PFL Life Insurance
Company and Transamerica Variable Insurance Fund, Inc.
(8)(j)(1) Amended Schedule A to Participation Agreement by and between
Variable Insurance Product Funds and Variable Insurance Products
Fund II, Fidelity Distributors Corporation, and PFL Life
Insurance Company
(8)(k)(1) Amended Schedule A to Participation Agreement between
Variable Insurance Products Fund III, Fidelity Distributors
Corporation, and PFL Life Insurance Company
(10)(a) Consent of Independent Auditors
(10)(b) Opinion and Consent of Actuary
</TABLE>
- --------
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (4)(o)
--------------
GROUP MASTER POLICY AND OPTIONAL RIDERS
<PAGE>
[PFL LIFE INSURANCE COMPANY LOGO]
PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GROUP CONTRACT OWNER: Securities Customers DRL Insurance Trust II
GROUP CONTRACT NUMBER: PV0009
GROUP CONTRACT DATE: April 1, 2000
WE AGREE
. To provide annuity payments as set forth in Section 10 of this Contract,
. Or to pay withdrawal benefits in accordance with Section 5 of this
Contract.
. Or to pay death proceeds in accordance with Section 9 of this Contract.
These agreements are subject to the provisions of this Contract This Contract is
issued in consideration of the application, if any, and payment of the premiums
as provided. This Contract may be applied for and issued to qualify as a
tax-qualified annuity under the applicable sections of the Internal Revenue
Code.
Signed for us at our home office.
SECRETARY PRESIDENT
[ILLEGIBLE SIGNATURE] [ILLEGIBLE SIGNATURE]
This Contract is a legal contract between the Contract Owner and the Company.
READ YOUR CONTRACT CAREFULLY
Group Flexible Premium Variable Annuity Contract Income
Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount (See Sections 6 and 10C)
AV432 101 .114 199 Non-Participating
<PAGE>
SECTION 1
DEFINITIONS
ADJUSTED POLICY VALUE
The Policy Value increased or decreased by any Excess Interest Adjustment.
ANNUITANT
The Participant to whom annuity payments will be made, unless another payee is
named.
ANNUITY COMMENCEMENT DATE
Date the Annuitant will begin receiving payments from this annuity, which may
not be later than the last day of the Certificate month starting after the
Annuitant attains age 85, except as expressly allowed by us, but in no event
later than the last day of the month following the month in which the Annuitant
attains age 95.
CASH VALUE
Amount defined in Section 5, that can be withdrawn if the annuity Certificate is
surrendered.
CERTIFICATE
The document issued under the Group Contract to the eligible Participants who
apply for coverage. The Certificate is not a part of the Group Contract.
CERTIFICATE ANNIVERSARY
The anniversary of the Certificate Date for each year this Certificate remains
in force.
CERTIFICATE DATE
The date shown on page 3 of the Certificate and the date on which the
Certificate becomes effective.
CERTIFICATE OWNER
The owner of the annuity Certificate. Unless otherwise specified on the
Certificate Data page, the Annuitant and the Certificate Owner shall be one and
the same person.
CERTIFICATE YEAR
The 12 month periods following the Certificate Date shown on the Certificate
Data page. The first Certificate Year starts on the Certificate Date. Each
subsequent year starts on the anniversary of the Certificate Date.
DISTRIBUTION
A withdrawal or disbursement of funds from the Policy Value or Cash Value.
GROUP CONTRACT
The Contract issued to the Group Contract Owner, under which Certificates are
issued to eligible Participants.
GROUP CONTRACT OWNER
The entity, as shown on the Contract Data Page, which applies for the Group
Contract.
INVESTMENT OPTIONS
Any of the Guaranteed Period Options of the Fixed Account, the Dollar Cost
Averaging Fixed Account Option, and any of the Subaccounts of the Separate
Account(s).
PARTICIPANT
A person who makes premium payments or for whom premium payments are made under
the Group Contract.
PAYEE
The person to whom annuity payments will be made.
PAYMENT OPTIONS
Options through which the distribution of the Adjusted Policy Value can be
directed.
POLICY VALUE
The amount (defined in Section 4) applicable under the Certificate that can be
used to fund one of the Payment Options.
SEPARATE ACCOUNT
The separate investment accounts) established by us, as described in Section 6.
SUBACCOUNT
A division of a Separate Account, as described in Section 6.
SURRENDER
A partial or full withdrawal of funds from the Policy Value or Cash Value.
WITHDRAWAL
A distribution of funds from the Policy Value or Cash Value.
YIELD
The effective annual interest rate applicable to the Fixed Account.
YOU,YOUR
The owner of this Certificate. Unless otherwise specified on the Certificate
Data Page, the Annuitant and the Certificate Owner shall be one and the same
person.
AVB432CT
PAGE 2
<PAGE>
SECTION 2 - CONTRACT DATA
GROUP CONTRACT NUMBER: PV0009
GROUP CONTRACT DATE: April 1, 2000
GROUP CONTRACT OWNER: Securities Customers DRL Insurance Trust II
SEPARATE ACCOUNT: PFL ENDEAVOR VA SEPARATE ACCOUNT and PFL ENDEAVOR
TARGET ACCOUNT
DCA SUBACCOUNT(S): Money Market Portfolio,
U.S. Government Securities Portfolio
PREMIUM PAYMENT MINIMUMS (PER CERTIFICATE)
Initial Premium Payment, Nonqualified: $5,000.00
Initial Premium Payment, Qualified*: $1,000.00
*Waived for 403(b) annuities
Subsequent Premium Payments: $50.00
SERVICE CHARGE: $35
Before the Annuity Commencement Date:
5% Annually Compounding Death Benefit
Mortality and Expense Risk Fee and Administrative Charge: 1.55%
Monthly Step-Up through age 80 Death Benefit
Mortality and Expense Risk Fee and Administrative Charge: 1.55%
Return of Premium Death Benefit
Mortality and Expense Risk Fee and Administrative Charge: 1.40%
Double Enhanced Death Benefit
Mortality and Expense Risk Fee and Administrative Charge: 1.55%
After the Annuity Commencement Date:
Mortality and Expense Risk Fee and Administrative Charge: 1.40%
FIXED ACCOUNT MINIMUM ANNUAL INTEREST RATE: 3%
SURRENDER CHARGE: Number of Years Since Percentage of
Premium
Premium Payment Date Withdrawn
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%
AV432 101 114 799 MSP
Page 3
<PAGE>
SECTION 2 - CONTRACT DATA - CONT
SCHEDULE OF ADDITIONAL BENEFITS:
Form No. Additional Benefit(s)
AE 1074 199 Service Charge Waiver
AV 1058 199 Guaranteed Minimum Death Benefit
AE 1060 199 Guaranteed Minimum Death Benefit
AE 1061 199 Guaranteed Minimum Death Benefit
AE 1062 199 Guaranteed Minimum Death Benefit
AE 1146 2000 Lump Sum Partial Withdrawal Option
AE 1145 2000 Systematic Payout Option
RGMI 4 499 Guaranteed Minimum Income Benefit Rider
AV432 101 114 799
Page 3 (A)
<PAGE>
SECTION 3 - PREMIUM PAYMENTS
PAYMENT OF PREMIUMS
Premium payments may be made any time on or after the effective date of the
Certificate and before the Annuity Commencement Date. The Certificate Owner
may start or stop, increase or decrease, or skip any premium payments.
MAXIMUM AND MINIMUM PREMIUM PAYMENT
The premium payments may not be more than the amount permitted by law if this is
a tax-qualified annuity. The minimum premium payments we will accept are
specified on page 3. The maximum total premium payments, per Participant, which
we will accept without prior Company . approval is $1,000,000.
PREMIUM PAYMENT DATE
The premium payment date is the date on which the premium payment is credited
to the Certificate. The initial premium payment less any premium taxes will be
credited to the Certificate within two business days of receipt of such
payment and the required information. Subsequent additional premium payments
will be credited to the Certificate as of the business day when the premium
payment and required information are received. A business day is any day on
which the New York Stock Exchange is open for trading.
ALLOCATION OF PREMIUM PAYMENTS
Premium payments may be applied to the various Investment Options which we make
available. The Certificate Owner must tell us what percent. of each premium
payment to allocate to the various Investment Options. Each percent may be
either zero or any whole number; however, the allocation among all Investment
Options must total 100%.
CHANGE OF ALLOCATION
The Certificate Owner may change the allocation of premium payments to the
various Investment Options. The Certificate Owner must tell us in a signed
notice which gives us the facts that we need Premium payments received after
the date on which we receive the notice will be applied on the basis of the new
allocation.
PREMIUM TAXES
A state may impose a premium tax. It may be imposed when a premium payment is
made, or on the Annuity Commencement Date, on the date of death, or on the date
of full surrender. When permitted by state law, we will not deduct the tax
until the Annuity Commencement Date, date of death, or date of full surrender.
SECTION 4 - POLICY VALUE
POLICY VALUE
On or before the Annuity Commencement Date, the Policy Value of each Certificate
is equal to the:
(a) premium payments; minus
(b) Gross Partial Withdrawals; plus
(c) interest credited to the Fixed Account; plus
(d) accumulated gains in the Separate Account; minus
(e) accumulated losses in the Separate Account; minus
(f) service charges, premium taxes and transfer fees, if any.
ADJUSTED POLICY VALUE
The Adjusted Policy Value is the Policy Value Increased or decreased 'by any
Excess Interest Adjustment.
The Adjusted Policy Value may be used on the Annuity Commencement Date to
provide lifetime income or income for a period of no less than 60 months under
the Payment Options in Section 10.
SERVICE CHARGE
On each Certificate Anniversary and at the time of surrender during any
Certificate Year before the Annuity Commencement Date, we reserve the right to
charge an amount up to the amount of the Service Charge shown on page 3 for
administration expenses. It will be deducted from each Investment Option in
proportion to the portion of Policy Value (prior to such charge) in each
Investment Option, respectively, on that Certificate Anniversary, or at the
time of surrender. In no event will the Service Charge exceed 2% of the Policy
Value at the time it is deducted.
PAGE 4
<PAGE>
SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS
CASH VALUE
The Cash Value may be partially withdrawn or will be paid in the event of a
full surrender of the Certificate. We must receive written withdrawal or
surrender request from the Certificate Owner at or before the commencement
of annuity payments.
Information on the current amount of a Certificate's Cash Value is available
upon request The Cash Value is equal to the Adjusted Policy Value less any
Surrender Charges. There is no Cash Value after annuity payments have commenced.
EXCESS INTEREST ADJUSTMENT
Full Surrenders, Partial Withdrawals, transfers, and amounts applied to a
Payment Option from the Fixed Account Guaranteed Period Options described in
Section 7 will be subject to an Excess Interest Adjustment except as provided
for in the Partial Withdrawals provision below.
An Excess Interest Adjustment applies in the following situations:
1) When the Certificate Owner withdraws all or any portion of their Cash
Value,
2) When the Certificate Owner exercises Annuity Payment Options,
3) When death proceeds are calculated. However, death proceeds will not be
reduced if the Excess Interest Adjustment is negative.
The Excess Interest Adjustment is only applied to transactions affecting the
Guaranteed Period Options of the Fixed Account (see Section 7) and is based on
any change in interest rates from the time the affected Guaranteed Period(s)
started until the time the Excess Interest Adjustment occurs. The Excess
Interest Adjustment is applied as follows:
1) The Excess Interest Adjustment is only applied when the transactions occur
prior to the end of any Guaranteed Period Option;
2) Transfers to the Guaranteed Period Options of the Fixed Account are
considered Premium Payments for purposes of determining the Excess Interest
Adjustment;
3) The Excess Interest Adjustment is distinct from, and is applied prior to,
the Surrender Charge;
4) The Excess Interest Adjustment may affect the death proceeds defined in
Section 9;
5) If interest rates have decreased from the time the affected Guaranteed
Period(s) started until the time the transaction occurs, the Excess
Interest Adjustment will result in additional funds available to the
Certificate Owner;
6) If interest rates have increased from the time the affected Guaranteed
Period(s) started until the time the transaction occurs, the Excess
Interest Adjustment will result in a decrease in the funds available to the
Certificate-Owner.
7) Certain amounts are not subject to the Excess Interest Adjustment as
provided in Sections 5, 7 and 8.
The formula for determining the amount of the Excess Interest Adjustment is as
follows:
Excess Interest Adjustment = S x (G-C) x (M/ 12)
where: S is the gross (that is, before surrender charges and premium
taxes, if any) amount being surrendered, partially withdrawn,
transferred, or applied to a. Payment Option that is subject to
the Excess Interest Adjustment.
G is the guaranteed interest rate for the Guaranteed Period
applicable to S.
M is the number of months remaining in the Guaranteed Period for
S, rounded up to the next higher whole number of months.
C is the current guaranteed interest rate then being offered on
new Premium Payments for the next longer Guaranteed Period than
"M". If the Certificate form or such a Guaranteed Period Option
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%.
Upon full surrender, the Excess Interest Adjustment (EIA) for each Guaranteed
Period Option will not reduce the Adjusted Policy Value for that Guaranteed
Period Option below the amount paid into, less any prior withdrawals and
transfers from, that Guaranteed Period Option, plus interest at the 3%
guaranteed effective annual interest rate.
PAGE 5
<PAGE>
SECTION 5 - CONT
PARTIAL WITHDRAWALS
We will pay the Certificate Owner a portion of the Cash Value as a Partial
Withdrawal provided we receive a written request while the Certificate is in
effect and before the Annuity Commencement Date. When the Certificate Owner
requests a Partial Withdrawal they must tell us how it is to be allocated from
among the Investment Options. If the request for a Partial Withdrawal from any
Investment Option is less than or equal to the Cash Value in that option, or
Subaccount, we will pay the amount of the request. However, if the request for a
Partial Withdrawal from any Investment Option is greater than the Cash Value in
that option, we will pay the Cash Value of that Investment Option.
The Gross Partial Withdrawal is the total amount which will be deducted from the
Certificate's Policy Value as a result of each Partial Withdrawal. The Gross
Partial Withdrawal may be more or less than the requested Partial Withdrawal
amount, depending on whether Surrender Charges and/or Excess Interest
Adjustments apply at the time the Partial Withdrawal is requested.
The Excess Partial Withdrawal amount is the portion of the requested Partial
Withdrawal that is subject to Surrender Charge (that is, the portion which is in
excess of the Surrender Charge-free portion). For example, if the requested
withdrawal amount is $1,000, and the Surrender Charge-free amount is $200, then
the Excess Partial Withdrawal would be $800. Excess Partial Withdrawals will
reduce the Policy Value by an amount equal to (X-Y+Z) where:
X = Excess Partial Withdrawal
A = Amount of Partial Withdrawal subject to Excess Interest Adjustment
Y = Excess Interest Adjustment = (A) x (G-C) x (M/12) where G, C and M are
defined in the Excess Interest Adjustment provision above, with "A"
substituted for "S" in the definitions of G and M.
Z = Surrender Charge on X minus Y.
The formula for determining the Gross Partial Withdrawal is as follows:
Gross Partial Withdrawal = R - E + SC
where: R is the requested Partial Withdrawal;
E is the Excess Interest Adjustment; and
SC is the Surrender Charge on (EPW - E); where
EPW is the Excess Partial Withdrawal amount.
If any Partial Withdrawal reduces the Cash Value below $500, we reserve the
right to pay the full Cash Value and terminate the Certificate.
We may delay payment of the Cash Value from the Fixed Account for up to 6 months
after we receive the request. If the Certificate Owner dies after we receive the
request, but before the request is processed, the request will be processed
before the death proceeds are determined.
Each Partial Withdrawal consists of a portion that is subject to Surrender
Charge (that is, the Excess Partial Withdrawal) and a remaining portion that is
free from Surrender Charge (that is, the Surrender Charge-free amount). Either
portion may be zero 10> depending on the Partial Withdrawal requested and prior
amounts withdrawn.
Partial Withdrawals may be made free from Surrender Charges and free from Excess
Interest Adjustments as follows:
MINIMUM REQUIRED DISTRIBUTION
For tax-qualified plans, Partial Withdrawals taken to satisfy minimum
distribution requirements under Section 401(a)(9) of the Internal Revenue
Code (IRC) are available with no Surrender Charges and no Excess Interest
Adjustments. The amount available from each Certificate with respect to the
minimum distribution requirement is based solely on this Certificate.
The Certificate Owner must be at least 70 1/2 years old in the calendar
year of distribution, must submit a written request to us and must take the
distribution before year end. If the Certificate Owner attains age 70 1/2
in the calendar year of distribution, a written request which is postmarked
no later than the end of the current calendar year must be submitted to us.
Systematic minimum distributions must be at least $50 or a lump sum
distribution is available if minimum required distributions are less than
$50.
Any amount requested in excess of the IRC minimum required distribution
will have the appropriate Surrender Charges and Excess Interest Adjustments
applied, unless the excess distribution qualifies as Surrender Charge- free
or Excess Interest Adjustment-free under any additional options provided.
PAGE 5(A)
<PAGE>
SECTION 5 - CONT
NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION
Beginning in the first Certificate Year, if the Certificate Owner or
Certificate Owner's spouse (annuitant or annuitant's spouse if the
Certificate Owner is not a natural person) has been 1) confined in a
Hospital or Nursing Facility for 30 consecutive days or 2) diagnosed as
having a Terminal Condition, the Certificate Owner may elect to withdraw
all or a portion of the Policy Value without Surrender Charges and without
Excess Interest Adjustment. The minimum withdrawal under this option is
$1000.
For Nursing Care, we must receive each withdrawal request and proof of
eligibility with each request no later than 90 days following the date that
confinement has ceased, unless it can be shown that it was not reasonably
possible to provide the notice and proof within the above time period and
that the notice and proof were given as soon as reasonably possible.
However, in no event, except the absence of legal capacity, shall the
notice and proof be provided later than one year following the date that
confinement has ceased. For a Terminal Condition, we must receive each
withdrawal request and the applicable proof of eligibility no later than
one year following diagnosis of the Terminal Condition. Proof of a Terminal
Condition is required only with the initial withdrawal request and must be
furnished by the
Annuitant's, Annuitant's spouse's, Certificate Owner's, or Certificate
Owner's spouse's physician. Proof of confinement may be a physician's
statement or a statement from a hospital or nursing facility administrator.
UNEMPLOYMENT WAIVER
Beginning in the first Certificate Year, the Certificate Owner may withdraw
all or a portion of the Policy Value free of Surrender Charges and free of
any Excess Interest Adjustment if the Certificate Owner or Certificate
Owner's spouse (annuitant or annuitant's spouse, if the Certificate Owner
is not a natural person) becomes unemployed. In order to qualify, the
Certificate Owner 1) must have been employed full time for at least two
years prior to becoming unemployed, 2) must have been employed full time on
the Certificate Date, 3) must have been unemployed for at least 60
consecutive days at the time of withdrawal and 4) must have a minimum Cash
Value at the time of withdrawal of $5000. Proof of unemployment will
consist of providing us with a determination letter from the applicable
State's Department of Labor which verifies that the Certificate Owner
qualifies for and is receiving unemployment benefits at the time of
withdrawal. The determination letter must be received by us no later than
15 days following the date of the withdrawal request.
U1017
PAGE 5(B)
<PAGE>
SECTION 5 - CONT
SURRENDER CHARGES
Amounts withdrawn in excess of any Surrender Charge-free Partial Withdrawals are
subject to a Surrender Charge. If applicable, this charge will either apply for
a number of years following each premium payment date or for a number of years
following the Certificate Date as shown on page 3. The amount of this charge, if
any, will be a percentage, (as shown on page 3 of each Certificate) of the
amount of premium withdrawn.
For Surrender Charge purposes, the oldest premium payment is considered to be
withdrawn first. If the amount withdrawn exceeds this, the next oldest premium
payment is considered to be withdrawn, and so on until the most recent premium
payment is considered to be withdrawn. For Surrender Charge purposes, premium
payments are deemed to be withdrawn before earnings.
After all premium payments are considered to be withdrawn, the remaining
Adjusted Policy Value may be withdrawn free from any Surrender Charge.
GUARANTEED RETURN OF FIXED ACCOUNT PREMIUM PAYMENTS
Upon full surrender of the Certificate, the Certificate Owner will always
receive at least the premium payments made to, less prior withdrawals and
transfers from, the Fixed Account.
MINIMUM VALUES
Benefits available under the Certificate are not less than those required by any
statute of the state in which the Certificate is delivered.
SECTION 6 - SEPARATE ACCOUNT
SEPARATE ACCOUNT
We have established and will maintain one or more Separate Account(s), indicated
on the Certificate Data Page, under the laws of the state of Iowa: Any realized
or unrealized income, net gains and losses from the assets of the Separate
Account are credited to or charged against it without regard to our other
income, gains or losses. Assets are put in the Separate Account for the
Certificate, as well as for other variable annuity policies and Certificates.
Any Separate Account may invest assets in shares of one or more mutual fund
portfolios, or in the case of a managed Separate Account, direct investments in
stocks or other securities as permitted by law. Fund Shares refer to shares of
underlying mutual funds or prorata ownership of the assets held in a Subaccount
of a managed Separate Account. Fund shares are purchased, redeemed and valued on
behalf of the Separate Account.
The Separate Account is divided into Subaccounts. Each Subaccount invests
exclusively in shares of one of the portfolios of an underlying mutual fund. We
reserve the right to add or remove any Subaccount of the Separate Account.
The assets of the Separate Account are our property. These assets will equal or
exceed the reserves and other contract liabilities of the Separate Account These
assets will not be chargeable with liabilities arising out of any other business
we conduct. We reserve the right, subject to regulations governing the Separate
Account, to transfer assets of a Subaccount, in excess of the reserves and other
contract liabilities with respect to that Subaccount, to another Subaccount or
to our General Account.
We will determine the fair market value of the assets of the Separate Account in
accordance with a method of valuation which we establish in good faith.
Valuation Period means the period of time from one determination of the value of
each Subaccount to the next. Such determinations are made when the value of the
assets and liabilities of each Subaccount is calculated. This is generally the
close of business on each day on which the New York Stock Exchange is open.
We also reserve the right to transfer assets of the Separate Account, which we
determine to be associated with the class of Certificates to which the
Certificate belongs, to another separate account. If this type of transfer is
made, the term "Separate Account", as used in this contract and in the
Certificate, shall then mean the separate account to which the assets were
transferred.
We also reserve the right to:
(a) deregister the Separate Account under the Investment Company Act of 1940;
(b) manage the Separate Account under the direction of a committee at any time;
(c) restrict or eliminate any voting rights of Certificate Owners or other
persons who have voting rights as to the Separate Account; and
(d) combine the Separate Account with one or more other separate accounts;
(e) create new Separate Accounts;
(f) add new Subaccounts to or remove existing Subaccounts from the Separate
Account, or combine Subaccounts;
(g) add new underlying mutual funds, remove existing mutual funds, or
substitute a new fund for an existing fund.
P1037
PAGE 6
<PAGE>
SECTION 6 - SEPARATE ACCOUNT - CONT
The Net Asset Value of a fund share is the per-share value calculated by the
mutual fund or, in the case of a managed Separate Account, by the Company. The
Net Asset Value is computed by adding the value of the Subaccount's investments,
cash and other assets, subtracting its liabilities, and then dividing by the
number of shares outstanding. Net Asset Values of fund shares reflect investment
advisory fees and other expenses incurred in managing a mutual fund or a managed
Separate Account.
CHANGE IN INVESTMENT OBJECTIVE OR POLICY OF A MUTUAL FUND
If required by law or regulation, an investment policy of the Separate Account
will only be changed if approved by the appropriate insurance official of the
state of Iowa or deemed approved in accordance with such law or regulation. If
so required, the process for obtaining such approval is filed with the insurance
official of the state or district in which this contract is delivered.
CHARGES AND DEDUCTIONS
The Mortality and Expense Risk Fee and the Administrative Charge are each
deducted both before and after the Annuity Commencement Date to compensate for
changes in mortality and expenses not anticipated by the mortality and
administration charges guaranteed in the contract.
Any applicable Service Charge is deducted prior to the Annuity Commencement Date
only.
Any applicable Distribution Financing Charge is deducted prior to the Annuity
Commencement Date only, to compensate for costs of distributing the policy.
If the Mortality and Expense Risk Fee(s) and/or Distribution Financing Charges
are more than sufficient, the Company will retain the balance as profit or
reduce these fees and charges in the future.
ACCUMULATION UNITS
The Policy Value in the Separate Account before the Annuity Commencement Date is
represented by accumulation units. The dollar value of accumulation units for
each Subaccount will change from day to day reflecting the investment experience
of the Subaccount.
Premium payments allocated to and any amounts transferred to the Subaccounts
will be applied to provide accumulation units in those Subaccounts. The number
of accumulation units purchased in a Subaccount will be determined by dividing
the premium payment allocated to or any amount transferred to that Subaccount,
by the value of an accumulation unit for that Subaccount on the premium payment
or transfer date.
The number of accumulation units withdrawn or transferred from the Subaccounts
will be determined by dividing the amount withdrawn or transferred by the value
of an accumulation unit for that Subaccount on the withdrawal or transfer date.
The value of an accumulation unit on any business day is determined by
multiplying the value of that unit at the end of the immediately preceding
valuation period by the net investment factor for the valuation period.
The net investment factor used to calculate the value
of an accumulation unit in each Subaccount for the Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the result of:
(1) the net asset value of a fund share held in that Subaccount
determined as of the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the fund for shares held in that Subaccount
if the ex-dividend date occurs during the valuation period; plus
or minus
(3) a per share credit or charge for any taxes reserved for, which we
determine to have resulted from the investment operations of that
Subaccount.
(b) is the net asset value of a fund share held in that Subaccount
determined as of the end of the immediately preceding valuation
period.
(d) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge before the Annuity Commencement Date, plus any
applicable Distribution Financing Charge. This factor is less than or
equal to, on an annual basis, the sum of the applicable percentages
shown on page 3 of the daily net asset value of a fund share held in
that Subaccount.
Since the net investment factor may be greater or less than one, the
accumulation unit value may increase or decrease.
PAGE 7
<PAGE>
SECTION -7 - FIXED ACCOUNT
FIXED ACCOUNT
Premium payments applied to and any amounts transferred to the Fixed Account
will reflect a fixed interest rate. The interest rates we set will be credited
for increments of at least one year measured from each premium payment or
transfer date. These rates will never be less than an effective annual interest
rate of 3%.
GUARANTEED PERIODS
We may offer optional Guaranteed Period Options, into which premium payments may
be paid or amounts transferred The current interest rate we set for funds
entering each Guaranteed Period Option (GPO) is guaranteed until the end of that
option's Guaranteed Period At that time, the premium payment made or amount
transferred into the GPO, less any withdrawals or transfers from that GPO, plus
accrued interest, will be rolled into a new GPO or may be transferred to any
Subaccount(s) within the Separate Account(s).
The Certificate Owner may choose the Investment Options) they want the funds
rolled into by giving us a written notice within 30 days before the end of the
expiring option's Guaranteed Period However, any Guaranteed Period elected may
not extend beyond the maximum Annuity Commencement Date defined in Section 7 1.
In the absence of such election, the funds will be rolled into a new GPO which
is the same as the expiring GPO unless that GPO is no longer offered, in which
case, the next shorter GPO offered will be used The Certificate Owner will be
mailed a notice of completion of the rollover with the new interest rate
applicable. The new GPO will be deemed as accepted if we do not receive a
written rejection within 30 days from the postmark date of the completion
notice.
We reserve the right for new premium payments, transfers, or rollovers to offer
or not to offer any GPO, except that we will always offer at least a one year
GPO.
For purposes of crediting interest when funds are withdrawn from or transferred
into a GPO, the amount of the oldest premium payment or rollover into that GPO
is considered to be withdrawn first If the amount withdrawn exceeds this amount,
the next oldest premium payment or rollover is considered to be withdrawn next,
and so on until the most recent premium payment or rollover is considered to be
withdrawn (this is a "First-In, First-Out" or FIFO procedure). Premium payments)
or rollovers) are deemed to be withdrawn first, then credited interest.
Partial withdrawals, Surrenders, transfers, and amounts applied to a Payment
Option from the Guarantee Period Options) are subject to an Excess Interest
Adjustment as described in Section 5.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
We may offer a Dollar Cast Averaging (DCA) Fixed Account Option separate from
the Guaranteed Period Options. This option will have a one year interest rate
guarantee. The current interest rate we set for the DCA Fixed Account may differ
from the rates credited on the one year GPO in the Fixed Account In addition,
the current interest rate we credit may vary on different portions of the DCA
Fixed Account The credited interest rate will never be less than the minimum
effective annual interest rate of 3%. The DCA Fixed Account Option will only be
available under a Dollar Cost Averaging program as described in Section 8.
SECTION 8 - TRANSFERS
A. TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE
Prior to the Annuity Commencement Date, the Certificate Owner may transfer the
value of the accumulation units from one Investment Option to another. The
Certificate Owner must sign a notice to transfer which gives us the facts that
we need.
Transfers of Policy Value from the Guaranteed Period Options (GPO) of the Fixed
Account prior to the end of that GPO are subject to an Excess Interest
Adjustment If the Excess Interest Adjustment at the time of such Policy Value
transfer is a negative adjustment, then the maximum Policy Value transfer is 25%
of that GPO's Policy Value, less Policy Values previously transferred out of
that GPO during the current certificate year. If the Excess Interest Adjustment
at the time of such Policy Value transfer is a positive adjustment, no maximum
will apply to such Policy Values transferred from the GPO. No Excess Interest
Adjustment will apply to Policy Value transfers at the end of a Guaranteed
Period.
Transfers of interest credited in the GPOs to other Investment Options are
allowed on a "First-In, First-Out" basis. Such transfers may be made monthly,
quarterly, semi-annually, or annually. Each such transfer must be at least $50
and will not be subject to an Excess Interest Adjustment.
Transfers of Policy Value from the Separate Account are subject to a minimum of
$500 or the entire Subaccount Policy Value, if less. However, if the remaining
Subaccount Policy Value is less than $500, we reserve the right to include that
amount as part of the transfer.
The Certificate Owner may choose which GPO to transfer to or from, however, any
GPO elected may not extend beyond the maximum Annuity Commencement Date defined
in Section 11.
PAGE 8
<PAGE>
SECTION 8 - TRANSFERS - CONT
No transfers will be allowed out of the Dollar Cost Averaging Fixed Account
Option except through the Dollar Cost Averaging Option.
We reserve the right to limit transfers to no more than 12 in any one
Certificate Year. Any transfers in excess of 12 per Certificate Year may be
charged a $10 per transfer fee. Transfers among multiple Investment Options will
be treated as one transfer in determining the number of transfers that have
occurred. We also reserve the right to prohibit transfers to the Fixed Account
if we are crediting an effective annual interest rate of 3%.
DOLLAR COST AVERAGING OPTION
Prior to the Annuity Commencement Date, the Date, the Certificate Owner may
instruct us to automatically transfer a specified amount from the Dollar Cost
Averaging (DCA) Fixed Account Option or from the Dollar Cost Averaging
Subaccount(s), if any, shown on page 3 to any Subaccount(s) of the Separate
Account The automatic transfers can occur monthly or quarterly. If the Dollar
Cost Averaging request as received prior to .the 28th day of any month, the
first transfer will occur on the 28th day of that month: If the Dollar Cost
Averaging request is received on or after the 28th day of any month, the first
transfer will occur on the 28th day of the following month.
Prior to the Annuity Commencement Date, no transfers, (except through Dollar
Cost Averaging) will be allowed from a DCA Fixed Account Transfers will continue
until the elected Subaccount or DCA Fixed Account value is depleted The amount
transferred each time must be at least $500. All transfers from the DCA account
will be the same amount as the initial transfer. Changes to the amount
transferred will only be allowed when additional premium is allocated or a new
amount is transferred into the DCA Account Changes to the Subaccounts to which
these transfers are allocated are not restricted. Transfers must be scheduled
for at least 6 but not more than 24 months or for at least 4 but not more than 8
quarters each time the Dollar Cost Averaging program is started or restarted
following termination of the program for any reason.
Dollar Cost Averaging results in, the purchase of more accumulation units when
the value of the accumulation unit is low, and fewer accumulation units when the
value of the accumulation unit is high. However, there is no guarantee that the
Dollar Cost Averaging program will result in higher Policy Values or will
otherwise be successful. The Dollar Cost Averaging may be discontinued after
satisfying the minimum number of required transfers by sending written notice to
us. While Dollar Cost Averaging is in effect, Asset Rebalancing is not
available.
ASSET REBALANCING
Prior to the Annuity Commencement Date, the Certificate Owner may instruct us to
automatically transfer amounts among the Subaccounts of the Separate Account on
a regular basis to maintain a desired allocation of the Policy Value among the
various Subaccounts offered Rebalancing will occur on a monthly, quarterly,
semi-annual or annual basis, beginning on a date selected. The Certificate Owner
must select the percentage of the Policy Value desired in each of the various
Subaccounts offered (totaling 10001. Any amounts in the Fixed Account are
ignored for the purposes of asset rebalancing. Rebalancing can be started,
stopped or changed at any time. Asset Rebalancing is not available while Dollar
Cost Averaging is in effect Rebalancing will cease as soon as we receive a
request for any other transfer.
B. TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, the Certificate Owner may transfer the
value of the variable annuity units from one Subaccount to another within the
Separate Account or to the Fixed Account If the Certificate Owner wants to
transfer the value of the variable annuity units, the Certificate Owner must
tell us in a signed notice which gives us the facts that we need We reserve the
right to limit transfers between the Subaccounts or to the Fixed Accounts to
once per Certificate Year.
The minimum amount which may be transferred is the lesser of $10 monthly income
or the entire monthly income of the variable annuity units in the Subaccount
from which the transfer is being made. If the monthly income of the remaining
units in a Subaccount is less than $10, we have the right to include the value
of those variable annuity units as part of the transfer.
After the Annuity Commencement Date, no transfers may be made from the Fixed
Account to any other Investment Options.
PAGE 9
<PAGE>
SECTION 9 - DEATH PROCEEDS
A. DEATH PROCEEDS PRIOR TO ANNUITYCOMMENCEMENT DATE
The amount of death proceeds will be the greater of the Cash Value, the Policy
Value, or any guaranteed minimum death benefit.
If no payment option is selected by the date of death, the beneficiary may make
such election within one year of the date we receive due proof of death. The
beneficiary may elect to receive the death proceeds as a lump sum payment or may
use the death proceeds to provide any of the annuity payment options described
in Section 10. Interest on death proceeds will be paid as required by law.
B. DEATH PRIOR TO ANNUITYCOMMENCEMENT DATE
Death proceeds are payable contingent upon the relationships between the
Certificate Owner, Annuitant, successor Certificate Owner and beneficiary as
outlined below. The Certificate must be surrendered upon settlement and will be
terminated upon receiving proof of death.
I. Certificate Owner is also the Annuitant.
When we have due proof that the Certificate Owner died before the Annuity
Commencement Date,. we will provide the death proceeds to the beneficiary.
a) Beneficiary is the deceased Certificate Owner's surviving spouse. The
beneficiary may elect to continue the Certificate rather than
receiving the death proceeds. If the Certificate is continued, an
amount equal to the excess, if any, of any guaranteed minimum death
benefit over the Policy Value will then be added to the Policy Value.
This amount will be added only once, at the time of such election.
Furthermore, all future Surrender Charges will be waived
If this beneficiary elects to have the death proceeds paid, the death
proceeds must be distributed:
1) by the end of 5 years after the date of the deceased Certificate
Owner's death, or
(2) payments must begin no later than one year after the deceased
Certificate Owner's death and must be made for a period certain or for
this beneficiary's lifetime, so-long as any period certain does not
exceed this beneficiary's life expectancy.
b) Beneficiary is not the deceased Certificate Owner's surviving spouse.
The death proceeds must be distributed as provided in I.a)(1) or
I.a)(2) above.
c) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
deceased Certificate Owner's death.
II. Annuitant and Certificate Owner are different and the Annuitant dies.
When we have due proof that the Annuitant died prior to the Annuity
Commencement Date, the Certificate Owner will become the new Annuitant and
no death proceeds are payable. If the Certificate Owner is also the
deceased Annuitant's surviving spouse, an amount equal to the excess, if
any, of any guaranteed minimum death benefit over the Policy Value will
then be added to the Policy Value. This amount will be added only once at
the time of such election. Furthermore, all future Surrender Charges will
be waived.
However, in lieu of becoming the new Annuitant, the Certificate Owner may
elect to have the death proceeds distributed to the beneficiary on the
death of the Annuitant This election must be in writing and must be
received by us prior to the Annuitant's death In such case, when we have
due proof that the Annuitant died prior to the Annuity Commencement Date,
we will provide the death proceeds to the beneficiary.
a) If the Certificate Owner has elected to have the death proceeds paid as
a lump sum, the beneficiary must, within 60 days of our receipt of due
proof of the Annuitant's death, either:
1) receive the lump sum proceeds; or
2) elect to receive annuity payments. Such payments must begin
within one year of our receipt of due proof of the Annuitant's
death and must be made for a period certain or for this
beneficiary's lifetime, so long as any period certain does not
exceed this beneficiary's life expectancy.
b) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
Annuitant's death
III. Annuitant and Certificate Owner are different and the Certificate Owner
dies.
If the Certificate Owner dies prior to the Annuity Commencement Date and
before the entire interest in the Certificate is distributed, the successor
Certificate Owner will become the new Certificate Owner. The remaining
portion of any interest in the policy must be distributed to the extent
provided below in Ill.a), III.b), III.c), or III.d).
a) Successor Certificate Owner is the deceased Certificate Owner's
surviving spouse. The successor Certificate Owner may elect to
continue this Certificate rather than receive the Adjusted Policy
Value. If the Certificate is continued, all future Surrender Charges
will be waived If the successor Certificate Owner elects to receive
the Adjusted Policy Value, the Adjusted Policy Value must be
distributed
PAGE 10
<PAGE>
SECTION 9 - DEATH PROCEEDS - CONT
(1) by the end of 5 years after the date of the deceased Certificate
Owner's death, or
(2) payments must begin no later than one year after the deceased
Certificate Owner's death and must be made for a period certain or for
the successor Certificate Owner's lifetime, so long as any period
certain does not exceed the successor Certificate Owner's life
expectancy.
b) Successor Certificate Owner is not the deceased Certificate Owner's
surviving spouse: The Adjusted Policy Value must be distributed as
provided in III.a)(1) or III.a)(2) above.
c) Successor Certificate Owner is not a natural person. The Adjusted
Policy Value must be distributed as provided in Ill.a)( 1) above.
d) No successor Certificate Owner survives the deceased Certificate
Owner. The deceased Certificate Owner's estate will become the new
Certificate Owner (or the estate may name a new Certificate Owner).
The executor or Administrator must be named in a form acceptable to
us. The Adjusted Policy Value must be distributed by the end of 5
years after the date of the deceased Certificate Owner's death.
IV. More than one Certificate Owner.
If there is more than one Certificate Owner, then the death of any
Certificate Owner will be treated the same as the death of the Certificate
Owner.
D. DEATH ON OR AFTER THE ANNUITY
COMMENCEMENT DATE
The death proceeds on or after the Annuity Commencement Date depend on the
payment option selected. If any Certificate Owner dies on or after the Annuity
Commencement Date, but before the entire interest in the Certificate is
distributed, the remaining portion of such interest in the Certificate will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that Certificate Owner's death.
E. AN OWNER IS NOT AN INDIVIDUAL
In the case of a non tax-qualified annuity, if any Certificate Owner or
beneficial Certificate Owner is not an individual, then for purposes of the
federal income tax mandatory distribution provisions in subsection C or D above,
(1) the Annuitant will be treated as the Certificate Owner of the Certificate,
and (2) if there is any change , in the Annuitant, such a change will be treated
as the death of the Certificate Owner.
SECTION 10 - ANNUITY PAYMENTS
A. GENERAL PAYMENT PROVISIONS
Payment
If the Certificate is in force on the Annuity Commencement Date, we will use the
Fixed Account portion and/or the Separate Account portion of the Adjusted Policy
Value to make annuity payments to the Payee under Option 3 and/or 3-V,
respectively, with 10 years certain, or if elected, under one or more of the
other options described in this section. However, the options) elected must
provide for lifetime income or income for a period of at least 60 months. The
Certificate Owner will become the Annuitant at the Annuity Commencement Date.
Payments will be made at 1, 3, 6 or 12 month intervals. We reserve the right to
change the frequency of payments to avoid making payments of less than $50.
Before the Annuity Commencement Date, if the death proceeds become. payable or
if the Certificate is surrendered, we will pay any proceeds in one sum, or if
elected, all or part of these proceeds may be placed under one or more of the
options described in this section. If we agree, the proceeds may be placed under
some other method of payment instead.
Adjusted Age
Payments under Options 3 and 5, and the first payment under Options 3-V and 5-V
are determined based on the adjusted age of the Annuitant The adjusted age is
the Annuitant's actual age on the Annuitant's nearest birthday, at the Annuity
Commencement Date, adjusted as follows:
Annuity
Commencement Date Adjusted Age
----------------- ------------
Before 2001 Actual Age
2001 - 2010 Actual Age minus1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
After 2040 . Actual Age minus 5
Election of Optional Method of Payment
Before the Annuity Commencement Date the Certificate Owner can elect or change a
payment option. The Certificate Owner may elect, in a signed notice which gives
us the facts that we need, annuity payments that. may be either variable, fixed,
or a combination of both If a combination is elected, they must also tell us
what part of the proceeds on the Annuity Commencement Date are to be applied to
provide each type of payment (It must also specify which Subaccounts.) The
amount of a combined payment will be the sum of the variable and fixed payments.
Payments under a variable payment option will reflect the investment performance
of the selected Subaccount of the Separate Account.
PAGE 11
<PAGE>
SECTION 10 - ANNUITY PAYMENTS - CONT
Payee
Unless specified otherwise, the Payee shall be the Annuitant, or the beneficiary
as specified in the Beneficiary provision.
Proof of Age
We may require proof of the age of any person who has an annuity purchased under
Options 3, 3-V, 5 and 5-V of this section before we make the first payment.
Minimum Proceeds
If the proceeds are less than $2,000, we reserve the right to pay them out as a
lump sum instead of applying them to a payment option.
Premium Tax
We may be required by law to pay premium tax on the amount applied to a payment
option. If the requirement is applicable to the issue state, we will deduct the
premium tax before applying the proceeds.
B. FIXED ACCOUNT PAYMENTS
Guaranteed Payment Options
The fixed - account payment is determined by multiplying each $1,000 of proceeds
allocated to a fixed Payment Option by the amounts shown on page 12 for the
option selected Options 1, 2 and 4 are based on a guaranteed interest rate of
3%.
Options 3 and 5 are based on a guaranteed interest rate of 3% and the "1983
Table a" (male, female, and unisex if required by law) mortality table improved
to the year 2000 with projection scale G. (The "1983. Table a" mortality rates
are adjusted based on improvements in mortality since 1983 to more appropriately
reflect increased longevity. This is accomplished using a set of improvement
factors referred to as projection scale G.)
Option 1 - Interest Payments
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 we
and the Certificate Owner agree to. We and the Certificate Owner will agree on
withdrawal rights when the Certificate Owner elects this option The (A) interest
rate we declare for this option may be different than the interest rate(s)
credited prior to the Annuity Commencement Date.
Option 2 - Income for a Specified Period
We will make level payments only for the fixed period the Certificate Owner
chooses. In the event of the death of the person receiving payments prior to the
end of the fixed period elected, payments will be continued to that person's
beneficiary or their present value may be paid in a single sum. No funds will
remain at the end.
Option 3 - Life Income - The Certificate Owner may choose between:
1. No Period Certain -. We will make level payments only during the
Annuitant's lifetime.
2. 10 Years Certain - We will make level payments for the longer of the
Annuitant's lifetime. or ten years.
3. 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 the Payee equals the the amount applied to this option.
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 In the event of the death of the person
receiving payments prior to the time proceeds with interest are exhausted,
payments will be continued to that person's beneficiary or their present value
may be paid in a single sum.
Option 5 - Joint and Survivor Annuity
Payments are made during the joint lifetime of the Payee and a joint Payee of
the Certificate Owner's selection. Payments will be made as long as either
person is living.
Current Payment Options
The amounts shown in the tables on page 12 are the guaranteed amounts. Current
amounts offered to individuals of the same class may be obtained from us.
PAGE 11(A)
<PAGE>
SECTION 10 - ANNUITY PAYMENTS - CONT
C. VARIABLE ACCOUNT PAYMENT OPTIONS
Variable Annuity Units
The proceeds chosen by the Certificate Owner to apply to a variable payment
option will be used to purchase variable annuity units in Subaccounts chosen by
the Certificate Owner. The dollar value of variable annuity units in the chosen
Subaccounts will increase or decrease reflecting the investment experience of
the chosen Subaccounts. The value of a variable annuity unit in a particular
Subaccount on any business day is equal to (a) multiplied by (b) multiplied by
(c), where:
(a) is the variable annuity unit - value for that Subaccount on the immediately
preceding business day;
(b) is the net investment factor for that Subaccount for the Valuation Period;
and
(c) is the Assumed Investment Return adjustment factor for the Valuation
Period.
The Assumed Investment Return adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5.0% effective
annual Assumed Investment Return.
The net investment factor used to calculate the value of a variable annuity unit
in each Subaccount for the Valuation Period is determined by dividing (a) by (b)
and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value of a fund share held in that Subaccount determined
as of the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Subaccount if the ex-dividend
date occurs during the Valuation Period; plus or minus
(3) a per share credit or charge for any taxes reserved for, which we
determine to have resulted from the investment operations of the
Subaccount.
(b) is the net asset value of a fund share held in that Subaccount determined
as of the end of the immediately preceding Valuation Period.
(c) is a factor representing -the Mortality and Expense Risk Fee and
Administrative Charge applicable after the Annuity Commencement Date. This
factor is less than or equal to, on an annual basis, the percentage shown
on page 3 of the daily net asset value of a fund share held in the Separate
Account for that Subaccount.
Determination of the First Variable Payment
The amount of the first, variable payment is determined by multiplying each
61,000 of proceeds allocated to a variable payment option by the amounts shown
on page 13 for the variable option the Certificate Owner selects. 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.)
Option 3V - Life Income
The Certificate Owner may choose between:
1. "No Period Certain" - Payments will be made only during the lifetime of the
Annuitant.
2. "10 Years Certain" - Payments will be made for the longer of the Annuitant's
lifetime or ten years. In the event of the death of the person receiving
payments prior to the end of the period for which the election was made,
payments will be continued to that person's beneficiary or their present
value may be paid in a single sum.
Option 5V - Joint and Survivor Annuity
Payments are made as long as either the Payee or the joint Payee is living.
Determination of Subsequent Variable Payments
The amount of each variable annuity payment after the first will increase or
decrease according to the value of the variable annuity units which reflect the
investment experience of the selected Subaccounts. Each variable annuity payment
after the first will be equal to the number of variable annuity units in the
selected Subaccounts multiplied by the variable annuity unit value on the date
the payment is made. The number of variable annuity units in each selected
Subaccount is determined by dividing the first. variable annuity payment
allocated to the Subaccount by the variable annuity unit value of that
Subaccount on the Annuity Commencement Date.
PAGE 11(B)
<PAGE>
GUARANTEED FIXED ACCOUNT PAYMENT OPTIONS
The amounts shown in these tables are the guaranteed amounts for each $1,000 of
the proceeds. Higher current amounts may be available at the time of settlement.
<TABLE>
<CAPTION>
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
Option 2, Table I Option 3, Table II Option 3, Table III Option 3, Table IV
- ------------- ------------- -------- ------------------------- ---------------------------- --------------------------
Monthly Installment for
Number Amount of Monthly Installment for Monthly Installment for Life
Of Years Monthly Life Life Guaranteed Return of
Payable Installment No Period Certain 10 Years Certain Proceeds
- ------------- ------------- -------- ------------------------- ---------------------------- --------------------------
Age* Male Female Unisex Male Female Unisex Male Female Unisex
- ------------- ------------- -------- ------- -------- -------- ------- -------- ----------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70 $3.73 $3.49 $3.61
51 3.93 3.60 3.77 3.90 3.59 3.75 3.79 3.53 3.66
52 4.00 3.65 3.83 3.97 3.64 3.81 3.84 3.58 3.71
53 4.07 3.71 3.90 4.04 3.70 3.87 3.90 3.63 3.76
5 $17.91 54 4.15 3.77 3.97 4.11 3.75 3.94 3.96 3.68 3.82
6 15.14 55 4.23 3.83 4.04 4.19 3.82 4.01 4.03 3.73 3.88
7 13.16 56 4.32 3.90 4.11 4.27 3.88 4.08 4.10 3.79 3.94
8 11.68 57 4.41 3.97 4.19 4.35 3.95 4.15 4.17 3.85 4.00
9 10.53 58 4.50 4.05 4.28 4.44 4.02 4.24 4.24 3.91 4.07
10 9.61 59 4.61 4.13 4.37 4.53 4.10 4.32 4.32 3.97 4.14
11 8.86 60 4.72 4.21 4.47 4.63 4.18 4.41 4.40 4.04 4.22
12 8.24 61 4.84 4.30 4.57 4.74 4.26 4.51 4.49 4.12 4.30
13 7.71 62 4.96 4.40 4.68 4.85 4.35 4.61 4.58 4.19 4.38
14 7.26 63 5.10 4.50 4.80 4.97 4.45 4.71 4.68 4.28 4.47
15 6.87 64 5.24 4.61 4.93 5.09 4.55 4.83 4.78 4.36 4.56
16 6.53 65 5.40 4.73 5.06 5.22 4.66 4.95 4.88 4.45 4.66
17 6.23 66 5.56 4.85 5.21 5.36 4.77 5.07 4.99 4.55 4.76
18 5.96 67 5.74 4.99 5.36 5.50 4.89 5.20 5.11 4.65 4.87
19 5.73 68 5.93 5.13 5.53 5.65 5.02 5.34 5.24 4.76 4.98
20 5.51 69 6.13 5.29 5.71 5.80 5.15 5.49 5.37 4.87 5.10
70 6.34 5.45 5.90 5.96 5.30 5.64 5.51 4.99 5.23
- ------------- ------------- -------- ------- -------- -------- ------- -------- ----------- ------ --------- ---------
Option 5, Table V
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- ----------------------------------------------------------------------------------------------------------------------
Monthly Installment For Unisex Joint and Full Survivor
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Joint Annuitant*
First
Annuitant*
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
50 $3.04 $3.09 $3.15 $3.21 $3.27 $3.33 $3.39
55 3.17 3.24 3.32 3.40 3.48 3.56 3.63
60 3.34 3.44 3.54 3.64 3.75 3.85 3.95
65 3.57 3.70 3.83 3.97 4.11 4.26 4.39
70 3.87 4.04 4.22 4.42 4.62 4.82 5.01
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
*Adjusted Age as defined in Section 10.A.
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly installments under Option 2 shall be
the monthly installment shown multiplied by 11.84, 5.96 or 2.99
respectively, and for Options 3 and 5 the monthly installment shown
multiplied by 11.80, 5.95 or 2.99 respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
- --------------------------------------------------------------------------------
PAGE 12
<PAGE>
VARIABLE PAYMENT OPTIONS
BASED ON ASSUMED INVESTMENT RETURN
The amounts shown in these tables are the initial payment amounts based on a
5.0% Assumed Investment Return for each $1,000 of the proceeds.
<TABLE>
<CAPTION>
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
Option 3 - V, Table II Option 3 - V, Table III
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
Monthly Installment for Monthly Installment for
Life Life
No Period Certain 10 Years Certain
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
Age* Male Female Unisex Male Female Unisex
- --------------------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $5.11 $4.81 $4.96 $5.07 $4.79 $4.94
51 5.17 4.85 5.02 5.13 4.83 4.99
52 5.24 4.90 5.07 5.19 4.88 5.04
53 5.31 4.95 5.13 5.25 4.93 5.10
54 5.38 5.01 5.20 5.32 4.98 5.16
55 5.46 5.06 5.26 5.39 5.04 5.22
56 5.54 5.12 5.34 5.47 5.09 5.28
57 5.63 5.19 5.41 5.54 5.16 5.36
58 5.72 5.26 5.49 5.63 5.22 5.43
59 5.82 5.34 5.58 5.72 5.29 5.51
60 5.93 5.42 5.68 5.81 5.37 5.60
61 6.04 5.50 5.78 5.91 5.44 5.69
62 6.17 5.60 5.89 6.02 5.53 5.78
63 6.30 5.69 6.00 6.13 5.62 5.88
64 6.44 5.80 6.13 6.25 5.71 5.99
65 6.60 5.91 6.26 6.37 5.82 6.10
66 6.76 6.04 6.40 6.50 5.92 6.22
67 6.94 6.17 6.56 6.63 6.04 6.35
68 7.13 6.31 6.72 6.77 6.16 6.48
69 7.33 6.46 6.90 6.92 6.29 6.62
70 7.55 6.63 7.09 7.07 6.43 6.76
- ------------- ------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
Option 5V, Table V
- ----------------------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
<C> <C> <C> <C> <C> <C> <C> <C>
50 $4.32 $4.36 $4.41 $4.46 $4.51 $4.57 $4.62
55 4.42 4.47 4.53 4.60 4.67 4.75 4.83
60 4.54 4.62 4.70 4.80 4.90 5.01 5.12
65 4.71 4.82 4.94 5.07 5.22 5.37 5.53
70 4.95 5.10 5.27 5.46 5.67 5.89 6.13
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
Monthly Installment For Unisex Joint and Full Survivor
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Joint Annuitant*
First
Annuitant*
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
50 $4.40 $4.45 $4.50 $4.55 $4.61 $4.67 $4.72
55 4.52 4.59 4.66 4.73 4.81 4.89 4.96
60 4.69 4.78 4.87 4.97 5.08 5.19 5.29
65 4.91 5.04 5.17 5.31 5.46 5.62 5.77
70 5.22 5.40 5.59 5.79 6.02 6.24 6.47
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
*Adjusted Age as defined in Section 10.A.
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly installments shall be the monthly
installment shown for Options 3-V and 5-V multiplied by 11.70, 5.93 or 2.99
respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
- --------------------------------------------------------------------------------
PAGE 13
<PAGE>
SECTION 11 - GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of this contract, riders, and the attached
application. All statements in the application or in the enrollment form for a
Participant Certificate are representations and not warranties. No statement
will cause this contract to be void or be used in defense of a claim unless
contained in the application.
PARTICIPANT CERTIFICATES
We will issue a Certificate to each Participant Such Certificates are not a part
of this contract.
MODIFICATION OF CONTRACT
No change in this Contract or the Group Certificate is valid unless made in
writing by us and approved by one of our officers. No registered representative
has authority to change or waive any provision of the Group Certificate or this
Contract.
TAX QUALIFICATION
This Contract is intended to qualify as an annuity. contract for federal income
tax purposes. The provisions of this Contract are to be interpreted to maintain
such qualification. To maintain such tax qualification, we reserve the right to
amend this Contract to reflect any clarifications that may be needed or are
appropriate to maintain such tax qualification or to conform this Contract to
any applicable changes in the tax qualification requirements. We will send the
Certificate Owner a copy in the event of any such amendment If such an amendment
is refused, it must be by giving us written notice, and refusal may result in
adverse tax consequences.
NON-PARTICIPATING
The Group Contract and Group Certificates will not share in our surplus
earnings.
AGE OR SEX CORRECTIONS
If the age or sex of the Annuitant has been misstated, the benefits will be
those which the premiums paid would have purchased f pr the correct age and sex.
If required by law to ignore differences .in the sex of the Annuitant, the
payment options will be determined using the unisex factors in Section 10.
Any underpayment made by us will be paid with the next payment Any overpayment
made by us will be deducted from future payments. Any underpayment or
overpayment, will include interest at 5% per year, from the date of the wrong
payment to the date of the adjustment.
INCONTESTABILITY
This Contract shall be incontestable from the Contract Date.
EVIDENCE OF SURVIVAL
We have the right to require satisfactory evidence that a person was alive if a
payment is based on that person being alive. No payment will be made until we
receive the evidence.
SETTLEMENT
Any payment by us under the Certificate is payable at our Home Office.
RIGHTS OF CERTIFICATE OWNER
The Certificate Owner may, while the Annuitant is living:
1. Assign the Certificate.
2. Surrender the Certificate to us.
3. Amend or modify the Certificate with our consent.
4. Receive annuity payments or name a Payee to receive the payments.
5. Exercise, receive and enjoy every other right and benefit contained in the
Certificate.
The use of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the spouse in a community or marital property
state.
Unless we have been notified of a community or marital property interest in the
Certificate, we will rely on our good faith belief that no such interest exists
and will assume no responsibility for inquiry.
SUCCESSOR CERTIFICATE OWNER
A successor Certificate Owner can be named in any enrollment form, or in a
notice the Certificate Owner signs which gives us the facts that we need The
successor Certificate Owner will become the new Certificate Owner when the
Certificate Owner dies, if the Certificate Owner dies before the Annuitant If no
successor Certificate Owner survives the Certificate Owner and the Certificate
Owner dies before the Annuitant, the Certificate Owner's estate will become the
new Certificate Owner.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date annuity payments begin. This date may
not be later than the last day of the Certificate month starting .after the
Annuitant attains age 85, except as expressly allowed by us, but in no event
later than the last day of the Certificate month following the month in which
the Annuitant attains age 95. The Certificate Owner may change the Annuity
Commencement Date at any time before the Annuity Commencement Date by giving us
30 days' written notice.
PAGE 14
<PAGE>
SECTION 11 - GENERAL PROVISIONS - CONT
ASSIGNMENT
(a) In the case of a non-tax qualified annuity, the Certificate may be
assigned. The assignment must be in writing and filed with us.
(b) We assume no responsibility for the validity of any assignment. Any claim
made under an assignment shall be subject to proof of interest and the
extent of the assignment.
(c) The Certificate may be applied for and issued to qualify as a tax-qualified
annuity under certain sections of the Internal Revenue Code. This will be
specified in the enrollment form, or information provided in lieu thereof.
Ownership of the Certificate then is restricted so that it will comply with
provisions of the Internal Revenue Code.
Assignment of the Certificate may result in adverse tax consequences.
BENEFICIARY
Death proceeds, when payable in accordance with Section 9, are payable to the
designated beneficiary or beneficiaries. Such beneficiary(ies) must be named in
the enrollment form, or information provided in lieu thereof, and may be changed
without consent (unless irrevocably designated or required by law) by notifying
us in writing on a form acceptable to us. The change will take effect upon the
date signed, whether or not you are living when we receive it. The notice must
have been postmarked (or show other evidence of delivery that is acceptable to
us) on or before the date of death. The most recent change of beneficiary notice
will replace any prior beneficiary designations. No change will apply to any
payment we made before the written notice was received. If an irrevocable
beneficiary dies, the Certificate Owner may designate a new beneficiary.
The Certificate Owner may direct that the beneficiary shall not have the right
to withdraw, assign or commute any sum payable under an option. In the absence
of such election or direction, the beneficiary may change the manner of payment
or make an election of any option.
If any primary or contingent beneficiary dies before the Annuitant, that
beneficiary's interest in the Certificate ends with that beneficiary's death.
Only those beneficiaries living at the time of the Annuitant's death will be
eligible to receive their share of the Death Proceeds. In the event no
contingent beneficiaries have been named and all primary beneficiaries have died
before the death proceeds become payable, the Certificate Owner(s) will become
the beneficiary(ies) unless elected otherwise in accordance with Section 9. If
both primary and contingent beneficiaries have been named, payment will be made
to the named primary beneficiaries living at the time the death proceeds become
payable. If there is more than one beneficiary and the Certificate Owner failed
to specify their interest, they will share equally. Payment will be made to the
named contingent beneficiary(ies) only if all primary beneficiaries have died
before the death proceeds become payable. If any primary beneficiary is alive at
the time the death proceeds become payable, but dies before receiving their
payment, their share will be paid to their estate.
In cases where the annuitant dies and the Certificate Owner (who is not the
annuitant) elected to receive the death proceeds in accordance with Section 9,
if the annuitant's estate has been named as beneficiary, then payment will be
made to the Certificate Owner.
PROTECTION OF PROCEEDS
Unless the Certificate Owner so directs by filing written notice with us, no
beneficiary may assign any payments under the Certificate before the same are
due. To the extent permitted by law, no payments under the Certificate will be
subject to the claims of creditors of the Certificate Owner or any beneficiary.
DEFERMENT
We will pay any Partial Withdrawals or surrender proceeds from the Separate
Account(s) within 7 days after we receive all requirements that we need.
However, it may happen that the New York Stock Exchange is closed for trading
(other than the usual weekend or holiday closings), or the Securities and
Exchange Commission restricts trading or determines that an emergency exists. If
so, it may not be practical for us to determine the investment experience of the
Separate Account In that case, we may defer transfers among the Subaccounts and
to the Fixed Account, and determination or payment of Partial Withdrawals or
surrender proceeds.
When permitted by law, we may defer paying any Partial Withdrawals or surrender
proceeds from the Fixed Account for up to 6 months from the date we receive the
request If the Certificate Owner dies after the request is received, but before
the request is processed, the request will be processed before the death
proceeds are determined. Interest will be paid on any amount deferred for 30
days or more. This rate will be computed at the rate of interest currently paid
on proceeds left under the Interest Payments Settlement Option.
REPORTS TO OWNER
We will give the Certificate Owner an annual report at least once each
Certificate Year. This report will show the number and value of the accumulation
units held in each of the Subaccounts as well as the value of the Fixed Account.
It will also give the Death Benefit, Cash Value, and any other facts required by
law or regulation.
PAGE 15
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
SERVICE CHARGE WAIVER
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate Data page.
The Service Charge provision in Section 4, Policy Value, is amended to include
the following language:
The Service Charge will not be deducted on a Certificate Anniversary or at
the time of surrender if, at such time, either (1) the sum of all premium
payments made less the sum of all withdrawals taken equals or exceeds
$50,000 or (2) the Policy Value equals or exceeds $50,000.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. Vermus /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM DEATH BENEFIT
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate page.
The Death Proceeds Prior to Annuity Commencement Date Provision in Section 9,
Death Proceeds, is replaced with the following language:
The amount of the death proceeds will be the greatest of (a), (b), or (c),
where:
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(b) is .the Cash Value on the date we receive due proof of death and an
election of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional
premium payments received, less any Gross Partial Withdrawals from the
date of death to the date of payment of death proceeds.
If no payment option is selected by the date of death, the beneficiary may
make such election within 60 days of the date we receive due proof of
death. The beneficiary may elect to receive the death proceeds as a lump
sum payment or may use the death proceeds to provide any of the annuity
payment options described in Section 10. Interest on death proceeds will
be paid as required by law.
The Guaranteed Minimum Death Benefit is the 5% Annually Compounding Death
Benefit. The GMDB is equal to the total premiums paid for the Certificate;
less any Adjusted Partial Withdrawals, accumulated at 5% interest per
annum from the payment or withdrawal date of death.
The Adjusted Partial Withdrawal is the total amount deducted from the GMDB
as a result of a Partial Withdrawal as used in the GMDB provision. It is
equal to the Gross Partial Withdrawal described in Section 5, multiplied
by an Adjustment Factor. The Adjustment Factor is equal to the amount of
the death proceeds prior to the Partial Withdrawal divided by the Policy
Value prior to the Partial Withdrawal.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. Vermus /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM DEATH BENEFIT
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate page.
The Death Proceeds Prior to Annuity Commencement Date Provision in Section 9,
Death Proceeds, is replaced with the following language:
The amount of the death proceeds will be the greatest of (a), (b), or (c),
where:
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an
election of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional
premium payments received, less any Gross Partial Withdrawals from the
date of death to the date of payment of death proceeds.
If no payment option is selected by the date of death, the beneficiary may
make such election within 60 days of the date we receive due proof of
death. The beneficiary may elect to receive the death proceeds as a lump
sum payment or may use the death proceeds to provide any of the annuity
payment options described in Section 10. Interest on death proceeds will be
paid as required by law.
The Guaranteed Minimum Death Benefit is the Double Enhanced Death Benefit.
The GMDB is the greater of (1) or (2) where:
(1) is a 5% Annual Compounding Death Benefit, equal to:
a) the total premiums paid for the Certificate; minus
b) Adjusted Partial Withdrawals (as described below); plus
c) interest accumulated at 5% per annum from the payment or
withdrawal date to the earlier of the date of death or
the Certificate Owner's 81st birthday.
(2) is a Step-Up Death Benefit, equal to:
a) the largest Policy Value on the Certificate Date or on
any Certificate Anniversary prior to the earlier of the
date of death or the Certificate Owner's 81st birthday;
b) any Premium Payments made since then, minus any Adjusted
Partial Withdrawals made since then.
If the Certificate Owner is a nonnatural person, or if the Certificate Owner has
elected to have the death proceeds paid upon the death of the annuitant, the
Guaranteed Minimum Death Benefit will be based upon the annuitiant's age.
The Adjusted Partial Withdrawal is the total amount deducted from the GMDB as a
result of a Partial Withdrawal as used in the GMDB provision. It is equal to the
Gross Partial Withdrawal described in Section 5, multiplied by an Adjustment
Factor. The Adjustment Factor is equal to the amount of the death proceeds prior
to the Partial Withdrawal divided by the Policy Value prior to the Partial
Withdrawal.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. Vermus /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM DEATH BENEFIT
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate page.
The Death Proceeds Prior to Annuity Commencement Date Provision in Section 9,
Death Proceeds, is replaced with the following language:
The amount of the death proceeds will be the greatest of (a), (b), or
(c), where:
(a) is the Policy Value on the date we receive due proof of death and
an election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an
election of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any
additional premium payments. received, less any Gross Partial
Withdrawals from the date of death to the date of payment of death
proceeds.
If no payment option is selected by the date of death, the beneficiary
may make such election within 60 days of the date we receive due proof
of death. The beneficiary may elect to receive the death proceeds as a
lump sum payment or may use the death proceeds to provide any of the
annuity payment options described in Section 10. Interest on death
proceeds will be paid as required by law.
The Guaranteed Minimum Death Benefit is the Return of Premium Death
Benefit The GMDB is equal to the total premiums paid for the
Certificate, less any Partial Withdrawals, as of the date of death.
The Adjusted Partial Withdrawal is the total amount deducted from the
GMDB as a result of a Partial Withdrawal as used in the GMDB
provision. It is equal to the Gross Partial Withdrawal described in
Section 5, multiplied by an Adjustment Factor. The Adjustment Factor
is equal to the amount of the death proceeds prior to the Partial
Withdrawal divided by the Policy Value prior to the Partial
Withdrawal.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. Vermus /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM DEATH BENEFIT
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate page.
The Death Proceeds Prior to Annuity Commencement Date Provision in Section 9,
Death Proceeds is replaced with the following language:
The amount of the death proceeds will be the greatest of (a), (b), or (c),
where:
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement ;
(b) is the Cash Value on the date we receive due proof of death and an
election of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional
premium payments received, less any Gross Partial Withdrawals from the date
of death to the date of payment of death proceeds.
If no payment option is selected by the date of death, the beneficiary may
make such election within 60 days of the date we receive due proof of
death. The beneficiary may elect to receive the death proceeds as a lump
sum payment or may use the death proceeds to provide any of the annuity
payment options described in Section 10. Interest on death proceeds will be
paid as required by law.
The Guaranteed Minimum Death Benefit is the Step-Up Death Benefit The GMDB
is equal to the largest Policy Value. on the Certificate Date or on any
Certificate Anniversary prior to the earlier of the date of death or the
Certificate Owner's 81st birthday, plus any Premium Payments made since
then, minus any Adjusted Partial withdrawals made since then.
If the Certificate Owner is a nonnatural person, or if the Certificate
Owner has elected to have the death proceeds paid upon the death of the
annuitant, the Guaranteed Minimum Death Benefit will be based upon the
annuitant's age.
The Adjusted Partial Withdrawal is the total amount deducted from the GMDB
as a result of a Partial Withdrawal as used in the GMDB provision. It is
equal to the Gross Partial Withdrawal described in Section 5, multiplied by
an Adjustment Factor. The Adjustment Factor is equal to the amount of the
death proceeds prior to the Partial Withdrawal divided by the Policy Value
prior to the Partial Withdrawal.
This Rider takes effect arid expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. Vermus /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
LUMP SUM PARTIAL WITHDRAWAL OPTION
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate Data page.
The Partial Withdrawals provision in Section 5, Cash Value and Partial
Withdrawals, is amended to include the following language:
Beginning in the 2nd Certificate Year, the Certificate Owner may withdraw,
free from Surrender Charges, and free from Excess Interest Adjustments, an
amount equal to the maximum of A or B where:
A is the cumulative Earnings, if any, in the Policy Value. The
Cumulative Earnings is an amount equal to the Policy Value at the time
a Lump Sum payout is made, minus the sum of all premium payments
reduced by all prior Partial Withdrawals, if any.
B is an amount up to 10% of the Cumulative Premium Payments immediately
prior to the Partial Withdrawal.
The minimum Partial Withdrawal under this option is $500. This Partial
Withdrawal option is available once Per Certificate Year.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. Vermus /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
SYSTEMATIC PAYOUT OPTION
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate Data page.
The Partial Withdrawals provision in Section 5, Cash Value and Partial
Withdrawals, is amended to include the following language:
Beginning in the 1st Certificate Year, a Systematic Payout Option (SPO) is
available on a monthly, quarterly, semi-annual or annual basis. At the time
a SPO payout is made, such payout must be at least $50 and may not exceed
the Maximum of A or B, divided by the number of payouts made per year (e.g.
12 for monthly). No Surrender Charges, or Excess Interest Adjustment will
apply to the SPO payout. Monthly and quarterly payouts must be sent through
electronic funds transfer directly to a checking or savings account. The
Certificate Owner may start or stop SPO payouts at anytime; however, 30
days written notice is required to stop SPO payouts. Once stopped, the
Certificate Owner must wait until the first day of the next Certificate
Year to begin a new SPO.
A is the Cumulative Earnings, if any, in the Policy Value. The
Cumulative Earnings is an amount equal to the Policy Value at the time
a SPO payout is made, minus the sum of all premium payouts reduced by
all prior Withdrawals, if any.
B is an amount up to 10% of the Cumulative Premium Payments immediately
prior to the Partial Withdrawal.
Once the Certificate Owner has elected a SPO, the Certificate Owner must
wait a minimum time before the first SPO payment: one month for a monthly
SPO, three months for quarterly, six months for semi-annual, or twelve
months for annual.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith:
Signed for us at our home office.
/s/ Craig D. Vermus /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM INCOME BENEFIT RIDER
This rider provides a Minimum Annuitization Value which can only be used with
the Annuity Factors shown in Schedule I of this rider. This Minimum
Annuitization value is guaranteed by us, regardless of the performance of the
variable annuity's investments.
This rider is attached to and made part of the Contract as of the Contract Date.
This rider may only be terminated as provided herein This rider is subject to
all of the provisions in the Contract that do not conflict with the provisions
of this rider. The Rider Payment Options provide for variable annuity payments.
Subsequent payments may fluctuate with the investment performance of the
Subaccounts, but will never be less than the initial payment .
DEFINITIONS
The following definitions used in this Rider are for reference only.
Annuitant
The Annuitant is designated on the Certificate Data Page. The variable annuity
payments are paid to the Annuitant (or surviving Joint Annuitant).
Annuity Factor
A factor for the applicable Annuitant age, sex and Rider Payment Option is shown
in schedule I or Schedule II of this rider. For the Rider Payment Option chosen,
the Annuity Factor from Schedule I and the Minimum Annuitization Value will be
used to determine the applicable annuity payments. For Annuitants age 85 or
older at the time of annuitization, the age 85 Annuity Factor will be used for
Schedule I. Factors not shown are available from us upon request Schedule I and
Schedule 11 are based on the " 1983 Table a" mortality table, improved to the
year 2000 with projection scale G.
Election Date
A date that the Certificate Owner elects to begin Guaranteed Minimum Income
Benefit payments. The Election Date must be within 30 days following a
Certificate Anniversary. The first and last dates to elect a Rider Payment
Option are shown on page one of the rider attached to the Certificate.
Minimum Annuitization Value
The amount we will use to determine the Guaranteed Minimum Income Benefit
payments.
Rider Date
The date that the rider is added to the Certificate. This date may only be the
issue date of the Certificate or a Certificate Anniversary date. This is also
the Certificate Anniversary that the Certificate Owner most recently elected to
upgrade the Minimum Annuitization Value, if applicable.
Supportable Payment
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.
1
<PAGE>
GUARANTEED MINIMUM INCOME BENEFIT
On the Election Date, the Certificate Owner may use the Minimum Annuitization
Value and the applicable Annuity Factor to provide variable payments to the
Annuitant The first variable payment is determined by multiplying each $1,000 of
Minimum Annuitization Value by the Annuity Factor on Schedule L Each subsequent
payment will be calculated as described in the Contract, using a.5% Assumed
Investment Return.
For subsequent payments, an annual Mortality and Expense Risk Fee and
Administrative Charge (which includes an investment risk fee) will be charged.
This total fee may be different than the Mortality and Expense Risk Fee and
Administrative Charge in effect prior to the Election Date. It may also be
different than the Mortality and Expense Risk Fee and Administrative Charge for
the settlement options shown in the Certificate.
The subsequent payments may fluctuate in accordance with the investment
performance of the annuity. Subaccounts. However, such payments will never be
less than the initial payment.
MINIMUM ANNUITIZATION VALUE
The Minimum Annuitization Value is used to determine the Guaranteed Minimum
Income Benefit payments.
On the Rider Date, the Minimum Annuitization Value is the value of the
Certificate. Thereafter, based upon the effective Annual Growth Rate (shown on
page one of the rider attached to the Certificate), it will be the value of the
Certificate on the Rider Date, plus any additional payments made after the Rider
Date, minus policy Withdrawals (adjusted as described below),. minus any premium
taxes.
Withdrawals
In any Certificate Year, the Minimum Annuitization Value will only be reduced by
the actual amount of a withdrawal as long as the withdrawal does not exceed a
maximum annual free' amount Withdrawals in excess of the maximum annual free
amount will reduce the Minimum Annuitization Value by an amount equal to (A)
divided by (B) multiplied by (C) where:
(A) is the amount of the excess withdrawal;
(B) is the value of the Certificate after the current Certificate Year
maximum annual free amount has been withdrawn,. but prior to the withdrawal
of the excess portion; and
(C) is the Minimum Annuitization Value after the current Certificate Year
maximum annual free amount has been withdrawn, but prior to withdrawal of
the excess portion.
For each Certificate Year, the maximum annual free amount is equal to the.
Minimum Annuitization Value, as of the beginning of e Certificate Year,
multiplied by the effective Annual Growth Rate as shown on page one of the rider
attached to the Certificate. Withdrawals during a Certificate Year will reduce
the available maximum annual free amount by the amount of the Withdrawal.
RIDER FEE
We will deduct a fee from the value of the Certificate on. each Certificate
Anniversary and on the termination date of this rider. The Rider Fee is the
Minimum Annuitization Value at the time the fee is deducted, multiplied by the
Rider Fee Percentage shown on the first page of the rider attached to the
Certificate. The fee will be deducted from each Subaccount in proportion to the
amount of value of the Certificate in each Subaccount This fee will not be
deducted after the Election Date or if the Certificate terminates due to the.
death of the Certificate Owner.
WAIVER OF RIDER FEE
If the value - of the Certificate, on a particular Certificate Anniversary,
exceeds an amount equal to the Rider Fee Waiver Threshold (shown on page one of
the rider attached to the Certificate) multiplied by the Minimum Annuitization
Value, the Rider Fee will be waived for that Certificate Anniversary.
MINIMUM ANNUITIZATION VALUE UPGRADE
The Certificate Owner may elect, in writing, to upgrade the Minimum
Annuitization Value to the value of the Certificate on a Certificate
Anniversary. This may be done within 30 days immediately following any
Certificate Anniversary, and prior to the Last Date to Upgrade shown on page one
of the rider attached to the Certificate.
If an upgrade is elected, the rider attached to the Certificate will terminate
and a new rider will be issued with a new Rider Date, Election Date and its own
guaranteed benefits. The new annual Rider Fee Percentage may be different than
this rider's, but it will never be greater than 0.50%.
2
<PAGE>
RIDER PAYMENT OPTIONS
The Minimum Annuitization Value and applicable Annuity Factors from Schedule I
may be applied to the following payment options:
Life Income - An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the person receiving payments 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 the Joint Annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
GUARANTEED MINIMUM PAYMENT
On the Election Date, the Certificate Owner will receive guaranteed minimum
payments. The annual Mortality and Expense Risk Fee and Administrative Charge
for these payments is shown on page one of the rider attached to the
Certificate. The percentage shown on page one of the rider attached to the
Certificate also includes a fee to cover investment risk associated with
guaranteeing a minimum payment.
The first payment is based on the Annuity Factors in Schedule I. We guarantee
that each subsequent payment will be equal to or greater than the initial
payment.
During the first Certificate Year following annuitization, each payment will be
stabilized to equal the initial payment On each Certificate Anniversary
following annuitization, the stabilized payment will be increased or decreased
(but never below the initial payment) and held level for that Certificate Year.
On each Certificate Anniversary following annuitization, the stabilized payment
will equal the greater of the initial payment or the Supportable Payment at that
time.
If the Supportable Payment (at any payment date) is greater than the stabilized
payment for that year, the excess will be used to purchase additional annuity
units as described below. If the Supportable Payment (at any payment date) is
less than the stabilized payment for that year, annuity units will be redeemed
as described below to fund the deficiency.
Purchase /Redemption of Annuity Units:
The number of annuity units purchased or redeemed is equal to the annuity
income purchased or redeemed, respectively, divided by the annuity unit
value for each respective Subaccount Purchases and redemptions of annuity
income will be allocated to each Subaccount on a proportionate basis. The
amount of annuity income purchased or redeemed is the difference between
the Supportable Payment and the stabilized payment, times the attained age
nearest birthday Annuity- Factors shown in Schedule II, divided by $1,000.
These factors will reflect the remaining certain period, if any, but will
be calculated on the same basis as the Schedule II factors.
The Company bears the risk that it will need to make payments if all annuity
units have been redeemed in an attempt to maintain the stabilized payment at the
initial payment level. In such an event, the Company will make all future
payments equal to the initial payment.
ASSIGNMENT
Payments made under this rider may not be pledged or assigned Payments will only
be made to the Annuitant or Joint Annuitant named in the policy.
TERMINATION
This rider will be terminated, with respect to each Certificate, upon the
earliest of:
a the Election Date;
b. 30 days after the Last Date to Elect Benefit shown on the first page of the
rider attached to the Certificate.
c. the date the Certificate terminates;
d. the date the Certificate Owner elects to apply the value of the Certificate
to annuitize the Certificate; and
e. the date the Certificate Owner elects to upgrade their Minimum
Annuitization Value.
This rider cannot be terminated prior to the earliest of the above dates.
Signed for us at our home office.
/s/ craig D. Vermus /s/ William L. Busler
SECRETARY PRESIDENT
3
<PAGE>
SCHEDULE I - ANNUITY FACTORS
The amounts shown in these tables are the Annuity Factors for each $1,000 of the
Minimum Annuitization Value and assume a 3% Assumed Investment Return.
<TABLE>
<CAPTION>
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
Monthly Annuity Factor Monthly Annuity Factor For
for Life With No Period Life With 10 Years
Certain Certain
- --------------------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
Age* Male Female Unisex Male Female Unisex
- --------------------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70
51 3.93 3.60 3.77 3.90 3.59 3.75
52 4.00 3.65 3.83 3.97 3.64 3.81
53 4.07 3.71 3.90 4.04 3.70 3.87
54 4.15 3.77 3.97 4.11 3.75 3.94
55 4.23 3.83 4.04 4.19 3.82 4.01
56 4.32 3.90 4.11 4.27 3.88 4.08
57 4.41 3.97 4.19 4.35 3.95 4.15
58 4.50 4.05 4.28 4.44 4.02 4.24
59 4.61 4.13 4.37 4.53 4.10 4.32
60 4.72 4.21 4.47 4.63 4.18 4.41
61 4.84 4.30 4.57 4.74 4.26 4.51
62 4.96 4.40 4.68 4.85 4.35 4.61
63 5.10 4.50 4.80 4.97 4.45 4.71
64 5.24 4.61 4.93 5.09 4.55 4.83
65 5.40 4.73 5.06 5.22 4.66 4.95
66 5.56 4.85 5.21 5.36 4.77 5.07
67 5.74 4.99 5.36 5.50 4.89 5.20
68 5.93 5.13 5.53 5.65 5.02 5.34
69 6.13 5.29 5.71 5.80 5.15 5.49
70 6.34 5.45 5.90 5.96 5.30 5.64
- ------------- ------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor For Joint and Full Survivor
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
Monthly Annuity Factor For Joint and Full Survivor with 10 Year Period Certain
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
50 $2.99 $3.05 $3.11 $3.18 $3.24 $3.31 $3.38
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.30 4.52 4.76 4.99
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
*Age nearest birthday
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly Annuity Factor shall be the monthly
Annuity Factor shown multiplied by 11.80, 5.95 or 2.99 respectively.
- --------------------------------------------------------------------------------
Annuity Factors not shown in the above tables will be calculated on the same
basis as those shown and may be obtained from the Company.
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE II - ANNUITY FACTORS
The amounts shown in these tables are the Annuity Factors for each $1,000 of the
Minimum Annuitization Value and assume a 5% Assumed Investment Return.
<TABLE>
<CAPTION>
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
Monthly Annuity Factor Monthly Annuity Factor For
for Life With No Period Life With 10 Years
Certain Certain
- --------------------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
Age* Male Female Unisex Male Female Unisex
- ------------- ------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $5.14 $4.83 $4.99 $5.09 $4.80 $4.95
51 5.20 4.87 5.04 5.15 4.85 5.00
52 5.27 4.92 5.10 5.21 4.89 5.05
53 5.34 4.98 5.16 5.27 4.94 5.11
54 5.41 5.03 5.22 5.34 4.99 5.17
55 5.49 5.09 5.29 5.41 5.05 5.23
56 5.57 5.15 5.36 5.48 5.11 5.30
57 5.66 5.22 5.44 5.56 5.17 5.37
58 5.75 5.29 5.52 5.65 5.24 5.45
59 5.85 5.37 5.61 5.74 5.31 5.53
60 5.96 5.45 5.71 5.83 5.38 5.61
61 6.08 5.53 5.81 5.93 5.46 5.70
62 6.20 5.63 5.92 6.04 5.55 5.80
63 6.34 5.73 6.04 6.15 5.64 5.90
64 6.48 5.83 6.16 6.27 5.73 6.01
65 6.64 5.95 6.30 6.39 5.84 6.12
66 6.81 6.07 6.44 6.52 5.94 6.24
67 6.99 6.21 6.60 6.66 6.06 6.37
68 7.18 6.35 6.77 6.80 6.18 6.50
69 7.39 6.51 6.95 6.94 6.31 6.64
70 7.61 6.68 7.14 7.09 6.45 6.78
- ------------- ------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor For Joint and Full Survivor
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.34 $4.38 $4.43 $4.48 $4.53 $4.59 $4.65
55 4.43 4.49 4.55 4.62 4.70 4.77 4.85
60 4.56 4.64 4.73 4.82 4.92 5.03 5.15
65 4.74 4.84 4.96 5.10 5.24 5.40 5.56
70 4.98 5.13 5.30 5.49 5.70 5.93 6.17
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
- ----------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor For Joint and Full Survivor with 10 Year Period Certain
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
50 $4.34 $4.38 $4.43 $4.48 $4.53 $4.59 $4.65
55 4.43 4.49 4.55 4.62 4.70 4.77 4.85
60 4.56 4.64 4.72 4.82 4.92 5.03 5.14
65 4.73 4.84 4.96 5.09 5.24 5.39 5.55
70 4.97 5.12 5.29 5.48 5.69 5.91 6.14
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
*Age nearest birthday
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly Annuity Factor shall be the monthly
Annuity Factor shown multiplied by 11.70, 5.93 or 2.99 respectively.
- --------------------------------------------------------------------------------
Annuity Factors not shown in the above tables will be calculated on the same
basis as those shown and may be obtained from the Company.
- --------------------------------------------------------------------------------
<PAGE>
PFL Life Insurance Company
Home Office located at 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
[LOGO]
Group Flexible Premium Variable Annuity Contract
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount
(See Sections 6 and 10C.)
Non-Participating
INDEX
Page
Accumulation Units...........................................7
Adjusted Age (Settlement Options)............................7
Age or Sex Corrections......................................14
Annuity Commencement Date...................................14
Annuity Payments.....................................11 ,11(A)
Assignment .................................................15
Beneficiary ................................................15
Cash Value................................................5, 6
Certificate Data Page .......................................3
Death Proceeds..........................................10 ,11
Definitions..................................................2
Dollar Cost Averaging........................................9
Excess Interest Adjustment ..................................5
Evidence of Survival........................................14
Fixed Account................................................8
Guaranteed Return of Fixed Account
Premium Payments..........................................6
Guaranteed Period............................................8
Incontestability ...........................................14
Modification of Contract....................................14
Nonparticipation............................................14
Nursing Care and Terminal Condition
Withdrawal Option.........................................5(B)
Partial Withdrawals.......................................5, 6
Payee....................................................11(A)
Payment Option Tables...................................12, 13
Policy Value ................................................4
Premium Payments.............................................4
Proof of Age ............................................11(A)
Protection of Proceeds......................................15
Right to Cancel..............................................1
Separate Account .........................................6, 7
Service Charge ..............................................4
Settlement..................................................14
Surrender Charges ...........................................6
Transfers....................................................9
Unemployment Waiver.......................................5(B)
<PAGE>
EXHIBIT (4)(p)
--------------
GROUP CERTIFICATE
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
ANNUITANT: JEROME R SIEGEL
CERTIFICATE OWNER(S): PAINEWEBBER FBO
CERTIFICATE NUMBER: 07 -109740
CERTIFICATE DATE: October 23, 1995
WE AGREE
. To provide annuity payments as set forth in Section 10 of this Certificate,
. Or to pay withdrawal benefits in accordance with Section 5 of this
Certificate,
. Or to pay death proceeds in accordance with Section 9 of this Certificate.
Withdrawals, transfers and amounts applied to a Payment Option may be subject to
an Excess Interest Adjustment in accordance with Sections 5, 8, and 10,
respectively, of this Certificate.
These agreements are subject to the provisions of this Certificate. This
Certificate is issued in consideration of the enrollment form, or information
provided in lieu thereof, and payment of the premiums as provided.
This Certificate may be applied for and issued to qualify as a tax-qualified
annuity under the applicable sections of the Internal Revenue Code.
20 DAY RIGHT TO CANCEL
You may cancel this Certificate by delivering or mailing a written notice to us.
You must return this Certificate before midnight of the 20th day after the day
you receive it Notice given by mail and return of this Certificate by mail are
effective on being postmarked, properly addressed and postage prepaid.
We will pay you an amount equal to the sum of:
. the premiums paid; and
. the accumulated gains or losses, if any, in the Separate Account(s) on the
date of cancellation;
unless otherwise required by law.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
READ YOUR CERTIFICATE CAREFULLY
Group Flexible Premium Variable Annuity Certificate
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount (See Sections 6 and 10C)
AV432 101 114 199 CRT Non-Participating
<PAGE>
SECTION 1
DEFINITIONS
ADJUSTED POLICY VALUE
The Policy Value increased or decreased by any Excess Interest Adjustment
ANNUITANT
The Participant to whom annuity payments will be made, unless another payee is
named.
ANNUITY COMMENCEMENT DATE
Date the Annuitant will begin receiving payments from this annuity, which may
not be later than the last day of the Certificate month starting after the
Annuitant attains age 85, except as expressly allowed by us, but in no event
later than the last day of the month following the month in which the Annuitant
attains age 95.
CASH VALUE
Amount defined in Section 5, that can be withdrawn if this annuity Certificate
is surrendered.
CERTIFICATE
The document issued under the Group Contract to the eligible Participants who
apply for coverage. The Certificate is not a part of the Group Contract
CERTIFICATE ANNIVERSARY
The anniversary of the Certificate Date for each year this Certificate remains
in force.
CERTIFICATE DATE
The date shown on page 3 of this Certificate and the date on which this
Certificate becomes effective.
CERTIFICATE OWNER
The owner of the annuity Certificate. Unless otherwise specified on the
Certificate Data page, the Annuitant and the Certificate Owner shall be one and
the same person.
CERTIFICATE YEAR
The 12 month periods following the Certificate Date shown on the Certificate
Data page. The first Certificate Year starts on the Certificate Date. Each
subsequent year starts on the anniversary of the Certificate Date.
DISTRIBUTION
A withdrawal or disbursement of funds from the Policy Value or Cash Value.
GROUP CONTRACT
The Contract issued to the Group Contract Owner, under which Certificates are
issued to eligible Participants.
GROUP CONTRACT OWNER
The entity, as shown on the Certificate Data Page, which applies for the Group
Contract
INVESTMENT OPTIONS
Any of the Guaranteed Period Options of the Fixed Account, the Dollar Cost
Averaging Fixed Account Option, and any of the Subaccounts of the Separate
Account(s).
PARTICIPANT
A person who makes premium payments or for whom premium payments are made under
the Group Contract
PAYEE
The person to whom annuity payments will be made.
PAYMENT OPTIONS
Options through which the distribution of the Adjusted Policy Value can be
directed.
POLICY VALUE
the amount (defined in Section 4) applicable under the Certificate that can be
used to fund one of the Payment Options.
SEPARATE ACCOUNT
The separate investment account(s) established by us, as described in Section 6.
SUBACCOUNT
A division of a Separate Account, as described in Section 6.
SURRENDER
A partial or full withdrawal of funds from the Policy Value or Cash Value.
WITHDRAWAL
A distribution of funds from the Policy Value or Cash Value.
YIELD
The effective annual interest rate applicable to the Fixed Account.
YOU,YOUR
The owner of this Certificate. Unless otherwise specified on the Certificate
Data Page, the Annuitant and the Certificate Owner shall be one and the same
person.
PAGE 2
<PAGE>
SECTION 2 - CERTIFICATE DATA
<TABLE>
<CAPTION>
<S> <C>
GROUP CONTRACT NUMBER: PV0009 GROUP CONTRACT OWNER: SECURITIES CUSTOMERS
DRL INSURANCE TRUST II
CERTIFICATE NUMBER: 07-109740 ANNUITANT: JEROME R. SIEGEL
INITIAL PREMIUM
PAYMENT: $25,000.00 ISSUE AGE/SEX: 35/Male
CERTIFICATE DATE: October 23, 1995 CERTIFICATE
OWNER(S): PAINEWEBBER FBO
ANNUITY
COMMENCEMENT
DATE: June 22, 2033
</TABLE>
Premium Enhancement Percentage on Initial Premium Payment None
SEPARATE ACCOUNT(S): PFL ENDEAVOR VA SEPARATE ACCOUNT and PFL ENDEAVOR TARGET
ACCOUNT
DCA SUBACCOUNT(S): Money Market Portfolio, U.S. Government Securities Portfolio
PREMIUM PAYMENT MINIMUMS
Initial Premium Payment, Nonqualified: $5,000
Initial Premium Payment*, Qualified:
*Waived for 403(b) annuities $1,000
Subsequent Premium Payments: $50.00
Before the Annuity
Commencement Date: Mortality and Expense Risk Fee
and Administrative Charge: 1.55%
Distribution Financing Charge: 00%
Number of Certificate Years that
the charge is deducted: 0
After the Annuity Commencement Date: Mortality and Expense Risk Fee and
Administrative Charge: 1.40%
SERVICE CHARGE: $35
FIXED ACCOUNT GUARANTEED MINIMUM EFFECTIVE ANNUAL INTEREST RATE: 3%
SURRENDER CHARGE: Number of Years Percentage of
Since Premium Premium
Payment Date Withdrawn
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%
Page 3
<PAGE>
SECTION 2 - CONTRACT DATA - CONT
SCHEDULE OF ADDITIONAL BENEFITS:
Form No. Additional Benefit(s)
AE 1074 199 Service Charge Waiver
AE 1058 199 Guaranteed Minimum Death Benefit
AE 1046 0200 Lump Sum Partial Withdrawal Option
AE 1045 0200 Systematic Payout Option
RGMI 4 499(CRT) Guaranteed Minimum Income Benefit Ride
Page 3(A)
<PAGE>
SECTION 2 - CERTIFICATE DATA
<TABLE>
<CAPTION>
<S> <C>
GROUP CONTRACT NUMBER: PV0009 GROUP CONTRACT OWNER: SECURITIES CUSTOMERS
DRL INSURANCE TRUST II
CERTIFICATE NUMBER: 07-109740 ANNUITANT: JEROME R. SIEGEL
INITIAL PREMIUM
PAYMENT: $25,000.00 ISSUE AGE/SEX: 35/male
CERTIFICATE DATE: October 23, 1995 CERTIFICATE
OWNER(S): PAINEWEBBER FBO
ANNUITY
COMMENCEMENT
DATE: June 22, 2033
</TABLE>
Premium Enhancement Percentage on Initial Premium Payment None
SEPARATE ACCOUNT(S): PFL ENDEAVOR VA SEPARATE ACCOUNT and PFL ENDEAVOR TARGET
ACCOUNT
DCA SUBACCOUNT(S): Money Market Portfolio, U.S. Government Securities Portfolio
PREMIUM PAYMENT MINIMUMS
Initial Premium Payment, Nonqualified: $5,000
Initial Premium Payment*, Qualified:
*Waived for 403(b) annuities $1,000
Subsequent Premium Payments: $50.00
Before the Annuity Commencement Date: Mortality and Expense Risk Fee
and Administrative Charge: 1.55%
Distribution Financing Charge: 00%
Number of Certificate Years that
the charge is deducted: 0
After the Annuity Commencement Date: Mortality and Expense Risk Fee and
Administrative Charge: 1.40%
SERVICE CHARGE: $35
FIXED ACCOUNT GUARANTEED MINIMUM EFFECTIVE ANNUAL INTEREST RATE: 3%
SURRENDER CHARGE: Number of Years Percentage of
Since Premium Premium
Payment Date Withdrawn
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%
Page 3
<PAGE>
SECTION 2 - CONTRACT DATA - CONT
SCHEDULE OF ADDITIONAL BENEFITS:
Form No. Additional Benefit(s)
AE 1074 199 Service Charge Waiver
AE 1060 199 Guaranteed Minimum Death Benefit
AE 1046 0200 Lump Sum Partial Withdrawal Option
AE 1045 0200 Systematic Payout Option
RGMI 4 499(CRT) Guaranteed Minimum Income Benefit Ride
Page 3(A)
<PAGE>
SECTION 2 - CERTIFICATE DATA
<TABLE>
<CAPTION>
<S> <C>
GROUP CONTRACT NUMBER: PV0009 GROUP CONTRACT OWNER: SECURITIES CUSTOMERS
DRL INSURANCE TRUST II
CERTIFICATE NUMBER: 07-109740 ANNUITANT: JEROME R. SIEGEL
INITIAL PREMIUM
PAYMENT: $25,000.00 ISSUE AGE/SEX: 35/male
CERTIFICATE DATE: October 23, 1995 CERTIFICATE
OWNER(S): PAINEWEBBER FBO
ANNUITY
COMMENCEMENT
DATE: June 22, 2033
</TABLE>
Premium Enhancement Percentage on Initial Premium Payment None
SEPARATE ACCOUNT(S): PFL ENDEAVOR VA SEPARATE ACCOUNT and PFL ENDEAVOR TARGET
ACCOUNT
DCA SUBACCOUNT(S): Money Market Portfolio, U.S. Government Securities
Portfolio
PREMIUM PAYMENT MINIMUMS
Initial Premium Payment, Nonqualified: $5,000
Initial Premium Payment*, Qualified:
*Waived for 403(b) annuities $1,000
Subsequent Premium Payments: $50.00
Before the Annuity Commencement Date: Mortality and Expense Risk Fee
and Administrative Charge: 1.40%
Distribution Financing Charge: . 00%
Number of Certificate Years that
the charge is deducted: 0
After the Annuity Commencement Date: Mortality and Expense Risk Fee and
Administrative Charge: 1.40%
SERVICE CHARGE: $35
FIXED ACCOUNT GUARANTEED MINIMUM EFFECTIVE ANNUAL INTEREST RATE: 3%
SURRENDER CHARGE: Number of Years Percentage of
Since Premium Premium
Payment Date Withdrawn
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%
Page 3
<PAGE>
SECTION 2 - CONTRACT DATA - CONT
SCHEDULE OF ADDITIONAL BENEFITS:
Form No. Additional Benefit(s)
AE 1074 199 Service Charge Waiver
AE 1061 199 Guaranteed Minimum Death Benefit
AE 1046 0200 Lump Sum Partial Withdrawal Option
AE 1045 0200 Systematic Payout Option
RGMI 4 499(CRT) Guaranteed Minimum Income Benefit Ride
Page 3(A)
<PAGE>
<TABLE>
<CAPTION>
SECTION 2 - CERTIFICATE DATA
<S> <C>
GROUP CONTRACT NUMBER: PV0009 GROUP CONTRACT OWNER: SECURITIES CUSTOMERS
DRL INSURANCE TRUST II
CERTIFICATE NUMBER: 07-109740 ANNUITANT: JEROME R. SIEGEL
INITIAL PREMIUM
PAYMENT: $25,000.00 ISSUE AGE/SEX: 35/male
CERTIFICATE DATE: October 23, 1995 CERTIFICATE
OWNER(S): PAINEWEBBER FBO
ANNUITY
COMMENCEMENT
DATE: June 22, 2033
</TABLE>
Premium Enhancement Percentage on Initial Premium Payment None
SEPARATE ACCOUNT(S): PFL ENDEAVOR VA SEPARATE ACCOUNT and PFL ENDEAVOR TARGET
ACCOUNT
DCA SUBACCOUNT(S): Money Market Portfolio, U.S. Government Securities Portfolio
PREMIUM PAYMENT MINIMUMS
Initial Premium Payment, Nonqualified: $5,000
Initial Premium Payment*, Qualified:
*Waived for 403(b) annuities $1,000
Subsequent Premium Payments: $50.00
Before the Annuity Commencement Date: Mortality and Expense Risk Fee 1.55%
and Administrative Charge:
Distribution Financing Charge: . 00%
Number of Certificate Years that 0
the charge is deducted:
After the Annuity Commencement Date:
Mortality and Expense Risk Fee and Administrative Charge: 1.40%
SERVICE CHARGE: $35
FIXED ACCOUNT GUARANTEED MINIMUM EFFECTIVE ANNUAL INTEREST RATE: 3%
SURRENDER CHARGE: Number of Years Percentage of
Since Premium Premium
Payment Date Withdrawn
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%
Page 3
<PAGE>
SECTION 2 - CONTRACT DATA - CONT
SCHEDULE OF ADDITIONAL BENEFITS:
Form No. Additional Benefit(s)
AE 1074 199 Service Charge Waiver
AE 1062 199 Guaranteed Minimum Death Benefit
AE 1046 0200 Lump Sum Partial Withdrawal Option
AE 1045 0200 Systematic Payout Option
RGMI 4 499(CRT) Guaranteed Minimum Income Benefit Ride
Page 3(A)
<PAGE>
SECTION 3 - PREMIUM PAYMENTS
PAYMENT OF PREMIUMS
Premium payments may be made any time while this Certificate is in force before
the Annuity Commencement Date. You may start or stop, increase or decrease, or
skip any premium payments.
MAXIMUM AND MINIMUM PREMIUM PAYMENT
The premium payments may not be more than the amount permitted by law if this is
a tax-qualified annuity. The minimum premium payments we will accept are
specified on page 3. The maximum total premium payments, per Participant, which
we will accept without prior Company approval is $1,000,000.
PREMIUM PAYMENT DATE
The premium payment date is the date on which the premium payment is credited to
the Certificate. The initial premium payment less any premium taxes will be
credited to the Certificate within two business days of receipt of such payment
and the required information. Subsequent additional premium payments will be
credited to the Certificate as of the business day when the premium payment and
required information are received. A business day is any day on which the New
York Stock Exchange is open for trading.
ALLOCATION OF PREMIUM PAYMENTS
Premium payments may be applied to the various Investment Options which we make
available. You must tell us what percent of each premium payment to allocate to
the various Investment Options. Each percent may be either zero or any whole
number; however, the allocation among all Investment Options must total 100%.
CHANGE OF ALLOCATION
You may change the allocation of premium payments to the various Investment
Options. You must tell us in a signed notice which gives us the facts that we
need. Premium payments received after the date on which we receive the notice
will be applied on the basis of the new allocation.
PREMIUM TAXES
A state may impose a premium tax. It may be imposed when a premium payment is
made, on the Annuity Commencement Date, on the date of death, or on the date of
full surrender. When permitted by state law, we will not deduct the tax until
the Annuity Commencement Date, date of death, or date of full surrender.
SECTION 4 - POLICY VALUE
POLICY VALUE
On or before the Annuity Commencement Date, the Policy Value is equal to your:
(a) premium payments; minus
(b) Gross Partial Withdrawals (as defined in Section 5); plus
(c) interest credited to the Fixed Account (see Section 7); plus
(d) accumulated gains in the Separate Account(s) (see Section 6); minus
(e) accumulated losses in the Separate Account(s)(see Section 6); minus
(f) service charges, premium taxes and transfer fees, if any.
ADJUSTED POLICY VALUE
The Adjusted Policy Value is the Policy Value increased or decreased by any
Excess Interest Adjustment.
The Adjusted Policy Value may be used on the Annuity Commencement Date to
provide lifetime income or income for a period of no less than 60 months under
the Payment Options in Section 10.
SERVICE CHARGE
On each Certificate Anniversary and at the time of surrender during any
Certificate Year before the Annuity Commencement Date, we reserve the right to
charge an amount up to the amount of the Service Charge shown on page 3 for
administrative expenses. It will be deducted from each Investment Option in
proportion to the portion of Policy Value (prior to such charge) in each
Investment Option, respectively, on that Certificate Anniversary or at the time
of surrender. In no event will the Service Charge exceed 2% of the Policy Value
at the time it is deducted.
PAGE 4
<PAGE>
SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS
CASH VALUE
On or before the Annuity Commencement Date, the Cash Value is equal to the
Adjusted Policy Value less any Surrender Charges. Information on the current
amount of a Certificate's Cash Value is available upon request. The Cash Value
may be partially withdrawn or will be paid in the event of a full surrender of
the Certificate. We must receive your written partial withdrawal or surrender
request before the Annuity Commencement Date.
There is no Cash Value once an Annuity Payment Option has been selected.
EXCESS INTEREST ADJUSTMENT
Full Surrenders, Partial Withdrawals, transfers, and amounts applied to a
Payment Option from the Fixed Account Guaranteed Period Options described in
Section 7 will be subject to an Excess Interest Adjustment except as provided
for in the Partial Withdrawals provision below.
An Excess Interest Adjustment applies in the following situations:
1) When you withdraw all or any portion of your Cash Value,
2) When you exercise Annuity Payment Options,
3) When death proceeds are calculated. However, death proceeds will not be
reduced if the Excess Interest Adjustment is negative.
The Excess Interest Adjustment is only applied to transactions affecting the
Guaranteed Period Options of the Fixed Account (see Section 7) and is based on
any change in interest rates from the time the affected Guaranteed Periods)
started until the time the Excess Interest Adjustment occurs. The Excess
Interest Adjustment is applied as follows:
1) The Excess Interest Adjustment is only applied when the transactions occur
prior to the end of any Guaranteed Period Option;
2) Transfers to the Guaranteed Period Options of the Fixed Account are
considered Premium Payments for purposes of determining the Excess Interest
Adjustment;
3) The Excess Interest Adjustment is distinct from, and is applied prior to,
the Surrender Charge;
4) The Excess Interest Adjustment may affect the death proceeds defined in
Section 9;
5) If interest rates have decreased from the time the affected Guaranteed
Periods) started until the time the transaction occurs, the Excess Interest
Adjustment will result in additional funds available to you;
6) If interest rates have increased from the time the affected Guaranteed
Period(s) started until the time the transaction occurs, the Excess
Interest Adjustment will result in a decrease in the funds available to
you.
7) Certain amounts are not subject to the Excess Interest Adjustment as
provided in Sections 5, 7 and 8.
The formula for determining the amount of the Excess Interest Adjustment is as
follows:
Excess Interest Adjustment = S x (G-C) x (M/ 12)
where:
S is the gross (that is, before surrender charges and premium taxes, if
any) amount being surrendered, partially withdrawn, transferred, or
applied to a Payment Option that is subject to the Excess Interest
Adjustment.
G is the guaranteed interest rate for the Guaranteed Period applicable
to S.
M is the number of months remaining in the Guaranteed Period for S,
rounded up to the next higher whole number of months.
C is the current guaranteed interest rate then being offered on new
Premium Payments for the next longer Guaranteed Period than "M". If
this Certificate form or such a Guaranteed Period Option 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%.
Upon full surrender, the Excess Interest Adjustment (EIA) for each Guaranteed
Period Option will not reduce the Adjusted Policy Value for that Guaranteed
Period Option below the amount paid into, less any prior withdrawals and
transfers from, that Guaranteed Period Option, plus interest at the 3%
guaranteed effective annual interest rate.
PAGE 5
<PAGE>
SECTION 5 - CONT
PARTIAL WITHDRAWALS
We will pay you a portion of the Cash Value as a Partial Withdrawal provided we
receive your written request while the Certificate is in effect and before the
Annuity Commencement Date. When you request a Partial Withdrawal you must tell
us how it is to be allocated from among the Investment Options. If your request
for a Partial Withdrawal from any Investment Option is less than or equal to the
Cash Value in that option, we will pay the amount of your request. However, if
your request for a Partial Withdrawal from any Investment Option is greater than
the Cash Value in that option, we will pay you the Cash Value of that Investment
Option.
The Gross Partial Withdrawal is the total amount which will be deducted from
your Policy Value as a result of each Partial Withdrawal. The Gross Partial
Withdrawal may be more or less than your requested Partial Withdrawal amount,
depending on whether Surrender Charges and/or Excess Interest Adjustments apply
at the time you request the Partial Withdrawal.
The Excess Partial Withdrawal amount is the portion of the requested Partial
Withdrawal that is subject to Surrender Charge (that is, the portion which is in
excess of the Surrender Charge-free portion). For example, if the requested
withdrawal amount is $1,000, and the Surrender Charge-free amount is $200, then
the Excess Partial Withdrawal would be $800. Excess Partial Withdrawals will
reduce the Policy Value by an amount equal to (X-Y+Z) where:
X = Excess Partial Withdrawal
A = Amount of Partial Withdrawal subject to Excess Interest Adjustment
Y = Excess Interest Adjustment = (A) x (G-C) x (M/ 12) where G, C and M are
defined in the Excess Interest Adjustment provision above, with "A"
substituted for "S" in the definitions of G and M.
Z = Surrender Charge on X minus Y.
The formula for determining the Gross Partial Withdrawal is as follows:
Gross Partial Withdrawal = R - E + SC
where:
R is the requested Partial Withdrawal;
E is the Excess Interest Adjustment; and
SC is the Surrender Charge on (EPW - E); where
EPW is the Excess Partial Withdrawal amount.
If any Partial Withdrawal reduces the Cash Value below $500, we reserve the
right to pay the full Cash Value and terminate the Certificate.
We may delay payment of the Cash Value from the Fixed Account for up to 6 months
after we receive the request. If the Certificate Owner dies after we receive the
request, but before the request is processed, the request will be processed
before the death proceeds are determined.
Each Partial Withdrawal consists of a portion that is subject to Surrender
Charge (that is, the Excess Partial Withdrawal) and a remaining portion that is
free from Surrender Charge (that is, the Surrender Charge-free amount). Either
portion may be zero (0) depending on the Partial Withdrawal requested and prior
amounts withdrawn.
Partial Withdrawals may be made free from Surrender Charges and free from Excess
Interest Adjustments as follows:
MINIMUM REQUIRED DISTRIBUTION
For tax-qualified plans, Partial Withdrawals taken to satisfy minimum
distribution requirements under Section 401(a)(9) of the Internal Revenue
Code (IRC) are available with no Surrender Charges and no Excess Interest
Adjustments. The amount available from each Certificate with respect to the
minimum distribution requirement is based solely on this Certificate.
The Certificate Owner must be at least 70 1 /2 years old in the calendar
year of distribution, must submit a written request to us and must take the
distribution before year end. If the Certificate Owner attains age 70 1 /2
in the calendar year of distribution, a written request which is postmarked
no later than the end of the current calendar year must be submitted to us.
Systematic minimum distributions must be at least $50 or a lump sum
distribution is available if minimum required distributions are less than
$50.
Any amount requested in excess of the IRC minimum required distribution
will have the appropriate Surrender Charges and Excess Interest Adjustments
applied, unless the excess distribution qualifies as Surrender Charge- free
or Excess Interest Adjustment-free under any additional options provided.
PAGE 5(A)
<PAGE>
SECTION 5 - CONT
NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION
Beginning in the first Certificate Year, if the Certificate Owner or
Certificate Owner's spouse (annuitant or annuitant's spouse if the
Certificate Owner is not a natural person) has been 1) confined in a
Hospital or Nursing Facility for 30 consecutive days or 2) diagnosed as
having a Terminal Condition, you may elect to withdraw all or a portion of
the Policy Value without Surrender Charges and without Excess Interest
Adjustment. The minimum withdrawal under this option is $1000.
For Nursing Care, we must receive each withdrawal request and proof of
eligibility with each request no later than 90 days following the date that
confinement has ceased, unless it can be shown that it was not reasonably
possible to provide the notice and proof within the above time period and
that the notice and proof were given as soon as reasonably possible.
However, in no event, except the absence of legal capacity, shall the
notice and proof be provided later than one year following the date that
confinement has ceased. For a Terminal Condition, we must receive each
withdrawal request and the applicable proof of eligibility no later than
one year following diagnosis of the Terminal Condition. Proof of a Terminal
Condition is required only with the initial withdrawal request and must be,
furnished by the Annuitant's, Annuitant's spouse's, Certificate Owner's, or
Certificate Owner's spouse's physician. Proof of confinement may be a
physician's statement or a statement from a hospital or nursing facility
administrator.
UNEMPLOYMENT WAIVER
Beginning in the first Certificate Year, you may withdraw all or a portion
of the Policy Value free of Surrender Charges and free of any Excess
Interest Adjustment if the Certificate Owner or Certificate Owner's spouse
(annuitant or annuitant's spouse, if the Certificate Owner is not a natural
person) becomes unemployed. In order to qualify, you 1) must have been
employed full time for at least two years prior to your becoming
unemployed, 2) must have been employed full time on your Certificate Date,
3) must have been unemployed for at least 60 consecutive days at the time
of withdrawal and 4) must have a minimum Cash Value at the time of
withdrawal of $5000. Proof of unemployment will consist of providing us
with a determination letter from the applicable State's Department of Labor
which verifies that you qualify for and are receiving unemployment benefits
at the time of withdrawal. The determination letter must be received by us
no later than 15 days following the date of the withdrawal request.
PAGE 5(B)
<PAGE>
SECTION 5 - CONT
SURRENDER CHARGES
Amounts withdrawn in excess of any Surrender Charge-free Partial Withdrawals are
subject to a Surrender Charge. If applicable, this charge will either apply for
a number of years following each premium payment date or for a number of years
following the Certificate Date as shown on page 3. The amount of this charge, if
any, will be a percentage, (as shown on page 3 of each Certificate) of the
amount of premium withdrawn.
For Surrender Charge purposes, the oldest premium payment is considered to be
withdrawn first. If the amount withdrawn exceeds this, the next oldest premium
payment is considered to be withdrawn, and so on until the most recent premium
payment is considered to be withdrawn. For Surrender Charge purposes, premium
payments are deemed to be withdrawn before earnings.
After all premium payments are considered to be withdrawn, the remaining
Adjusted Policy Value may be withdrawn free from any Surrender Charge.
GUARANTEED RETURN OF FIXED ACCOUNT PREMIUM PAYMENTS
Upon full surrender of the Certificate, you will always receive at least the
premium payments made to, less prior withdrawals and transfers from, the Fixed
Account.
MINIMUM VALUES
Benefits available under this Certificate are not less than those required by
any statute of the state in which the Certificate is delivered.
SECTION 6 - SEPARATE ACCOUNT
SEPARATE ACCOUNT
We have established and will maintain one or more Separate Account(s), indicated
on the Certificate Data Page, under the laws of the state of Iowa. Any realized
or unrealized income, net gains and tosses from the assets of the Separate
Account are credited to or charged against it without regard to our other
income, gains or losses. Assets are put in the Separate Account for this
Certificate, as well as for other variable annuity policies and Certificates.
Any Separate Account may invest assets in shares of one or more mutual fund
portfolios, or in the case of a managed Separate Account, direct investments in
stocks or other securities as permitted by law. Fund Shares refer to shares of
underlying mutual funds or prorata ownership of the assets held in a Subaccount
of a managed Separate Account. Fund shares are purchased, redeemed and valued on
behalf of the Separate Account.
The Separate Account is divided into Subaccounts. Each Subaccount invests
exclusively in shares of one of the portfolios of an underlying mutual fund. We
reserve the right to add or remove any Subaccount of the Separate Account.
The assets of the Separate Account are our property. These assets will equal or
exceed the reserves and other contract liabilities of the Separate Account.
These assets will not be chargeable with liabilities arising out of any other
business we conduct. We reserve the right, subject to regulations governing the
Separate Account, to transfer assets of a Subaccount, in excess of the reserves
and other contract liabilities with respect to that Subaccount, to another
Subaccount or to our General Account.
We will determine the fair market value of the assets of the Separate Account in
accordance with a method of valuation which we establish in good faith.
Valuation Period means the period of time from one determination of the value of
each Subaccount to the next. Such determinations are made when the value of the
assets and liabilities of each Subaccount is calculated. This is generally the
close of business on each day on which the New York Stock Exchange is open.
We also reserve the right to transfer assets of the Separate Account, which we
determine to be associated with the class of Certificates to which this
Certificate belongs, to another separate account. If this type of transfer is
made, the term "Separate Account", as used in the contract and in the
Certificate, shall then mean the separate account to which the assets were
transferred.
We also reserve the right, when permitted by law to:
(a) deregister the Separate Account under the Investment Company Act of 1940;
(b) manage the Separate Account under the direction of a committee at any time;
(c) restrict or eliminate any voting rights of Certificate Owners or other
persons who have voting rights as to the Separate Account; and
(d) combine the Separate Account with one or more other separate accounts;
(e) create new Separate Accounts;
(f) add new Subaccounts to or remove existing Subaccounts from the Separate
Account, or combine Subaccounts;
(g) add new underlying mutual funds, remove existing mutual funds, or
substitute a new fund for an existing fund.
PAGE 6
<PAGE>
SECTION 6 - SEPARATE ACCOUNT - CONT
The Net Asset Value of a fund share is the per- share value calculated by the
mutual fund or, in the case of a managed Separate Account, by the Company. The
Net Asset Value is computed by adding the value of the Subaccount's investments,
cash and other assets, subtracting its liabilities, and then dividing by the
number of shares outstanding. Net Asset Values of fund shares reflect investment
advisory fees other expenses incurred in managing a mutual fund or a managed
Separate Account.
CHANGE IN INVESTMENT OBJECTIVE OR POLICY OF A MUTUAL FUND
If required by law or regulation, an investment policy of the Separate Account
will only be changed if approved by the appropriate insurance official of the
state of Iowa or deemed approved in accordance with such law or regulation. If
so required, the process for obtaining such approval is filed with the insurance
official of the state or district in which this contract is delivered.
CHARGES AND DEDUCTIONS
The Mortality and Expense Risk Fee and the Administrative Charge are each
deducted both before and after the Annuity Commencement Date to compensate for
changes in mortality and expenses not anticipated by the mortality and
administration charges guaranteed in the certificate.
Any applicable Service Charge is deducted prior to the Annuity Commencement Date
only.
Any applicable Distribution Financing Charge is deducted prior to the Annuity
Commencement Date only, to compensate for costs of distributing the
policy.
If the Mortality and Expense Risk Feels) and/or Distribution Financing Charges
are more than sufficient, the Company will retain the balance as profit or
reduce these fees and charges in the future.
ACCUMULATION UNITS
The Policy Value in the Separate Account before the Annuity Commencement Date is
represented by accumulation units. The dollar value of accumulation units for
each Subaccount will change from day to day reflecting the investment experience
of the Subaccount.
Premium payments allocated to and any amounts transferred to the Subaccounts
will be applied to provide accumulation units in those Subaccounts. The number
of accumulation units purchased in a Subaccount will be determined by dividing
the premium payment allocated to or any amount transferred to that Subaccount,
by the value of an accumulation unit for that Subaccount on the premium payment
or transfer date.
The number of accumulation units withdrawn or transferred from the Subaccounts
will be determined by dividing the amount withdrawn or transferred by
the value of an accumulation unit for that Subaccount on the withdrawal or
transfer date.
The value of an accumulation unit on any business day is determined by
multiplying the value of that unit at the end of the immediately preceding
valuation period by the net investment factor for the valuation period.
The net investment factor used to calculate the value of an accumulation unit in
each Subaccount for the Valuation Period is determined by dividing (a) by (b)
and subtracting (c) from the result, where:
(a) is the result of:
(1) the net asset value of a fund share held in that Subaccount determined
as of the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Subaccount if the ex-dividend
date occurs during the valuation period; plus or minus
(3) a per share credit or charge for any taxes reserved for, which we
determine to have resulted from the investment operations of that
Subaccount.
(b) is the net asset value of a fund share held in that Subaccount
determined as of the end of the immediately preceding valuation
period.
(c) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge before the Annuity Commencement Date, plus any
applicable Distribution Financing Charge. This factor is less than or equal
to, on an annual basis, the sum of the applicable percentages shown on page
3 of the daily net asset value of a fund share held in that Subaccount.
Since the net investment factor may be greater or less than one, the
accumulation unit value may increase or decrease.
PAGE 7
<PAGE>
SECTION 7 - FIXED ACCOUNT
FIXED ACCOUNT
Premium payments applied to and any amounts transferred to the Fixed Account
will reflect a fixed interest rate. The interest rates we set will be credited
for increments of at least one year measured from each premium payment or
transfer date. These rates will never be less than an effective annual interest
rate of 3%.
GUARANTEED PERIODS
We may offer optional Guaranteed Period Options, into which premium payments may
be paid or amounts transferred. The current interest rate we set for funds
entering each Guaranteed Period Option (GPO) is guaranteed until the end of that
option's Guaranteed Period. At that time, the premium payment made or amount
transferred into the GPO, less any withdrawals or transfers from that GPO, plus
accrued interest, will be rolled into a new GPO or may be transferred to any
Subaccount(s) within the Separate Account(s).
You may choose the Investment Option(s) you want the funds rolled into by giving
us a written notice within 30 days before the end of the expiring option's
Guaranteed Period. However, any Guaranteed Period elected may not extend beyond
the maximum Annuity Commencement Date defined in Section 11. In the absence of
such election, the funds will be rolled into a new GPO which is the same as the
expiring GPO unless that GPO is no longer offered, in which case, the next
shorter GPO offered will be used. You will be mailed a notice of completion of
the rollover with the new interest rate applicable. The new GPO will be deemed
as accepted if we do not receive a written rejection within 30 days from the
postmark date of the completion notice.
We reserve the right for new premium payments, transfers, or rollovers to offer
or not to offer any GPO, except that we will always offer at least a one year
GPO.
For purposes of crediting interest when funds are withdrawn from or transferred
into a GPO, the amount of the oldest premium payment or rollover into that GPO
is considered to be withdrawn first If the amount withdrawn exceeds this amount,
the next oldest premium payment or rollover is considered to be withdrawn next,
and so on until the most recent premium payment or rollover is considered to be
withdrawn (this is a "First-In, First-Out" or FIFO procedure). Premium
payment(s) or rollover(s) are deemed to be withdrawn first, then credited
interest.
Partial withdrawals, Surrenders, transfers, and amounts applied to a Payment
Option from the Guarantee Period Option(s) are subject to an Excess Interest
Adjustment as described in Section 5.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
We may offer a Dollar Cost Averaging (DCA) Fixed Account Option separate from
the Guaranteed Period Options. This option will have a one year interest rate
guarantee. The current interest rate we set for the DCA Fixed Account may differ
from the rates credited on the one year GPO in the Fixed Account. In addition,
the current interest rate we credit may vary on different portions of the DCA
Fixed Account. The credited interest rate will never be less than the minimum
effective annual interest rate of 3%. The DCA Fixed Account Option will only be
available under a Dollar Cost Averaging program as described in Section 8.
SECTION 8 - TRANSFERS
A. TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE
Prior to the Annuity Commencement Date, you may transfer the value of the
accumulation units from one Investment Option to another. You must sign a notice
to transfer which gives us the facts that we need.
Transfers of Policy Value from the Guaranteed Period Options (GPO) of the Fixed
Account prior to the end of that GPO are subject to an Excess Interest
Adjustment. If the Excess Interest Adjustment at the time of such Policy Value
transfer is a negative adjustment, then the maximum Policy Value transfer is 25%
of that GPO's Policy Value, less Policy Values previously transferred out of
that GPO during the current certificate year. If the Excess Interest Adjustment
at the time of such Policy Value transfer is a positive adjustment, no maximum
will apply to such Policy Values transferred from the GPO. No Excess Interest
Adjustment will apply to Policy Value transfers at the end of a Guaranteed
Period.
Transfers of interest credited in the GPOs to other Investment Options are
allowed on a "First-In, First-Out" basis. Such transfers may be made monthly,
quarterly, semi-annually, or annually. Each such transfer must be at least $50
and will not be subject to an Excess Interest Adjustment.
Transfers of Policy Value from the Separate Account are subject to a minimum of
$500 or the entire Subaccount Policy Value, if less. However, if the remaining
Subaccount Policy Value is less than $500, we reserve the right to include that
amount as part of the transfer.
You may choose which GPO to transfer to or from, however, any GPO elected may
not extend beyond the maximum Annuity Commencement Date defined in Section 11.
PAGE 8
<PAGE>
SECTION 8 - CONT
No transfers will be allowed out of the Dollar Cost Averaging Fixed Account
Option except through the Dollar Cost Averaging Option.
We reserve the right to limit transfers to no more than 12 in any one
Certificate Year. Any transfers in excess of 12 per Certificate Year may be
charged a $10 per transfer fee. Transfers among multiple Investment Options will
be treated as one transfer in determining the number of transfers that have
occurred. We also reserve the right to prohibit transfers to the Fixed Account
if we are crediting an effective annual interest rate of 3%.
DOLLAR COST AVERAGING OPTION
Prior to the Annuity Commencement Date, you may instruct us to automatically
transfer a specified amount from the Dollar Cost Averaging (DCA) Fixed Account
Option or from the Dollar Cost Averaging Subaccount(s), if any, shown on page 3
to any Subaccount(s) of the Separate Account. The automatic transfers can occur
monthly or quarterly. If the Dollar Cost Averaging request is received prior to
the 28th day of any month, the first transfer will occur on the 28th day of that
month. If the Dollar Cost Averaging request is received on or after the 28th day
of any month, the first transfer will occur on the 28th day of the following
month.
Prior to the Annuity Commencement Date, no transfers, (except through Dollar
Cost Averaging) will be allowed from a DCA Fixed Account. Transfers will
continue until the elected Subaccount or DCA Fixed Account value is depleted.
The amount transferred each time must be at least $500. All transfers from the
DCA account will be the same amount as the initial transfer. Changes to the
amount transferred will only be allowed when additional premium is allocated or
a new amount is transferred into the DCA Account. Changes to the Subaccounts to
which these transfers are allocated are not restricted. Transfers must be
scheduled for at least 6 but not more than 24 months or for at least 4 but not
more than 8 quarters each time the Dollar Cost Averaging program is started or
restarted following termination of the program for any reason.
Dollar Cost Averaging results in the purchase of more accumulation units when
the value of the accumulation unit is low, and fewer accumulation units when the
value of the accumulation unit is high. However, there is no guarantee that the
Dollar Cost Averaging program will result in higher Policy Values or will
otherwise be successful.
The Dollar Cost Averaging may be discontinued after satisfying the minimum
number of required transfers by sending written notice to us. While Dollar Cost
Averaging is in effect, Asset Rebalancing is not available.
ASSET REBALANCING
Prior to the Annuity Commencement Date, you may instruct us to automatically
transfer amounts among the Subaccounts of the Separate Account on a regular
basis to maintain a desired allocation of the Policy Value among the various
Subaccounts offered. Rebalancing will occur on a monthly, quarterly, semi-annual
or annual basis, beginning on a date selected. You must select the percentage of
the Policy Value desired in each of the various Subaccounts offered (totaling
100%). Any amounts in the Fixed Account are ignored for the purposes of asset
rebalancing. Rebalancing can be started, stopped or changed at any time. Asset
Rebalancing is not available while Dollar Cost Averaging is in effect.
Rebalancing will cease as soon as we receive a request for any other transfer.
B. TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, you may transfer the value of the variable
annuity units from one Subaccount to another within the Separate Account or to
the Fixed Account. If you want to transfer the value of the variable annuity
units, you must tell us in a signed notice which gives us the facts that we
need. We reserve the right to limit transfers between the Subaccounts or to the
Fixed Accounts to once per Certificate Year.
The minimum amount which may be transferred is the lesser of $10 monthly income
or the entire monthly income of the variable annuity units in the Subaccount
from which the transfer is being made. If the monthly income of the remaining
units in a Subaccount is less than $10, we have the right to include the value
of those variable annuity units as part of the transfer.
After the Annuity Commencement Date, no transfers may be made from the Fixed
Account to any other Investment Options.
PAGE 9
<PAGE>
SECTION 9 - DEATH PROCEEDS
A. DEATH PROCEEDS PRIOR TO ANNUITY COMMENCEMENT DATE
The amount of death proceeds will be the greater of the Cash Value, the Policy
Value, or any guaranteed minimum death benefit
If no payment option is selected by the date of death, the beneficiary may make
such election within one year of the date we receive due proof of death. The
beneficiary may elect to receive the death proceeds as a lump sum payment or may
use the death proceeds to provide any of the annuity payment options described
in Section 10. Interest on death proceeds will be paid as required by law.
B. DEATH PRIOR TO ANNUITY COMMENCEMENT DATE
Death proceeds are payable contingent upon the relationships between the
Certificate Owner, Annuitant, successor Certificate Owner and beneficiary as
outlined below. The Certificate must be surrendered upon settlement and will be
terminated upon receiving proof of death.
I. Certificate Owner is also the Annuitant.
When we have due proof that the Certificate Owner died before the Annuity
Commencement Date, we will provide the death proceeds to t he beneficiary.
a) Beneficiary is the deceased Certificate Owner's surviving spouse. The
beneficiary may elect to continue the Certificate rather than
receiving the death proceeds. If the Certificate is continued, an
amount equal to the excess, if any, of any guaranteed minimum death
benefit over the Policy Value will then be added to the Policy Value.
This amount will be added only once, at the time of such election.
Furthermore, all future Surrender Charges will be waived.
If this beneficiary elects to have the death proceeds paid, the death
proceeds must be distributed:
(1) by the end of 5 years after the date of the deceased Certificate
Owner's death, or
(2) payments must begin no later than one year after the deceased
Certificate Owner's death and must be made for a period certain or
for. This beneficiary's lifetime, so long as any period certain does
not exceed this beneficiary's life expectancy.
b) Beneficiary is not the deceased Certificate Owner's surviving spouse.
The death proceeds must be distributed as provided in I.a)(1) or
I.a)(2) above.
c) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
deceased Certificate Owner's death.
II. Annuitant and Certificate Owner are different and the Annuitant dies.
When we have due proof that the Annuitant died prior to the Annuity
Commencement Date, the Certificate Owner will become the new Annuitant and
no death proceeds are payable. If the Certificate Owner is also the
deceased Annuitant's surviving spouse, an amount equal to the excess, if
any, of any guaranteed minimum death benefit over the Policy Value will
then be added to the Policy Value. This amount will be added only once at
the time of such election. Furthermore, all future Surrender Charges will
be waived.
However, in lieu of becoming the new Annuitant, the Certificate Owner may
elect to have the death proceeds distributed to the beneficiary on the
death of the Annuitant. This election must be in writing and must be
received by us prior to the Annuitant's death. In such case, when we have
due proof that the Annuitant died prior to the Annuity Commencement Date,
we will provide the death proceeds to the beneficiary.
a) If the Certificate Owner has elected to have the death proceeds paid
as a lump sum, the beneficiary must, within 60 days of our receipt of
due proof of the Annuitant's death, either:
1) receive the lump sum proceeds; or
2) elect to receive annuity payments. Such payments must begin within
one year of our receipt of due proof of the Annuitant's death and must
be made for a period certain or for this beneficiary's lifetime, so
long as any period certain does not exceed this beneficiary's life
expectancy.
b) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
Annuitant's death.
III. Annuitant and Certificate Owner are different and the Certificate Owner
dies.
If the Certificate Owner dies prior to the Annuity Commencement Date and
before the entire interest in the Certificate is distributed, the successor
Certificate Owner will become the new Certificate Owner. The remaining
portion of any interest in the policy must be distributed to the extent
provided below in Ill.a), Ill.b), Ill.c), or Ill.d).
a) Successor Certificate Owner is the deceased Certificate Owner's
surviving spouse.The successor Certificate Owner may elect to continue this
Certificate rather than receive the Adjusted Policy Value. If the
Certificate is continued, all future Surrender Charges will be waived. If
the successor Certificate Owner elects to receive the Adjusted Policy
Value, the Adjusted Policy Value must be distributed:
PAGE 10
<PAGE>
SECTION 9 - CONT
(1) by the end of 5 years after the date of the deceased Certificate
Owner's death, or
(2) payments must begin no later than one year after the deceased
Certificate Owner's death and must be made for a period certain or for the
successor Certificate Owner's lifetime, so long as any period certain does
not exceed the successor Certificate Owner's life expectancy.
b) Successor Certificate Owner is not the deceased Certificate Owner's
surviving spouse. The Adjusted Policy Value must be distributed as provided
in Ill.a)(1) or Ill.a)(2) above.
c) Successor Certificate Owner is not a natural person. The Adjusted Policy
Value must be distributed as provided in Ill.a)(1) above.
d) No successor Certificate Owner survives the deceased Certificate Owner. The
deceased Certificate Owner's estate will become the new Certificate Owner
(or the estate may name a new Certificate Owner). The executor or
Administrator must be named in a form acceptable to us. The Adjusted Policy
Value must be distributed by the end of 5 years after the date of the
deceased Certificate Owner's death.
IV. More than one Certificate Owner.
If there is more than one Certificate Owner, then the death of any
Certificate Owner will be treated the same as the death of the Certificate
Owner.
D. DEATH ON OR AFTER THE ANNUITY COMMENCEMENT DATE
The death proceeds on or after the Annuity Commencement Date depend on the
payment option selected. If any Certificate Owner dies on or after the Annuity
Commencement Date, but before the entire interest in the Certificate is
distributed, the remaining portion of such interest in the Certificate will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that Certificate Owner's death.
E. AN OWNER IS NOT AN INDIVIDUAL
In the case of anon tax-qualified annuity, if any Certificate Owner or
beneficial Certificate Owner is not an individual, then for purposes of the
federal income tax mandatory distribution provisions in subsection C or D above,
(1) the Annuitant will be treated as the Certificate Owner of the Certificate,
and (2) if there is any change in the Annuitant, such a change will be treated
as the death of the Certificate Owner.
SECTION 10 - ANNUITY PAYMENTS
A. GENERAL PAYMENT PROVISIONS
Payment
If the Certificate is in force on the Annuity Commencement Date, we will use the
Fixed Account portion and/or the Separate Account portion of the Adjusted Policy
Value to make annuity payments to the Payee under Option 3 and/or 3-V,
respectively, with 10 years certain, or if elected, under one or more of the
other options described in this section. However, the options) elected must
provide for lifetime income or income for a period of at least 60 months. The
Certificate Owner will become the Annuitant at the Annuity Commencement Date.
Payments will be made at 1, 3, 6 or 12 month intervals. We reserve the right to
change the frequency of payments to avoid making payments of less than $50.
Before the Annuity Commencement Date, if the death proceeds become payable or if
the Certificate is surrendered, we will pay any proceeds in one sum, or if
elected, all or part of these proceeds may be placed under one or more of the
options described in this section. If we agree, the proceeds may be placed under
some other method of payment instead.
Adjusted Age
Payments under Options 3 and 5, and the first payment under Options 3-V and 5-V
are determined based on the adjusted age of the Annuitant The adjusted age is
the Annuitant's actual age on the Annuitant's nearest birthday, at the Annuity
Commencement Date, adjusted as follows:
Annuity
Commencement Date Adjusted Age
----------------- ------------
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
After 2040 Actual Age minus 5
Election of Optional Method of Payment
Before the Annuity Commencement Date the Certificate Owner can elect or change a
payment option. The Certificate Owner may elect, in a signed notice which gives
us the facts that we need, annuity payments that may be either variable, fixed,
or a combination of both. If a combination is elected, they must also tell us
what part of the proceeds on the Annuity Commencement Date are to be applied to
provide each type of payment (It must also specify which Subaccounts.) The
amount of a combined payment will be the sum of the variable and fixed payments.
Payments under a variable payment option will reflect the investment performance
of the selected Subaccount of the Separate Account
PAGE 11
<PAGE>
SECTION 10 - ANNUITY PAYMENTS - CONT
Payee
Unless specified otherwise, the Payee shall be the Annuitant, or the beneficiary
as specified in the Beneficiary provision.
Proof of Age
We may require proof of the age of any person who has an annuity purchased under
Options 3, 3-V, 5 and 5-V of this section before we make the first payment
Minimum Proceeds
If the proceeds are less than $2,000, we reserve the right to pay them out as a
lump sum instead of applying them to a payment option.
Premium Tax
We may be required by law to pay premium tax on the amount applied to a payment
option. If the requirement is applicable to the issue state, we will deduct the
premium tax before applying the proceeds.
B. FIXED ACCOUNT PAYMENTS
Guaranteed Payment Options
The fixed account payment is determined by multiplying each $1,000 of proceeds
allocated to a fixed Payment Option by the amounts shown on page 12 for the
option selected. Options 1, 2 and 4 are based on a guaranteed interest rate of
3%.
Options 3 and 5 are based on a guaranteed interest rate of 3% and the "1983
Table a" (male, female, and unisex if required by law) mortality table improved
to the year 2000 with projection scale G. (The "1983 Table a" mortality rates
are adjusted based on improvements in mortality since 1983 to more appropriately
reflect increased longevity. This is accomplished using a set of improvement
factors referred to as projection scale G.)
Option 1 - Interest Payments
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 we
and the Certificate Owner agree to. We and the Certificate Owner will agree on
withdrawal rights when you elect this option. The interest rate we declare for
this option may be different than the interest rate(s) credited prior to the
Annuity Commencement Date.
Option 2 - Income for a Specified Period
We will make level payments only for the fixed period you choose. In the event
of the death of the person receiving payments prior to the end of the fixed
period elected, payments will be continued to that person's beneficiary or their
present value may be paid in a single sum. No funds will remain at the end.
Option 3 - Life Income - You may choose between:
1. No Period Certain - We will make level payments only during the Annuitant's
lifetime.
2. 10 Years Certain.- We will make level payments for the longer of the
Annuitant's lifetime or ten years.
3. 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.
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 In the event of the death of the person
receiving payments prior to the time proceeds with interest are exhausted,
payments will be continued to that person's beneficiary or their present value
may be paid in a single sum.
Option 5 - Joint and Survivor Annuity
Payments are made during the joint lifetime of the Payee and a joint Payee of
your selection. Payments will be made as long as either person is living.
Current Payment Options
The amounts shown in the tables on page 12 are the guaranteed amounts. Current
amounts offered to individuals of the same class may be obtained from us.
PAGE 11(A)
<PAGE>
SECTION 10 - CONT
C. VARIABLE ACCOUNT PAYMENT OPTIONS
Variable Annuity Units
The proceeds chosen by the Certificate Owner to apply to a variable payment
option will be used to purchase variable annuity units in Subaccounts chosen by
the Certificate Owner. The dollar value of variable annuity units in the chosen
Subaccounts will increase or decrease reflecting the investment experience of
the chosen Subaccounts. The value of a variable annuity unit in a particular
Subaccount on'any business day is equal to (a) multiplied by (b) multiplied by
(c), where:
(a) is the variable annuity unit value for that Subaccount on the immediately
preceding business day;
(b) is the net investment factor for that Subaccount for the Valuation Period;
and
(c) is the Assumed Investment Return adjustment factor for the Valuation
Period.
The Assumed Investment Return adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5.0% effective
annual Assumed Investment Return.
The net investment factor used to calculate the value of a. variable annuity
unit in each Subaccount for the Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value of a fund share held in that Subaccount determined
as of the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Subaccount if the ex-dividend
date occurs during the Valuation Period; plus or minus
(3) a per share credit or charge for any taxes reserved for, which we
determine to have resulted from the investment operations of the
Subaccount.
(b) is the net asset value of a fund share held in that Subaccount determined
as of the end of the immediately preceding Valuation Period.
(c) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge applicable after the Annuity Commencement Date. This
factor is less than or equal to, on an annual basis, the percentage shown
on page 3 of the daily net asset value of a fund share held in the Separate
Account for that Subaccount.
Determination of the First Variable Payment
The amount of the first variable payment is determined by multiplying each $
1,000 of proceeds allocated to a variable payment option by the amounts shown on
page 13 for the variable option you select The tables are based on a 5%
effective annual Assumed Investment Return and the " 1983 Table a" (male,
female, and unisex if required by law) mortality table improved to the year 2000
with projection scale G. (The " 1983 Table a" mortality rates are adjusted based
on improvements in mortality since 1983 to more appropriately reflect increased
longevity. This is accomplished using a set of improvement factors referred to
as projection scale G.)
Option 3V - Life Income
You may choose between:
1. "No Period Certain" - Payments will be made only during the lifetime of the
Annuitant
2. "10 Years Certain" - Payments will be made for the longer of the
Annuitant's lifetime or ten years. In the event of the death of the person
receiving payments prior to the end of the period for which the election
was made, payments will be continued to that person's beneficiary or their
present value may be paid in a single sum.
Option 5V - Joint and Survivor Annuity
Payments are made as long as either the Payee or the joint Payee is living.
Determination of Subsequent Variable Payments
The amount of each variable annuity payment after the first will increase or
decrease according to the value of the variable annuity units which reflect the
investment experience of the selected Subaccounts. Each variable annuity payment
after the first will be equal to the number of variable annuity units in the
selected Subaccounts multiplied by the variable annuity unit value on the date
the payment is made. The number of variable annuity units in each selected
Subaccount is determined by dividing the first variable annuity payment
allocated to the Subaccount by the variable annuity unit value of that
Subaccount on the Annuity Commencement Date.
PAGE 11(B)
<PAGE>
GUARANTEED FIXED ACCOUNT PAYMENT OPTIONS
The amounts shown in these tables are the guaranteed amounts for each $1,000 of
the proceeds. Higher current amounts may be available at the time of settlement.
<TABLE>
<CAPTION>
- ----------------------------- ------------------------- ------------------------ ------------------------
Option 2, Table I Option 3, Table II Option 3, Table III Option 3, Table IV
- --------------------------------------------------------------------------------------------------------------------
Monthly Installment for
Number Amount of Monthly Installment for Monthly Installment for Life
Of Years Monthly Life Life Guaranteed Return of
Payable Installment No Period Certain 10 Years Certain Proceeds
---- ----- ---------- ------- ----- -------- -------- ---- -------- ------
Age* Male Female Unisex Male Female Unisex Male Female Unisex
- ------------ -------------- ---- ----- ---------- ------- ----- -------- -------- ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70 $3.73 $3.49 $3.61
51 3.93 3.60 3.77 3.90 3.59 3.75 3.79 3.53 3.66
52 4.00 3.65 3.83 3.97 3.64 3.81 3.84 3.58 3.71
53 4.07 3.71 3.90 4.04 3.70 3.87 3.90 3.63 3.76
5 $17.91 54 4.15 3.77 3.97 4.11 3.75 3.94 3.96 3.68 3.82
6 15.14 55 4.23 3.83 4.04 4.19 3.82 4.01 4.03 3.73 3.88
7 13.16 56 4.32 3.90 4.11 4.27 3.88 4.08 4.10 3.79 3.94
8 11.68 57 4.41 3.97 4.19 4.35 3.95 4.15 4.17 3.85 4.00
9 10.53 58 4.50 4.05 4.28 4.44 4.02 4.24 4.24 3.91 4.07
10 9.61 59 4.61 4.13 4.37 4.53 4.10 4.32 4.32 3.97 4.14
11 8.86 60 4.72 4.21 4.47 4.63 4.18 4.41 4.40 4.04 4.22
12 8.24 61 4.84 4.30 4.57 4.74 4.26 4.51 4.49 4.12 4.30
13 7.71 62 4.96 4.40 4.68 4.85 4.35 4.61 4.58 4.19 4.38
14 7.26 63 5.10 4.50 4.80 4.97 4.45 4.71 4.68 4.28 4.47
15 6.87 64 5.24 4.61 4.93 5.09 4.55 4.83 4.78 4.36 4.56
16 6.53 65 5.40 4.73 5.06 5.22 4.66 4.95 4.88 4.45 4.66
17 6.23 66 5.56 4.85 5.21 5.36 4.77 5.07 4.99 4.55 4.76
18 5.96 67 5.74 4.99 5.36 5.50 4.89 5.20 5.11 4.65 4.87
19 5.73 68 5.93 5.13 5.53 5.65 5.02 5.34 5.24 4.76 4.98
20 5.51 69 6.13 5.29 5.71 5.80 5.15 5.49 5.37 4.87 5.10
70 6.34 5.45 5.90 5.96 5.30 5.64 5.51 4.99 5.23
- ------------ -------------- ---- ----- ---------- ------- ----- -------- -------- ---- -------- ------
Option 5, Table V
- ------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- ------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
------ ----------- ------- ----- ---------- ---------- ---------
15 12 Years 9 Years 6 3 Years 3 Years
Years Less Than Less Years Less Than Same As More
Less Male Than Less Male Male Than
than Male Than Male
Male Male
- ------------------------ ------ ----------- ------- ----- ---------- ---------- ---------
<C> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- ------------------------ ------ ----------- ------- ----- ---------- ---------- ---------
Monthly Installment For Unisex Joint and Full Survivor
- ------------------------------------------------------------------------------------------------------
Age of Age of Joint Annuitant*
First
Annuitant*
----------------------------------------------------------------------------
15 12 Years 9 Years 6 3 Years 3 Years
Years Less Than Less Years Less Than Same As More
Less First Than Less First First Than
than First Than First
First First
- ------------------------ ------ ----------- ------- ----- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $3.04 $3.09 $3.15 $3.21 $3.27 $3.33 $3.39
55 3.17 3.24 3.32 3.40 3.48 3.56 3.63
60 3.34 3.44 3.54 3.64 3.75 3.85 3.95
65 3.57 3.70 3.83 3.97 4.11 4.26 4.39
70 3.87 4.04 4.22 4.42 4.62 4.82 5.01
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Adjusted Age as defined in Section 10.A.
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly installments under Option 2 shall be the
monthly installment shown multiplied by 11.84, 5.96 or 2.99 respectively, and
for Options 3 and 5 the monthly installment shown multiplied by 11.80, 5.95 or
2.99 respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
PAGE 12
<PAGE>
VARIABLE PAYMENT OPTIONS
BASED ON ASSUMED INVESTMENT RETURN
The amounts shown in these tables are the initial payment amounts based on a
5.0% Assumed Investment Return for each $1,000 of the proceeds.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Option 3 - V, Table II Option 3 - V, Table III
- ------- ---------- ------------------------------------------------------- ---------------------------------------
Monthly Installment for Life Monthly Installment for Life
No Period Certain 10 Years Certain
----------- -------------- ----------------- -------------------- --------------- ------------ --------
Age* Male Female Unisex Male Female Unisex
- ------- ---------- ----------- -------------- ----------------- -------------------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $5.11 $4.81 $4.96 $5.07 $4.79 $4.94
51 5.17 4.85 5.02 5.13 4.83 4.99
52 5.24 4.90 5.07 5.19 4.88 5.04
53 5.31 4.95 5.13 5.25 4.93 5.10
54 5.38 5.01 5.20 5.32 4.98 5.16
55 5.46 5.06 5.26 5.39 5.04 5.22
56 5.54 5.12 5.34 5.47 5.09 5.28
57 5.63 5.19 5.41 5.54 5.16 5.36
58 5.72 5.26 5.49 5.63 5.22 5.43
59 5.82 5.34 5.58 5.72 5.29 5.51
60 5.93 5.42 5.68 5.81 5.37 5.60
61 6.04 5.50 5.78 5.91 5.44 5.69
62 6.17 5.60 5.89 6.02 5.53 5.78
63 6.30 5.69 6.00 6.13 5.62 5.88
64 6.44 5.80 6.13 6.25 5.71 5.99
65 6.60 5.91 6.26 6.37 5.82 6.10
66 6.76 6.04 6.40 6.50 5.92 6.22
67 6.94 6.17 6.56 6.63 6.04 6.35
68 7.13 6.31 6.72 6.77 6.16 6.48
69 7.33 6.46 6.90 6.92 6.29 6.62
70 7.55 6.63 7.09 7.07 6.43 6.76
- ------- ---------- ----------- -------------- ----------------- -------------------- --------------- ------------ --------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Option 5V, Table V
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male -------------- ----------------- -------------- -------------- -------------- -------------- ---------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- ---------------- -------------- ----------------- -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.32 $4.36 $4.41 $4.46 $4.51 $4.57 $4.62
55 4.42 4.47 4.53 4.60 4.67 4.75 4.83
60 4.54 4.62 4.70 4.80 4.90 5.01 5.12
65 4.71 4.82 4.94 5.07 5.22 5.37 5.53
70 4.95 5.10 5.27 5.46 5.67 5.89 6.13
- ---------------- -------------- ----------------- -------------- -------------- -------------- -------------- ---------------
Monthly Installment For Unisex Joint and Full Survivor
- ---------------- ------------------------------------------------------------------------------------------------------------------
Age of Age of Joint Annuitant*
First -------------- ----------------- -------------- -------------- -------------- -------------- ---------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- ---------------- -------------- ----------------- -------------- -------------- -------------- -------------- ---------------
50 $4.40 $4.45 $4.50 $4.55 $4.61 $4.67 $4.72
55 4.52 4.59 4.66 4.73 4.81 4.89 4.96
60 4.69 4.78 4.87 4.97 5.08 5.19 5.29
65 4.91 5.04 5.17 5.31 5.46 5.62 5.77
70 5.22 5.40 5.59 5.79 6.02 6.24 6.47
- ---------------- -------------- ----------------- -------------- -------------- -------------- -------------- ---------------
</TABLE>
*Adjusted Age as defined in Section 10.A.
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly installments shall be the monthly
installment shown for Options 3-V and 5-V multiplied by 11.70, 5.93 or 2.99
respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
- --------------------------------------------------------------------------------
PAGE 13
<PAGE>
SECTION 11 - GENERAL PROVISIONS
PARTICIPANT CERTIFICATES
We will issue a Certificate to each Participant.
MODIFICATION OF CONTRACT
No change in this Certificate or the Group Contract is valid unless made in
writing by us and approved by one of our officers. No registered representative
has authority to change or waive any provision of the Group Contract or this
Certificate.
TAX QUALIFICATION
This Certificate is intended to qualify as an annuity contract for federal
income tax purposes. The provisions of this Certificate are to be interpreted to
maintain such qualification. To maintain such tax qualification, we reserve the
right to amend this Certificate to reflect any clarifications that may be needed
or are appropriate to maintain such tax qualification or to conform this
Certificate to any applicable changes in the tax qualification requirements. We
will send the Certificate Owner a copy in the event of any such amendment. If
such an amendment is refused, it must be by giving us written notice, and
refusal may result in adverse tax consequences.
NON-PARTICIPATING
The Group Contract and Group Certificates will not share in our surplus
earnings.
AGE OR SEX CORRECTIONS
If the age or sex of the Annuitant has been misstated, the benefits will be
those which the premiums paid would have purchased for the correct age and sex.
If required by law to ignore differences in the sex of the Annuitant, the
payment options will be determined using the unisex factors in Section 10.
Any underpayment made by us will be paid with the next payment. Any overpayment
made by us will be deducted from future payments. Any underpayment or
overpayment, will include interest at 5% per year, from the date of the wrong
payment to the date of the adjustment.
INCONTESTABILITY
This Certificate shall be incontestable from the Certificate Date.
EVIDENCE OF SURVIVAL
We have the right to require satisfactory evidence that a person was alive if a
payment is based on that person being alive. No payment will be made until we
receive the evidence.
SETTLEMENT
Any payment by us under this Certificate is payable at our Home Office.
RIGHTS OF CERTIFICATE OWNER
You may, while the Annuitant is living:
1. Assign this Certificate.
2. Surrender this Certificate to us.
3. Amend or modify this, Certificate with our consent.
4. Receive annuity payments or name a Payee to receive the payments.
5. Exercise, receive and enjoy every other right and benefit contained in this
Certificate.
The use of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the spouse in a community or marital property
state.
Unless we have been notified of a community or marital property interest in this
Certificate, we will rely on our good faith belief that no such interest exists
and will assume no responsibility for inquiry.
SUCCESSOR CERTIFICATE OWNER
A successor Certificate Owner can be named in any enrollment form, or in a
notice you sign which gives us the facts that we need. The successor Certificate
Owner will become the new Certificate Owner when you die, if you die before the
Annuitant. If no successor Certificate Owner survives you and you die before the
Annuitant, your estate will become the new Certificate Owner.
CHANGE OF OWNERSHIP
In the case of a non-tax qualified annuity, you can change the Certificate Owner
of this Certificate from yourself to a new Certificate Owner, in a notice you
sign which gives us the facts that we need. When this change takes effect, all
rights of ownership in this Certificate will pass to the new Certificate Owner.
A change of Certificate Owner or successor Certificate Owner will not be
effective until it is recorded in our records. After it has been so recorded,
the change will take effect as of the date you signed the notice. However, if
the Annuitant dies before the notice has been so recorded, it will not be
effective as to those proceeds we have paid before the change was recorded in
our records. We may require that the change be endorsed in the Certificate.
Changing the Certificate Owner or naming a new successor Certificate Owner
cancels any prior choice of successor Certificate Owner, but does not change the
beneficiary or the Annuitant.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date annuity payments begin. This date may
not be later than the last day of the Certificate month starting after the
Annuitant attains age 85, except as expressly allowed by us, but in no event
later than the last day of the Certificate month following the month in which
the Annuitant attains age 95. You may change the Annuity Commencement Date at
any time before the Annuity Commencement Date by giving us 30 days' written
notice.
PAGE 14
<PAGE>
SECTION 11 - CONT
ASSIGNMENT
(a) In the case of a non-tax qualified annuity, this Certificate may be
assigned. The assignment must be in writing and filed with us.
(b) We assume no responsibility for the validity of any assignment. Any claim
made under an assignment shall be subject to proof of interest and the
extent of the assignment.
(c) This Certificate may be applied for and issued to qualify as a
tax-qualified annuity under certain sections of the Internal Revenue Code.
This will be specified in the enrollment form, or information provided in
lieu thereof. Ownership of this Certificate then is restricted so that it
will comply with provisions of the Internal Revenue Code.
Assignment of this Certificate may result in adverse tax consequences.
BENEFICIARY
Death proceeds, when payable in accordance with Section 9, are payable to the
designated beneficiary or beneficiaries. Such beneficiary(ies) must be named in
the enrollment form, or information provided in lieu thereof, and may be changed
without consent (unless irrevocably designated or required by law) by notifying
us in writing on a form acceptable to us. The change will take effect upon the
date signed, whether or not you are living when we receive it. The notice must
have been postmarked (or show other evidence of delivery that is acceptable to
us) on or before the date of death. The most recent change of beneficiary notice
will replace any prior beneficiary designations. No change will apply to any
payment we made before the written notice was received. If an irrevocable
beneficiary dies, you may designate a new beneficiary.
You may direct that the beneficiary shall not have the right to withdraw, assign
or commute any sum payable under an option. In the absence of such election or
direction, the beneficiary may change the manner of payment or make an election
of any option.
If any primary or contingent beneficiary dies before the Annuitant, that
beneficiary's interest in this Certificate ends with that beneficiary's death.
Only those beneficiaries living at the time of the Annuitant's death will be
eligible to receive their share of the Death Proceeds. In the event no
contingent beneficiaries have been named and all primary beneficiaries have died
before the death proceeds become payable, the Certificate Owner(s) will become
the beneficiary(ies) unless elected otherwise in accordance with Section 9. If
both primary and contingent beneficiaries have been named, payment will be made
to the named primary beneficiaries living at the time the death proceeds become
payable. If there is more than one beneficiary and you failed to specify their
interest, they will share equally. Payment will be made to the named contingent
beneficiary(ies) only if all primary beneficiaries have died before the death
proceeds become payable. If any primary beneficiary is alive at the time the
death proceeds become payable, but dies before receiving their payment, their
share will be paid to their estate.
In cases where the annuitant dies and the Certificate Owner (who is not the
annuitant) elected to receive the death proceeds in accordance with Section 9,
if the annuitant's estate has been named as beneficiary, then payment will be
made to the Certificate Owner.
PROTECTION OF PROCEEDS
Unless you so direct by filing written notice with us, no beneficiary may assign
any payments under this Certificate before the same are due. To the extent
permitted by law, no payments under this Certificate will be subject to the
claims of creditors of the Certificate Owner or any beneficiary.
DEFERMENT
We will pay any Partial Withdrawals or surrender proceeds from the Separate
Accounts) within 7 days after we receive all requirements that we need. However,
it may happen that the New York Stock Exchange is closed for trading (other than
the usual weekend or holiday closings), or the Securities and Exchange
Commission restricts trading or determines that an emergency exists. If so, it
may not be practical for us to determine the investment experience of the
Separate Account. In that case, we may defer transfers among the Subaccounts and
to the Fixed Account, and determination or payment of Partial Withdrawals or
surrender proceeds.
When permitted by law, we may defer paying any Partial Withdrawals or surrender
proceeds from the Fixed Account for up to 6 months from the date we receive the
request. If the Certificate Owner dies after the request is received, but before
the request is processed, the request will be processed before the death
proceeds are determined. Interest will be paid on any amount deferred for 30
days or more. This rate will be computed at the rate of interest currently paid
on proceeds left under the Interest Payments Settlement Option.
REPORTS TO OWNER
We will give you an annual report at least once each Certificate Year. This
report will show the number and value of the accumulation units held in each of
the Subaccounts as well as the value of the Fixed Account. It will also give you
the Death Benefit, Cash Value, and any other facts required by law or
regulation.
PAGE 15
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (3191 398-8511
SERVICE CHARGE WAIVER
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate Data page.
The Service Charge provision in Section 4, Policy Value, is amended to include
the following language:
The Service Charge will not be deducted on a Certificate Anniversary or at
the time of surrender if, at such time, either (1) the sum of all premium
payments made less the sum of all withdrawals taken equals or exceeds
$50,000 or (2) the Policy Value equals or exceeds $50,000.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
PFL Life Insurance Company
A Stock Company
Home Office located at 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM DEATH BENEFIT
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate page.
The Death Proceeds Prior to Annuity Commencement Date Provision in Section 9,
Death Proceeds, is replaced with the following language:
The amount of the death proceeds will be the greatest of (a), (b), or (c),
where:
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an
election of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional
premium payments received, less any Gross Partial Withdrawals from the date
of death to the date of payment of death proceeds.
If no payment option is selected by the date of death, the beneficiary may
make such election within 60 days of the date we receive due proof of
death. The beneficiary may elect to receive the death proceeds as a lump
sum payment or may use the death proceeds to provide any of the annuity
payment options described in Section 10. Interest on death proceeds will be
paid as required by law.
The Guaranteed Minimum Death Benefit is 5% Annually Compounding Death
Benefit. The GMDB is equal to the total premiums paid for the Certificate,
less any Partial Withdrawals, accumulated at 5% interest per annum from the
payment or withdrawal date to the date of death.
The Adjusted Partial Withdrawal is the total amount deducted from the GMDB
as a result of a Partial Withdrawal as used in the GMDB provision. It is
equal to the Gross Partial Withdrawal described in Section 5, multiplied by
an Adjustment Factor. The Adjustment Factor is equal to the amount of the
death proceeds prior to the Partial Withdrawal divided by the Policy Value
prior to the Partial Withdrawal.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
PFL Life Insurance Company
A Stock Company
Home Office located at 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM DEATH BENEFIT
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate page.
The Death Proceeds Prior to Annuity Commencement Date Provision in Section 9,
Death Proceeds, is replaced with the following language
The amount of the death proceeds will be the greatest of (a), (b), or (c), where
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an election
of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional premium
payments received, less any Gross Partial Withdrawals from the date of death to
the date of payment of death proceeds.
If no payment option is selected by the date of death, the beneficiary may make
such election within 60 days of the date we receive due proof of death. The
beneficiary may elect to receive the death proceeds as a lump sum payment or may
use the death proceeds to provide any of the annuity payment options described
in Section 10. Interest on death proceeds will be paid as required by law.
The Guaranteed Minimum Death Benefit is the Double Enhanced Death Benefit. The
GMDB is the greater of (1) and (2) where:
(1) is a 5% Annually Compounding Death Benefit, equal to:
a) the total premiums paid for the Certificate; minus
b) Adjusted Partial Withdrawals (as described below; plus
c) interest accumulated at 5% per annum from the payment or
withdrawal date to the earlier of the date of death or the
Certificate Owner's 81st birthday.
(2) is a Step-Up Death Benefit, equal to:
a) the largest Policy Value on the Certificate Date or on any
Certificate Anniversary prior to the earlier of the date of
death or the Certificate Owner's 81st birthday; plus
b) any Premium Payments made since then, minus any Adjusted
Partial Withdrawals made since then.
If the Certificate Owner is a nonnatural person, or if the Certificate Owner has
elected to have the death proceeds paid upon the death of the annuitant, the
Guaranteed Minimum Death Benefit will be based upon the annuitant's age.
The Adjusted Partial Withdrawal is the total amount deducted from the GMDB as a
result of a Partial Withdrawal as used in the GMDB provision. It is equal to the
Gross Partial Withdrawal described in Section 5, multiplied by an Adjustment
Factor. The Adjustment Factor is equal to the amount of the death proceeds prior
to the Partial Withdrawal divided by the Policy Value prior to the Partial
Withdrawal.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO] PFL Life Insurance Company
A Stock Company
Home Office located at 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM DEATH BENEFIT
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate page.
The Death Proceeds Prior to Annuity Commencement Date Provision in Section 9,
Death Proceeds, is replaced with the following language:
The amount of the death proceeds will be the greatest of (a), (b), or (c),
where:
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an
election of a method of settlement, and;
(b) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional
premium payments received, less any Gross Partial Withdrawals from the date
of death to the date of payment of death proceeds.
If no payment option is selected by the date of death, the beneficiary may
make such election within 60 days of the date we receive due proof of
death. The beneficiary may elect to receive the death proceeds as a lump
sum payment or may use the death proceeds to provide any of the annuity
payment options described in Section 10. Interest on death proceeds will be
paid as required by law.
The Guaranteed Minimum Death Benefit is the Return of Premium Death
Benefit. The GMDB is equal to the total premiums paid for the Certificate,
less any Partial Withdrawals, as of the date of death.
The Adjusted Partial Withdrawal is the total amount deducted from the GMDB
as a result of a Partial Withdrawal as used in the GMDB provision. It is
equal to the Gross Partial Withdrawal described in Section 5, multiplied by
an Adjustment Factor. The Adjustment Factor is equal to the amount of the
death proceeds prior to the Partial Withdrawal divided by the Policy Value
prior to the Partial Withdrawal.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO OF PFL LIFE INSURANCE COMPANY]
PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
GUARANTEED MINIMUM DEATH BENEFIT
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate page.
The Death Proceeds Prior to Annuity Commencement Date Provision in Section 9,
Death Proceeds, is replaced with the following language
The amount of the death proceeds will be the greatest of (a), (b), or (c), where
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an
election of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional
premium payments received, less any Gross Partial Withdrawals from the date
of death to the date of payment of death proceeds.
If no payment option is selected by the date of death, the beneficiary may
make such election within 60 days of the date we receive due proof of
death. The beneficiary may elect to receive the death proceeds as a lump
sum payment or may use the death proceeds to provide any of the annuity
payment options described in Section 10. Interest on death proceeds will be
paid as required by law.
The Guaranteed Minimum Death Benefit is the Step-Up Death Benefit. The GMDB
is equal to the largest Policy Value on the Certificate Date or on any
Certificate Anniversary prior to the earlier of the date of death or the
Certificate Owner's 81st birthday, plus any Premium Payments made since
then, minus any Adjusted Partial withdrawals made since then.
If the Certificate Owner is a nonnatural person, or if the Certificate
Owner has elected to have the death proceeds paid upon the death of the
annuitant, the Guaranteed Minimum Death Benefit will be based upon the
annuitant's age.
The Adjusted Partial Withdrawal is the total amount deducted from the GMDB
as a result of a Partial Withdrawal as used in the GMDB provision. It is
equal to the Gross Partial Withdrawal described in Section 5, multiplied by
an Adjustment Factor. The Adjustment Factor is equal to the amount of the
death proceeds prior to the Partial Withdrawal divided by the Policy Value
prior to the Partial Withdrawal.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO OF PFL LIFE INSURANCE COMPANY]
PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
LUMP SUM PARTIAL WITHDRAWAL OPTION
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate Data page.
The Partial Withdrawals provision in Section 5, Cash Value and Partial
Withdrawals, is amended to include the following language
Beginning in the 2nd Certificate Year, the Certificate Owner may withdraw,
free from Surrender Charges, and free from Excess Interest Adjustments, an
amount equal to the Maximum of A or B where
A is the cumulative Earnings, if any, in the Policy Value. The
Cumulative Earnings is an amount equal to the Policy Value as the time
a Lump Sum payout is made, minus the sum of all premium payments
reduced by all prior Partial Withdrawals, if any.
B is an amount up to 10% of the Cumulative Premium Payments immediately
prior to the Partial Withdrawal.
The minimum Partial Withdrawal under this option is $500. This Partial
Withdrawal option is available once per Certificate Year.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO OF PFL LIFE INSURANCE COMPANY]
PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
SYSTEMATIC PAYOUT OPTION
This Rider is a part of the Contract/Certificate if it is shown in the Schedule
of Additional Benefits section on the Contract/Certificate Data page.
The Partial Withdrawals provision in Section 5, Cash Value and Partial
Withdrawals, is amended to include the following language:
Beginning in the 1st Certificate Year, a Systematic Payout Option (SPO) is
available on a monthly, quarterly, semi-annual or annual basis. At the time
a SPO payout is made, such payout must be at least $50 and may not exceed
the Maximum of A or B, divided by the number of payouts made per year (e.g.
12 for monthly). No Surrender Charges or Excess Interest Adjustment will
apply to the SPO payout. Monthly and quarterly payouts must be sent through
electronic funds transfer directly to a checking or savings account The
Certificate Owner may start or stop SPO payouts at any time; however, 30
days written notice is required to stop SPO payouts. Once stopped, the
Certificate Owner must wait until the first day of the next Certificate
Year to begin a new SPO.
A is the Cumulative Earnings, if any, in the Policy Value. The
Cumulative Earnings is an amount equal to the Policy Value at the time
a SPO payout is made, minus the sum of all premium payments reduced by
all prior Partial Withdrawals, if any.
B is an amount up to 10% of the Cumulative Premium Payments immediately
prior to the Partial Withdrawal.
Once the Certificate Owner has elected a SPO, the Certificate Owner must
wait a minimum time before the first SPO payment: one month for a monthly
SPO, three months for quarterly, six months for semi-annual, or twelve
months for annual.
This Rider takes effect and expires concurrently with the Contract/Certificate
to which it is attached and is subject to all the terms and conditions of the
Contract/Certificate not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
[LOGO OF PFL LIFE INSURANCE COMPANY]
PFL Life Insurance Company
A Stock Company
Home Office located at 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (3191 398-8511
GUARANTEED MINIMUM INCOME BENEFIT RIDER
This rider provides your variable annuity with a Minimum Annuitization Value
which can only be used with the Annuity Factors shown in Schedule I of this
rider. This Minimum Annuitization value is guaranteed by us, regardless of the
performance of the variable annuity's investments.
This rider is attached to and made part of your Certificate as of the Rider
Date. This rider may only be terminated as provided herein. This rider is
subject to all of the provisions in the Certificate that do not conflict with
the provisions of this rider. The Rider Payment Options provide for variable
annuity payments. Subsequent payments may fluctuate with the investment
performance of Your annuity Subaccounts, but will never be less than the initial
payment
<TABLE>
<S> <C> <C> <C> <C>
Certificate Number. 123456
Rider Date: 05-01-1999 Last Date To Upgrade: 07-15-2038
Annual Growth Rate: 3.00% Guaranteed -Minimum Income Benefit
Rider Fee Percentage: 0.50% First Date to Elect Benefit: 07-15-2009
Rider Fee Waiver Last Date to Elect Benefit: 12-31-2048
Threshold: 200%
Mortality and Expense Risk Fee and Administrative Charge after the Election Date: 3.50%
<CAPTION>
Rider Date Age Minimum Annuitization Guaranteed Minimum
Values* Monthly Payment**
------------ ---- ------------------------ -----------------
<S> <C> <C> <C>
07/ 15/ 1998 35 $100,000.00 N/A
Election
Date
07/15/2008 45 $134,391.64 $ 479.78
07/15/2009 46 $138,423.39 $ 501.09
07/15/2010 47 $142,576.09 $ 523.35
07/15/2011 48 $146,853.37 $ 547.76
07/15/2012 49 $151,258.97 $ 571.76
07/15/2013 50 $155,796.74 $ 598.26
07/15/2014 51 $160,470.64 $ 625.84
07/15/2015 52 $165,284.76 $ 656.18
07/15/2016 53 $170,243.31 $ 687.78
07/15/2017 54 $175,350.61 $ 720.69
</TABLE>
*Assumes no further payments, no premium tax, and no withdrawals. This amount
may only be used for annuitization with the Rider Payment Options provided in
this rider.
** Assumes the Minimum Annuitization Value shown is applied to a life with 10
year certain Rider Payment Option with monthly payments.
1
<PAGE>
DEFINITIONS
The following definitions used in this Rider are for reference only.
Annuitant
The Annuitant is designated on the Certificate Data Page. The variable annuity
payments are paid to the Annuitant (or surviving Joint Annuitant).
Annuity Factor
A factor for the applicable Annuitant age, sex and Rider Payment Option is shown
in Schedule I or Schedule II of this rider. For the Rider Payment Option chosen,
the Annuity Factor from Schedule I and the Minimum Annuitization Value will be
used to determine the applicable annuity payments. For Annuitants age 85 or
older at the time of annuitization, the age 85 Annuity Factor will be used for
Schedule I. Factors not shown are available from us upon request. Schedule I and
Schedule II are based on the " 1983 Table a" mortality table, improved to the
year 2000 with projection scale G.
Election Date
A date that You elect to begin Guaranteed Minimum Income Benefit payments. The
Election Date must be within 30 days following a Certificate Anniversary. The
first and last dates to elect a Rider Payment Option are shown on page one of
this rider.
Minimum Annuitization Value
The amount we will use to determine the Guaranteed Minimum Income Benefit
payments.
Rider Date
The date that this rider is added to the Certificate. This date may only be the
issue date of the Certificate or a Certificate Anniversary date. this is also
the Certificate Anniversary that You most recently elected to upgrade the
Minimum Annuitization Value, if applicable.
Supportable Payment
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.
GUARANTEED MINIMUM INCOME BENEFIT
On the Election Date, You may use the Minimum Annuitization Value and the
applicable Annuity Factor to provide variable payments to the Annuitant. The
first variable payment is determined by multiplying each $1,000 of Minimum
Annuitization Value by the Annuity Factor on Schedule I. Each subsequent payment
will be calculated as described in the Certificate, using a 5% Assumed
Investment Return.
For subsequent payments, an annual Mortality and Expense Risk Fee and
Administrative Charge (which includes an investment risk fee) will be charged.
This fee may be different than the Mortality and Expense Risk Fee and
Administrative Charge in effect prior to the Election Date. It may also be
different than the Mortality and Expense Risk Fee and Administrative Charge for
the settlement options shown in the Certificate.
The subsequent payments may fluctuate in accordance with the investment
performance of Your annuity Subaccounts. However, such payments will never be
less than the initial payment.
MINIMUM ANNUITIZATION VALUE
The Minimum Annuitization Value is used to determine Your Guaranteed Minimum
Income Benefit payments. On the Rider Date, the Minimum Annuitization Value is
the value of Your Certificate. thereafter, based upon the effective Annual
Growth Rate (shown on page one of this rider), it will be the value of Your
Certificate on the Rider Date, plus any additional payments made after the Rider
Date, minus policy withdrawals (adjusted as described below), minus any premium
taxes.
Withdrawals
In any Certificate Year, the Minimum Annuitization Value will only be reduced by
the actual amount of a withdrawal as long as the withdrawal does not exceed a
maximum annual free amount. Withdrawals-in excess of the maximum annual free
amount will reduce the Minimum Annuitization Value by an amount equal to (A)
divided by (B) multiplied by (C) where:
(A) is the amount of the excess withdrawal;
(B) is the value of Your Certificate after the current Certificate Year
maximum annual free amount has been withdrawn, but prior to the withdrawal
of the excess portion; and
(C) is the Minimum Annuitization Value after the current Certificate Year
maximum annual free amount has been withdrawn, but prior to withdrawal of
the excess portion.
For each Certificate Year, the maximum annual free amount is equal to the
Minimum Annuitization Value, as of the beginning of the Certificate Year,
multiplied by the effective Annual Growth Rate as shown on page one of this
rider. Withdrawals during a Certificate Year will reduce the available maximum
annual free amount by the amount of the withdrawal.
RIDER FEE
We will deduct a fee from the value of the Certificate on each Certificate
Anniversary and on the termination date of this rider. The Rider Fee is the
Minimum Annuitization Value at the time the fee is deducted, multiplied by the
Rider Fee Percentage shown on the first page of this rider. The fee will be
deducted from each Subaccount in proportion to the amount of value of the
Certificate in each Subaccount. This fee will not be deducted after the Election
Date or if the Certificate terminates due to the death of the Certificate Owner.
2
<PAGE>
WAIVER OF RIDER FEE
If the value of the Certificate, on a particular Certificate Anniversary,
exceeds an amount equal to the Rider Fee Waiver Threshold (shown on page one of
this rider) multiplied by the Minimum Annuitization Value, the Rider Fee will be
waived for that Certificate Anniversary.
MINIMUM ANNUITIZATION VALUE UPGRADE
The Certificate Owner may elect, in writing, to upgrade the Minimum
Annuitization Value to the value of the Certificate on a Certificate
Anniversary. This may be done within 30 days immediately following any
Certificate Anniversary, and prior to the Last Date to Upgrade shown on page one
of this rider.
If an upgrade is elected, this rider will terminate and a new rider will be
issued with a new Rider Date, Election Date and its own guaranteed benefits. The
new annual Rider Fee Percentage may be different than this rider's, but it will
never be greater than 0.50%.
RIDER PAYMENT OPTIONS
The Minimum Annuitization Value and applicable Annuity Factors from Schedule I
may be applied to the following payment options:
Life Income - An election may be made for "No Period Certain" or " 10 Years
Certain". In the event of the death of the person receiving payments 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 the Joint Annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
GUARANTEED MINIMUM PAYMENT
On the Election Date, the owner will receive guaranteed minimum payments. The
annual Mortality and Expense Risk Fee and Administration Charge for these
payments is shown on page one of this rider. The percentage shown on page one
also includes a fee to cover investment risk associated with guaranteeing
a minimum payment.
The first payment is based on the Annuity Factors in Schedule I. We guarantee
that each subsequent payment will be equal to or greater than your initial
payment.
During the first Certificate Year following annuitization, each payment will be
stabilized to equal the initial payment. On each Certificate Anniversary
following annuitization, the stabilized payment will be increased or decreased
(but never below the initial payment) and held level for that Certificate Year.
On each Certificate Anniversary following annuitization, the stabilized payment
will equal the greater of the initial payment or the Supportable Payment at that
time.
If the Supportable Payment (at any payment date) is greater than the stabilized
payment for that year, the excess will be used to purchase additional annuity
units as described below. If the Supportable Payment (at any payment date) is
less than the stabilized payment for that year, annuity units will be redeemed
as described below to fund the deficiency.
Purchase /Redemption of Annuity Units:
The number of annuity units purchased or redeemed is equal to the annuity
income purchased or redeemed, respectively, divided by the annuity unit
value for each respective Subaccount. Purchases and redemptions of annuity
income will be allocated to each Subaccount on a proportionate basis. The
amount of annuity income purchased or redeemed is the difference between
the Supportable Payment and the stabilized payment, times the attained age
nearest birthday Annuity Factors shown in Schedule II, divided by $1,000.
These factors will reflect the remaining certain period, if any, but will
be calculated on the same basis as the Schedule II factors.
The Company bears the risk that it will need to make payments if all annuity
units have been redeemed in an attempt to maintain the stabilized payment at the
initial payment level. In such an event, the Company will make all future
payments equal to the initial payment.
ASSIGNMENT
Payments made under this rider may not be pledged or assigned. Payments will
only be made to the Annuitant or Joint Annuitant named in the Certificate.
TERMINATION
This rider will be terminated upon the earliest of:
a. the Election Date;
b. 30 days after the Last Date to Elect Benefit shown on the first page of
this rider.
c. the date the Certificate terminates;
d. the date you elect to apply the value of the Certificate to annuitize the
Certificate; and
e. the date you elect to upgrade your Minimum Annuitization Value.
This rider cannot be terminated prior to the earliest of the above dates.
Signed for us at our home office.
/s/ Craig D. [ILLEGIBLE] /s/ William L. Busler
SECRETARY PRESIDENT
3
<PAGE>
SCHEDULE I - ANNUITY FACTORS
The amounts shown in these tables are the Annuity Factors for each $1,000 of the
Minimum Annuitization Value and assume a 3% Assumed Investment Return.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor for Monthly Annuity Factor For
Life With No Period Certain Life With 10 Years
Certain
- -------------------------------------------------------------------------------------------------------------------
Age* Male Female Unisex Male Female Unisex
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70
51 3.93 3.60 3.77 3.90 3.59 3.75
52 4.00 3.65 3.83 3.97 3.64 3.81
53 4.07 3.71 3.90 4.04 3.70 3.87
54 4.15 3.77 3.97 4.11 3.75 3.94
55 4.23 3.83 4.04 4.19 3.82 4.01
56 4.32 3.90 4.11 4.27 3.88 4.08
57 4.41 3.97 4.19 4.35 3.95 4.15
58 4.50 4.05 4.28 4.44 4.02 4.24
59 4.61 4.13 4.37 4.53 4.10 4.32
60 4.72 4.21 4.47 4.63 4.18 4.41
61 4.84 4.30 4.57 4.74 4.26 4.51
62 4.96 4.40 4.68 4.85 4.35 4.61
63 5.10 4.50 4.80 4.97 4.45 4.71
64 5.24 4.61 4.93 5.09 4.55 4.83
65 5.40 4.73 5.06 5.22 4.66 4.95
66 5.56 4.85 5.21 5.36 4.77 5.07
67 5.74 4.99 5.36 5.50 4.89 5.20
68 5.93 5.13 5.53 5.65 5.02 5.34
69 6.13 5.29 5.71 5.80 5.15 5.49
70 6.34 5.45 5.90 5.96 5.30 5.64
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor For Joint and Full Survivor
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- ------------------------------------------------------------------------------------------------------------------------------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Monthly Annuity Factor For Joint and Full Survivor with 10 Year Period Certain
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- ------------------------------------------------------------------------------------------------------------------------------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.24 $3.31 $3.38
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.30 4.52 4.76 4.99
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
*Age nearest birthday
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly Annuity Factor shall be the monthly Annuity
Factor shown multiplied by 11.80, 5.95 or 2.99 respectively.
- --------------------------------------------------------------------------------
Annuity Factors not shown in the above tables will be calculated on the same
basis as those shown and may be obtained from the Company.
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE II - ANNUITY FACTORS
The amounts shown in these tables are the Annuity Factors for each $1,000 of the
Minimum Annuitization Value and assume a 5% Assumed Investment Return.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor for Monthly Annuity Factor For
Life With No Period Certain Life With 10 Years
Certain
- -----------------------------------------------------------------------------------------------------------------------
Age* Male Female Unisex Male Female Unisex
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $5.14 $4.83 $4.99 $5.09 $4.80 $4.95
51 5.20 4.87 5.04 5.15 4.85 5.00
52 5.27 4.92 5.10 5.21 4.89 5.05
53 5.34 4.98 5.16 5.27 4.94 5.11
54 5.41 5.03 5.22 5.34 4.99 5.17
55 5.49 5.09 5.29 5.41 5.05 5.23
56 5.57 5.15 5.36 5.48 5.11 5.30
57 5.66 5.22 5.44 5.56 5.17 5.37
58 5.75 5.29 5.52 5.65 5.24 5.45
59 5.85 5.37 5.61 5.74 5.31 5.53
60 5.96 5.45 5.71 5.83 5.38 5.61
61 6.08 5.53 5.81 5.93 5.46 5.70
62 6.20 5.63 5.92 6.04 5.55 5.80
63 6.34 5.73 6.04 6.15 5.64 5.90
64 6.48 5.83 6.16 6.27 5.73 6.01
65 6.64 5.95 6.30 6.39 5.84 6.12
66 6.81 6.07 6.44 6.52 5.94 6.24
67 6.99 6.21 6.60 6.66 6.06 6.37
68 7.18 6.35 6.77 6.80 6.18 6.50
69 7.39 6.51 6.95 6.94 6.31 6.64
70 7.61 6.68 7.14 7.09 6.45 6.78
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor For Joint and Full Survivor
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- ------------------------------------------------------------------------------------------------------------------------------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.34 $4.38 $4.43 $4.48 $4.53 $4.59 $4.65
55 4.43 4.49 4.55 4.62 4.70 4.77 4.85
60 4.56 4.64 4.73 4.82 4.92 5.03 5.15
65 4.74 4.84 4.96 5.10 5.24 5.40 5.56
70 4.98 5.13 5.30 5.49 5.70 5.93 6.17
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Monthly Annuity Factor For Joint and Full Survivor with 10 Year Period Certain
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male
Annuitant*
- ------------------------------------------------------------------------------------------------------------------------------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.34 $4.38 $4.43 $4.48 $4.53 $4.59 $4.65
55 4.43 4.49 4.55 4.62 4.70 4.77 4.85
60 4.56 4.64 4.72 4.82 4.92 5.03 5.14
65 4.73 4.84 4.96 5.09 5.24 5.39 5.55
70 4.97 5.12 5.29 5.48 5.69 5.91 6.14
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
*Age nearest birthday
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly Annuity Factor shall be the monthly Annuity
Factor shown multiplied by 11.70, 5.93 or 2.99 respectively.
- --------------------------------------------------------------------------------
Annuity Factors not shown in the above tables will be calculated on the same
basis as those shown and may be obtained from the Company.
- --------------------------------------------------------------------------------
<PAGE>
PFL Life Insurance Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
[LOGO OF PFL LIFE INSURANCE COMPANY]
Group Flexible Premium Variable Annuity Certificate
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount (See Sections 6 and
10C.)
Non-Participating
INDEX
Page
Accumulation Units ............................................ 7
Adjusted Age (Settlement Options) ............................. 11
Age or Sex Corrections ........................................ 14
Annuity Commencement Date ..................................... 14
Annuity Payments .............................................. 11,11(A),11(B)
Assignment .................................................... 15
Beneficiary ................................................... 15
Cash Value .................................................... 5
Certificate Data Page ......................................... 3
Death Proceeds ................................................ 10, 11
Definitions ................................................... 2
Dollar Cost Averaging ......................................... 9
Excess Interest Adjustment .................................... 5
Evidence of Survival .......................................... 14
Fixed Account ................................................. 8
Guaranteed Return of Fixed Account Premium Payments ........... 6
Guaranteed Period ............................................. 8
Incontestability .............................................. 14
Modification of Contract ...................................... 14
Nonparticipation .............................................. 14
Nursing Care and Terminal' Condition Withdrawal Option ........ 5(B)
Partial Withdrawals ........................................... 5(A)
Payee ......................................................... 11(A)
Payment of Premiums ........................................... 4
Payment Option Tables ......................................... 12, 13
Policy Value .................................................. 5
Proof of Age .................................................. 11(A)
Protection of Proceeds ........................................ 15
Right to Cancel ............................................... 1
Separate Account .............................................. 6, 7
Service Charge ................................................ 5
Settlement .................................................... 14
Surrender Charges ............................................. 6
Transfers ..................................................... 8
Unemployment Waiver ........................................... 5(B)
<PAGE>
EXHIBIT (4)(q)
INDIVIDUAL POLICY
<PAGE>
[LOGO OF PFL LIFE]
PFL Life Insurance Company
A Stock Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us) (319) 398-8511
ANNUITANT: JOHN DOE
OWNER(S): JOHN DOE
POLICY NUMBER: 07 - 0001234
POLICY DATE: January 10, 2000
WE AGREE
. To provide annuity payments as set forth in Section 10 of this policy,
. Or to pay withdrawal benefits in accordance with Section 5 of this policy,
. Or to pay death proceeds in accordance With Section 9 of this policy.
Withdrawals may be subject to an Excess Interest Adjustment reflecting changes
in interest rates in accordance with Section 5 of this policy. Transfers and
amounts applied to a Payment Option may also be subject to an Excess Interest
Adjustment in accordance with Sections 8 and 10, respectively, of this policy.
These agreements are subject to the provisions of this policy. This policy is
issued in consideration of the application, or information provided in lieu
thereof, and payment of the initial premium.
This policy may be applied for and issued to qualify as a tax-qualified annuity
under the applicable sections of the Internal Revenue Code.
20 DAY RIGHT TO CANCEL
You may cancel this policy by delivering or mailing a written notice or sending
a telegram to us. You must return the policy before midnight of the twentieth
day after the day you receive it Notice given by mail and return of the policy
by mail are effective on being postmarked, properly addressed and postage
prepaid.
We will pay you an amount equal to the sum of:
. the premiums paid; and
. the accumulated gains or losses, if any, in the Separate Account on the
date of cancellation;
unless otherwise required by law.
Signed for us at our home office.
[ILLEGIBLE SIGNATURE] /s/ William L. Busler
SECRETARY PRESIDENT
This policy is a legal contract between the policyowner and the company.
READ YOUR POLICY CAREFULLY
Flexible Premium Variable Annuity
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount (See Sections 6 and
10C) Non-Participating
AV494 101 124 100
<PAGE>
SECTION 1
DEFINITIONS
ADJUSTED POLICY VALUE
The Policy Value increased or decreased by an Excess Interest Adjustment
ANNUITANT
The person to whom annuity payments will be made, unless another payee is named.
ANNUITY COMMENCEMENT DATE
Date the Annuitant will begin receiving payments from this policy, which may not
be later than the last day of the policy month starting after the Annuitant
attains age 85, except as expressly allowed by us, but in no event later than
the last day of the month following the month in which the Annuitant attains age
95.
CASH VALUE
Amount, defined in Section 5, that can be withdrawn if the annuity is
surrendered.
CUSTODIAL CARE
Care designed essentially to help a person with the activities of daily living
which does not require the continuous attention of trained medical or
paramedical personnel.
DISTRIBUTION
A withdrawal or disbursement of funds from the Policy Value or Cash Value.
HOSPITAL
An institution which 1) is operated pursuant to the laws of the jurisdiction in
which it is located, 2) operates primarily for the care and treatment of sick
and injured persons on an inpatient basis, 3) provides 24-hour a day nursing
service by or under the supervision of registered graduate professional nurses,
4) is supervised by a staff of one or more licensed physicians, and 5) has
medical, surgical and diagnostic facilities or access to such facilities.
INVESTMENT OPTIONS
Any of the Guaranteed Period Options of the Fixed Account, the Dollar Cost
Averaging Fixed Account Option, and any of the Subaccounts of the Separate
Account
MONTHIVERSARY
The same day of each month as the Policy Date. If there is no day in the
calendar month which coincides with the Policy Date, the Monthiversary will be
the next business day on which the New York Stock Exchange is open for trading.
NURSING FACILITY
A facility which 1) is operated pursuant to the laws of the jurisdiction in
which it is located, 2) provides Nursing Care or Custodial Care, 3) primarily
provides nursing care under the direction of a licensed physician, registered
graduate professional nurse, or licensed vocational nurse, except when receiving
custodial care, and 4), is not other than incidentally a hospital, a home for
the aged, a retirement home, a rest home, a community living center or a place
mainly for the treatment of alcoholism, mental illness or drug abuse.
NURSING CARE
Nursing care prescribed by a physician and performed or supervised by a
registered graduate nurse. Such care includes nursing and rehabilitation
services available 24 hours a day.
PAYEE
The person to whom annuity payments will be made.
PAYMENT OPTIONS
Options through which the distribution of the Adjusted Policy Value can be
directed.
PHYSICIAN
Doctor of Medicine or Doctor of Osteopathy who is licensed as such and operating
within the scope of the license.
POLICY ANNIVERSARY
The anniversary of the Policy Date for each year the policy remains in force.
POLICY DATE
The date shown on page 3 of this policy and the date on which this policy
becomes effective.
POLICY YEAR
The 12 month periods following the Policy Date shown on the Policy Data page.
The first Policy Year starts on the Policy Date. Each subsequent year starts on
the anniversary of the Policy Date.
SEPARATE ACCOUNT
The separate investment accounts) established by us, as described in Section 6.
SUBACCOUNT
A division of a Separate Account, as described in Section 6.
SURRENDER
A partial or full withdrawal of funds from the Policy Value or Cash Value.
TERMINAL CONDITION
A condition resulting from an accident or illness which, as determined by a
physician, has reduced life expectancy to not more than 12 months, despite
appropriate medical care.
WITHDRAWAL
A distribution of funds from the Policy Value or Cash Value.
YOU,YOUR
The owner of this policy. Unless otherwise specified on the Policy Data page,
the Annuitant and the owner shall be one and the same person.
AVB494 PAGE 2
<PAGE>
SECTION 2 - POLICY DATA
POLICY NUMBER: 07 - 0001234
INITIAL PREMIUM
PAYMENT: $25,000.00
POLICY DATE: January 10, 2000
ANNUITY
COMMENCEMENT
DATE: March 10, 2050
BENEFICIARY: JANE DOE
ANNUITANT: JOHN DOE
ISSUE AGE/SEX: 35 / MALE
OWNER(S): JOHN DOE
GUARANTEED
MINIMUM
DEATH BENEFIT
OPTION: G
Fixed Account Guaranteed Minimum Effective Annual Interest Rate: 3%
Before the Annuity Commencement Date:
Death Benefit Option G - 5% Annually Compounding
Mortality and Expense Risk Fee and Administrative Charge: 1.55%
Death Benefit Option B - Monthly Step-Up through age 80
Mortality and Expense Risk Fee and Administrative Charge: 1.55%
Death Benefit Option P - Return of Premium
Mortality and Expense Risk Fee and Administrative Charge: 1.40%
Death Benefit Option T - Double Enhanced
Mortality and Expense Risk Fee and Administrative Charge: 1.55%
After the Annuity Commencement Date:
Mortality and Expense Risk Fee and Administrative Charge: 1.40%
AV494 101 124 100 SP PAGE 3
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SECTION 3 - PREMIUM PAYMENTS
PAYMENT OF PREMIUMS
Premium payments may be made any time while this policy is in force before the
Annuity Commencement Date. You may start or stop, increase or decrease, or skip
any Premium Payments.
MAXIMUM AND MINIMUM PREMIUM PAYMENT
The premium payments may not be more than the amount permitted by law if this is
a tax-qualified annuity. The minimum initial premium payment is $5,000. If this
policy is being used as a tax-qualified annuity, the minimum initial premium is
$1,000, except that no minimum initial premium payment will be required for
403(b) annuities. The minimum subsequent premium payment we will accept is $50.
The maximum total premium payments which we will accept without prior Company
approval is $ 1,000,000.
PREMIUM PAYMENT DATE
The premium payment date is the date on which the premium payment is credited to
the policy. The initial premium payment less any applicable premium taxes will
be credited to the policy within two business days of receipt of the premium
payment and the information needed. Subsequent additional premium payments will
be credited to the policy as of the business day when the premium payment and
required information are received. A business day is any day on which the New
York Stock Exchange is open for trading.
ALLOCATION OF PREMIUM PAYMENTS
Premium payments may be applied to various Investment Options which we make
available. You must indicate what percent of each premium payment to allocate to
various Investment Options. Each percent may be either zero or any whole number,
however, the allocation among all accounts must total 100%.
CHANGE OF ALLOCATION
You may change the allocation of premium payments to various Investment Options.
You must tell us in a notice You sign which gives us the facts that we need.
Premium payments received after the date on which we receive Your notice will be
applied on the basis of the new allocation.
PREMIUM TAXES
Your state may impose a premium tax. It may be imposed either when a premium
payment is made, on the Annuity Commencement Date, on the date of death, or on
the date of full surrender. When permitted by state law, we will not deduct the
tax until the Annuity Commencement Date, date of death, or date of full
surrender.
SECTION 4 - POLICY VALUE
POLICY VALUE
On or before the Annuity Commencement Date, the Policy Value is equal to Your:
(a) premium payments; minus
(b) Gross Partial Withdrawals (as defined in Section 5); plus
(c) interest credited to the Fixed Account (see Section 7); plus
(d) accumulated gains in the Separate Account (see Section 6); minus
(e) accumulated losses in the Separate Account (see Section 6); minus
(f) service charges, premium taxes and transfer fees, if any.
ADJUSTED POLICY VALUE
The Adjusted Policy Value is the Policy Value increased or decreased by any
Excess Interest Adjustment.
You may use the Adjusted Policy Value on the Annuity Commencement Date to
provide lifetime income or income for a period of no less than 60 months under
the Payment Options in Section 10.
SERVICE CHARGE
On each Policy Anniversary and at the time of surrender during any Policy Year
before the Annuity Commencement Date, we reserve the right to charge up to $35
for policy administration expenses. The Service Charge will be deducted from
each Investment Option in proportion to the portion of Policy Value (prior to
such charge) in each Investment Option. In no event will the Service Charge
exceed 2% of the Policy Value on the Policy Anniversary or at the time of
surrender.
The Service Charge will not be deducted on a Policy Anniversary or at the time
of surrender if, at either of these times, (1) the sum of all premium payments
less the sum of all withdrawals taken equals or exceeds $50,000; or (2) the
Policy Value equals or exceeds $50,000.
M1113 PAGE 4
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SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS
CASH VALUE
On or before the Annuity Commencement Date, the Cash Value is equal to the
Adjusted Policy Value less any Surrender Charges. Information on the current
amount of Your policy's Cash Value is available upon request. The Cash Value may
be partially withdrawn or will be paid in the event of a full surrender of the
policy. We must receive Your written Partial Withdrawal or Surrender request
before the Annuity Commencement Date.
There is no Cash Value once an Annuity Payment Option has been selected.
EXCESS INTEREST ADJUSTMENT
Full Surrenders, Partial Withdrawals, transfers, and amounts applied to a
Payment Option from the Fixed Account Guaranteed Period Options described in
Section 7 will be subject to an Excess Interest Adjustment except as provided
for in the Partial Withdrawals provision below.
An Excess Interest Adjustment applies in the following situations:
1) When You withdraw all or any portion of Your Cash Value,
2) When You exercise Annuity Payment Options,
3) When death proceeds are calculated. However, death proceeds will not be
reduced if the Excess Interest Adjustment is negative.
The Excess Interest Adjustment is only applied to transactions affecting the
Guaranteed Period Options of the Fixed Account (see Section 7) and is based on
any change in interest rates from the time the affected Guaranteed Period(s)
started until the time the Excess Interest Adjustment occurs. The Excess
Interest Adjustment is applied as follows:
1) The Excess Interest Adjustment is only applied when the transactions occur
prior to the end of any Guaranteed Period Option;
2) Transfers to the Guaranteed Period Options of the Fixed Account are
considered Premium Payments for purposes of determining the Excess Interest
Adjustment;
3) The Excess Interest Adjustment is distinct from, and is applied prior to,
the Surrender Charge;
4) The Excess Interest Adjustment may affect the death proceeds defined in
Section 9;
5) If interest rates have decreased from the time the affected Guaranteed
Period(s) started until the time the transaction occurs, the Excess
Interest Adjustment will result in additional funds available to You;
6) If interest rates have increased from the time the affected Guaranteed
Period(s) started until the time the transaction occurs, the Excess
Interest Adjustment will result in a decrease in the funds available to
You;
7) Certain amounts are not subject to the Excess Interest Adjustment as
provided in Sections 5, 7 and 8.
The formula for determining the amount of the Excess Interest Adjustment is as
follows:
Excess Interest Adjustment = S x (G-C) x (M/ 12)
where: S is the gross (that is, before surrender charges and premium
taxes, if any) amount being surrendered, partially withdrawn,
transferred, or applied to a Payment Option that is subject to
the Excess Interest Adjustment.
G is the guaranteed interest rate for the Guaranteed Period
applicable to S.
M is the number of months remaining in the Guaranteed Period for
S, rounded up to the next higher whole number of months.
C is the current guaranteed interest rate then being offered on
new Premium Payments for the next longer Guaranteed Period than
"M". If this policy form or such a Guaranteed Period Option 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%.
Upon full surrender, the Excess Interest Adjustment (EIA) for each Guaranteed
Period Option will not reduce the Adjusted Policy Value for that Guaranteed
Period Option below the amount paid into, less any prior withdrawals and
transfers from, that Guaranteed Period Option, plus interest at the 3%
guaranteed effective annual interest rate.
PARTIAL WITHDRAWALS
We will pay You a portion of the Cash Value as a Partial Withdrawal provided we
receive Your written request while the policy is in effect and before the
Annuity Commencement Date. When You request a Partial Withdrawal You must tell
us how it is to be allocated among the Investment Options. If Your request for a
Partial Withdrawal from any Investment Option is less than or equal to the Cash
Value in that option, we will pay the amount of Your request. However, if Your
request for a Partial Withdrawal from any Investment Option is greater than the
Cash Value in that option, we will pay You the Cash Value of that Investment
Option.
U1113 PAGE 5
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SECTION 5 - CASH VALUES AND PARTIAL WITHDRAWALS - CONT
The Gross Partial Withdrawal is the total amount which will be deducted from
Your Policy Value as a result of each Partial Withdrawal. The Gross Partial
Withdrawal may be more or less than Your requested Partial Withdrawal amount,
depending on whether Surrender Charges and/or Excess Interest Adjustments apply
at the time You request the Partial Withdrawal.
The Excess Partial Withdrawal amount is the portion of the requested Partial
Withdrawal that is subject to Surrender Charge (that is, the portion which is in
excess of the Surrender Charge-free portion). For example, if the requested
withdrawal amount is $1,000, and the Surrender Charge-free amount is $200, then
the Excess Partial Withdrawal would be $800. Excess Partial Withdrawals will
reduce the Policy Value by an amount equal to (X-Y+Z) where:
X = Excess Partial Withdrawal
A = Amount of Partial Withdrawal subject to Excess Interest Adjustment
Y = Excess Interest Adjustment = (A) x (G-C) x (M/ 12) where G, C and M are
defined in the Excess Interest Adjustment provision above, with "A"
substituted for "S" in the definitions of G and M.
Z = Surrender Charge on X minus Y.
The formula for determining the Gross Partial Withdrawal is as follows:
Gross Partial Withdrawal = R - E + SC
where: R is the requested Partial Withdrawal;
E is the Excess Interest Adjustment; and
SC is the Surrender Charge on (EPW - E); where
EPW is the Excess Partial Withdrawal amount.
If any Partial Withdrawal reduces the Cash Value below $500, we reserve the
right to pay the full Cash Value and terminate the policy.
We may delay payment of the Cash Value from the Fixed Account for up to 6 months
after we receive the request. If the owner dies after we receive the request,
but before the request is processed, the request will be processed before the
death proceeds are determined.
Each Partial Withdrawal consists of a portion that is subject to Surrender
Charge (that is, the Excess Partial Withdrawal) and a remaining portion that is
free from Surrender Charge (that is, the Surrender Charge-free amount). Either
portion may be zero (0) depending on the Partial Withdrawal requested and prior
amounts withdrawn.
Partial Withdrawals may be made free from Surrender Charges and free from Excess
Interest Adjustments as follows:
LUMP SUM
Beginning in the second Policy Year, You may withdraw, free from Surrender
Charges, and free from Excess Interest Adjustments, an amount equal to the
maximum of A or B where:
A is the Cumulative Earnings, if any, in the Policy Value. The Cumulative
Earnings is an amount equal to the Policy Value at the time a Lump Sum
payout is made, minus the sum of all premium payments reduced by all prior
Partial Withdrawals, if any, and
B is an amount up to 10% of the Cumulative Premium Payments immediately prior
to the Partial Withdrawal. The minimum Partial Withdrawal under this option
is $500. This Partial Withdrawal option is available once per Policy Year.
SYSTEMATIC PAYOUT OPTION
Beginning in the first Policy Year, a Systematic Payout Option (SPO) is
available on a monthly, quarterly, semi-annual or annual basis. At the time
a SPO payout is made, such payout must be at least $50 and may not exceed
the maximum of A or B, divided by the number of payouts made per year (e.g.
12 for monthly).
A is the Cumulative Earnings, if any, in the Policy Value. The Cumulative
Earnings is an amount equal to the Policy Value at the time a SPO payout is
made, minus the sum of all premium payments reduced by all prior Partial
Withdrawals, if any, and
B is an amount up to 10% of the Cumulative Premium Payments immediately prior
to the Partial Withdrawal.
No Surrender Charges or Excess Interest Adjustment will apply to the SPO
payout. Monthly and quarterly payouts must be sent through electronic funds
transfer directly to a checking or savings account. You may start or stop
SPO payouts at any time; however, 30 days written notice is required to
stop SPO payouts. Once stopped, You must wait until the first day of the
next Policy Year to begin a new SPO.
The minimum Partial Withdrawal under this option is $500. This Partial
Withdrawal option is available once per Policy Year.
Once You have elected a SPO, You must wait a minimum time before the first
SPO payment: one month for a monthly SPO, three months for quarterly, six
months for semi-annual, or twelve months for annual.
MINIMUM REQUIRED DISTRIBUTION
For tax-qualified plans, Partial Withdrawals taken to satisfy minimum
distribution requirements under Section 401(a)(9) of the Internal Revenue
Code (IRC) are available with no Surrender Charges and no Excess Interest
Adjustments. The amount available from this policy with respect to the
minimum distribution requirement is based solely on this policy.
P1083 PAGE 6
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SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS - CONT
The owner must be at least 70 1 /2 years old in the calendar year of
distribution, must submit a written request to us and must take the
distribution before year end. If the owner attains age 70 1 /2 in the
calendar year of distribution, a written request which is postmarked no
later than the end of the current calendar year must be submitted to us.
Systematic minimum distributions must be at least $50 or a lump sum
distribution is available if minimum required distributions are less than
$50.
Any amount requested in excess of the IRC minimum required distribution
will have the appropriate Surrender Charges and Excess Interest Adjustments
applied, unless the excess distribution qualifies as Surrender Charge- free
or Excess Interest Adjustment-free under any additional options provided.
NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION
Beginning in the first Policy Year, if the owner or owner's spouse
(Annuitant or Annuitant's spouse if the owner is not a natural person) has
been 1) confined in a Hospital or Nursing Facility for 30 consecutive days
or 2) diagnosed as having a Terminal Condition, You may elect to withdraw
all or a portion of the Policy Value without Surrender Charges and without
Excess Interest Adjustment The minimum withdrawal under this option is
$1000.
For Nursing Care, we must receive each withdrawal request and proof of
eligibility with each request no later than 90 days following the date that
confinement has ceased, unless it can be shown that it was not reasonably
possible to provide the notice and proof within the above time period and
that the notice and proof were given as soon as reasonably possible.
However, in no event, except the absence of legal capacity, shall the
notice and proof be provided later than one year following the date that
confinement has ceased. For a Terminal Condition, we must receive each
withdrawal request and the applicable proof of eligibility no later than
one year following diagnosis of the Terminal Condition. Proof of a Terminal
Condition is required only with the initial withdrawal request and must be
furnished by the owner's, owner's spouse's, Annuitant's, or Annuitant's
spouse's physician. Proof of confinement may be a physician's statement or
a statement from a hospital or nursing facility administrator.
UNEMPLOYMENT WAIVER
Beginning in the first Policy Year, You may withdraw all or a portion of
the Policy Value free of Surrender Charges and free of any Excess Interest
Adjustment if the owner or owner's spouse (Annuitant or Annuitant's spouse,
if the owner is not a natural person) becomes unemployed. In order to
qualify, You 1) must have been employed full time for at least two years
prior to Your becoming unemployed, 2) must have been employed full time on
Your Policy Date, 3) must have been unemployed for at feast 60 consecutive
days at the time of withdrawal and 4) must have a minimum Cash Value at the
time of withdrawal of $5000. Proof of unemployment will consist of
providing us with a determination letter from the applicable State's
Department of Labor which verifies that You qualify for and are receiving
unemployment benefits at the time of withdrawal. The determination letter
must be received by us no later than 15 days following the date of the
withdrawal request.
SURRENDER CHARGES
Amounts withdrawn in excess of the Surrender Charge free withdrawal provisions
above are subject to a Surrender Charge. The amount of this charge, if any, will
be a percentage, as shown in the table below, of the amount of premium
withdrawn:
Number of Years Percentage of
Since Premium Premium Withdrawn
Payment Date
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%
For Surrender Charge purposes, the oldest premium payment is considered to be
withdrawn first. If the amount withdrawn exceeds this, the next oldest premium
payment is considered to be withdrawn, and so on until the most recent premium
payment is considered to be withdrawn. Premium payments are deemed to be
withdrawn before earnings. After all premium payments are considered to be
withdrawn, the remaining Adjusted Policy Value may be withdrawn free of any
Surrender Charge.
GUARANTEED RETURN OF FIXED ACCOUNT PREMIUM PAYMENTS
Upon full surrender of the policy, You will always receive at least the premium
payments made to, less prior withdrawals and transfers from, the Fixed Account.
MINIMUM VALUES
Benefits available under this policy are not less than those required by any
statute of the state in which the policy is delivered.
PB1083 PAGE 7
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SECTION 6 - SEPARATE ACCOUNT
SEPARATE ACCOUNT
We have established and wilt maintain one or more Separate Account(s), under the
laws of the state of Iowa Any realized or unrealized income, net gains and
losses from the assets of the Separate Account are credited to or charged
against it without regard to our other income, gains or losses. Assets are put
in the Separate Account for this policy, as well as for other variable annuity
policies. Any Separate Account may invest assets in shares of one or more mutual
fund portfolios, or in the case of a managed Separate Account, direct
investments in stocks or other securities as permitted by law. Fund Shares refer
to shares of underlying mutual funds or prorata ownership of the assets held in
a Subaccount of a managed Separate Account Fund shares are purchased, redeemed
and valued on behalf of the Separate Account.
The Separate Account is divided into Subaccounts. Each Subaccount invests
exclusively in shares of one of the portfolios of an underlying mutual fund. We
reserve the right to add or remove any Subaccount of the Separate Account.
The assets of the Separate Account are our property. These assets will equal or
exceed the reserves and other contract liabilities of the Separate Account These
assets will not be chargeable with liabilities arising out of any other business
we conduct. We reserve the right, subject to regulations governing the Separate
Account, to transfer assets of a Subaccount, in excess of the reserves and other
contract liabilities with respect to that Subaccount, to another Subaccount or
to our General Account.
We will determine the fair market value of the assets of the Separate Account in
accordance with a method of valuation which we establish in good faith.
Valuation Period means the period of time from one determination of the value of
each Subaccount to the next Such determinations are made when the value of the
assets and liabilities of each Subaccount is calculated. This is generally the
close of business on each day on which the New York Stock Exchange is open.
We also reserve the right to transfer assets of the Separate Account, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account. If this type of transfer is made, the term
"Separate Account", as used in the policy, shall then mean the separate account
to which the assets were transferred.
We also reserve the right, when permitted by law to:
(a) deregister the Separate Account under the Investment Company Act of 1940;
(b) manage the Separate Account under the direction of a committee at any time;
(c) restrict or eliminate any voting rights of Policy Owners or other persons
who have voting rights as to the Separate Account; and
(d) combine the Separate Account with one or more other separate accounts;
(e) create new Separate Accounts;
(f) add new Subaccounts to or remove existing Subaccounts from the Separate
Account, or combine Subaccounts;
(g) add new underlying mutual funds, remove existing mutual funds, or
substitute a new fund for an existing fund.
The Net Asset Value of a fund share is the per-share value calculated by the
mutual fund or, in the case of a managed Separate Account, by the Company. The
Net Asset Value is computed by adding the value of the Subaccount's investments,
cash and other assets, subtracting its liabilities, and then dividing by the
number of shares outstanding. Net Asset Values of fund shares reflect investment
advisory fees and other expenses incurred in managing a mutual fund or a managed
Separate Account
CHANGE IN INVESTMENT OBJECTIVE OR POLICY OF A MUTUAL FUND
If required by law or regulation, an investment policy of the Separate Account
will only be changed if approved by the appropriate insurance official of the
state of Iowa or deemed approved in accordance with such law or regulation. If
so required, the process for obtaining such approval is filed with the insurance
official of the state or district in which this policy is delivered.
CHARGES AND DEDUCTIONS
The Mortality and Expense Risk Fee and the Administrative Charge are each
deducted both before and after the Annuity Commencement Date to compensate for
changes in mortality and expenses not anticipated by the mortality and
administration charges guaranteed in the policy.
The Service Charge is deducted prior to the Annuity Commencement Date only.
If the Mortality and Expense Risk Fee is more than sufficient, the Company will
retain the balance as profit or reduce this fee in the future.
V1111 PAGE 8
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SECTION 6 - SEPARATE ACCOUNT - CONT
ACCUMULATION UNITS
The Policy Value in the Separate Account before the Annuity Commencement Date is
represented by accumulation units. The dollar value of accumulation units for
each Subaccount will change from day to day reflecting the investment experience
of the Subaccount.
Premium Payments allocated to and any amounts transferred to the Subaccounts
will be applied to provide accumulation units in those Subaccounts. The number
of accumulation units purchased in a Subaccount will be determined by dividing
the amount allocated to or transferred to that Subaccount, by the value of an
accumulation unit for that Subaccount on the premium payment or transfer date.
The number of accumulation units withdrawn or transferred from the Subaccounts
will be determined by dividing the amount withdrawn or transferred by the value
of an accumulation unit for that Subaccount on the withdrawal or transfer date.
The value of an accumulation unit on any business day is determined by
multiplying the value of that unit at the end of the immediately preceding
valuation period by the net investment factor for the valuation period.
The net investment factor used to calculate the value of an accumulation unit in
each Subaccount for the Valuation Period is determined by dividing (a) by (b)
and subtracting (c) from the result, where:
(a) is the result of:
(1) the net asset value of a fund share held in that Subaccount determined
as of the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Subaccount if the ex-dividend
date occurs during the valuation period; plus or minus
(3) a per share credit or charge for any taxes reserved for, which we
determine to have resulted from the investment operations of that
Subaccount
(b) is the net asset value of a fund share held in that Subaccount determined
as of the end of the immediately preceding valuation period.
(c) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge before the Annuity Commencement Date. This factor is
less than or equal to, on an annual basis, the percentage shown on page 3
of the daily net asset value of a fund share held in that Subaccount
Since the net investment factor may be greater or less than one, the
accumulation unit value may increase or decrease.
SECTION 7 - FIXED ACCOUNT
FIXED ACCOUNT
Premium payments applied to and any amounts transferred to the Fixed Account
will reflect a fixed interest rate. The interest rates we set will be credited
for increments of at least one year measured from each premium payment or
transfer date. These rates will never be less than an effective annual interest
rate of 3%.
GUARANTEED PERIODS
We may offer optional Guaranteed Period Options, into which premium payments may
be paid or amounts transferred. The current interest rate we set for funds
entering each Guaranteed Period Option (GPO) is guaranteed until the end of that
option's Guaranteed Period. At that time, the premium payment made or amount
transferred into the GPO, less any withdrawals or transfers from that GPO, plus
accrued interest, will be rolled into a new GPO or may be transferred to any
Subaccount(s) within the Separate Account(s).
You may choose the Investment Options) You want the funds rolled into by giving
us a written notice within 30 days before the end of the expiring option's
Guaranteed Period. However, any Guaranteed Period elected may not extend beyond
the maximum Annuity Commencement Date defined in Section 11. In the absence of
such election, the funds will be rolled into a new GPO which is the same as the
expiring GPO unless that GPO is no longer offered, in which case, the next
shorter GPO offered will be used. You will be mailed a notice of completion of
the rollover with the new interest rate applicable. The new GPO will be deemed
as accepted if we do not receive a written rejection within 30 days from the
postmark date of the completion notice.
We reserve the right for new premium payments, transfers, or rollovers to offer
or not to offer any GPO, except that we will always offer at least a one year
GPO.
VB1111 PAGE 9
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SECTION 7 - FIXED ACCOUNT - CONT
For purposes of crediting interest when funds are withdrawn from or transferred
into a GPO, the amount of the oldest premium payment or rollover into that GPO
is considered to be withdrawn first If the amount withdrawn exceeds this amount,
the next oldest premium payment or rollover is considered to be withdrawn next,
and so on until the most recent premium payment or rollover is considered to be
withdrawn (this is a "First-In, First-Out" or FIFO procedure). Premium payments)
or rollovers) are deemed to be withdrawn first, then credited interest.
Partial Withdrawals, Surrenders, transfers, and amounts applied to a Payment
Option from the Guarantee Period Options) are subject to an Excess Interest
Adjustment as described in Section 5.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
We may offer a Dollar Cost Averaging (DCA) Fixed Account Option separate from
the Guaranteed Period Options. This option will have a one year interest rate
guarantee. The current interest rate we set for the DCA Fixed Account may differ
from the rates credited on the one year GPO in the Fixed Account. In addition,
the current interest rate we credit may vary on different portions of the DCA
Fixed Account The credited interest rate will never be less than the minimum
effective annual interest rate of 3%. The DCA Fixed Account Option will only be
available under a Dollar Cost Averaging program as described in Section 8.
SECTION 8 - TRANSFERS
A. TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE
Prior to the Annuity Commencement Date, You may transfer the value of the
accumulation units from one Investment Option to another. You must sign a notice
to transfer which gives us the facts that we need.
Transfers of Policy Value from the Guaranteed Period Options (GPO) of the Fixed
Account prior to the end of that GPO are subject to an Excess Interest
Adjustment If the Excess Interest Adjustment at the time of such Policy Value
transfer is a negative adjustment, then the maximum Policy Value transfer is 25%
of that GPO's Policy Value, less Policy Values previously transferred out of
that GPO during the current Policy Year. If the Excess Interest Adjustment at
the time of such Policy Value transfer is a positive adjustment, no maximum will
apply to such Policy Values transferred from the GPO. No Excess Interest
Adjustment will apply to Policy Value transfers at the end of a Guaranteed
Period.
Transfers of interest credited in the GPOs to other Investment Options are
allowed on a "First-In, First-Out" basis. Such transfers may be made monthly,
quarterly, semi-annually, or annually. Each such transfer must be at least $50
and will not be subject to an Excess Interest Adjustment.
Transfers of Policy Value from the Separate Account are subject to a minimum of
$500 or the entire Subaccount Policy Value, if less. However, if the remaining
Subaccount Policy Value is less than $500, we reserve the right to include that
amount as part of the transfer.
You may choose which GPO to transfer to or from, however, any GPO elected may
not extend beyond the maximum Annuity Commencement Date defined in Section 11.
No transfers will be allowed out of the Dollar Cost Averaging Fixed Account
Option except through the Dollar Cost Averaging Option.
We reserve the right to limit transfers to no more than 12 in any one Policy
Year. Any transfers in excess of 12 per Policy Year may be charged a $10 per
transfer fee. Transfers among multiple Investment Options will be treated as one
transfer in determining the number of transfers that have occurred. We also
reserve the right to prohibit transfers to the Fixed Account if we are crediting
an effective annual interest rate of 3%.
DOLLAR COST AVERAGING OPTION
Prior to the Annuity Commencement Date, You may instruct us to automatically
transfer a specified amount from the Money Market Subaccount, the Dollar Cost
Averaging (DCA) Fixed Account Option, or the U.S. Government Securities
Subaccount to any other Subaccount(s) of the Separate Account The automatic
transfers can occur monthly or quarterly. If the Dollar Cost Averaging request
is received prior to the 28th day of any month, the first transfer will occur on
the 28th day of that month. If the Dollar Cost Averaging request is received on
or after the 28th day of any month, the first transfer will occur on the 28th
day of the following month.
PAGE 10
<PAGE>
SECTION 8 - TRANSFERS - CONT
Prior to the Annuity Commencement Date, no transfers, (except through Dollar
Cost Averaging) will be allowed from a DCA Fixed Account. Transfers will
continue until the elected Subaccount or DCA Fixed Account value is depleted.
The amount transferred each time must be at least $500. All transfers from the
DCA account will be the same amount as the initial transfer. Changes to the
amount transferred will only be allowed when additional premium is allocated or
a new amount is transferred into the DCA Account. Changes to the Subaccounts to
which these transfers are allocated are not restricted. Transfers must be
scheduled for at least 6 but not more than 24 months or for at least 4 but not
more than 8 quarters each time the Dollar Cost Averaging program is started or
restarted following termination of the program for any reason.
Dollar Cost Averaging results in the purchase of more accumulation units when
the value of the accumulation unit is low, and fewer accumulation units when the
value of the accumulation unit is high. However, there is no guarantee that the
Dollar Cost Averaging program will result in higher Policy Values or will
otherwise be successful.
The Dollar Cost Averaging may be discontinued after satisfying the minimum
number of required transfers by sending written notice to us. While Dollar Cost
Averaging is in effect, Asset Rebalancing is not available.
ASSET REBALANCING
Prior to the Annuity Commencement Date, You may instruct us to automatically
transfer amounts among the Subaccounts of the Separate Account on a regular
basis to maintain a desired allocation of the Policy Value among the various
Subaccounts offered. Rebalancing will occur on a monthly, quarterly, semi-annual
or annual basis, beginning on a date selected. You must select the percentage of
the Policy Value desired in each of the various Subaccounts offered (totaling
100%). Any amounts in the Fixed Account are ignored for the purposes of asset
rebalancing. Rebalancing can be started, stopped or changed at any time. Asset
Rebalancing is not available while Dollar Cost Averaging is in effect
Rebalancing will cease as soon as we receive a request for any other transfer.
B. TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, You may transfer the value of the variable
annuity units from one Subaccount to another within the Separate Account or to
the Fixed Account If You want to transfer the value of the variable annuity
units, You must tell us in a signed notice which gives us the facts that we
need. We reserve the right to limit transfers between the Subaccounts or to the
Fixed Accounts to once per Policy Year.
The minimum amount which may be transferred is the lesser of $10 monthly income
or the entire monthly income of the variable annuity units in the Subaccount
from which the transfer is being made. If the monthly income of the remaining
units in a Subaccount is less than $10, we have the right to include the value
of those variable annuity units as part of the transfer.
After the Annuity Commencement Date, no transfers may be made from the Fixed
Account to any other Investment Options.
SECTION 9 - DEATH PROCEEDS
A. DEATH PROCEEDS PRIOR TO ANNUITY COMMENCEMENT DATE
The amount of death proceeds will be the greatest of (a), (b) or (c) where:
(a) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an election
of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional premium
payments received, less any Gross Partial Withdrawals from the date of
death to the date of payment of death proceeds.
If You have not selected a payment option by the date of death, the beneficiary
may make such election within one year of the date we receive due proof of the
owner's or Annuitant's death as described in C. below. The beneficiary may elect
to receive the death proceeds as a lump sum payment or may use the death
proceeds to provide any of the annuity payment options described in Section 10.
Interest on death proceeds will be paid as required by law.
PAGE 11
<PAGE>
SECTION 9 - DEATH PROCEEDS - CONT
B. GUARANTEED MINIMUM DEATH BENEFIT
The amount of the Guaranteed Minimum Death Benefit (GMDB) is based on the death
benefit shown on page 3. You may not change the GMDB option after the policy is
issued.
Option G: 5% Annually Compounding Death Benefit This GMDB is equal to the total
premiums paid for the policy, less any Adjusted Partial Withdrawals (as
described below), accumulated at 5% interest per annum from the payment or
withdrawal date to the Owner's date of death.
Option B: Monthly Step-Up through age 80 Death Benefit
This GMDB is equal to:
a) the largest Policy Value on the Policy Date or on any Monthiversary
prior to the earlier of the date of death or the Owner's 81st
birthday; plus
b) any Premium Payments subsequent to the date of the Monthiversary with
the largest Policy Value; minus
c) any Adjusted Partial Withdrawals (as described below), subsequent to
the date of the Monthiversary with the largest Policy Value.
Option T: Double Enhanced Death Benefit
This GMDB is equal to the greater of (1) and (2) where:
(1) is a 5% Annually Compounding through age 80 Death Benefit, equal to:
a) the total Premium Payments; minus
b) Adjusted Partial Withdrawals, (as described below); plus
c) interest accumulated at 5% per annum from the payment or withdrawal
date to the earlier of the date of death or the Owner's 81st
birthday.
(2) is an Annual Step-Up through age 80 Death Benefit, equal to:
a) the largest Policy Value on the Policy Date or on any Policy
Anniversary prior to the earlier of the date of death or the Owner's
81st birthday; plus
b) any Premium Payments subsequent to the date of the Policy Anniversary
with the largest Policy Value; minus
c) any Adjusted Partial Withdrawals (as described below), subsequent to
the date of the Policy Anniversary with the largest Policy Value.
Option P: Return of Premium Death Benefit
This GMDB is equal to the total premiums paid for this policy, less any
Adjusted Partial Withdrawals (as described below), as of the date of death.
If the Owner is a nonnatural person, or if the Owner has elected to have the
death proceeds paid upon the death of the Annuitant, the GMDB will be based upon
the Annuitant's age.
A Partial Withdrawal taken as provided in Section 5 will reduce the Guaranteed
Minimum Death Benefit by an amount referred to as the "Adjusted Partial
Withdrawal". The Adjusted Partial Withdrawal may be a different amount than the
Gross Partial Withdrawal described in Section 5. The Adjusted Partial Withdrawal
is the total amount deducted from the GMDB as a result of a Partial Withdrawal.
It is equal to the Gross Partial Withdrawal described in Section 5, multiplied
by an Adjustment Factor. The Adjustment Factor is equal to the amount of the
death proceeds prior to the Partial Withdrawal divided by the Policy Value prior
to the Partial Withdrawal.
C. DEATH PRIOR TO ANNUITY COMMENCEMENT DATE
Death proceeds are payable contingent upon the relationships between the owner,
Annuitant, successor owner and beneficiary as outlined below. The policy must be
surrendered upon settlement or on proof of death.
I. Annuitant and owner are the same.
When we have due proof that the owner died before the Annuity Commencement
Date, we will provide the death proceeds to the beneficiary.
a) Beneficiary is the deceased owner's surviving spouse. The beneficiary
may elect to continue this policy as owner and Annuitant rather than
receiving the death proceeds. If the policy is continued, an amount
equal to the excess, if any, of the Guaranteed Minimum Death Benefit
over the Policy Value will then be added to the Policy Value. This
amount will be added only once, at the time of such election. If the
policy is continued, all future Surrender Charges will be waived.
If this beneficiary elects to have the death proceeds paid, the death
proceeds must be distributed:
(1) by the end of 5 years after the date of the deceased owner's
death, or
(2) payments must begin no later than one year after the deceased
owner's death and must be made for a period certain or for this
beneficiary's lifetime, so long as any period certain does not exceed
this beneficiary's life expectancy.
b) Beneficiary is not the deceased owner's surviving spouse. The death
proceeds must be distributed as provided in I.a)(1) or I.a)(2) above.
c) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
deceased owner's death.
PAGE 12
<PAGE>
SECTION 9 - DEATH PROCEEDS - CONT
II. Annuitant and owner are different and the Annuitant dies.
When we have due proof that the Annuitant died prior to the Annuity
Commencement Date, the owner will become the new Annuitant and no death
proceeds are payable. If the owner is also the deceased Annuitant's
surviving spouse, an amount equal to the excess, if any, of the Guaranteed
Minimum Death Benefit over the Policy Value will then be added to the
Policy Value. This amount will be added only once, at the time of such
election. Furthermore, all future surrender charges will be waived.
However, in lieu of becoming the new Annuitant, the owner may elect to have
the death proceeds distributed to the beneficiary on the death of the
Annuitant. This election must be in writing and must be received by us
prior to the Annuitant's death. In such case, when we have due proof that
the Annuitant died prior to the Annuity Commencement Date, we will provide
the death proceeds to the beneficiary.
a) If the owner has elected to have the death proceeds paid as a lump
sum, the beneficiary must, within 60 days of our receipt of due proof
of the Annuitant's death, either:
1) receive the lump sum proceeds; or
2) elect to receive annuity payments. Such payments must begin
within one year of our receipt of due proof of the Annuitant's
death and must be made for a period certain or for this
beneficiary's lifetime, so long as any period certain does not
exceed this beneficiary's life expectancy.
b) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
Annuitant's death.
III. Annuitant and owner are different and the owner dies.
If the owner dies prior to the Annuity Commencement Date and before the
entire interest in the policy is distributed, the successor owner will
become the new owner. The remaining portion of any interest in the policy
must be distributed to the extent provided below in III.a), III.b), III.c),
or III.d).
a) Successor owner is the deceased owner's surviving spouse. The
successor owner may elect to continue this policy rather than receive
the Adjusted Policy Value. If the policy is continued, all future
Surrender Charges will be waived. If the successor owner elects to
receive the Adjusted Policy Value, the Adjusted Policy Value must be
distributed:
(1) by the end of 5 years after the date of the deceased owner's
death, or
(2) payments must begin no later than one year after the deceased
owner's death and must be made for a period certain or for the
successor owner's lifetime, so long as any period certain does not
exceed the successor owner's life expectancy.
b) Successor owner is not the deceased owner's surviving spouse. The
Adjusted Policy Value must be distributed as provided in III.a)(1) or
III.a)(2) above.
c) Successor owner is not a natural person. The Adjusted Policy Value
must be distributed as provided in III.a)(1) above.
d) No successor owner survives the deceased owner. The deceased owner's
estate will become the new owner (or the estate may name a new owner).
The executor or Administrator must be named in a form acceptable to
us. The Adjusted Policy Value must be distributed by the end of 5
years after the date of the deceased owner's death.
IV. More than one Owner.
If there is more than one owner, then the death of any owner will be
treated the same as the death of the owner.
D. DEATH ON OR AFTER THE ANNUITY COMMENCEMENT DATE
The death proceeds on or after the Annuity Commencement Date depend on the
payment option selected. If any owner dies on or after the Annuity Commencement
Date, but before the entire interest in the policy is distributed, the remaining
portion of such interest in the policy will be distributed to the beneficiary at
least as rapidly as under the method of distribution being used as of the date
of that owner's death.
E. AN OWNER IS NOT AN INDIVIDUAL
In the case of a non tax-qualified annuity, if any owner or beneficial owner, is
not an individual, then for purposes of the federal income tax mandatory
distribution provisions in subsection C or D above, (1) the primary Annuitant
will be treated as the owner of the policy, and f2) if there is any change in
the primary Annuitant, such a change will be treated as the death of the owner.
PAGE 13
<PAGE>
SECTION 10 - ANNUITY PAYMENTS
A. GENERAL PAYMENT PROVISIONS
Payment
If this policy is in force on the Annuity Commencement Date, we will use the
Fixed Account portion and/or the Separate Account portion of the Adjusted Policy
Value to make annuity payments to the Payee under Option 3 and/or 3-V,
respectively, with 10 years certain, or if elected, under one or more of the
other options described in this section. However, the option(s) elected must
provide for lifetime income or income for a period of at least 60 months. You
will become the Annuitant at the Annuity Commencement Date. Payments will be
made at 1, 3, 6 or 12 month intervals. We reserve the right to change the
frequency of payments to avoid making payments of less than $50.00.
Before the Annuity Commencement Date, if the death proceeds become payable or if
You surrender this policy, we will pay any proceeds in one sum, or if elected,
all or part of these proceeds may be placed under one or more of the options
described in this section. If we agree, the proceeds may be placed under some
other method of payment instead.
Adjusted Age
Payments under Options 3 and 5 and the first payment under Options 3-V and 5=V
are determined based on the adjusted age of the Annuitant. The adjusted age is
the Annuitant's actual age on the Annuitant's nearest birthday, at the Annuity
Commencement Date, adjusted as follows:
Annuity
Commencement Date Adjusted Age
- ----------------- ------------
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
After 2040 Actual Age minus 5
Election of Optional Method of Payment
Before the Annuity Commencement Date You can elect or change a payment option.
You may elect, in a notice You sign which gives us the facts that we need,
annuity payments that may be either variable, fixed, or a combination of both.
If You elect a combination, You must also tell us what part of the policy
proceeds on the Annuity Commencement Date are to be applied to provide each type
of payment. (You must also specify which Subaccounts) The amount of a combined
payment will be the sum of the variable and fixed payments. Payments under a
variable payment option will reflect the investment performance of the selected
Subaccount of the Separate Account.
Payee
Unless You specify otherwise, the payee shall be the Annuitant, or the
beneficiary as defined in the Beneficiary provision.
Proof of Age
We may require proof of the age of any person who has an annuity purchased under
Options 3, 3-V, 5 and 5-V of this section before we make the first payment.
Minimum Proceeds
If the proceeds are less than $2,000, we reserve the right to pay them out as a
lump sum instead of applying them to a payment option.
Premium Tax
We may be required by law to pay premium tax on the amount applied to a payment
option. If so, we will deduct the premium tax before applying the proceeds.
Supplementary Contract
Once proceeds become payable and a payment option has been selected, this policy
will terminate and we will issue a supplementary contract to reflect the terms
of the selected option. The contract will name the payees and will describe the
payment schedule.
B. FIXED ACCOUNT PAYMENTS
Guaranteed Payment Options
The fixed account payment is determined by multiplying each $1,000 of policy
proceeds allocated to a fixed payment option by the amounts shown on page 16 for
the option You select. Options 1, 2 and 4 are based on a guaranteed interest
rate of 3%.
Options 3 and 5 are based on a guaranteed interest rate of 3%, and the "1983
Table a" (male, female, and unisex if required by law) mortality table improved
to the year 2000 with projection scale G. (The " 1983 Table a" mortality rates
are adjusted based on improvements in mortality since 1983 to more appropriately
reflect increased longevity. This is accomplished using a set of improvement
factors referred to as projection scale G.)
Option 1 - Interest Payments
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 we
and You agree to. We and You will agree on withdrawal rights when You elect this
option. The interest rate we declare for this option may be different than the
interest rate(s) credited prior to the Annuity Commencement Date.
Option 2 - Income for a Specified Period
We will make level payments only for the fixed period You choose. In the event
of the death of the person receiving payments prior to the end of the fixed
period elected, payments will be continued to that person's beneficiary or their
present value may be paid in a single sum. No funds will remain at the end.
PAGE 14
<PAGE>
SECTION 10 - ANNUITY PAYMENTS - CONT
Option 3 - Life Income - You may choose between:
1. No Period Certain - We will make level payments only during the Annuitant's
lifetime.
2. 10 Years Certain - We will make level payments for the longer of the
Annuitant's lifetime or ten years.
3. 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.
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 In the event of the death of the person
receiving payments prior to the time proceeds with interest are exhausted,
payments will be continued to that person's beneficiary or their present value
may be paid in a single sum. Option 5 - Joint and Survivor Annuity Payments are
made during the joint lifetime of the Payee and a joint Payee of Your selection.
Payments will be made as long as either person is living.
Current Payment Options
The amounts shown in the tables on page 16 are the guaranteed amounts. Current
amounts offered to individuals of the same class may be obtained from us.
C. VARIABLE ACCOUNT PAYMENT OPTIONS
Variable Annuity Units
The policy proceeds You tell us to apply to a variable payment option will be
used to purchase variable annuity units in Your chosen Subaccounts. The dollar
value of variable annuity units in Your chosen Subaccounts will increase or
decrease reflecting the investment experience of Your chosen Subaccounts. The
value of a variable annuity unit in a particular Subaccount on any business day
is equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that Subaccount on the immediately
preceding business day;
(b) is the net investment factor for that Subaccount for the Valuation Period;
and
(c) is the Assumed Investment Return adjustment factor for the Valuation
Period.
The Assumed Investment Return adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5.0% effective
annual Assumed Investment Return. The net investment factor used to calculate
the value of a variable annuity unit in each Subaccount for the Valuation Period
is determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value of a fund share held in that Subaccount determined
as of the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Subaccount if the ex-dividend
date occurs during the Valuation Period; plus or minus
(3) a per share credit or charge for any taxes reserved for, which we
determine to have resulted from the investment operations of the
Subaccount
(b) is the net asset value of a fund share held in that Subaccount determined
as of the end of the immediately preceding Valuation Period.
(c) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge. This factor is less than or equal to, on an annual
basis, the percentage shown on page 3 of the daily net asset value of a
fund share held in the Separate Account for that Subaccount
Determination of the First Variable Payment
The amount of the first variable payment is determined by multiplying each
$1,000 of policy proceeds allocated to a variable payment option by the amounts
shown on page 17 for the variable option You select. The tables are based on a
5% effective annual Assumed Investment Return and the " 1983 Table a" (male,
female, and unisex if required by law) mortality table improved to the year 2000
with projection scale G. (The " 1983 Table a" mortality rates are adjusted based
on improvements in mortality since 1983 to more appropriately reflect increased
longevity. This is accomplished using a set of improvement factors referred to
as projection scale G.)
Option 3-V - Life Income An election may be made between:
1. "No Period Certain" - Payments will be made during the lifetime of the
Annuitant
2. "10 Years Certain" - Payments will be made for the longer of the
Annuitant's lifetime or ten years. In the event of the death of the person
receiving payments prior to the end of the period for which the election
was made, payments will be continued to that person's beneficiary or their
present value may be paid in a single sum.
Option 5-V - Joint and Survivor Annuity
Payments are made as long as either the Annuitant or the joint Annuitant is
living.
Determination of Subsequent Variable Payments
The amount of each variable annuity payment after the first will increase or
decrease according to the value of the variable annuity units which reflect the
investment experience of the selected Subaccounts. Each variable annuity payment
after the first will be equal to the number of variable annuity units in the
selected Subaccounts multiplied by the variable annuity unit value on the date
the payment is made. The number of variable annuity units in each selected
Subaccount is determined by dividing the first variable annuity payment
allocated to the Subaccount by the variable annuity unit value of that
Subaccount on the Annuity Commencement Date.
PAGE 15
<PAGE>
GUARANTEED FIXED ACCOUNT PAYMENT OPTIONS
The amounts shown in these tables are the guaranteed amounts for each $1,000 of
the proceeds. Higher current amounts may be available at the time of settlement.
<TABLE>
<CAPTION>
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
Option 2, Table I Option 3, Table II Option 3, Table III Option 3, Table IV
- ------------- ------------- ------------------------- ---------------------------- --------------------------
Monthly Installment for
Number Amount of Monthly Installment for Monthly Installment for Life
Of Years Monthly Life Life Guaranteed Return of
Payable Installment No Period Certain 10 Years Certain Proceeds
-------- ------------------------- ---------------------------- --------------------------
Age* Male Female Unisex Male Female Unisex Male Female Unisex
- ------------- ------------- -------- ------- -------- -------- ------- --------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70 $3.73 $3.49 $3.61
51 3.93 3.60 3.77 3.90 3.59 3.75 3.79 3.53 3.66
52 4.00 3.65 3.83 3.97 3.64 3.81 3.84 3.58 3.71
53 4.07 3.71 3.90 4.04 3.70 3.87 3.90 3.63 3.76
5 $17.91 54 4.15 3.77 3.97 4.11 3.75 3.94 3.96 3.68 3.82
6 15.14 55 4.23 3.83 4.04 4.19 3.82 4.01 4.03 3.73 3.88
7 13.16 56 4.32 3.90 4.11 4.27 3.88 4.08 4.10 3.79 3.94
8 11.68 57 4.41 3.97 4.19 4.35 3.95 4.15 4.17 3.85 4.00
9 10.53 58 4.50 4.05 4.28 4.44 4.02 4.24 4.24 3.91 4.07
10 9.61 59 4.61 4.13 4.37 4.53 4.10 4.32 4.32 3.97 4.14
11 8.86 60 4.72 4.21 4.47 4.63 4.18 4.41 4.40 4.04 4.22
12 8.24 61 4.84 4.30 4.57 4.74 4.26 4.51 4.49 4.12 4.30
13 7.71 62 4.96 4.40 4.68 4.85 4.35 4.61 4.58 4.19 4.38
14 7.26 63 5.10 4.50 4.80 4.97 4.45 4.71 4.68 4.28 4.47
15 6.87 64 5.24 4.61 4.93 5.09 4.55 4.83 4.78 4.36 4.56
16 6.53 65 5.40 4.73 5.06 5.22 4.66 4.95 4.88 4.45 4.66
17 6.23 66 5.56 4.85 5.21 5.36 4.77 5.07 4.99 4.55 4.76
18 5.96 67 5.74 4.99 5.36 5.50 4.89 5.20 5.11 4.65 4.87
19 5.73 68 5.93 5.13 5.53 5.65 5.02 5.34 5.24 4.76 4.98
20 5.51 69 6.13 5.29 5.71 5.80 5.15 5.49 5.37 4.87 5.10
70 6.34 5.45 5.90 5.96 5.30 5.64 5.51 4.99 5.23
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Option 5, Table V
- ----------------------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- ----------------------------------------------------------------------------------------------------------------------
Age of Female Annuitant*
Age of ------------------------------------------------------------------------------------------------
Male 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Annuitant* Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Monthly Installment For Unisex Joint and Full Survivor
- ----------------------------------------------------------------------------------------------------------------------
Age of Age of Joint Annuitant*
First ------------------------------------------------------------------------------------------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $3.04 $3.09 $3.15 $3.21 $3.27 $3.33 $3.39
55 3.17 3.24 3.32 3.40 3.48 3.56 3.63
60 3.34 3.44 3.54 3.64 3.75 3.85 3.95
65 3.57 3.70 3.83 3.97 4.11 4.26 4.39
70 3.87 4.04 4.22 4.42 4.62 4.82 5.01
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Adjusted Age as defined in Section 10.A.
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly installments under Option 2 shall be
the monthly installment shown multiplied by 11.84, 5.96 or 2.99
respectively, and for Options 3 and 5 the monthly installment shown
multiplied by 11.80, 5.95 or 2.99 respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
- --------------------------------------------------------------------------------
PAGE 16
<PAGE>
VARIABLE PAYMENT OPTIONS
BASED ON ASSUMED INVESTMENT RETURN
The amounts shown in these tables are the initial payment amounts based on a
5.0% Assumed Investment Return for each $1,000 of the proceeds.
<TABLE>
<CAPTION>
- --------------------------- -------- ------------------------- ---------------------------- --------------------------
Option 3 - V, Table II Option 3 - V, Table III
- --------------------------- ------------------------- ---------------------------- --------------------------
Monthly Installment for Monthly Installment for
Life Life
No Period Certain 10 Years Certain
-------- ------- -------- -------- ------- ---------- --------- ------ --------- ---------
Age* Male Female Unisex Male Female Unisex
- ------------- ------------- -------- ------- -------- -------- ------- ---------- --------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $5.11 $4.81 $4.96 $5.07 $4.79 $4.94
51 5.17 4.85 5.02 5.13 4.83 4.99
52 5.24 4.90 5.07 5.19 4.88 5.04
53 5.31 4.95 5.13 5.25 4.93 5.10
54 5.38 5.01 5.20 5.32 4.98 5.16
55 5.46 5.06 5.26 5.39 5.04 5.22
56 5.54 5.12 5.34 5.47 5.09 5.28
57 5.63 5.19 5.41 5.54 5.16 5.36
58 5.72 5.26 5.49 5.63 5.22 5.43
59 5.82 5.34 5.58 5.72 5.29 5.51
60 5.93 5.42 5.68 5.81 5.37 5.60
61 6.04 5.50 5.78 5.91 5.44 5.69
62 6.17 5.60 5.89 6.02 5.53 5.78
63 6.30 5.69 6.00 6.13 5.62 5.88
64 6.44 5.80 6.13 6.25 5.71 5.99
65 6.60 5.91 6.26 6.37 5.82 6.10
66 6.76 6.04 6.40 6.50 5.92 6.22
67 6.94 6.17 6.56 6.63 6.04 6.35
68 7.13 6.31 6.72 6.77 6.16 6.48
69 7.33 6.46 6.90 6.92 6.29 6.62
70 7.55 6.63 7.09 7.07 6.43 6.76
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Option 5V, Table V
- ----------------------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- ----------------------------------------------------------------------------------------------------------------------
Age of Age of Female Annuitant*
Male ------------------------------------------------------------------------------------------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.32 $4.36 $4.41 $4.46 $4.51 $4.57 $4.62
55 4.42 4.47 4.53 4.60 4.67 4.75 4.83
60 4.54 4.62 4.70 4.80 4.90 5.01 5.12
65 4.71 4.82 4.94 5.07 5.22 5.37 5.53
70 4.95 5.10 5.27 5.46 5.67 5.89 6.13
- ----------------------------------------------------------------------------------------------------------------------
Monthly Installment For Unisex Joint and Full Survivor
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- ------------------------------------------------------------------------------------------------
Age of Age of Joint Annuitant*
First ------------------------------------------------------------------------------------------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- --------------------- ----------- ------------ ----------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.40 $4.45 $4.50 $4.55 $4.61 $4.67 $4.72
55 4.52 4.59 4.66 4.73 4.81 4.89 4.96
60 4.69 4.78 4.87 4.97 5.08 5.19 5.29
65 4.91 5.04 5.17 5.31 5.46 5.62 5.77
70 5.22 5.40 5.59 5.79 6.02 6.24 6.47
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Adjusted Age as defined in Section 10.A.
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly installments shall be the monthly
installment shown for Options 3-V and 5-V multiplied by 11.70, 5.93 or 2.99
respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
- --------------------------------------------------------------------------------
PAGE 17
<PAGE>
SECTION 11 - GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of this policy, endorsements, if any, and the
application, or information provided in lieu thereof, signed by You.
MODIFICATION OF POLICY
No change in this policy is valid unless made in writing by us and approved by
one of our officers. No Registered Representative has authority to change or
waive any provision of Your policy.
TAX QUALIFICATION
This policy is intended to qualify as an annuity contract for federal income tax
purposes. The provisions of this policy are to be interpreted to maintain such
qualification, notwithstanding any other provisions to the contrary. To maintain
such tax qualification, we reserve the right to amend this policy to reflect any
clarifications that may be needed or are appropriate to maintain such tax
qualification or to conform this policy to any applicable changes in the tax
qualification requirements. We will send You a copy in the event of any such
amendment. If You refuse such an amendment it must be by giving us written
notice, and Your refusal may result in adverse tax consequences.
NON-PARTICIPATING
This policy will not share in our surplus earnings.
AGE OR SEX CORRECTIONS
If the age or sex of the Annuitant has been misstated, the benefits will be
those which the premiums paid would have purchased for the correct age and sex.
If required by law to ignore differences in the sex of the Annuitant, the
annuity payments will be determined using the unisex factors in Section 10.
Any underpayment made by us will be paid with the next payment. Any overpayment
made by us will be deducted from future payments. Any underpayment or
overpayment, will include interest at 59'o per year, from the date of the wrong
payment to the date of the adjustment
INCONTESTABILITY
This policy shall be incontestable from the Policy Date.
EVIDENCE OF SURVIVAL
We have the right to require satisfactory evidence that a person was alive if a
payment is based on that person being alive. No payment will be made until we
receive the evidence.
SETTLEMENT
Any payment by us under this policy is payable at our Home Office.
RIGHTS OF OWNER
The owner may, while the Annuitant is living:
1. Assign this policy.
2. Surrender the policy to us.
3. Amend or modify the policy with our consent
4. Receive annuity payments or name a Payee to receive the payments.
5. Exercise, receive and enjoy every other right and benefit contained in the
policy.
The use of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the spouse in a community or marital property
state.
Unless we have been notified of a community or marital property interest in this
policy, we will rely on our good faith belief that no such interest exists and
will assume no responsibility for inquiry.
SUCCESSOR OWNER
A successor owner can be named in the application, or information provided in
lieu thereof, or in a notice You sign which gives us the facts that we need. The
successor owner will become the new owner when You die, if You die before the
Annuitant If no successor owner survives You and You die before the Annuitant,
Your estate will become the new owner.
CHANGE OF OWNERSHIP
In the case of a non-tax qualified annuity, You can change the owner of this
policy, from yourself to a new owner, in a notice You sign which gives us the
facts that we need. When this change takes effect, all rights of ownership in
this policy will pass to the new owner.
A change of owner or successor owner will not be effective until it is recorded
in our records. After it has been so recorded, the change will take effect as of
the date You signed the notice. However, if the Annuitant dies before the notice
has been so recorded, it will not be effective as to those proceeds we have paid
before the change was recorded in our records. We may require that the change be
endorsed in the policy. Changing the owner or naming a new successor owner
cancels any prior choice of successor owner, but does not change the beneficiary
or the Annuitant. A change of ownership may result in adverse tax consequences.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date annuity payments begin. This date may
not be later than the last day of the policy month starting after the Annuitant
attains age 85, except as expressly allowed by us, but in no event later than
the last day of the policy month following the month in which the Annuitant
attains age 95. You may change the Annuity Commencement Date at any time before
the Annuity Commencement Date by giving us 30 days' written notice
PAGE 18
<PAGE>
SECTION 11 - GENERAL PROVISIONS - CONT
ASSIGNMENT
(a) In the case of a non tax-qualified annuity, this policy may be assigned.
The assignment must be in writing and filed with us.
(b) We assume no responsibility for the validity of any assignment. Any claim
made under an assignment shall be subject to proof of interest and the
extent of the assignment.
(c) This policy may be applied for and issued to qualify as a tax-qualified
annuity under certain sections of the Internal Revenue Code. Ownership of
this policy then is restricted so that it will comply with provisions of
the Internal Revenue Code.
Assignment of this policy may result in adverse tax consequences.
BENEFICIARY
Death proceeds, when payable in accordance with Section 9, are payable to the
designated beneficiary or beneficiaries. Such beneficiary(ies) must be named in
the application, or information provided in lieu thereof, and may be changed
without consent (unless irrevocably designated or required by law) by notifying
us in writing on a form acceptable to us. The change will take effect upon the
date You sign it, whether or not You are living when we receive it. The notice
must have been postmarked (or show other evidence of delivery that is acceptable
to us) on or before the date of death. Your most recent change of beneficiary
notice will replace any prior beneficiary designations. No change will apply to
any payment we made before the written notice was received. If an irrevocable
beneficiary dies, You may designate a new beneficiary.
You may direct that the beneficiary shall not have the right to withdraw, assign
or commute any sum payable under an option. In the absence of such election or
direction, the beneficiary may change the manner of payment or make an election
of any option.
If any primary or contingent beneficiary dies before the Annuitant, that
beneficiary's interest in this policy ends with that beneficiary's death. Only
those beneficiaries living at the time of the Annuitant's death will be eligible
to receive their share of the Death Proceeds. In the event no contingent
beneficiaries have been named and all primary beneficiaries have died before the
death proceeds become payable, the owners) will become the beneficiary(ies)
unless elected otherwise in accordance with Section 9. If both primary and
contingent beneficiaries have been named, payment will be made to the named
primary beneficiaries living at the time the death proceeds become payable. If
there is more than one beneficiary and You failed to specify their interest,
they will share equally. Payment will be made to the named contingent
beneficiary(ies) only if all primary beneficiaries have died before the death
proceeds become payable. If any primary beneficiary is alive at the time the
death proceeds become payable, but dies before receiving their payment, their
share will be paid to their estate.
In cases where the Annuitant dies and the owner (who is not the Annuitant)
elected to receive the death benefit in accordance with Section 9, if the
Annuitant's estate has been named as beneficiary, then payment will be made to
the owner.
PROTECTION OF PROCEEDS
Unless You so direct by filing written notice with us,
no beneficiary may assign any payments under this policy before the same are
due. To the extent permitted by law, no payments under this policy will be
subject to the claims of creditors of any beneficiary.
DEFERMENT
We will pay any Partial Withdrawals or Surrender proceeds from the Separate
Account within 7 days after we receive all requirements that we need. However,
it may happen that the New York Stock Exchange is closed for trading (other than
the usual weekend or holiday closings), or the Securities and Exchange
Commission restricts trading or determines that an emergency exists. If so, it
may not be practical for us to determine the investment experience of the
Separate Account In that case, we may defer transfers among the Subaccounts and
to the Fixed Account, and determination or payment of Partial Withdrawals or
Surrender proceeds.
When permitted by law, we may defer paying any Partial Withdrawals or Surrender
proceeds from the Fixed Account for up to 6 months from the date we receive Your
request. If the owner dies after the request is received, but before the request
is processed, the request will be processed before the death proceeds are
determined. Interest will be paid on any amount deferred for 30 days or more.
This rate will be 3% per year unless otherwise required by law.
REPORTS TO OWNER
We will give You an annual report at least once each Policy Year. This report
will show the number and value of the accumulation units held in each of the
Subaccounts as well as the value of the Fixed Account. It will also give You the
Death Benefit, Cash Value, and any other facts required by law or regulation.
PAGE 19
<PAGE>
PFL Life Insurance Company
Home Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
[LOGO OF PFL LIFE INSURANCE COMPANY]
Flexible Premium Variable Annuity
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount
(See Sections 6 and 10C.1
Non-Participating
INDEX
Page
Accumulation Units............................................................ 9
Adjusted Policy Value......................................................... 4
Age or Sex Corrections....................................................... 18
Annuity Commencement Date.................................................... 18
Annuity Payments......................................................... 14, 15
Assignment................................................................... 19
Beneficiary.................................................................. 19
Cash Value.................................................................... 5
Contract..................................................................... 18
Death Proceeds....................................................... 11, 12, 13
Definitions................................................................... 2
Dollar Cost Averaging Option............................................. 10, 11
Evidence of Survival......................................................... 18
Excess Interest Adjustment.................................................... 5
Fixed Account............................................................. 9, 10
Guaranteed Minimum Death Benefit............................................. 12
Guaranteed Periods............................................................ 9
Guaranteed Return of Fixed Account
Premium Payments .......................................................... 7
Incontestability............................................................. 18
Modification of Policy....................................................... 18
Nonparticipation ............................................................ 18
Owner ....................................................................... 18
Partial Withdrawals .................................................... 5, 6, 7
Payee ....................................................................... 14
Payment of Premiums .......................................................... 4
Payment Option Tables ................................................... 16, 17
Policy Data Page ............................................................. 3
Policy Value ................................................................. 4
Proof of Age ................................................................ 14
Protection of Proceeds ...................................................... 19
Right to Cancel .............................................................. 1
Separate Account .......................................................... 8, 9
Service Charge ............................................................... 4
Settlement................................................................... 18
Surrender Charges ............................................................ 7
Transfers ............................................................... 10, 11
<PAGE>
EXHIBIT (5)(g)
--------------
GROUP MASTER APPLICATION
<PAGE>
Application for Group Insurance to
PFL LIFE INSURANCE COMPANY
Home Office: 4333 Edgewood Rd NE, Cedar Rapids IA 52499-0001
Securities Customers DRL Insurance Trust II
- --------------------------------------------------------------------------------
hereby applies for Group Policy No. PV0009 to which this application
-----------------
is attached
Said Group Policy is hereby approved and the terms thereof are hereby accepted.
This application is executed in duplicate, with one part being attached to said
Policy and the other returned to PFL LIFE INSURANCE COMPANY.
It is understood and agreed that no agent of PFL Life Insurance Company has
power on behalf of said Company to make or modify this or any other application
for insurance.
This application supersedes any previous application for the said Group Policy.
Dated at Cedar Rapids, Iowa this 1
----------------------------------------------------- ------------
day of April , 2000
------------------ -----
------------------------------------
By
----------------------------------
- ----------------------------------- ------------------------------------
Agent Signature Agent Number
- -----------------------------------
Agent Name (please print)
A-M-1000 (IA)
<PAGE>
EXHIBIT (8)(i)
PARTICIPATION AGREEMENT AMONG
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
AND PFL LIFE INSURANCE COMPANY
<PAGE>
PARTICIPATION AGREEMENT
Among
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, effective of this 1st day of November 1999 by and among
PFL LIFE INSURANCE COMPANY (hereinafter "Insurance Company"), an Iowa life
insurance company, on its own behalf and on behalf of its SEPARATE ACCOUNT(S)
(the "Account"); TRANSAMERICA VARIABLE INSURANCE FUND, INC., a corporation
organized under the laws of Maryland (hereinafter the "Fund"); and TRANSAMERICA
OCCIDENTAL LIFE INSURANCE COMPANY, (hereinafter the "Adviser"), a California
corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and/or
variable annuity contracts (collectively, the "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements similar to this Agreement (hereinafter "Participating Insurance
Companies"), as well as qualified pension and retirement plans; and
WHEREAS, the beneficial interests in the Fund are divided into several
series of shares, each designated a "Portfolio" and representing interests in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940 as amended, and WHEREAS, Insurance Company
has registered the Account as a unit investment trust under the 1940 Act, and
certain variable annuity contracts supported wholly or partially by the Account
(the "Contracts") under the 1933 Act, and said Account(s) are listed on Schedule
A hereto, as it may be amended from time to time by mutual written agreement;
and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of Insurance
Company to set aside and invest assets attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Insurance Company intends to purchase shares in the Portfolios
listed in Schedule B hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolios"), on behalf of the Account to
fund the aforesaid Contracts, and the Fund intends to sell such shares to the
Account at net asset value;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, Insurance
Company, the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to Insurance Company those shares of the
Designated Portfolios which Insurance Company orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Fund, or
its designee, of the order for the shares of the Designated Portfolios. For
purposes of this Section 1.1, Insurance Company shall be the agent of the Fund
for receipt of such orders and receipt by Insurance Company shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
9:30 a.m. New York time on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Fund calculates its net asset value.
1.2. The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by Insurance
Company on those days on which the Fund calculates its net asset value, and the
Fund shall use reasonable efforts to calculate such net asset value on each day
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Directors of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or if , in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3 The Fund agrees that shares of the Designated Portfolios will be
sold only to Participating Insurance Companies and their separate accounts and
to qualified pension and retirement plans. No shares of any Designated Portfolio
will be sold to the general public.
1.4. The Fund agrees to redeem for cash, on Insurance Companies
request, any full or fractional shares of the Fund held by Insurance Companies,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption, except
that the Fund reserves the right to suspend the right of redemption or postpone
the date of payment or satisfaction upon redemption consistent with Section
22(e) of the 1940 Act. For purposes of this Section 1.5, Insurance Companies
shall be the agent of the Fund for receipt of requests for redemption and
receipt by Insurance Company shall constitute receipt by the Fund; provided that
the Fund receives notice of such request for redemption by 9:30 a.m. New York
time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies and to qualified pension and retirement plans and the cash
value of the Contracts may be invested in other investment companies.
1.6. Insurance Company shall pay for Fund shares by 12:00 noon New York
Time the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by a credit for any shares redeemed the
same day as the purchase. Upon receipt by the Fund of the
-2-
<PAGE>
federal funds so wired, such funds shall cease to be the responsibility of
Insurance Company and shall become the responsibility of the Fund.
1.7. The Fund shall pay and transmit the proceeds of redemptions of
Fund shares by 3:00 p.m. New York time the next Business Day after a redemption
order is received, subject to Section 1.5 hereof. Payment shall be in federal
funds transmitted by wire and/or a credit for any shares purchased the same day
as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to Insurance Company or the Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Account or the appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to Insurance Company of any income, dividends,
or capital gain distributions payable on the Designated Portfolios' shares.
Insurance Company hereby elects to receive all such income dividends and capital
gain distributions in additional shares of that Portfolio. Insurance Company
reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. The Fund shall notify
Insurance Company by the end of the next following Business Day of the number of
shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to Insurance Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:30
p.m. New York time. If the Fund provides incorrect per share net asset value
information, Insurance Company shall be entitled to an adjustment to the number
of shares purchased or redeemed to reflect the correct net asset value per
share. Any material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported immediately upon
discovery to Insurance Company. Any error of a lesser amount shall be corrected
in the next Business Day's net asset value per share.
In the event adjustments are required to correct any error in the
computation of a Designated Portfolio's net asset value per share, or dividend
or capital gain distribution, the Fund shall notify Insurance Company as soon as
possible after discovering the need for such adjustments. Notification can be
made orally, but must be confirmed in writing. If an adjustment is necessary to
correct an error which caused Contract owners to receive less than the amount to
which they are entitled, the Fund shall make all necessary adjustments to the
number of shares owned by the Account and distribute to the Account the amount
of the underpayment. In no event shall Insurance Company be liable to the Fund
for any such adjustments or overpayment amounts.
ARTICLE II. Representations and Warranties
------------------------------
2.1. Insurance Company represents and warrants that the Contracts are
or will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws. Insurance Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account as a segregated asset
-3-
<PAGE>
account under insurance law and has registered the Account as a unit investment
trust in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund and Adviser represent and warrants that Designated
Portfolio shares sold pursuant to this Agreement shall be registered under the
1933 Act, duly authorized for issuance and sold in compliance with all
applicable federal and state securities laws including without limitation the
1933 Act, the 1934 Act, and the 1940 Act and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration Statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states if and to the extent required by applicable law.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act or impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. To the
extent that the Fund decides to finance distribution expenses pursuant to Rule
12b-1, the Fund undertakes to have a Board, a majority of whom are not
interested persons of the Fund, formulate and approve any plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund and Adviser represent and warrant that the Fund is
lawfully organized and validly existing under the laws of the State of Maryland
and that it does and shall comply in all material respects with the 1940 Act.
2.5 The Adviser represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the fund in compliance with all applicable
state and federal securities laws.
2.6. The Fund and Adviser each represent and warrant that all of its
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are, and shall
continue to be at all times, covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimal
coverage required by Section 17g-(1) of the 1940 Act or related provisions as
may be promulgated from time to time. The aforesaid bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable bonding company.
2.7. The Fund will provide Insurance Company with as much advance
notice as is reasonably practicable of any material change affecting the
Designated Portfolios (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolios and any
proxy solicitation affecting the Designated Portfolios) and consult with
Insurance Company in order to implement any such change in an orderly manner,
recognizing the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectuses
for the Contracts.
2.8. Insurance Company represents and warrants, that, if the Fund
complies with Sections 2.9 and 2.10 of this Agreement, the Contracts are
currently treated as annuity contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended, and that it shall make every effort
necessary to maintain such treatment and that it will notify the Underwriter
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
-4-
<PAGE>
2.9. The Fund and the Adviser represent and warrant that: (a) each
Designated Portfolio currently has elected to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code ("Code"); (b) the Fund
and Adviser shall make every effort necessary that each Portfolio shall maintain
such qualification (under Subchapter M or any successor or similar provision);
(c) the fund or the Adviser will notify Insurance Company immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future; and (d) the Fund and the
Adviser will seek to minimize any damages and to rectify any Portfolio's failure
to so qualify promptly. The Fund and the Adviser acknowledge that any failure by
a Portfolio to qualify as a regulated investment company will eliminate the
ability of the Account to avail itself of the "look through" provisions of
Section 817(h) of the Code and that, as a result, the Contracts will almost
certainly fail to qualify as life insurance contracts under Section 817(h) of
the Code.
2.10. The Fund and the Adviser further represent and warrant that the
assets of each Designated Portfolio will at all times be invested in such a
manner to assure that the Contracts will be treated as life insurance contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund and the Adviser represent that the each Designated
Portfolio will at all times comply with Section 817(h) of the Code and Treasury
Regulation 1.817.5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. In the event of a breach of this Section 2.10, the Fund and the
Adviser warrant that they will take all reasonable steps: (a) to immediately
notify the Insurance Company of such breach; and (b) to adequately diversify the
Fund's assets so as to achieve compliance within the grace period afforded by
Regulation 1.817-5.
2.11. The Fund and Underwriter acknowledge that full compliance with
the requirements referred to in Sections 2.9 and 2.10 hereof is absolutely
essential because any failure to meet those requirements would result in the
Contracts not being treated as annuity contracts for federal income tax
purposes, which would have adverse tax consequences for Contract owners and
could also adversely affect the Insurance Company corporate tax liability.
ARTICLE III. Prospectuses, Reports, Proxy Statements and Voting
--------------------------------------------------
3.1. The Fund or Adviser, at their expense, shall provide Insurance
Company or its designee with current a prospectus, Statement of Additional
Information, and supplements thereto, and annual and semi-annual reports for the
Designated Portfolios in final "camera ready" copy form or on a diskette or such
other form as is required by a financial printer. The Fund and Adviser agrees
that the prospectuses, and supplements thereto, and the annual and semi-annual
reports for the Designated Portfolios will describe only the Designated
Portfolios and will not describe other Portfolios of the Fund. The Statement of
Additional Information may include information on other Portfolios of the Fund.
It is anticipated that the prospectuses and annual
-5-
<PAGE>
and semi-annual reports for the Contracts (if applicable), for the Designated
Portfolio(s) and for other portfolios available under the Contracts will be
printed together in one booklet. The Fund or Adviser shall pay a portion of the
printing expenses for prospectus and fund reports booklets distributed to
current Contract Owners. Such portion shall be the percentage, which is the
number of pages of the Fund prospectus or report as compared to the total number
of pages of the booklet. The Fund shall not pay any expenses for printing or
distribution of prospectuses or fund reports to prospective Contract Owners.
3.2. It is understood and agreed that, except with respect to
information regarding Insurance Company provided in writing by Insurance
Company, Insurance Company shall not be responsible for the content of the
prospectus, SAI or annual and semi-annual reports for the Designated Portfolios.
It is also understood and agreed that, except with respect to information
regarding the Fund and provided in writing by the Fund, the Fund shall not be
responsible for the content of the prospectus or SAI for the Contracts.
3.3. The Fund or Adviser at their expense shall provide Insurance
Company with as many copies of its Fund proxy material as Insurance Company
shall reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law, Insurance Company shall, at
its expense:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance with
instructions received from Contract owners: and
(iii) vote Designated Portfolio shares for which no instructions
have been received in the same proportion as Designated
Portfolio shares for which instructions have been received
from Contract owners in the same Account.
So long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass-through voting privileges for variable contract
owners. Insurance Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. Insurance Company shall furnish, or shall cause to be furnished,
to the Fund, or its designee, each prospectus, Statement of Additional
Information and each piece of sales literature and other promotional material
that Insurance Company develops or uses and in which the Fund (or a Portfolio
thereof), its investment adviser or one of its sub-advisers is named in
connection with the Contracts, at least 10 (ten) Business Days prior to its use.
No such material shall be used if the Fund, or its designee, objects to such use
within 10 (ten) Business Days after receipt of such material.
4.2. Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts inconsistent with the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the
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<PAGE>
permission of the Fund.
4.3. The Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of sales literature and other promotional material
developed by the Fund or its designee in which Insurance Company and/or the
Account is named at least 10 (ten) Business Days prior to its use. No such
material shall be used if Insurance Company objects to such use within 10 (ten)
Business Days after receipt of such material. Notwithstanding the fact that
Insurance Company or its designee may not initially object to a piece of sales
literature or other promotional material, Insurance Company reserves the right
to object at a later date to the continued use of any such sales literature or
promotional material in which Insurance Company is named, and no such material
shall be used thereafter if Insurance Company or its designee so objects.
4.4. The Fund and Adviser shall not give any information or make any
representations on behalf of Insurance Company or concerning Insurance Company,
the Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Account, or in sales literature or other
promotional material approved by Insurance Company or its designee, except with
the permission of Insurance Company.
4.5. For purposes of this Article IV, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, telephone directories (other than routine
listings), electronic or other public media), sales literature (i.e., any
written or electronic communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, performance reports or summaries, form letters, telemarketing
scripts, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, Statements of Additional
Information, supplements thereto, shareholder reports, and proxy materials.
4.6. At the request of any party to this Agreement, each other party
will make available to the other party's independent auditors and/or
representative of the appropriate regulatory agencies, all records, data and
access to operating procedures that may be reasonably requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund shall pay no fee or other compensation to Insurance
Company under this Agreement, except that if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 of the 1940 Act to
finance distribution and shareholder servicing expenses, then the Fund's
underwriter may make payments to Insurance Company or to the
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<PAGE>
distributor of the Contracts if and in amounts agreed to by the Fund's
underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Fund's underwriter, past profits of the underwriter or
other resources available to the underwriter. No such payments shall be made
directly by the Fund. Nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arrange for appropriate compensation for,
other services relating to the Fund and/or the Account. Insurance Company shall
pay no fee or other compensation to the Fund under this Agreement, although the
parties hereto will bear certain expenses.
5.2. All expenses incident to performance by the Fund or the Adviser
under this Agreement shall be paid by the Fund or Adviser. The Fund shall see to
it that all shares of the Designated Portfolios are registered and authorized
for issuance in accordance with applicable federal law and, if and to the extent
required, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, supplements thereto and its proxy materials and reports. The Fund or
bAdviser will bear the expenses of fulfilling their obligations under (S)(S).
3.1.
5.3. Insurance Company shall bear the expenses of routine annual
distribution of the Fund's prospectus to owners of Contracts issued by Insurance
Company and of distributing the Fund's proxy materials and reports to such
Contract owners; Insurance Company shall bear all expenses associated with the
registration, qualification, and filing of the Contracts under applicable
federal securities and state insurance laws; the cost of preparing, printing,
and distributing the Contract prospectus and SAI; and the cost of preparing,
printing and distributing annual individual account statement to Contract owners
as required by state insurance laws.
5.4. The Fund acknowledges that a principal feature of the Contracts is
the Contract owner's ability to choose from a number of unaffiliated mutual
funds (and portfolios or series thereof), including the Designated Portfolios
("Unaffiliated Funds"), and to transfer the Contract's cash value between funds
and portfolios. The Fund and Underwriter agree to cooperate with Insurance
Company in facilitating the operation of the Account and the Contracts as
intended, including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
ARTICLE VI. Potential Conflicts and Compliance With
Shared Funding Exemptive Order
------------------------------
6.1 In the event that Fund determines that it is appropriate for the
Fund to seek an order from the SEC granting insurance companies and their
separate accounts exemptions which purchase Fund shares from the provisions of
Sections 9(a), 13(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
certain qualified pension and retirement plans (the "Shared Funding Exemptive"),
this article shall apply.
6.2. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an
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<PAGE>
action by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by a participating insurance
company to disregard the voting instructions of contract owners. The Board shall
promptly inform Insurance Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
6.3. Insurance Company will report any potential or existing conflicts
of which it is aware to the Board. Insurance Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by Insurance Company to inform the Board whenever contract owner voting
instructions are disregarded. Such responsibilities shall be carried out by
Insurance Company with a view only to the interests of its Contract Owners.
6.4. If it is determined by a majority of the Board, or a majority of
its directors who are not interested persons of the Fund, its adviser or any
sub-adviser to any of the Portfolios (the "Independent Directors"), that a
material irreconcilable conflict exists, Insurance Company and other
participating insurance companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more participating insurance
companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. Insurance
Company shall not be required by this Section 6.4 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict.
6.5. If a material irreconcilable conflict arises because of a decision
by Insurance Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
Insurance Company may be required, at the Fund's election, to withdraw the
Account's investment in the Fund and terminate this Agreement; provided, however
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the Independent Directors. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice that this provision is
being implemented, and until the end of that six month period the Fund shall
continue to accept and implement orders by Insurance Company for the purchase
(and redemption) of shares of the Fund.
6.6. If a material irreconcilable conflict arises because a particular
state insurance
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<PAGE>
regulator's decision applicable to Insurance Company conflicts with the majority
of other state regulators, then Insurance Company will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs Insurance Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and the Fund shall continue to accept and implement
orders by Insurance Company for the purchase (and redemption) of shares of the
Fund.
6.7. For purposes of Sections 6.4 through 6.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
6.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable:
and (b) Sections 6.2, 6.3, 6.4, 6.5 and 6.6 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VII. Indemnification
---------------
7.1. Indemnification By Insurance Company
------------------------------------
8.1(a). Insurance Company agrees to indemnify and hold
harmless the Fund and the Adviser and their officers, directors, employees, and
agents and each person who controls the Fund within meaning of ss. 15 of the
1933 Act. (collectively, the "Indemnified Parties" for purposes of this Section
7.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus or SAI for the
Contracts or contained in the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this Agreement to indemnify shall not apply
--------
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<PAGE>
as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to
Insurance Company by or on behalf of the Underwriter or Fund
for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by Insurance Company or persons under its
control) or wrongful conduct of Insurance Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in
reliance upon information furnished in writing to the Fund by
or on behalf of Insurance Company; or
(iv) arise as a result of any failure by Insurance Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Insurance Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by Insurance Company, as
limited by and in accordance with the provisions of Sections
7.1(b) and 7.1(c) hereof.
7.1(b). Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject if caused by such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
7.1(c). Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Insurance Company
of any such claim shall not relieve Insurance Company from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Insurance Company shall be
entitled to participate, at its own expense, in the defense of such action.
Insurance Company also shall be entitled to assume the defense thereof, with
counsel
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<PAGE>
satisfactory to the party named in the action. After notice from Insurance
Company to such party of Insurance Company's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and Insurance Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
7.1(d). The Indemnified Parties will promptly notify Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
7.2. Indemnification by the Adviser
------------------------------
7.2(a). The Adviser agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents and
each person, if any, who controls Insurance Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 7.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement or prospectus or SAI or sales
literature of the Fund (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished in writing to the Adviser or Fund by or
on behalf of Insurance Company for use in the registration
statement or prospectus for the Fund or in sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for
the Contracts not supplied by the Adviser or persons under
its control) or wrongful conduct of the Fund or Adviser or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished in
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<PAGE>
writing to Insurance Company by or on behalf of the Adviser
or Fund; or
(iv) arise as a result of any failure by the Fund or Adviser to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements
specified ss. 2.9 and 2.10 in of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or Adviser in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Fund or Adviser; as
limited by and in accordance with the provisions of Sections
7.2(b) and 7.2(c) hereof.
7.2(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance or such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
7.2(c). The Adviser shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Adviser in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.2(d). Insurance Company agrees promptly to notify the
Adviser of the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
ARTICLE VIII. Applicable Law
--------------
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California,
without regard to that state's principles of conflicts of law, except that any
terms shall be defined and interpreted in accordance with, and the Agreement
subject to, the federal securities laws.
8.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts,
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<PAGE>
and the rules and regulations and rulings thereunder, including such exemptions
from those statutes, rules and regulations as the Securities and Exchange
Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE IX. Termination
-----------
9.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with
respect to some or all Portfolios, upon one (1) year advance
written notice delivered to the other parties; provided, however,
that such notice shall not be given earlier than one year
following the date of this Agreement; or
(b) at the option of Insurance Company by written notice to the
other parties with respect to any Portfolio based upon Insurance
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) at the option of Insurance Company by written notice to the
other parties with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/ or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by Insurance
Company; or
(d) at the option of the Fund in the event that formal
administrative proceedings are instituted against Insurance
Company by the National Association of Securities Dealers, Inc.
("NASD"), the Securities and Exchange Commission, the Insurance
Commissioner or like official of any state or any other
regulatory body regarding Insurance Company's duties under this
Agreement or related to the sale of the Contracts, the operation
of any Account, or the purchase of the Fund shares, provided,
however, that the Fund determines in its sole judgment exercised
in good faith, that any such administrative proceedings will have
a material adverse effect upon the ability of Insurance Company
to perform its obligations under this Agreement; or
(e) at the option of Insurance Company in the event that formal
administrative proceedings are instituted against the Fund or
Adviser by the NASD, the Securities and Exchange Commission, or
any state securities or insurance department or any other
regulatory body, provided, however, that Insurance Company
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Fund or Adviser to perform its
obligations under this Agreement; or
(f) at the option of Insurance Company by written notice to the
Fund and the Adviser with respect to any Portfolio if Insurance
Company reasonably believes that the Portfolio may fail to meet
the Section 817(h) diversification requirements or Subchapter M
qualifications specified in Section 2.9 and 2.10 of this
Agreement; or
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<PAGE>
(g) at the option of either the Fund or the Adviser, if (i) the
Fund or Adviser, respectively, shall determine, in their sole
judgement reasonably exercised in good faith, that Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse
publicity and that material adverse change or publicity will have
a material adverse impact on Insurance Company's ability to
perform its obligations under this Agreement, (ii) the Fund or
Adviser notifies Insurance Company of that determination and its
intent to terminate this Agreement, and (iii) after considering
---
the actions taken by Insurance Company and any other changes in
circumstances since the giving of such a notice, the
determination of the Fund or Adviser shall continue on the
sixtieth (60th) day following the giving of that notice, which
sixtieth day shall be the effective date of termination; or
(h) at the option of Insurance Company, if (i) Insurance Company
shall determine, in its sole judgement reasonably exercised in
good faith, that either the Fund or the Adviser have suffered a
material adverse change in their business or financial condition
or is the subject of material adverse publicity and that material
adverse change or publicity will have a material adverse impact
on the Fund's or Adviser's ability to perform its obligations
under this Agreement, (ii) Insurance Company notifies the Fund or
Adviser, as appropriate, of that determination and its intent to
terminate this Agreement, and (iii) after considering the actions
---
taken by the Fund or Adviser and any other changes in
circumstances since the giving of such a notice, the
determination of Insurance Company shall continue on the sixtieth
(60th) day following the giving of that notice, which sixtieth
day shall be the effective date of termination; or
(i) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(j) upon assignment of this Agreement, unless made with the
written consent of the parties hereto, except that the Adviser
may assign this Agreement, or any of its rights or obligations
hereunder, to any affiliate of, or company under common control
with, the Adviser (but in such event the Adviser shall continue
to be liable for any indemnification due to Insurance Company and
the assignee shall also be liable), if such assignee is duly
licensed and registered to perform the obligations of the Adviser
under this Agreement; or
(k) at the option of Insurance Company or the Fund by written
notice to the other party upon a determination by the Fund's
Board that a material irreconcilable conflict exists among the
interests of (i) all contract owners of all separate accounts
investing in the Fund or (ii) the interests of the Participating
Insurance Companies; or
(l) at the option of Insurance Company by written notice to the
Fund or the Adviser upon the sale, acquisition or change of
control of the Adviser.
9.2. Notice Requirement. No termination of this Agreement shall be
------------------
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination.
9.3. Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the
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<PAGE>
Fund and the Adviser shall, at the option of Insurance Company, continue to make
available additional shares of the Fund for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts") pursuant to the terms and conditions of this Agreement.
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 9.3 shall not apply
to any terminations under Article VI and the effect of such Article VI
terminations shall be governed by Article VI of this Agreement.
9.4. Surviving Provisions. Notwithstanding any termination of this
--------------------
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
ARTICLE X. Notices
-------
Any notice shall be sufficiently given when sent by registered or
certified mail or by overnight mail sent through a nationally-recognized
delivery service to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to Insurance Company:
PFL Life Insurance Company
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52406
Attention: General Counsel, Financial Markets Division
If to the Fund:
Transamerica Variable Insurance Fund, Inc.
1150 South Olive Street
Los Angeles, CA 90015
Attention: Secretary
If to the Adviser:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, CA 90015
Attention: General Counsel
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<PAGE>
ARTICLE XI. Miscellaneous
-------------
10.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that another party reasonably considers to be proprietary.
10.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
10.6. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
10.7. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto.
10.8. The Schedules attached hereto, as modified from time to time, are
incorporated herein by reference and are part of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
PFL LIFE INSURANCE COMPANY:
By its authorized officer
By: /s/ William L. Busler
------------------------
Title: President
--------------------
-17-
<PAGE>
TRANSAMERICA VARIABLE INSURANCE FUND, INC.:
By its authorized officer,
By: /s/ Regina M. Fink
---------------------------
Title: Secretary
------------------------
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY:
By its authorized officer,
By: /s/ David Goldstein
---------------------------
Title: Vice President &
------------------------
Deputy General Counsel
-18-
<PAGE>
Effective May 1, 2000
AMENDED SCHEDULE A
------------------
Extra Variable Annuity
Endeavor Variable Annuity
Endeavor ML Variable Annuity
Endeavor Platinum Variable Annuity
AUSA Endeavor Variable Annuity
Access Variable Annuity
Retirement Income Builder II Variable Annuity
Legacy Builder Plus
-19-
<PAGE>
SCHEDULE B
----------
Designated Portfolios
- ---------------------
Growth Portfolio of Transamerica Variable Insurance Fund, Inc.
-20-
<PAGE>
NOTICE
With regard to
November 1, 1999
Participation Agreement between
Transamerica Variable Insurance Fund
Transamerica Occidental Life Insurance Company
and
PFL Life Insurance Company
Effective January 1, 2000, and pursuant to (S)(S) 8.1 and (S)(S) 9.1(j) of
this Agreement, Transamerica Investment Management, LLC, replaced Transamerica
Occidental Life Insurance Company as Adviser.
/s/ Regina M. Fink
- ---------------------------------------------------------------------
Regina M. Fink
Assistant General Counsel, Transamerica Occidental Life Insurance Company
Counsel to Transamerica Investment Management, LLC
Secretary, Transamerica Variable Insurance Fund, Inc.
<PAGE>
EXHIBIT (8)(j)(1)
-----------------
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENT BY AND BETWEEN VARIABLE INSURANCE
PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, FIDELITY DISTRIBUTORS
CORPORATION, AND PFL LIFE INSURANCE COMPANY
<PAGE>
Participation Agreement Addendum
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated April 1,
1991 (as amended) among Variable Insurance Products Fund, Variable Insurance
Products Fund II, Fidelity Distributors Corporation and PFL Life Insurance
Company.
<TABLE>
<CAPTION>
Date of Resolutions of
Company's Board which
Name of Contracts Name of Accounts established the Accounts
----------------- ---------------- ------------------------
<S> <C> <C>
Fidelity Income Plus Individual Fidelity Variable August 24, 1979 (by an
Variable Annuity Contracts Annuity Account affiliate subsequently
acquired by the Company)
PFL Endeavor Individual and Group PFL Endeavor VA
Variable Annuity Contracts Separate Account January 19, 1990
PFL Endeavor Platinum Individual and PFL Endeavor VA
Group Variable Annuity Contracts Separate Account January 19, 1990
PFL Retirement Builder Individual PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Builder Immediate PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
Portfolio Select Individual Variable PFL Retirement Builder Variable
Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Income Builder II PFL Retirement Builder Variable
Individual Variable Annuity Contracts Annuity Account March 29, 1996
Extra Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account C
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Access Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account D
Select Advantage Individual Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund
By: /s/ William L. Busler By: /s/ Robert C. Pozen
------------------------ ------------------------
Title: President Title: Senior Vice President
------------------------ -------------------------
Date: February 28, 2000 Date: February 19, 2000
----------------------- --------------------------
Fidelity Distributors Corporation Variable Insurance Products Fund II
By: /s/ Kevin Kelly By: /s/ Robert C. Pozen
-------------------- -----------------------
Title: Vice President Title: Senior Vice President
-------------------- -------------------------
Date: February 19, 2000 Date: February 19, 2000
-------------------- --------------------------
<PAGE>
EXHIBIT (8)(k)(1)
-----------------
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENT BY AND BETWEEN
VARIABLE INSURANCE PRODUCTS FUND III, FIDELITY DISTRIBUTORS
CORPORATION, AND PFL LIFE INSURANCE COMPANY
<PAGE>
Participation Agreement Addendum
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated March
21, 1997 among Variable Insurance Products Fund III, Fidelity Distributors
Corporation and PFL Life Insurance Company.
<TABLE>
<CAPTION>
Date of Resolutions of
Company's Board which
Name of Contracts Name of Accounts established the Accounts
----------------- ---------------- ------------------------
<S> <C> <C>
Fidelity Income Plus Individual Fidelity Variable August 24, 1979 (by an affiliate
Variable Annuity Contracts Annuity Account subsequently acquired by the
Company)
PFL Endeavor Individual and Group PFL Endeavor VA
Variable Annuity Contracts Separate Account January 19, 1990
PFL Endeavor Platinum Individual and PFL Endeavor VA
Group Variable Annuity Contracts Separate Account January 19, 1990
PFL Retirement Builder Individual PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Builder Immediate PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
Portfolio Select Individual Variable PFL Retirement Builder Variable
Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Income Builder II PFL Retirement Builder Variable
Individual Variable Annuity Contracts Annuity Account March 29, 1996
Extra Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account C
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Access Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account D
Select Advantage Individual Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund III
By: /s/ William L. Busler By: /s/ Robert C. Pozen
----------------------------- ----------------------------
Title: President Title: Senior Vice President
----------------------------- ----------------------------
Date: February 28, 2000 Date: February 19, 2000
----------------------------- -----------------------------
Fidelity Distributors Corporation
By: /s/ Kevin Kelly
--------------------------
Title: Vice President
--------------------------
Date: February 19, 2000
--------------------------
<PAGE>
EXHIBIT (1O)(a)
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statements of Additional Information and to the use of our reports
(1) dated January 28, 2000 with respect to the financial statements of certain
subaccounts of PFL Endeavor VA Separate Account, which are available for
investment by contract owners of the Endeavor Variable Annuity, (2) dated
January 28, 2000 with respect to the financial statements of certain subaccounts
of PFL Endeavor VA Separate Account, which are available for investment by
contract owners of the Endeavor ML Variable Annuity, (3) dated February 4, 2000
with respect to the financial statements of the subaccounts of the PFL Endeavor
Target Account, and (4) dated February 18, 2000 with respect to the statutory-
basis financial statements and schedules of PFL Life Insurance Company, included
in Post-Effective Amendment No. 21 to the Registration Statement (Form N-4
No. 33-33085) and related Prospectuses of The Endeavor Variable Annuity and The
Endeavor ML Variable Annuity.
/s/ Ernst & Young
Des Moines, Iowa
April 24, 2000
<PAGE>
EXHIBIT (10)(b)
OPINION AND CONSENT OF ACTUARY
<PAGE>
[PFL Life Insurance Company Letterhead]
April 10, 2000
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
Re: PFL Endeavor Variable Annuity Account
Registration on Form N-4 SEC File No. 33-33085
Dear Sir/Madam:
With regard to the above registration statement, I have examined such documents
and made such inquiries as I have deemed necessary and appropriate, and on the
basis of such examination, have the following opinions:
Fees and charges deducted under the PFL Endeavor Variable Annuity policies are
those deemed necessary to appropriately reflect:
(1) the expenses incurred in the acquisition and distribution of the Policies,
(2) the expenses associated with the development and servicing of the policies,
(3) the assumption of certain risks arising from the operation and management
of the Policies and/or riders to the Policy and that provides for a
reasonable margin of profit.
Fees and charges assessed against the policy values in the Variable Account
include:
(i) Service Charge and Administrative Charge
(ii) Contingent Deferred Sales Charge (Surrender Charge)
(iii) Mortality and Expense Risk Fee (M&E)
(iv) Taxes (including Premium and other Taxes if applicable)
The magnitude of each of the individual charges listed above in (i) through (iv)
is established in the pricing of the PFL Endeavor Variable Annuity, to achieve a
reasonable Return on Investment (ROI), which is within the range of industry
practice with respect to comparable variable annuity products.
<PAGE>
PFL Life Insurance Company
April 10, 2000
Page 2
Except by coincidence, it is not expected that actual charges assessed in a
given year would exactly offset actual expenses incurred. Acquisition expenses
(as well as major product and/or systems development expenses) are incurred "up
front" and recovered, with a reasonable profit margin, through future years'
charges. In addition, the company cannot increase certain charges under the
Policies in the pricing process.
Therefore, in my opinion, the fees and charges deducted under the Policies, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the company.
I hereby consent to the use of this opinion, which is included as an Exhibit to
the Registration Statement.
/s/ Calvin R. Birkey
- ---------------------------------
Calvin R. Birkey, FSA, MAAA
Managing Actuary
PFL Life Insurance Company
