<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999.
REGISTRATION NO. 33-92226
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2 [X]
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
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PFL ENDEAVOR VARIABLE LIFE ACCOUNT
(EXACT NAME OF REGISTRANT)
PFL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
4333 EDGEWOOD ROAD, N.E.
CEDAR RAPIDS, IA 52499
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
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WILLIAM L. BUSLER, ESQ.
PRESIDENT
PFL LIFE INSURANCE COMPANY
4333 EDGEWOOD ROAD, N.E.
CEDAR RAPIDS, IA 52499
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
------------------
COPY TO:
FREDERICK R. BELLAMY, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2404
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
TITLE OF SECURITIES BEING REGISTERED: Individual flexible premium variable
life insurance policies.
----------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485.
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X on May 1, 1999 pursuant to paragraph (b)(1)(iii) of Rule 485.
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60 days after filing pursuant to paragraph (a)(i) of Rule 485.
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on May 1, 1999 pursuant to paragraph (a)(i) of Rule 485.
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If appropriate, check the following box:
This post-effective amendment designates a new effective date
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for a previously filed post-effective amendment.
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS IN FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
N-8B-2
ITEM CAPTION IN PROSPECTUS
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<S> <C>
1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of the Policy
5 PFL and The Accounts
6 PFL and The Accounts
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Introduction; PFL and The Accounts; Charges and Deductions; Policy
Rights and Benefits; Voting Rights; General Provisions
11 Introduction; PFL and The Accounts
12 Introduction; PFL and The Accounts
13 Introduction; Charges and Deductions; PFL and The Accounts
14 Introduction; Issuance of Policy
15 Payment and Allocation of Premiums
16 Payment and Allocation of Premiums; PFL and The Accounts
17 Introduction; Charges and Deductions; Policy Rights and Benefits; PFL
and The Accounts
18 Payment and Allocation of Premiums; PFL and The Accounts
19 General Provisions; Voting Rights
20 Not Applicable
21 Policy Rights and Benefits; General Provisions
22 Not Applicable
23 Safekeeping of the Variable Account Assets
24 General Provisions
25 PFL and The Accounts
26 Not Applicable
27 PFL and The Accounts
28 Executive Officers and Directors of PFL
29 PFL and The Accounts
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 PFL and The Accounts
36 Not Applicable
37 Not Applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not Applicable
41 Distribution of the Policies
42 Not Applicable
43 Not Applicable
44 Cash Value
45 Not Applicable
46 Cash Value
47 Introduction; Allocation of Premiums and Cash Values
48 Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2
ITEM CAPTION IN PROSPECTUS
------ ---------------------
<S> <C>
49 Not Applicable
50 Not Applicable
51 Introduction; PFL; Policy Benefits; Charges and Deductions
52 The Variable Account
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Not Applicable
</TABLE>
<PAGE>
PFL ENDEAVOR
VARIABLE LIFE
Issued Through
PFL ENDEAVOR VARIABLE LIFE ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus May 1, 1999
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about the PFL Endeavor Variable Life Policy,
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 has been filed
with the Securities and Exchange Commission (SEC) and is incorporated herein by
reference. Information about the separate account and the target account can be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You
may obtain information about the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site
(http://www.sec.gov) that contains the prospectus, material incorporated by
reference, and other information.
Please note that an investment in this policy:
.is not a bank deposit
. is not federally insured
. is not endorsed by any bank or government agency
. is not guaranteed to achieve its goal
. is subject to risk, including loss of the amount invested
The individual flexible premium variable life insurance policy has several
investment choices. There is a fixed account, which offers an interest rate
that is guaranteed by PFL, and thirteen mutual fund portfolios listed below.
You can choose any combination of these investment choices. You bear the entire
investment risk for amounts that you put in any of the mutual fund portfolios.
ENDEAVOR SERIES TRUST
Endeavor Asset Allocation
Endeavor Money Market
T. Rowe Price Equity Income
T. Rowe Price Growth Stock
T. Rowe Price International Stock
Endeavor Value Equity
Endeavor Opportunity Value
Endeavor Enhanced Index P
Dreyfus U.S. Government Securities
Dreyfus Small Cap Value
Endeavor Select 50
Endeavor High Yield
Endeavor Janus Growth
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS Page
<TABLE>
<S> <C>
GLOSSARY OF TERMS........................................................... 3
POLICY SUMMARY.............................................................. 5
RISK SUMMARY................................................................ 9
PORTFOLIO ANNUAL EXPENSE TABLE.............................................. 12
PFL AND THE ACCOUNTS........................................................ 14
PFL Life Insurance Company.................................................. 14
The Variable Account........................................................ 14
The Fixed Account........................................................... 16
POLICY RIGHTS AND BENEFITS.................................................. 18
Death Benefit............................................................... 18
Cash Value.................................................................. 21
Transfers................................................................... 22
Policy Loans................................................................ 23
Surrender and Cash Withdrawal Privileges.................................... 24
Examination of Policy Privilege............................................. 25
Benefits at Maturity........................................................ 25
Payment of Policy Benefits.................................................. 25
PAYMENT AND ALLOCATION OF PREMIUMS.......................................... 26
Issuance of a Policy........................................................ 26
Temporary Insurance Coverage................................................ 26
Premiums.................................................................... 27
Allocation of Premiums and Cash Value....................................... 28
Policy Lapse and Reinstatement.............................................. 29
CHARGES AND DEDUCTIONS...................................................... 30
Premium Expense Charges..................................................... 30
Contingent Surrender Charges................................................ 30
Monthly Deductions.......................................................... 31
Transaction Charges......................................................... 32
Variable Account Asset (Daily) Charges...................................... 33
Taxes....................................................................... 33
Investment Advisory Fee..................................................... 34
Group or Sponsored Arrangements............................................. 34
FEDERAL TAX MATTERS......................................................... 35
Introduction................................................................ 35
Tax Status of the Policy.................................................... 35
Tax Treatment of Policy Benefits............................................ 35
Possible Tax Law Changes.................................................... 37
Possible Charges for PFL's Taxes............................................ 37
</TABLE>
Page
<TABLE>
<S> <C>
GENERAL PROVISIONS........................................................ 37
Postponement of Payments.................................................. 37
The Contract.............................................................. 37
Suicide................................................................... 37
Incontestability.......................................................... 37
Change of Owner or Beneficiary............................................ 38
Assignment................................................................ 38
Misstatement of Age or Sex................................................ 38
Reports and Records....................................................... 38
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS.............................. 38
VOTING RIGHTS OF THE VARIABLE ACCOUNT..................................... 39
STATE REGULATION OF PFL................................................... 39
EXECUTIVE OFFICERS AND DIRECTORS OF PFL................................... 39
YEAR 2000 MATTERS......................................................... 40
DISTRIBUTION OF THE POLICIES.............................................. 40
LEGAL MATTERS............................................................. 40
IMSA...................................................................... 40
LEGAL PROCEEDINGS......................................................... 40
EXPERTS................................................................... 41
ADDITIONAL INFORMATION.................................................... 41
INFORMATION ABOUT PFL'S FINANCIAL STATEMENTS.............................. 41
APPENDIX A................................................................ 42
Past Investment Experience................................................ 42
APPENDIX B................................................................ 45
Illustration of Benefits.................................................. 45
APPENDIX C................................................................ 50
The PFL Endeavor Variable Life Account and the "Dollar Cost Averaging"
Investment Method........................................................ 50
INDEX TO FINANCIAL STATEMENTS............................................. 52
</TABLE>
2
<PAGE>
GLOSSARY OF TERMS
Attained Age--The issue age plus the number of completed policy years.
Anniversary--The same day and month as the policy date for each succeeding year
the policy remains in-force.
Cash Value--The sum of the values in each subaccount plus the policy's value in
the fixed account.
Fixed Account--An allocation option other than the variable account. The fixed
account is part of PFL's general account.
General Account--The assets of PFL other than those allocated to the variable
account or any other separate account.
Guideline Premium--The level annual premium payment necessary to provide the
benefits that you select under the policy through its maturity date, based on
the particular facts relating to the insured and certain assumptions allowed by
law. The dollar amount of the guideline premium is shown on the policy's
schedule page.
In-force--Condition under which the coverage is active and the insured's life
remains insured.
Initial Premium--The amount that must be paid before coverage begins.
Insured--The person upon whose life the policy is issued.
Issue Age--Issue age refers to the age on the insured's birthday nearest the
policy date.
Lapse--Termination of the policy at the end of the grace period.
Loan Reserve--A part of the fixed account to which amounts are transferred as
collateral for policy loans.
Maturity Date--The date when coverage under the policy will terminate if the
insured is living and the policy is in-force.
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.
Net Surrender Value--The amount payable upon surrender of the policy equal to
the cash value less indebtedness and less any surrender charge.
Net Premium--The portion of the premium available for allocation to either the
fixed account or the subaccounts. The net premium equals the premium that you
paid less any applicable premium expense charges.
PFL--PFL Life Insurance Company.
Planned Periodic Premium--A scheduled premium of a level amount at a fixed
interval over a specified period of time. The policy could lapse even if
planned periodic premiums are paid in full and on schedule.
Policy Date--The date set forth in the policy when insurance coverage is
effective and monthly deductions commence under the policy. The policy date is
used to determine policy months, years and anniversaries.
Policyowner ("owner" or "you")--The person who owns the policy and who may
exercise all rights under the policy while living.
Record Date--The date the policy is recorded on the books of PFL as an in-force
policy.
Specified Amount--The minimum death benefit payable under the policy as long as
the policy remains in-force. Any outstanding indebtedness and any due and
unpaid charges will reduce the death benefit proceeds.
Subaccount--A subdivision of the variable account. Each subaccount invests
exclusively in the shares of a specified portfolio of the funds.
3
<PAGE>
Valuation Date--Each day the New York Stock Exchange is open for trading and
any other day when the Securities and Exchange Commission requires mutual funds
or unit investment trusts to be valued. The determination of the net asset
value is made at the end of each valuation day.
Valuation Period--The period beginning the close of trading on the New York
Stock Exchange on each day the New York Stock Exchange is open and ending at
the close of trading on the next succeeding day the New York Stock Exchange is
open. The New York Stock Exchange generally closes at 4:00 p.m. eastern time.
The New York Stock Exchange is generally closed on holidays.
Variable Account--PFL Endeavor Variable Life Account, a separate investment
account established by PFL to receive and invest net premiums allocated to it
under the policy.
4
<PAGE>
POLICY SUMMARY
The information in this summary corresponds to the information in the body of
this prospectus, which discuss the topics in more detail. Words printed in
italics in this prospectus are defined in the Glossary.
The Policy In General
The PFL Endeavor Variable Life Policy is an individual flexible premium
variable life insurance policy. The policy is designed to be long-term in
nature in order to provide significant life insurance benefits for the
insured(s) named in the policy. You should consider the policy in conjunction
with other insurance you own. The policy is not suitable as a short-term
savings vehicle.
The policy provides a free-look period. You may cancel the policy:
. within 10 days after you receive it;
. within 10 days after PFL mails or delivers a written notice of withdrawal
right to you; or
. within 45 days after signing the application, whichever is latest.
Certain states require a free-look period longer than 10 days, either for all
policyowners or for certain classes of policyowners. In most states, PFL will
refund the net premiums plus any charges previously deducted.
Premiums
You have considerable flexibility concerning the amount and frequency of
premium payments. PFL will require you to pay an initial premium at least equal
to a minimum monthly guaranteed coverage premium set forth in the policy before
PFL issues the policy. Thereafter, subject to certain restrictions, you may
make premium payments in any amount and at any frequency.
You will also determine a planned periodic premium schedule. The schedule will
provide for a premium payment of a level
amount at a fixed interval over a specified period of time. Your policy will
state the amount and frequency of planned premium payments. You may request to
change the amount and frequency of planned premium payments in writing. Payment
of the planned premiums may not prevent the policy from lapsing. See "PAYMENT
AND ALLOCATION OF PREMIUMS--Policy Lapse and Reinstatement."
The net premium equals the premium paid less the premium expense charges. You
determine in the application how PFL will allocate your net premiums. Net
premiums may be allocated to the subaccounts, the fixed account, or a
combination of both. You may change the allocation of future premiums at any
time by notifying PFL in writing. Each portfolio has a different investment
objective.
Variable Account Options
You may direct your premiums to any of the subaccounts. The premiums you place
in the subaccounts are not guaranteed. The value of each subaccount will
increase or decrease, depending on investment performance. You could lose some
or all of your money.
Each subaccount invests in shares of a designated portfolio of the Endeavor
Series Trust. The following thirteen subaccounts are currently available to
you:
ENDEAVOR SERIES TRUST
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Endeavor Value Equity Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Enhanced Index Portfolio
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Endeavor Select 50 Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
5
<PAGE>
Fixed Account Options
You may also allocate your premiums to the fixed account.
PFL will credit interest to amounts in the fixed account at an effective annual
rate of at least 4% per year. PFL may credit amounts in the fixed account with
interest at a current interest rate in excess of 4%. Once determined, a current
interest rate will be guaranteed for at least one year. You bear the risk that
the current interest rate will not exceed 4% per year. PFL bears the full
investment risk for all cash value in the fixed account.
Cash Value
The policy's cash value in the variable account will increase or decrease to
reflect:
. the amount and frequency of premium payments;
. the investment experience of the chosen subaccounts;
. any partial surrenders; and
. any charges imposed in connection with the policy.
You bear the entire investment risk for amounts allocated to the variable
account. PFL does not guarantee a minimum cash value.
Transfers
Subject to certain restrictions, you may transfer amounts among the subaccounts
of the variable account or from the subaccounts to the fixed account. Transfers
may also be made from the fixed account to the subaccounts subject to certain
restrictions. The transfer will be effective on the first valuation date on or
following the day PFL receives appropriate notice of such transfer at the
administrative office.
PFL reserves the right to impose a charge of $25 for each transfer following
the first twelve transfers made during any policy year. However, PFL does not
currently impose a charge for transfers, regardless of the number made.
Charges and Deductions
Various charges may be deducted from premiums, periodically from cash value,
and upon surrender.
Premium Charges. PFL will deduct a sales charge and any applicable premium tax
charge from each premium. The sales charge is 2.5% of each premium, and the
premium tax charge is 2.5% of each premium (so the total deducted from each
premium is 5.0% of the premium). PFL guarantees that these charges will not
increase for the life of the policy.
Surrender Charges. PFL deducts a surrender charge from certain early surrenders
or cash withdrawals. The surrender charge applies in the first fifteen policy
years. It consists of both a deferred sales charge of up to 26.5% of premiums
and a deferred issue (or underwriting) charge of up to $5.00 per $1,000 of
specified amount. A surrender charge also applies in the first fifteen years
after an increase in specified amount. However, up to 10% of the cash value can
be withdrawn free of surrender charge once each policy year after the first
year.
The surrender charge may be significant. You may not have net surrender value
if you surrender your policy in the early policy years.
Variable Account Asset (Daily) Charges. PFL deducts various charges from the
assets of the variable account on a daily basis to compensate PFL for the
following:
.mortality and expense risks (0.90%);
.administrative expenses (0.40%);
.distribution expenses (0.50%); and
.deferred acquisition cost taxes (0.10%).
The total of these charges equals the daily equivalent of an annual charge of
1.90% of the variable account assets for the first ten policy years, and 1.30%
thereafter. The charges for distribution expenses and deferred acquisition cost
taxes only apply
6
<PAGE>
for ten years. These charges are guaranteed not to increase for the life of the
policy and are not deducted from the fixed account.
Monthly Deductions. PFL deducts the following two charges from the cash value
each month:
. a $5.00 monthly administrative charge (guaranteed not to increase); and
. a monthly charge for the cost of insurance that varies according to the
insured's age, sex, and risk classification.
Transaction Charges. PFL may deduct a transaction charge of $25 for each
transfer in excess of 12 in any one-policy year. PFL currently waives this
charge. PFL also charges for each partial withdrawal of cash value. This charge
is the lesser of $25 or 2% of the amount withdrawn.
Other Charges and Expenses. PFL does not currently make deductions from the
variable account for federal or state income taxes. PFL reserves the right to
do so.
Management Fees and Other Expenses. Management fees and other expenses are
deducted from each applicable portfolio. The management fees and other expenses
for each portfolio for 1998, stated as a percentage of the aggregate average
daily net assets of the portfolio, are found in the "Portfolio Annual Expense
Table".
Loans
After the first anniversary, you may obtain a policy loan in any amount that is
not greater than 90% of the net surrender value. The net surrender value is the
cash value less any indebtedness and less any surrender charges. Please note
that a loan taken from, or secured by, a policy may be treated as a taxable
distribution, and may also be subject to a penalty tax.
A loan interest rate of 8.0% per annum is charged in advance. Loan interest is
due at each anniversary. If you do not pay the interest when due, it will be
added to the loan and bear interest at the same rate. We will transfer the
requested loan amount, plus interest in advance, from the variable account to
the loan reserve and we will credit it with guaranteed interest at a rate of 4%
per year. The loan reserve is part of PFL's general account. PFL may credit the
loan reserve with additional interest at a rate higher than 4% per year. PFL is
currently crediting the loan reserve with a rate higher than 4% per year. The
minimum loan amount is generally $500. When you repay a loan, PFL transfers
amounts in the loan reserve in excess of the outstanding value of the loan to
the variable account in the same manner as net premium allocations.
Death Benefit
The policy provides for PFL to pay benefits when the insured dies. The policy
contains the following death benefit options:
. Death Benefit Option A. The death benefit is the greater of (a) the
specified amount of the policy or (b) a specified percentage times the cash
value of the policy on the date the insured dies.
. Death Benefit Option B. The death benefit is the greater of (a) the
specified amount of the policy plus the cash value of the policy on the date
the insured dies or (b) a specified percentage of cash value of the policy
on the date the insured dies.
Under both death benefit options, the death benefit will not be less than the
current specified amount of the policy, as long as the policy remains in-force.
Any outstanding indebtedness and any due and unpaid charges will reduce these
proceeds. Any additional insurance benefits added by a rider and any unearned
loan interest will increase these proceeds. Your policy will state the minimum
specified amount.
PFL may pay benefits under the policy in a lump sum or under one of the
settlement options set forth in the policy.
You have significant flexibility to adjust the death benefit payable by
increasing or decreasing the specified amount of the
7
<PAGE>
policy or by changing your death benefit option. You may change the death
benefit option only once each policy year and only after the third policy year.
No increase in the specified amount may be requested during the first policy
year nor on or after the insured's attained age 86. No decrease may be
requested during the first policy year. Any increase in the specified amount
will:
. result in additional charges;
. be subject to PFL's underwriting requirements; and
. be subject to suicide exclusions and incontestability restrictions.
Partial Withdrawals and Surrenders
You may totally surrender the policy at any time and receive the net surrender
value of the policy. Subject to certain limitations, you may also make cash
withdrawals from the policy at any time after the first policy year and prior
to the maturity date. If Death Benefit Option A is in effect, cash withdrawals
will reduce the policy's specified amount by the amount of the cash withdrawal.
The net surrender value is the cash value less any indebtedness and less any
surrender charge.
Withdrawals and total surrenders may be taxable, and may be subject to a
penalty tax and surrender charges.
Inquiries
If you need more information, please contact us at:
Administrative 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
8
<PAGE>
RISK SUMMARY
Investment Risk
You bear investment risk with respect to the subaccounts. See the Endeavor
Series Trust prospectus for more specific information regarding these risks.
Risk of Lapse
The policy will lapse whenever net surrender value is insufficient to pay the
monthly deduction, and a grace period expires without you making a sufficient
payment. The failure to pay a planned periodic premium will not automatically
cause the policy to lapse. The policy can lapse even if you pay planned
periodic premiums on schedule, or you pay premiums in other amounts, if net
surrender value is insufficient to pay certain monthly charges, and a grace
period expires without a sufficient payment. If the insured is alive and the
policy is in-force on the maturity date, the policy will then terminate and no
longer be in-force as of the maturity date. PFL will pay you the net surrender
value as of the maturity date.
The policy has a "death benefit guarantee" that prevents lapse in certain
circumstances. During the first three policy years, the policy will remain in-
force and no grace period will begin, provided:
. you do not increase the specified amount; and
. the total premiums you paid (minus any withdrawals and outstanding loans)
equals or exceeds the minimum monthly guarantee premium, times the number of
months since the policy date, including the current month.
Tax Risks
PFL believes that a policy issued on a standard rate class should meet the
definition of a life insurance contract under Section 7702 of the Internal
Revenue Code.
There is little guidance with respect to a policy that is issued on a
substandard rate class (e.g., where higher cost of insurance charges are
imposed because of the insured's health or other conditions). Thus, it is not
clear whether such a policy would satisfy Section 7702, particularly if you pay
the full amount of premiums permitted under the policy. If it is subsequently
determined that a policy does not qualify as a life insurance contract, PFL
will take whatever steps are appropriate and reasonable to attempt to have such
a policy comply with Section 7702. For these reasons, PFL reserves the right to
modify the policy as necessary to attempt to qualify it as a life insurance
contract under Section 7702.
Assuming that a policy qualifies as a life insurance contract for federal
income tax purposes, PFL believes that the death benefit paid under the policy
generally should be fully excludable from the gross income of the beneficiary
for federal income tax purposes. Moreover, you should not be deemed in
constructive receipt of cash values under a policy until there is a
distribution from the policy.
A policy may be treated as a "modified endowment contract" depending upon the
amount of premiums paid in relation to the death benefit. If the policy is a
modified endowment contract, then all pre-death distributions, including policy
loans and loans secured by a policy, will be treated first as a distribution of
taxable income to the extent of any gain and then as a return of basis or
investment in the contract. In addition, prior to age 59 1/2 any distributions
of gains generally will be subject to a 10% penalty tax.
If a policy is not a modified endowment contract, distributions generally will
be treated first as a return of basis or investment in the contract and then as
disbursing taxable income. Moreover, policy loans and loans secured by a policy
will not be treated as distributions. Finally, neither distributions nor loans
from a policy that is not a modified endowment contract are subject to the 10%
penalty tax.
Limits on Withdrawals
PFL limits cash withdrawals to a minimum of $500. Cash withdrawals may not
cause
9
<PAGE>
the net surrender value after the cash withdrawal to be less than $500. Cash
withdrawals will affect the policy's cash value, the death benefit, and (if you
choose Death Benefit Option A) the specified amount. (See, Surrender and Cash
Withdrawal Privileges.) PFL will not permit a cash withdrawal that would reduce
the specified amount below the minimum specified amount set forth in your
policy, or cause the policy to fail to qualify as life insurance under the
Internal Revenue Code.
Federal income taxes and a tax penalty may apply to cash withdrawals and
surrenders.
Effects of Policy Loans
The risks involved in taking a policy loan include:
. adverse tax consequences which will occur if a policy lapses with loans
outstanding; and
. the additional potential for a policy to lapse if projected earnings are not
achieved. This is taking outstanding loans into account.
A policy loan will also affect the cash value and death benefit. (See Policy
Loans.)
Effects of Surrender Charges
The surrender charges under this policy are significant, especially in the
early policy years. There is the risk that you will not receive anything if you
surrender your policy, especially in the early policy years. You should
purchase this policy only if you have the financial ability to keep it in force
at the initial specified amount for a substantial period of time.
Even if you do not ask to surrender your policy, surrender charges play a role
in determining whether your policy will lapse. Net surrender value is the
measure PFL uses each month after the no lapse period to determine whether your
policy will remain in-force or will lapse.
Comparison With Other Insurance Policies
Like conventional fixed-benefit life insurance, as long as the policy remains
in-force, the policy will provide for:
. the payment of a minimum death benefit to a beneficiary upon the insured's
death;
. the accumulation of cash value; and
. surrender rights and policy loan privileges.
The policy differs from conventional fixed-benefit life insurance by allowing
you to allocate net premiums to one or more subaccounts, to the fixed account,
or to a combination of both. Each subaccount invests in a designated portfolio
of the Endeavor Series Trust.
Unlike conventional fixed-benefit life insurance, the amount and/or duration of
the life insurance coverage and the cash value of the policy are not guaranteed
and may increase or decrease depending upon the investment experience of the
selected subaccounts of the variable account. You bear the investment risk of
any depreciation in value of the underlying portfolio shares in the
subaccounts, but reap the benefits of any appreciation in value.
Also, unlike conventional fixed-benefit life insurance, you have the
flexibility, subject to certain restrictions, to vary the frequency and amount
of premium payments and to adjust the death benefits payable under the policy
by increasing or decreasing the specified amount. Thus, unlike the conventional
fixed-benefit life insurance, the policy does not require you to adhere to a
fixed premium schedule.
The failure to pay a planned periodic premium will not necessarily cause the
policy to lapse. However, the policy may lapse even if you pay the scheduled
premiums, because additional premium payments may be necessary to prevent lapse
if the net surrender value is insufficient to pay certain monthly charges, and
you do not make a sufficient payment before a grace period expires. See
10
<PAGE>
"PAYMENT AND ALLOCATION OF PREMIUMS--Policy Lapse and Reinstatement."
Illustrations
The hypothetical illustration at the end of this prospectus and any specific
ones used in connection with the purchase of a policy are based on hypothetical
rates of return. These rates are not guaranteed, and are provided only to
illustrate how the specified amount, policy charges and hypothetical rates of
return affect death benefit levels, cash value, and net surrender value of the
policy.
We may also illustrate policy values based on the adjusted historical
performance of the portfolios since the portfolios' inception, reduced by
policy subaccount charges. These figures will not reflect all of the policy
charges. Those charges would reduce the performance figures.
The hypothetical and adjusted historic portfolio rates illustrated should not
be considered to represent past or future performance. There is a risk that
actual rates of return may be higher or lower than those illustrated, so that
the values under your policy will be different from those in the illustrations.
11
<PAGE>
PORTFOLIO ANNUAL EXPENSE TABLE
This table shows the fees and expenses charged by the portfolios. See the
fund's prospectuses for more detail concerning the portfolios' fees and
expenses.
Annual Portfolio Operating Expenses(/1/)
(as a percentage of average net assets and after expense reimbursements)
<TABLE>
<CAPTION>
Total
Management Other Rule 12b-1 Annual
Fees Expenses Fees(/2/) Expenses(/3/)
---------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Endeavor Money Market.......... 0.50% 0.10% -- 0.60%
Endeavor Asset Allocation...... 0.75% 0.03% 0.02% 0.80%
Endeavor Value Equity.......... 0.80% 0.04% 0.01% 0.85%
Endeavor Opportunity
Value(/4/).................... 0.80% 0.18% 0.01% 0.99%
Endeavor Enhanced Index........ 0.75% 0.35% -- 1.10%
Endeavor Select 50(/5/)........ 1.10% 0.39% -- 1.49%
Endeavor High Yield(/6/)....... 0.775% 0.525% -- 1.30%
Dreyfus Small Cap Value........ 0.80% 0.06% 0.08% 0.94%
Dreyfus U.S. Government
Securities(/7/)............... 0.60% 0.12% -- 0.72%
T. Rowe Price Equity Income.... 0.80% 0.05% -- 0.85%
T. Rowe Price Growth Stock..... 0.80% 0.07% -- 0.87%
T. Rowe Price International
Stock(/8/).................... 0.90% 0.08% -- 0.98%
Endeavor Janus Growth(/9/)..... 0.775% 0.095% -- 0.87%
</TABLE>
(/1/) The fee table information relating to the Endeavor Series Trust was
provided to PFL by Endeavor Management Co., 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.
(/2/) The Board of Trustees of Endeavor Series Trust has authorized an
arrangement whereby, subject to best price and execution, executing
brokers will share commissions with the Trust's affiliated broker. Under
supervision of the Trustees, the affiliated broker will use the
"recaptured commission" to promote marketing of the Trust's shares. The
staff of the Securities and Exchange Commission believes that, through
the use of these recaptured commissions, the Trust is indirectly paying
for distribution expenses and such amounts must be shown as 12b-1 fees
in the above table. The use of recaptured commissions to promote the
sale of the Trust's shares involves no additional costs to the Trust or
any Owner. Endeavor Series Trust, based on advice of counsel, does 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.
(/3/) Endeavor Management Co. has agreed, until further notice, to assume
expenses of the Portfolios that exceed the following rates: Endeavor
Money Market--0.99%; Endeavor Asset Allocation--1.25%; T. Rowe Price
International Stock--1.53%; Endeavor Value Equity--1.30%; Dreyfus Small
Cap Value--1.30%; Dreyfus U.S. Government Securities--1.00%; T. Rowe
Price Equity Income--1.30%; T. Rowe Price Growth Stock--1.30%; Endeavor
Opportunity Value--1.30%; Endeavor Enhanced Index--1.30%; Endeavor
Select 50--1.50%; Endeavor High Yield--1.30%. Endeavor Management Co.
has agreed for a period of at least one year to assume the expenses of
the Endeavor Janus Growth Portfolio that exceed 0.87%. Expenses shown
for the Endeavor Janus Growth Portfolio are estimated for 1999. Expenses
shown for the Endeavor Select 50 and Endeavor High Yield Portfolios are
annualized.
(/4/) Total Portfolio Annual Expenses for the Endeavor Opportunity Value
Portfolio before waivers/reimbursement and credits allowed by the
custodian for the period ended December 31, 1998 were 1.00%.
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<PAGE>
(/5/) Total Portfolio Annual Expenses for the Endeavor Select 50 Portfolio
before waivers/reimbursement and credit allowed by the custodian for the
period ended December 31, 1998 were 1.55% annualized.
(/6/) Total Portfolio Annual Expenses for the Endeavor High Yield Portfolio
before waivers/reimbursement and credits allowed to the custodian for the
period ended December 31, 1998 were 1.58% annualized.
(/7/) Total Portfolio Annual Expenses for the Dreyfus U.S. Government
Securities Portfolio before waiver/reimbursements and credits allowed by
the custodian for the period ended December 31, 1998 were 0.73%.
(/8/) Total Portfolio Annual Expenses for the T. Rowe Price International Stock
Portfolio before credits allowed by the custodian for the period ended
December 31, 1998 were 1.10%.
(/9/) The Endeavor Janus Growth Portfolio is new, so the Total Portfolio Annual
Expenses before waivers/reimbursement for the period ending December 31,
1999 are estimated to be 0.895%.
13
<PAGE>
PFL AND THE ACCOUNTS
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a wholly
owned indirect subsidiary of AEGON USA, Inc. which conducts most of its
operations through subsidiary companies engaged in the insurance business or in
providing non-insurance financial services. All of the stock of AEGON USA,
Inc., is indirectly owned by AEGON N.V. of The Netherlands, the securities of
which are publicly traded. AEGON N.V., a holding company, conducts its business
through subsidiary companies engaged primarily in the insurance business. PFL
is licensed in the District of Columbia, Guam, and in all states except New
York.
Published Ratings. PFL may publish (in advertisements, sales literature and
reports to policyowners), the ratings and other information assigned to it by
one or more independent rating organizations such as A.M. Best Company,
Standard & Poor's Rating Services ("Standard & Poor's"), and Duff & Phelps,
Inc. ("Duff & Phelps"). 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 or safety of assets held in
the variable 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.
Standard and Poor's Insurance Ratings Services or Duff & Phelps 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).
The Variable Account
PFL established the PFL Endeavor Variable Life Account ("variable account") as
a separate account on April 4, 1995. The variable account will receive and
invest the net premiums paid under this policy and other flexible premium
variable life insurance policies PFL issues. Each subaccount invests
exclusively in shares of a single mutual fund portfolio of the Endeavor Series
Trust.
The variable account currently is divided into thirteen subaccounts. Additional
subaccounts may be established in the future at PFL's discretion. Under Iowa
law, PFL owns the assets of the variable account. They are held separately from
PFL's other assets and are not chargeable with liabilities incurred in PFL's
other business operations (except to the extent that the assets in the variable
account exceed the variable account's reserves and other liabilities).
Income, gains, and losses incurred on the assets in the subaccounts, whether or
not realized, are credited to or charged against that subaccount without regard
to other income, gains or losses of any other account or subaccount of PFL.
Therefore, the investment performance of any subaccount should be entirely
independent of the investment performance of PFL's general account assets or
any other account or subaccount PFL maintains. The assets of the variable
account shall, however, be available to cover the liabilities of PFL's general
account to the extent that the variable account's assets exceed its liabilities
arising under the policies it supports.
The variable account is registered with the SEC under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as a unit investment trust and meets
the definition of a separate account under federal securities laws. However,
the SEC does not supervise the management or the
14
<PAGE>
investment practices or policies of the variable account or PFL.
The variable account will invest exclusively in shares of the Endeavor Series
Trust. The following thirteen portfolios of the Trust are available under the
policies:
ENDEAVOR SERIES TRUST
Subadvised by Morgan Stanley
Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming
International, Inc.:
T. Rowe Price International Stock Portfolio
Subadvised by OpCap Advisors:
Endeavor Value Equity Portfolio
Endeavor Opportunity Value Portfolio
Subadvised by J.P. Morgan Investment Management Inc.:
Endeavor Enhanced Index Portfolio
Subadvised by The Dreyfus Corporation:
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Subadvised by Montgomery Asset Management, LLC
Endeavor Select 50 Portfolio
Subadvised by Massachusetts Financial Services Company
Endeavor High Yield Portfolio
Subadvised by Janus Capital Corporation
Endeavor Janus Growth Portfolio
The assets of each portfolio are held separate from the assets of the other
portfolios, and each portfolio has its own distinct investment objectives and
policies. Each portfolio operates as a separate investment fund, and the income
or losses of one portfolio should have no effect on the investment performance
of any other portfolio.
The general public may not purchase shares of these underlying 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 other portfolios and mutual funds will be comparable to those of the
underlying funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current prospectus for the Endeavor
Series Trust, which is attached to this prospectus. You should read that
prospectus carefully before you invest.
PFL may from time to time receive revenue or fees from the underlying
portfolios or their manager or subadvisers for administrative, transfer agency,
information and other services. The amount of the fees, if any, may be based on
the amount of assets that PFL or the variable account invests in the underlying
portfolios.
The portfolios are designed to provide an investment vehicle for variable
annuity and variable life insurance contracts issued by various insurance
companies. For more information about the risks associated with the use of the
same funding vehicle for both variable annuity and variable life insurance
contracts of various insurance companies, see the Endeavor Series Trust
prospectus.
Addition, Deletion, or Substitution of Investments. PFL cannot and does not
guarantee that any of the portfolios will always be available for premium
payments, allocations, or transfers. PFL retains the right, subject to any
applicable law, to make certain changes in the variable account and its
investments. PFL reserves the right to eliminate the shares of any portfolio
held by a subaccount. PFL also reserves the right to substitute shares of
another portfolio of the 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
15
<PAGE>
. in PFL's judgment, investment in any portfolio would be inappropriate in
view of the purposes of the variable account.
To the extent required by the 1940 Act, substitutions of shares attributable to
your interest in a subaccount will not be made without prior notice to you and
the SEC's prior approval. Nothing contained herein shall prevent the variable
account from purchasing other securities for other series or classes of
variable insurance policies, or from effecting an exchange between series or
classes of variable insurance policies on the basis of requests that you make.
New subaccounts may be established when, in PFL's sole discretion, marketing,
tax, investment or other conditions warrant. Any new subaccounts may be made
available to existing policyowners on a basis PFL determines. Each additional
subaccount will purchase shares in a mutual fund portfolio or other investment
vehicle. PFL may also eliminate one or more subaccounts if marketing, tax,
investment or other conditions warrant such change, subject to applicable laws
and regulations. In the event any subaccount is eliminated, PFL will notify you
and request a reallocation of the amounts invested in the eliminated
subaccount. If you do not provide such reallocation, PFL will reinvest the
amounts invested in the eliminated subaccount in the subaccount that invests in
the Endeavor Money Market Portfolio (or in a similar portfolio of money market
instruments) or in another subaccount, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, the variable
account may be:
. operated as a management company under the 1940 Act or any other form
permitted by law;
. deregistered under the 1940 Act in the event such registration is no longer
required; or
. combined with one or more other separate accounts.
To the extent permitted by applicable law, PFL also may transfer the assets of
the variable account associated with the policies to another account or
accounts.
The Fixed Account
This prospectus is generally intended to serve as a disclosure document only
for the policy and the variable account. For complete details regarding the
fixed account, see the policy itself.
Premiums 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 Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the general account
nor any interests therein are generally subject to the provisions of the 1933
or 1940 Acts, and PFL has been advised that the staff of the Securities and
Exchange Commission has not reviewed the disclosures in this prospectus which
relate to the fixed account.
The fixed account is made up of all of PFL's general assets, other than those
in the variable account or in any other segregated asset account. You may
allocate premium payments to the fixed account at the time you make a premium
payment or by subsequent transfers from the variable account. Instead of you
bearing the investment risk, as is the case for policy value in the variable
account, PFL bears the full investment risk for all policy value in the fixed
account. Subject to applicable law, PFL has sole discretion to invest the
assets of its general account, including the fixed account.
PFL guarantees that it will credit interest to amounts in the fixed account at
an effective annual rate of at least 4.0% per
16
<PAGE>
year. PFL may credit amounts in the fixed account with interest at a current
interest rate in excess of 4.0%. Once declared, PFL will guarantee a current
interest rate for at least one year. Transfers out of the fixed account are
subject to restrictions on amount and timing. For purposes of crediting
interest, the oldest payment or transfer into the fixed account, plus interest
allocable to that payment or transfer, will be withdrawn or transferred out
first. The next oldest payment, plus interest, will be transferred out next.
This is a "first-in, first-out" procedure.
PFL guarantees that at any time prior to the maturity date, the amount in the
fixed account allocable to a particular policy:
. will not be less than the amount of the premium payments allocated or
transferred to the fixed account;
. plus interest at the rate of 4.0% per year;
. plus any excess interest credited to amounts in the fixed account;
. less any applicable premium or other taxes allocable to the fixed account;
and
. less any amounts deducted from the fixed account for charges in connection
with partial surrenders or transfers to the variable account, including any
contingent deferred sales charges.
PFL will determine the current interest rates in its sole discretion. You bear
the risk that the current interest rate will not exceed 4% per year.
Fixed Account Value. The portion of the cash value allocated to the fixed
account (the "fixed account value") will be credited with interest rates, as
described below. Because the fixed account value becomes part of PFL's general
account, PFL assumes the risk of investment gain or loss on this amount. All
assets in the general account are subject to PFL's general liabilities from
business operations. At the end of any valuation period, the fixed account
value is equal to:
. the sum of all net premium payments allocated to the fixed account; plus
. any amounts transferred from a subaccount to the fixed account; plus
. total interest credited to the fixed account; minus
. any amounts charged to pay for monthly deductions as they are due; minus
. any cash withdrawals or surrenders from the fixed account; minus
. any amounts transferred to a subaccount from the fixed account.
Minimum Guaranteed and Current Interest Rates. The fixed account value,
including the loan reserve, is guaranteed to accumulate at a minimum effective
annual interest rate of 4%. PFL presently credits the fixed account value with
current rates in excess of the minimum guarantee but it is not obligated to do
so. These current interest rates are influenced by, but do not necessarily
correspond to, prevailing general market interest rates. Because PFL
anticipates changing the current interest rate, PFL will credit different
allocations to and from the fixed account value with different current interest
rates.
When PFL declares a higher current interest rate on an allocation to the fixed
account, PFL guarantees that interest rate on such allocation for at least one-
year (the "guarantee period"). IF PFL has transferred the cash value associated
with an allocation to the loan reserve, we may apply a different current
interest rate to that part of the cash value equal to the loan reserve.
At the end of the guarantee period, PFL reserves the right to declare a new
current interest rate on such allocation and accrued interest thereon. The new
current interest rate may be a different current interest rate than the current
interest rate on new allocations to the fixed account on that date. The rate
declared on such allocation and accrued interest thereon at the end of each
guarantee period will be guaranteed again for another guarantee period. You
assume the risk that
17
<PAGE>
interest credited may not exceed the minimum guaranteed rate.
For the purpose of crediting interest, allocations from the fixed account value
are accounted for on a first in, first out method when used to provide:
. cash withdrawal amounts;
. transfers to the variable account; or
. monthly deduction charges.
PFL reserves the right to change the method of crediting interest, provided
that such changes will not have the effect of reducing the guaranteed annual
interest rate below 4% or shorten the guarantee period to less than one year.
Allocations and Withdrawals. PFL will allocate net premium payments and
transfers to the fixed account on the first valuation date on or following the
date PFL receives the payment or transfer request at its administrative office.
Any allocation of any net premium received prior to the policy date will take
place on the policy date, or the record date, if later.
For transfers from the fixed account to a subaccount, PFL reserves the right to
require that transfer requests be in writing and received at the administrative
office within 30 days after an anniversary. The amount that you may transfer
each policy year is limited to the greater of:
. 20% of the amount in the fixed account; or
. the amount transferred in the prior policy year from the fixed account,
unless PFL consents otherwise.
No transfer charge will apply to transfers from the fixed account to a
subaccount. Amounts may be withdrawn from the fixed account for cash
withdrawals and surrenders only upon your written request, and are subject to
any applicable signature guarantee requirements.
PFL further reserves the right to defer payment of transfers, cash withdrawals,
or surrenders from the fixed account for up to six months. In addition, policy
provisions relating to transfers, cash withdrawals or surrenders from the
variable account will also apply to fixed account transactions.
POLICY RIGHTS AND BENEFITS
Death Benefit
PFL will pay the death benefit proceeds of a policy to the named beneficiary in
accordance with the designated death benefit option:
. as long as the policy remains in-force; and
. when PFL receives due proof of the insured's death.
The amount of the death benefit proceeds payable will be determined at the end
of the valuation period during which the insured dies. The proceeds may be paid
in a lump sum or under one or more of the settlement options set forth in the
policy. PFL guarantees that as long as the policy remains in-force, the death
benefit proceeds under either option will never be less than the specified
amount of the policy, but the proceeds will be reduced by any outstanding
indebtedness and any due and unpaid charges. Any additional insurance in-force
and any unearned loan interest will increase these proceeds.
You have two death benefit options to choose from.
Death Benefit Option A. This death benefit is the greater of:
. the specified amount of the policy; or
. the applicable percentage (the "corridor percentage") times the cash value
on the date of death.
The corridor percentage is 250% for an insured age 40 or below on the
anniversary prior to the date of death. For an insured with an attained age
over 40 on an anniversary, the percentage declines as shown in the following
"Corridor Percentage Table." Accordingly,
18
<PAGE>
this death benefit will remain level unless the corridor percentage times the
cash value exceeds the specified amount, in which case the amount of the death
benefit will vary as the cash value varies.
For purposes of this explanation, assume that the insured's attained age is
under 40 and that there is no outstanding indebtedness. Under this death
benefit, a policy with a $50,000 specified amount will generally pay $50,000 in
death benefits. However, because the death benefit must be equal to or be
greater than 250% of cash value, any time the cash value of the policy exceeds
$20,000, the death benefit will exceed the $50,000 specified amount. Each
additional dollar added to cash value above $20,000 will increase the death
benefit by $2.50.
Similarly, so long as cash value exceeds $20,000, each dollar taken out of cash
value will reduce the death benefit by $2.50. If at any time, however, the cash
value multiplied by the corridor percentage is less than the specified amount,
the death benefit will equal the specified amount of the policy.
Corridor Percentage Table
<TABLE>
<CAPTION>
Attained Age Applicable Percentage
- ------------------------------------------------------
<C> <S>
40 and under 250%
- ------------------------------------------------------
41 through 45 250% minus 7% for each age over age 40
- ------------------------------------------------------
46 through 50 215% minus 6% for each age over age 45
- ------------------------------------------------------
51 through 55 185% minus 7% for each age over age 50
- ------------------------------------------------------
56 through 60 150% minus 4% for each age over age 55
- ------------------------------------------------------
61 through 65 130% minus 2% for each age over age 60
- ------------------------------------------------------
66 through 70 120% minus 1% for each age over age 65
- ------------------------------------------------------
71 through 75 115% minus 2% for each age over age 70
- ------------------------------------------------------
76 through 90 105%
- ------------------------------------------------------
91 through 95 105% minus 1% for each age over age 90
</TABLE>
Death Benefit Option B. The death benefit is equal to the greater of:
. the specified amount plus the cash value of the policy; or
. the corridor percentage times the cash value on or prior to the date of
death.
The applicable percentage is 250% for an insured age 40 or below on the
anniversary prior to the date of death. For insureds with an attained age over
40 on a anniversary, the percentage declines as shown in the "Corridor
Percentage Table" above. Accordingly, under this death benefit, the amount of
the death benefit will always vary as the cash value varies.
For purposes of this explanation, assume that the insured is under the age of
40 and that there is no outstanding indebtedness. Under this death benefit, a
policy with a specified amount of $50,000 will generally pay a death benefit of
$50,000 plus cash value. Thus, for example, a policy with a cash value of
$10,000 will have a death benefit of $60,000 ($50,000 + $10,000). The death
benefit, however, must be at least 250% of cash value. As a result, if the cash
value of the policy exceeds $33,333, the death benefit will be greater than the
specified amount plus cash value. Each additional dollar of cash value above
$33,333 will increase the death benefit by $2.50.
Similarly, any time cash value exceeds $33,333, each dollar taken out of cash
value will reduce the death benefit by $2.50. If at any time, however, cash
value multiplied by the corridor percentage is less than the specified amount
plus the cash value, then the death benefit will be the specified amount plus
the cash value of the policy.
Choosing Death Benefit Option A or Option B. Assuming the death benefit is not
being determined by reference to the corridor percentage, Death Benefit Option
A will provide a specified amount of death benefit which does not vary with
changes in cash value. Thus, under Death Benefit Option A, as cash value
increases, PFL's net amount at risk under the policy will decline.
19
<PAGE>
In contrast, Death Benefit Option B involves a constant net amount at risk,
again assuming that the death benefit is not being determined by reference to
the corridor percentage. Therefore, assuming positive investment experience,
the deduction for cost of insurance under a policy with Death Benefit Option A
will be less than under a corresponding policy with Death Benefit Option B.
Because of this, if investment performance is positive, cash value under Death
Benefit Option A will increase faster than under Death Benefit Option B, but
the total death benefit under Death Benefit Option B will generally be greater.
Death Benefit Option A generally could be considered more suitable for you if
your goal is increasing cash values based upon positive investment experience.
Death Benefit Option B generally could be considered more suitable for you if
your goal is increasing total death benefits.
Individual circumstances and goals should always be carefully considered in
choosing the death benefit option.
Change in Specified Amount. Subject to certain limitations, you may increase or
decrease the specified amount of a policy. PFL reserves the right to limit
changes to once each policy year. A change in specified amount may affect the
net amount at risk, which may affect your cost of insurance charge. A change in
specified amount could also have federal income tax consequences.
Decreases. Any decrease in the specified amount will become effective on the
monthly anniversary date on or following PFL's receipt of your written request.
PFL does not permit you to decrease the specified amount during the first
policy year. The specified amount remaining in-force after any decrease may not
be less than the minimum specified amount set forth in the policy. If,
following the decrease in specified amount, the policy would not comply with
the maximum premium limitations required by federal tax law, the decrease may
be limited to the extent necessary to meet these requirements. A decrease in
the specified amount will be applied against increases in the specified amount
in the reverse order from which the increases occurred.
Increases. You must submit a written application to PFL to increase the
specified amount. PFL will also require you to submit additional evidence of
insurability. PFL reserves the right to decline any increase request. Any
increase will become effective on the effective date shown on an endorsement to
the policy. The effective date of the increase will be the monthly anniversary
on or following written approval of the increase by PFL. No increase in the
specified amount will be permitted during the first policy year nor on or after
the insured's attained age of 86. An increase need not be accompanied by an
additional premium, but there must be sufficient net surrender value to cover
the next monthly deduction after the increase becomes effective.
Change in Death Benefit Option. Generally once each policy year, you may change
the death benefit option in effect by sending PFL a written request for change.
A change in death benefit option may have federal income tax consequences.
Under PFL's current rules, no change may be made if it would result in a
specified amount less than the minimum specified amount set forth in the
policy. The effective date of any change will be the monthly anniversary on or
following receipt of the request. No charges will be imposed for making a
change in death benefit option.
If the death benefit option is changed from Death Benefit Option B to Death
Benefit Option A, the specified amount will be increased by an amount equal to
the policy's cash value on the effective date of change. If the death benefit
option is changed from Death Benefit Option A to Death Benefit Option B, the
specified amount will be decreased by an amount equal to the cash value on the
effective date of the change.
Corridor Percentage. If, pursuant to requirements of the Internal Revenue Code
20
<PAGE>
of 1986, as amended, the death benefit under a policy is determined by
reference to the corridor percentages discussed above, the policy is described
as "in the corridor." An increase in the cash value of the policy will increase
the net amount at risk assumed by PFL, and consequently, increase the cost of
insurance deducted from the cash value of the policy.
Insurance Protection. As insurance needs change, you may increase or decrease
the pure insurance protection provided by a policy (i.e., the difference
between the death benefit and the cash value) in one of several ways. These
ways include:
. increasing or decreasing the specified amount of insurance;
. changing the level of premium payments; and
. making a cash withdrawal from the policy.
Although the consequences of each of these methods will depend upon the
individual circumstances, they may be generally summarized as follows:
. A decrease in the specified amount will, subject to the corridor percentage,
decrease the insurance protection and the charges under the policy without
reducing the cash value.
. Under Death Benefit Option A, an increased level of premium payments will
also reduce the pure insurance protection, until the corridor percentage
times the cash value exceeds the specified amount. Furthermore, increased
premiums should increase the amount of funds available to keep the policy
in-force.
. A cash withdrawal will reduce the death benefit. However, it has no effect
on the amount of pure insurance protection and charges under the policy,
unless the death benefit payable is governed by the corridor percentages.
. An increase in the specified amount may increase the amount of pure
insurance protection, depending on the amount of cash value and the
resultant corridor percentage. If the insurance protection is increased, the
policy charges generally will increase as well.
. A reduced level of premium payments also generally increases the amount of
pure insurance protection under Death Benefit Option A, or maintains the
same amount of pure insurance protection under Death Benefit Option B, again
depending on the corridor percentage. Furthermore, a reduced level of
premium payments results in a reduced amount of cash value and increases the
possibility that the policy will lapse.
Increases or decreases in a policy's insurance protection may have adverse
federal income tax consequences.
How Death Benefits May Vary in Amount. As long as the policy remains in-force,
PFL guarantees that the death benefit will never be less than the specified
amount of the policy. Any outstanding indebtedness and any due and unpaid
charges will reduce these proceeds. The death benefit may, however, vary with
the policy's cash value. Under Death Benefit Option A, the death benefit will
only vary when the cash value multiplied by the corridor percentage exceeds the
specified amount of the policy. Under Death Benefit Option B, the death benefit
will always vary with the cash value because the death benefit equals either
the specified amount plus the cash value or the corridor percentage times the
cash value.
How the Duration of the Policy May Vary. The duration of the policy depends
upon the net surrender value. The policy will remain in-force until maturity so
long as the net surrender value is sufficient to pay the monthly deduction.
Where net surrender value is insufficient to pay the monthly deduction, and a
grace period expires without your adequate payment, the policy will lapse and
terminate without value, except as provided for with respect to death benefit
guarantees.
Cash Value
At the end of any valuation period, the cash value of the policy is equal to
the sum of the subaccount values plus the fixed account value. There is no
guaranteed minimum cash value.
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Net Surrender Value. You may surrender the policy and receive the policy's net
surrender value at any time. The net surrender value as of any date is equal
to:
. the cash value as of such date; minus
. any surrender charge as of such date; minus
. any outstanding policy loan; plus
. any unearned loan interest (loan interest we deduct in advance each year and
that is attributable to the period of time after the surrender).
Determination of Values in the Variable Account. On the policy date, the
policy's value in a subaccount will equal the portion of any net premium
allocated to the subaccount reduced by the portion of the first monthly
deduction allocated to that subaccount. Thereafter, on each valuation date, the
policy's value in a subaccount will equal:
. the policy's value in the subaccount on the preceding valuation date,
multiplied by the experience factor for the current valuation period; plus
. any net premium payments received during the current valuation period which
are allocated to the subaccount; plus
. all values transferred to the subaccount from the loan reserve, from the
fixed account or from another subaccount during the current valuation
period; minus
. all values transferred from the subaccount to the loan reserve, to the fixed
account or to another subaccount during the current valuation period; minus
. all cash withdrawals from the subaccount during the current valuation
period; minus
. the portion of the monthly deduction allocated to the subaccount during the
current valuation period.
The policy's total value in the variable account equals the sum of the policy's
value in each subaccount. A policy's cash value cannot be predetermined because
the cash value is dependent upon a number of variables, including the
investment experience of the chosen subaccounts, the frequency and amount of
premium payments, transfers and surrenders, and charges assessed in connection
with the policy.
The Experience Factor. The experience factor measures investment experience
during a valuation period. Each subaccount has its own distinct experience
factor. A subaccount's experience factor for a valuation period is:
. the net asset value for each share of the corresponding portfolio at the end
of the current valuation period;
. increased by the amount per portfolio share of any dividend or capital gain
distribution declared by the portfolio during the current valuation period;
and
. decreased by a charge for any applicable taxes.
The total is then divided by the net asset value per portfolio share at the end
of the preceding valuation period. A charge equal to the variable account asset
charges is then subtracted.
Transfers
Cash value may be transferred among the subaccounts or from the subaccounts to
the fixed account. Transfers may also be made from the fixed account to the
subaccounts, subject to certain restrictions. The minimum amount that may be
transferred is $100, or the entire subaccount value if less.
The amount of cash value available for transfer from any subaccount, or the
fixed account, is determined at the end of the valuation period during which
PFL receives the transfer request at the administrative office. Any transfer
request received after the close of business at the New York Stock Exchange
will be processed using values determined as of the next day the New York Stock
Exchange is open for business.
You may make transfer requests in writing or by telephone. Written requests
must be in a form acceptable to PFL. You may make telephone transfers upon
request without previously authorizing telephone
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transfers in writing. If, for any reason, you do not want the ability to make
transfers by telephone, you should provide written notice to PFL at its
administrative office. All telephone transfers should be made by calling PFL
toll-free at 1-800-525-6205.
PFL will not be liable for complying with telephone instructions it reasonably
believes to be authentic, nor for any loss, damage, cost or expense in acting
on such telephone instructions. You will bear the risk of any such loss. PFL
will employ reasonable procedures to confirm that telephone instructions are
genuine. Such procedures may include (among others):
. requiring forms of personal identification prior to acting upon such
telephone instructions;
. providing written confirmation of your transactions; and/or
. tape recording of telephone instructions received from you.
PFL reserves the right to limit transfers to 12 in any policy year. PFL may
revoke or modify the transfer privilege. PFL will effect transfers and
determine all values in connection with transfers at the end of the valuation
period during which it receives the transfer request at the administrative
office.
Although PFL does not currently impose a charge for any transfers, PFL reserves
the right to impose a $25 charge for each transfer after the first twelve
transfers during any policy year.
Policy Loans
After the first policy year and so long as the policy remains in-force, you may
borrow money from PFL using the policy as the only security for the loan. The
maximum amount that may be borrowed is 90% of the cash value, less any
surrender charge and any already outstanding policy loan. PFL reserves the
right to limit the amount of any policy loan to at least $500. Outstanding
loans have priority over the claims of any assignee or other person. The loan
may be repaid totally or in part before the maturity date of the policy and
while the policy is in-force. A loan that is taken from, or secured by, a
policy may have federal income tax consequences.
PFL will withdraw an amount equal to the loan plus interest in advance until
the next anniversary from the account or accounts specified and transfer it to
the loan reserve until you repay the loan. If no account is specified, PFL will
withdraw the loan amount from each account in the same manner as the current
premium allocation instructions.
PFL will normally pay the loan within seven days after it receives your
request. You must make such request in a manner permitted by PFL. PFL may
postpone loans under certain conditions.
At each anniversary, PFL will compare the amount of the outstanding loan
(including any unpaid interest since the prior anniversary) to the amount in
the loan reserve. PFL will also make this comparison any time you repay all or
part of the loan. At each such time, if the amount of the outstanding loan
exceeds the amount in the loan reserve, PFL will withdraw the difference from
the accounts and transfer it to the loan reserve in the same manner as when a
loan is made. If the amount in the loan reserve exceeds the amount of the
outstanding loan, PFL will withdraw the difference from the loan reserve and
transfer it to the accounts in the same manner as net premiums are allocated.
No charge will be imposed for these transfers.
Interest Rate Charged. PFL charges interest on policy loans at the rate of 8%
payable in advance on each anniversary. Any unpaid interest will be added to
the amount of the loan and will become part of the loan and bear interest at
the same rate.
Loan Reserve Interest Rate Credited. The amount transferred to the loan reserve
will accrue interest daily at an annual rate of at least 4%. The rate is
determined by PFL as authorized by its Board of Directors. The loan reserve
interest credited will be transferred to the subaccounts:
. each anniversary;
. when a new loan is made;
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. when a loan is partially or fully repaid; and
. when an amount is needed to meet a monthly deduction.
The amount of interest charged may be more or less than the amount of interest
credited to the loan reserve during any policy year. A policy loan may have tax
consequences. Policy loan interest is generally not deductible for Federal
income tax purposes. You should consult a tax adviser before taking out a
policy loan.
Effect of Policy Loans. The death benefit and net surrender value under the
policy are reduced by the amount of the loan. Repayment of the loan causes the
death benefit and net surrender value to increase by the amount of the
repayment.
As long as a loan is outstanding, PFL holds an amount equal to the loan plus
unpaid interest in the loan reserve. This amount will not be affected by the
variable account's investment performance. Amounts transferred from the
variable account to the loan reserve will affect the variable account value
because such amounts will be credited with an interest rate PFL declares,
rather than a rate of return reflecting the investment performance of the
variable account.
There are risks involved in taking a policy loan. These risks may include:
. the potential for a policy to lapse if projected earnings (taking into
account outstanding loans) are not achieved; and
. adverse tax consequences, which may occur if a policy lapses with loans
outstanding.
Indebtedness. Indebtedness equals the total of all policy loans less any
unearned loan interest on the loans. If indebtedness is greater than the cash
value less any applicable surrender charge, PFL will notify you and any
assignee of record. If PFL does not receive a sufficient payment equal to
excess indebtedness within 61 days from the date notice is sent, the policy
will lapse and terminate without value. The policy, however, may later be
reinstated.
Repayment of Indebtedness. Indebtedness may be repaid any time before the
maturity date of the policy and while the policy is in-force. Payments you make
while there is indebtedness will be treated as premium payments unless you
indicate that the payment should be treated as a loan repayment. If not repaid,
PFL may deduct indebtedness from any amount payable under the policy. As
indebtedness is repaid, PFL will transfer the policy's value in the loan
reserve securing the indebtedness repaid from the loan reserve to the accounts
in the same manner as net premiums are allocated. PFL will allocate the
repayment of indebtedness at the end of the valuation period during which the
repayment is received.
Surrender and Cash Withdrawal Privileges
At any time before the earlier of the insured's death or the maturity date, you
may totally surrender or, after the first policy year, make a cash withdrawal
from the policy by sending a written request to PFL. The amount available for
surrender is the net surrender value at the end of the valuation period during
which PFL receives the surrender request at the administrative office. The net
surrender value is equal to the cash value less indebtedness and less any
surrender charge.
PFL will generally pay surrenders from the variable account within seven days
of receipt of the written request. PFL may postpone payments under certain
circumstances. Additional restrictions may be applied to surrenders from the
fixed account.
For your protection, PFL will require signature guarantees for:
. all requests for cash withdrawals or total surrenders of more than $50,000;
or
. withdrawal or surrender proceeds PFL sends to an address other than the
address of record.
All required signature guarantees must be made by a national or state bank, a
member firm of a national stock exchange
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<PAGE>
or any other institution which is an eligible guarantor institution (such as,
banks, broker-dealers, credit unions, and savings associations). If the
policyowner is a corporation, partnership, trust or fiduciary, PFL will require
evidence of the authority of the person seeking redemption before the request
for withdrawal is accepted (including withdrawals under $50,000).
A cash withdrawal or total surrender may have federal income tax consequences.
Total Surrenders. If you surrender the policy, you must return the policy
itself to PFL along with the request. You may elect to have the amount paid in
a lump sum or under a settlement option.
Cash Withdrawals. For a cash withdrawal, the amount withdrawn must be at least
$500 and must not cause the net surrender value after the cash withdrawal to be
less than $500. The amount paid will be deducted from the policy's cash value
at the end of the valuation period during which the request is received. A
charge equal to the lesser of $25 or 2% of the amount withdrawn will be
deducted from the amounts withdrawn from the policy, and the balance will be
paid to you. The amount will be deducted from the accounts in the same manner
as the current premium allocation instructions unless you direct us otherwise.
You may make a cash withdrawal free of surrender charge only once each policy
year.
Cash withdrawals will affect both the policy's cash value and the death benefit
payable under the policy. The policy's cash value will be reduced by the amount
of the cash withdrawal. Moreover, the death benefit proceeds payable under a
policy will generally be reduced by at least the amount of the cash withdrawal.
When Death Benefit Option A is in effect, the specified amount will be reduced
by the cash withdrawal. No cash withdrawal will be permitted which would result
in a specified amount lower than the minimum specified amount set forth in the
policy or would deny the policy status as life insurance under the Internal
Revenue Code and applicable regulations.
Examination of Policy Privilege ("Free-Look")
You may cancel the policy within the latest of:
. 10 days after you receive it;
. 10 days after PFL mails or delivers a written notice of withdrawal right to
you; or
. within 45 days after signing the application.
Certain states require a free-look period longer than 10 days. In such states,
PFL will comply with the specific requirements of those states. You should mail
or deliver the policy to either PFL or the agent who sold it. If the policy is
cancelled in a timely fashion, PFL will pay a refund to you. The refund will
equal the premiums paid plus or minus the investment performance of the
accounts you selected.
In some states, state law may require the return of premium with no adjustment
for investment performance.
Benefits at Maturity
If the insured is living and the policy is in-force, the policy will mature on
the anniversary nearest the insured's 100th birthday. PFL will pay the net
surrender value of the policy on the maturity date.
Payment of Policy Benefits
PFL will ordinarily pay death benefits under the policy within seven days after
PFL receives due proof of death, and verifies the validity of the claim. PFL
will ordinarily pay other benefits within seven days of receipt of a proper
written request (including an election as to tax withholding). PFL may postpone
payments in certain circumstances. You may decide the form in which the
benefits will be paid. During the insured's lifetime, you may arrange for the
death benefits to be paid in a lump sum or under one or more of the settlement
options described below. These choices are also available if the policy is
surrendered or matures. If no election is made, PFL will pay the benefits in a
lump sum.
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Settlement Options. Subject to your prior election, you and your beneficiary
may elect to have benefits paid in a lump sum or in accordance with a variety
of settlement options offered under the policy. You may not apply proceeds of
less than $1,000 under any settlement option. PFL may change the payment
frequency if payments under an option become less than $20. Once a settlement
option is in effect, there will no longer be value in the variable account or
the fixed account. The effective date of a settlement provision will be either
the date of surrender or the date of the insured's death. PFL may make other
settlement options available on the fixed account in the future. For additional
information concerning these options, see the policy itself.
Option 1--Interest payments. PFL will pay the interest on the proceeds at
intervals and for a period you choose and PFL approves. You may withdraw the
proceeds in amounts of at least $100. At the end of the period, any remaining
proceeds will be paid in either a lump sum or under any other method PFL
approves.
Option 2--Payments for a Fixed Period. PFL will pay the proceeds plus interest
in equal monthly installments for the period you choose until the fund has been
paid in full. The period you choose may not exceed 30 years.
Option 3--Life Income. PFL will pay the proceeds in equal installments for the
guaranteed payment period you elect and continue for the life of the person on
whose life the option is based. Such installments will be payable:
. during the lifetime of the payee;
. during a fixed period certain and for the remaining lifetime of the payee;
or
. until the sum of installments paid equals the proceeds applied and for the
remaining life of the payee.
Guaranteed payment periods may be elected for 10 or 20 years, or the period in
which the total payments are sufficient to refund the total proceeds applied.
Option 4--Payments of a Specified Amount. PFL will pay the proceeds and
interest monthly in a specified amount until all proceeds and interest are paid
in full.
Option 5--Joint and Survivor Life Income. PFL will pay the proceeds during the
joint lifetime of two persons and continue upon the death of the first payee
for the remaining lifetime of the survivor.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy
Individuals wishing to purchase a policy must send a completed application to
PFL Life Insurance Company, 4333 Edgewood Road N.E., P.O. Box 3183, Cedar
Rapids, IA 52406-3183. The minimum specified amount of a policy is generally
$50,000. Policies will generally be issued only to insureds 85 years of age or
under who supply satisfactory evidence of insurability. PFL may, however, at
its sole discretion, issue a policy to an individual over age 85. You must
satisfy PFL's underwriting rules. PFL reserves the right to reject an
application for any reason permitted by law.
Temporary Insurance Coverage
You must pay the full initial premium indicated on the application on or before
the date on which PFL delivers the policy to you. If you do not submit the full
initial premium with the application, insurance under a policy will not take
effect:
. until a policy is delivered and you pay the full initial premium while the
person to be insured is living; and
. unless information in the application continues to be true and complete,
without material change, as of the time you pay the initial premium.
Temporary insurance coverage is provided subject to the following conditions:
. you pay the full initial premium with the application; and
. PFL determines that on the date the application is signed and submitted with
the initial payment, the proposed
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insured and all additional insureds proposed for coverage met underwriting
rules and standards for insurance, for the amount and plan applied for in
the application.
The insurance protection you apply for will take effect on the later of the
date of the application, or the date any required medical tests and
examinations are completed. Insurance coverage is subject to the limits of
liability and is made in accordance with the terms set forth in the policy and
in the conditional receipt. The maximum amount of such temporary insurance
coverage is:
. the lesser of the amount applied for or $100,000; minus
. any amounts payable under other insurance (in-force with PFL) on the life of
the proposed insured.
Temporary insurance coverage expires on the earliest of the following dates:
. the date PFL approves the policy as applied for;
. at the end of the fraction of a year which the payment bears to the premium
required to provide one month of insurance coverage; or
. at the beginning of the sixtieth (60th) day following the date of the
conditional receipt.
Premiums
Subject to certain limitations, you have flexibility in determining the
frequency and amount of premiums.
Premium Flexibility. This policy frees you from the requirement that premiums
be paid in accordance with a rigid and inflexible premium schedule. PFL may
require you to pay an initial premium at least equal to a minimum monthly
guarantee premium set forth in the policy. Thereafter, subject to the minimum
and maximum premium limitations described below, you may make unscheduled
premium payments at any time and in any amount.
Planned Periodic Premiums. You will determine a planned periodic premium
schedule that provides for the payment of a level premium at a fixed interval
over a specified period of time. However, you are not required to pay premiums
in accordance with this schedule. Furthermore, you have considerable
flexibility to alter the amount, frequency, and the time period over which you
pay planned periodic premiums.
The payment of all planned periodic premiums will not guarantee that the policy
remains in-force. The duration of the policy depends upon the policy's net
surrender value. Thus, even if you pay planned periodic premiums, the policy
will nonetheless lapse any time net surrender value is insufficient to pay
certain monthly charges, and a grace period expires without a sufficient
payment. However, during the first three policy years, the policy will remain
in-force and no grace period will begin provided:
. you have not increased the specified amount; and
. the total of the premiums received equals at least the minimum monthly
guarantee premium specified in the policy, times the number of months since
the policy date, including the current month.
Premium Limitations. In no event may the total of all premiums paid, both
scheduled and unscheduled, exceed the current maximum premium limitations
according to federal tax laws. If at any time a premium is paid which would
result in total premiums exceeding the current maximum premium limitation, PFL
will only accept that portion of the premium which will make total premiums
equal the maximum. PFL will return any part of the premium in excess of that
amount and will not accept further premiums until allowed by the current
maximum premium limitations set forth in the policy.
Every premium payment, whether scheduled or unscheduled, must be at least the
minimum payment amount required. The minimum payment amount is $50. Premium
payments less than this minimum amount may be returned to you.
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Payment of Premiums. While a policy loan is outstanding, PFL will treat your
payments as a premium payment unless clearly marked as loan repayments.
As an accommodation to you, PFL will accept transmittal of initial and
subsequent premiums of at least $1,000 by wire transfer. For an initial
premium, the wire transfer must be accompanied by a simultaneous telephone
facsimile transmission ("fax") of a completed application. An initial premium
of $2,000 or more accepted via wire transfer with fax will be invested the
business day following receipt. PFL will keep an initial premium made by wire
transfer not accompanied by a simultaneous fax, or accompanied by a fax of an
incomplete application, for a period of time. During this time, PFL will
attempt to obtain the fax or complete the essential information required to
establish the policy. PFL will allocate the initial premium the business day
after receipt of the fax or information necessary to complete the application.
IF:
. PFL later receives the application with original signature; and
. the allocation instructions in that application, for any reason, are
inconsistent with those previously designated on the fax,
THEN:
. PFL will reallocate the initial premium (in accordance with the allocation
instructions in the application with original signature) at the unit value
next determined after receipt of such application.
If you wish to make payments via bank wire, you should instruct your bank to
wire federal funds as follows:
First National Bank of Maryland
ABA# 052000113
For credit to: PFL Life
Account #: 1838816-2
Policyowner's Name:
Policy Number:
Attention: Operational Accounting
Allocation of Premiums and Cash Value
Net Premiums. The net premium equals the premium paid less the 5% premium
expense charges.
Allocation of Net Premiums. You can allocate net premiums to one or more of the
subaccounts, to the fixed account, or to a combination of both.
IF:
. you pay a premium payment of $2,000 or more when you submit the application,
THEN:
. PFL will initially allocate the net premium to the subaccount that invests
exclusively in shares of the Money Market Portfolio and will reallocate it
on the first valuation date on or following the record date in accordance
with the directions in the application.
In such instances, the policy date will ordinarily be the date PFL receives the
premium payment.
IF:
. you pay a premium payment of less than $2,000 when you submit the
application,
THEN:
. PFL will allocate the net premium on the first valuation date on or
following the record date in accordance with the directions in the
application.
In such instances, both the record date and the policy date will ordinarily be
the date the policy goes in-force.
Insurance coverage under the policy and associated monthly deductions begin on
the policy date. In either case, the record date of the policy will be the date
on which the policy is recorded on PFL's books as an in-force policy. PFL will
allocate net premiums to the accounts on the first valuation date on or
following the
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record date in accordance with the directions in the application.
PFL will allocate net premiums paid after the record date in accordance with
your instructions in the application. The minimum percentage of each premium
that may be allocated to any account is 10% and percentages must be in whole
numbers. You may change the allocation of future net premiums at any time by
providing PFL with written notification. PFL reserves the right to limit the
number of changes of the allocation of net premiums to one per year. Investment
returns from the amounts allocated to the subaccounts will vary with the
investment experience of these subaccounts and you bear the entire investment
risk for these amounts.
Policy Lapse and Reinstatement
Lapse. Payment in full of planned periodic premiums in full and on time does
not guarantee that your policy will remain in force (i.e., not lapse).
Similarly, the failure to make a planned periodic premium payment will not in
and of itself cause the policy to lapse. Lapse will only occur where the net
surrender value is insufficient to cover the monthly deduction, and a grace
period expires without a sufficient payment.
During the first three policy years, the policy will not lapse and no grace
period will begin provided:
. You have not increased the specified amount; and
. the total of the premiums you pay (minus any withdrawals and outstanding
loans) equals or exceeds the minimum monthly guarantee premium shown in the
policy, times the number of months since the policy date, including the
current month.
After the third policy year, if the net surrender value is insufficient to
cover the monthly deduction, PFL will notify you and any assignee of record of
the minimum payment needed to keep the policy in-force. You will then have a
grace period of 61 days, measured from the date notice is sent to you, for PFL
to receive sufficient payments.
If PFL does not receive a sufficient payment within the grace period, the
policy will lapse. If PFL receives a sufficient payment during the grace
period, any resulting net premium will be allocated among the accounts, and any
monthly deductions due will be charged to such accounts in accordance with your
then current premium allocation instructions.
If the insured dies during the grace period, the death benefit proceeds will
equal the amount of the death benefit proceeds immediately prior to the
commencement of the grace period, reduced by any due and unpaid charges.
Reinstatement. You may reinstate a lapsed policy any time within five years
after the date of lapse and before the maturity date by submitting the
following items to PFL:
. your written request for reinstatement
. evidence of insurability satisfactory to PFL; and
. a premium that, after the deduction of premium expense charges, is large
enough to cover:
(a) one monthly deduction at the time of termination;
(b) the next two monthly deductions which will become due after the time of
reinstatement; and
(c) any surrender charge as of the date of reinstatement.
PFL reserves the right to decline a reinstatement request. Any indebtedness on
the date of lapse will not be reinstated. The cash value of the loan reserve on
the date of reinstatement will be zero. The amount of net surrender value on
the date of reinstatement will be equal to the net premiums paid at
reinstatement, less the amounts paid in accordance with (a) and (c) above.
The effective date of reinstatement will be the first monthly anniversary on or
next following the date PFL approves the application for reinstatement.
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CHARGES AND DEDUCTIONS
PFL will deduct charges from the policy to compensate PFL for:
. providing the insurance benefits set forth in the policy and any optional
insurance benefits added by rider;
. administering the policy;
. assuming certain risks in connection with the policy; and
. incurring expenses in distributing the policy.
Premium Expense Charges
Prior to allocation of net premiums among the accounts, premiums paid will be
reduced by a 5.0% premium expense charge consisting of a sales charge and a
charge for premium taxes.
Sales Charge. A sales charge equal to 2.5% of the premiums paid will be
deducted to partially compensate PFL for distribution expenses incurred in
connection with the policy. These expenses include agent sales commissions, the
cost of printing prospectuses and sales literature, and any advertising costs.
The sales charge in any policy year is not necessarily related to actual
distribution expenses incurred in that year. PFL expects to incur the majority
of distribution expenses in the first policy year and to recover any deficiency
over the life of the policy and from PFL's general account. The general account
may include profits, if any, derived from the mortality and expense risk or
cost of insurance charges collected under the policy.
PFL intends to waive the 2.5% sales charge after the tenth policy year.
Premium Taxes. Various states and subdivisions impose a tax on premiums
received by insurance companies. Premium tax rates vary from state to state
from a range of 0.5% to 3.5%. Regardless of the actual rate assessed by a
particular state, PFL will deduct an amount equal to 2.5% of each premium
payment to compensate PFL for paying this tax.
Contingent Surrender Charges
If you surrender your policy (or PFL applies the net surrender value under a
settlement option) prior to the end of the fifteenth (15th) policy year, PFL
will deduct a surrender charge for the initial specified amount from the
policy's cash value. This surrender charge consists of :
. an administrative component (deferred issue charge); plus
. a sales component (deferred sales charge).
The surrender charge may be significant. You should calculate this charge
carefully before you consider a surrender. Under some circumstances the level
of surrender charges might result in net surrender value not being available if
you surrender your policy in the first few policy years. This will depend on a
number of factors, but is more likely if:
. you pay premiums equal to or not much higher than the minimum monthly
guarantee premium shown in your policy; or
. investment performance is low.
Deferred Issue Charge. The deferred issue charge is a charge per thousand of
initial specified amount. This charge varies by issue age, the length of time
the policy is in effect, and the sex of the insured. The maximum initial charge
is $5.00 per thousand of initial specified amount in year 1 (it is lower for
males age 76 and older), and decreases to $0.00 in years 15 and later for all
insureds.
This charge assists PFL in recovering the underwriting, processing and start-up
expenses incurred in connection with the policy and the variable account. These
expenses include the cost of processing applications, conducting medical
examinations, determining insurability, and establishing policy records. A
surrender charge consisting only of a deferred issue charge applies prior to
the 15th policy year to the amount of any increase in the specified amount.
Deferred Sales Charge. The deferred sales charge is:
. X% of the sum of all premiums paid up to the guideline premium shown in the
policy, plus
. Y% of the sum of all premiums paid in excess of the first guideline premium
("excess premium charge").
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X and Y vary by:
. the issue age;
. the length of time the policy is in effect; and
. sex of the insured as shown in Appendix I of the policy.
For the first 10 years, X equals 26.5% for males under age 64 at issue, and for
females under age 71 at issue. For the first 10 years, Y equals 4.2% for males
under age 56 at issue and for females under age 63. The percentages decline at
older ages and policy years. There is no surrender charge in the 15th policy
year and thereafter.
The deferred sales charge assists PFL in recovering distribution expenses
incurred in connection with the policy, including agent sales commissions, the
cost of printing prospectuses and sales literature, and any advertising costs.
The proceeds of the charge may not be sufficient to cover these expenses. To
the extent they are not, PFL will cover the shortfall from its general account
assets.
The total surrender charge on any date other than an anniversary will be
interpolated between the two end of year charges.
Example 1--Assume a male insured purchases the policy when age 55 for $100,000
of specified amount. He pays the guideline premium of $3,237, and an additional
premium amount of $763 in excess of the guideline premium, for a total premium
of $4,000 per year for four years ($16,000 total for four years). He then
surrenders the policy. The surrender charge would be calculated as follows:
<TABLE>
<S> <C>
. Deferred Issue Charge-- $ 500.00
[100 X $5.00]
($5.00/$1,000 of initial
specified amount)
. Deferred Sales Charge-- (1) 26.5% of guideline premium paid
[26.5% X $3,237], and = $857.81
(2) 4.2% of premiums paid in excess of guideline premium [4.2% X
$12,763] = $536.05
</TABLE>
<TABLE>
<S> <C>
. Applicable Surrender Charge [(a) $500.00 +
(b) ($857.81 + $536.05)]
Surrender Charge =
$500.00 + $1,398.86 = $1,893.86
===========
</TABLE>
Example 2--Assume the same facts as in Example 1, except he pays premiums for
14 years and surrenders the policy on the 14th anniversary:
<TABLE>
<S> <C>
. Deferred Issue Charge-- = $100.00
[100 X $1.00]
. Deferred Sales Charge:
(1) [5.3% X $3,237], and = $171.56
(2) [.84% X $52,763] = $443.21
. Applicable Surrender Charge:
[(a) $100.00 +
(b) ($171.56 + $443.21)]
Surrender Charge =
$100.00 + $614.77 = $714.77
=========
</TABLE>
If you wait until the 15th anniversary or after, there will be no surrender
charge.
Deferred Issue Charge on Increases. During the 15 policy years following each
increase in specified amount, you will pay an additional surrender charge when
you surrender the policy. This charge is calculated by multiplying the amount
of the increase in specified amount (in thousands) by the applicable deferred
issue charge shown in the policy, with policy years commencing on the date of
the increase.
Free Withdrawal Amount. PFL waives the deferred sales charge portion of the
surrender charge after the first policy year, on the first withdrawal each year
that does not exceed 10% of the cash value on the date of the withdrawal.
Monthly Deductions
PFL will deduct charges monthly from the cash value of each policy ("monthly
deduction") to compensate PFL for certain administrative costs, the cost of
insurance, and optional benefits added by rider. PFL will deduct the monthly
deduction on each monthly anniversary and will allocate it
31
<PAGE>
among the accounts on the same basis as net premiums are allocated. If the
value of any account is insufficient to pay its part of the monthly deduction,
the monthly deduction will be taken on a pro rata basis from all accounts.
Because portions of the monthly deduction, such as the cost of insurance, can
vary from month-to-month, the monthly deduction itself will vary in amount from
month-to-month.
Cost of Insurance. PFL will deduct a charge for the cost of insurance as a
monthly deduction. PFL will determine the monthly cost of insurance charge by
multiplying the applicable cost of insurance rates by the net amount at risk
for each policy month. The net amount at risk for a policy month is:
.the death benefit at the beginning of the policy month divided by 1.0032737
(which reduces the net amount at risk, solely for purposes of computing the
cost of insurance, by taking into account assumed monthly earnings at an
annual rate of 4%); less
.the cash value at the beginning of the policy month.
An increase in the specified amount of a policy will result in a greater net
amount at risk. Therefore, the cost of insurance deduction will increase.
Cost of insurance rates will be based on the sex and attained age of the
insured, and the length of time a policy has been in-force. The actual monthly
cost of insurance rates will be based on PFL's expectations as to future
experience. They will not, however, be greater than the guaranteed cost of
insurance rates set forth in the policy. These guaranteed rates are based on
the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality Tables and the
insured's sex and attained age. PFL also may guarantee that actual cost of
insurance rates will not be changed for a specified period of time (e.g., one
year). Any change in the cost of insurance rates will apply to all insureds of
the same age and sex whose policies have been in-force for the same length of
time.
PFL may realize a profit from this charge (and expects a profit).
The policies offered by this prospectus are based on mortality tables that
distinguish between men and women. As a result, the policy may pay different
benefits to, and may have different cost of insurance charges for, men and
women of the same age except where prohibited by state law or regulation.
PFL may also issue certain policies on a simplified or expedited basis to
certain categories of individuals (for example, policies issued at a
predetermined specified amount or underwritten on a group basis). Policies
issued on this basis will have guaranteed cost of insurance rates no higher
than the 1980 CSO table specified in the policy. However, due to the special
underwriting criteria established for these issues, actual rates may be higher
or lower than the current cost of insurance rates charged under otherwise
identical policies that are underwritten using standard underwriting criteria.
Monthly Administration Charge. PFL has primary responsibility for the
administration of the policy and the variable account. Annual administrative
expenses include recordkeeping, processing death benefit claims, policy
changes, reporting and overhead costs. Therefore, PFL assesses a monthly
administration charge from each policy. This charge is currently $5.00 per
policy month and will not be increased.
Substandard Premium Class Rating Charges. PFL will deduct charges for a
substandard premium class rating from the policy as monthly deductions.
Optional Cash Value Charges. PFL will deduct cash value charges for any
optional insurance benefits added to the policy by rider from the policy as
monthly deductions.
Transaction Charges
Cash Value Transfers. PFL reserves the right to impose a transfer charge of $25
for
32
<PAGE>
each transfer following the first twelve transfers made during any policy year.
However, PFL does not currently impose a charge for transfers, regardless of
the number made.
Cash Withdrawals. PFL will deduct a charge equal to the lesser of $25 or 2% of
the amount withdrawn from amounts withdrawn from the policy and will pay the
balance to you. This charge will not be increased.
Variable Account Asset (Daily) Charges
PFL will deduct certain charges as a percentage of the value of the net assets
of the variable account on a daily basis to compensate it for certain expenses
incurred and risks assumed in connection with the policy.
These charges are for administrative expenses, mortality and expense risks,
distribution financing costs, and certain federal income tax expenses (referred
to as "deferred acquisition cost" taxes). PFL imposes the charges for
distribution financing and deferred acquisition costs only during the first ten
policy years. PFL imposes the other charges throughout the life of the policy.
These charges are deducted on a daily basis, but the following chart summarizes
these charges as annual percentages of the daily net assets of the variable
account.
<TABLE>
<S> <C>
All Policy Years
Mortality & Expense Risks................................................ .90%
Administrative Expenses.................................................. .40%
-----
SUBTOTAL, all Policy years:.............................................. 1.30%
First Ten Policy Years only
Distribution financing................................................... .50%
Deferred Acquisition Costs............................................... .10%
-----
SUBTOTAL, additional charges during the first ten years:................. .60%
-----
TOTAL, First ten Policy years:........................................... 1.90%
</TABLE>
These variable account asset charges are not deducted from the fixed account.
Each of the daily variable account asset charges is described below.
Administrative Expenses. The daily charge for administrative expenses
compensates PFL for the costs incurred in administering the policies and the
variable account, such as the costs of processing applications, premiums,
withdrawals, loans, policy changes (such as a change of address, a change in
beneficiary or beneficiaries, etc.).
Distribution Financing Charge. The distribution financing charge, together with
the deferred sales charge, compensates PFL for the costs of distribution and
selling the policies (including sales commissions, advertising and marketing,
and preparing and printing prospectuses). The deferred sales charge will be
reduced by the amount of distribution financing charges previously deducted
with respect to that particular policy.
Deferred Acquisition Costs. In computing its federal income taxes, PFL is
required to "defer" or capitalize certain acquisition costs (rather than taking
such costs as a current deduction). The deferred acquisition cost charge
compensates PFL for these additional federal income tax expenses related to the
policies.
Mortality and Expense Risk Charge. PFL will deduct a daily charge from the
variable account at an annual rate of .90% of its average daily net assets.
Under PFL's current procedures, these amounts are paid to the general account
monthly. PFL may profit from this charge.
The mortality risk assumed by PFL is that insureds may live for a shorter time
than projected. The expense risk assumed is that expenses incurred in issuing
and administering the policies will exceed the limits on administrative charges
set in the policies. PFL also assumes risks with respect to other contingencies
including the incidence of policy loans, which may cause PFL to incur greater
costs than anticipated when designing the policies.
Taxes
PFL does not currently deduct a charge from the variable account for federal
33
<PAGE>
income taxes that may be attributable to the variable account. PFL may,
however, make such a charge in the future. Charges for other taxes, if any,
attributable to the variable account may also be made.
Investment Advisory Fee
Because the variable account purchases shares of the Endeavor Series Trust, the
variable account's net assets will reflect the investment advisory fee and
other expenses incurred by the portfolios.
Group or Sponsored Arrangements
Policies may be purchased under group or sponsored arrangements, as well as on
an individual basis. A "group arrangement" includes a program under which a
trustee, employer or similar entity purchases individual policies covering a
group of individuals on a group basis. Examples of such arrangements are
employer-sponsored benefit plans, which are qualified under Section 401 of the
Internal Revenue Code and deferred compensation plans. A "sponsored
arrangement" includes a program under which an employer permits group
solicitation of its employees or an association permits group solicitation of
its members for the purchase of policies on an individual basis.
The premium expense charges, contingent surrender charges, minimum premium and
minimum specified amount may be different or reduced for policies issued in
connection with group or sponsored arrangements. PFL will reduce these charges
in accordance with its rules in effect as of the date it approves an
application for a policy. To qualify for such a reduction, a group or sponsored
arrangement must satisfy certain criteria as to, for example, size and number
of years in existence. Generally, the sales contacts and effort, administrative
costs and mortality cost per policy vary based on such factors as:
. the size of the group or sponsored arrangement;
. its stability as indicated by its term of existence;
. the purposes for which policies are purchased; and
. certain characteristics of its members.
The amount of reduction and the criteria for qualification will reflect the
reduced sales effort resulting from sales to qualifying groups and sponsored
arrangements.
PFL may waive or reduce the monthly administration charge and the charge for a
cash withdrawal when lower administrative costs are incurred for:
. current and retired directors, officers, full-time employees and agents of
PFL and its affiliates;
. current and retired directors, officers, full-time employees and registered
representatives of AFSG Securities Corporation and any broker-dealer which
has a sales agreement with AFSG Securities Corporation;
. any trust, pension, profit-sharing or other employee benefit plan of any of
the foregoing persons or entities;
. current and retired directors, officers and full-time employees of the
Endeavor Series Trust; and
. any member of a family of any of the foregoing (e.g., spouse, child,
sibling, parent-in-law).
PFL may also waive or reduce the premium expense charges, contingent surrender
charges, minimum premium and minimum specified amount. PFL reserves the right
to modify or terminate this arrangement at any time.
PFL may modify both the amounts of reductions and the criteria for
qualification. In no event, however, will group or sponsored arrangements
established for the sole purpose of purchasing policies, or which have been in
existence for less than six months, qualify for such reductions. Reductions in
these charges will not be unfairly discriminatory against any person, including
the affected policyowners and all other policyowners of policies funded by the
variable account.
In 1983 the United States Supreme Court held that certain insurance policies,
the benefits under which vary based on sex,
34
<PAGE>
may not be used to fund certain employer-sponsored benefit plans and fringe
benefit programs. PFL recommends that any employer proposing to offer the
policies to employees under a group or sponsored arrangement consult his or her
attorney before doing so.
FEDERAL TAX MATTERS
Introduction
The following summary provides a general description of the federal income tax
considerations associated with the policy and does not purport to be complete
or to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors should be consulted for more complete
information. This discussion is based upon PFL's understanding of the present
federal income tax laws. No representation is made as to the likelihood of
continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
Tax Status of the Policy
In order to qualify as a life insurance contract for federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under federal tax law, a life insurance policy must satisfy certain
requirements which are set forth in the Internal Revenue Code. Guidance as to
how these requirements are to be applied is limited. Nevertheless, PFL believes
that a policy issued on the basis of a standard rate class should satisfy the
applicable requirements. There is less guidance, however, with respect to a
policy issued on a substandard basis and it is not clear whether such a policy
will in all cases satisfy the applicable requirements. If it is subsequently
determined that a policy does not satisfy the applicable requirements, PFL may
take appropriate steps to bring the policy into compliance with such
requirements and PFL reserves the right to modify the policy as necessary in
order to do so.
In certain circumstances, owners of variable life insurance policies have been
considered for federal income tax purposes to be the owners of the assets of
variable account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the policyowners
have been currently taxed on income and gains attributable to variable account
assets. There is little guidance in this area, and some features of the policy,
such as the flexibility of policyowners to allocate premium payments and policy
values, have not been explicitly addressed in published rulings. While PFL
believes that the policy does not give policyowners investment control over
variable account assets, we reserve the right to modify the policy as necessary
to prevent the policyowner from being treated as the owner of the variable
account assets supporting the policy.
In addition, the Code requires that the investments of the subaccounts be
adequately diversified in order for the policy to be treated as a life
insurance contract for federal income tax purposes. It is intended that the
subaccounts, through the portfolios of the Endeavor Series Trust, will satisfy
these diversification requirements.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
Tax Treatment of Policy Benefits
In General. PFL believes that the death benefit under a policy should be
excludible from the gross income of the beneficiary. Federal, state and local
estate, inheritance, transfer, and other tax consequences of ownership or
receipt of policy proceeds depend on the circumstances of each policyowner or
beneficiary. A tax advisor should be consulted on these consequences.
Generally, a policyowner will not be deemed to be in constructive receipt of
the cash value until there is a distribution. When distributions from a policy
occur, or when loans are taken out from or secured by a policy, the tax
consequences depend on whether the policy is classified as a modified endowment
contract.
35
<PAGE>
Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as modified endowment contracts, with less
favorable tax treatment than other life insurance contracts. Due to the
flexibility of the policy as to premium payments and benefits, the individual
circumstances of each policy will determine whether it is classified as a
modified endowment contract. The rules are too complex to be summarized here,
but generally depend on the amount of premium payments made during the first
seven policy years. Certain changes in a policy after it is issued could also
cause it to be classified as a modified endowment contract. A current or
prospective policyowner should consult with a competent advisor to determine
whether a policy transaction will cause the policy to be classified as a
modified endowment contract.
Distributions Other Than Death Benefits from Modified Endowment Contracts.
Policies classified as modified endowment contracts are subject to the
following tax rules:
. All distributions other than death benefits from a modified endowment
contract, including distributions upon surrender and withdrawals, will be
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the policyowner's investment in the policy only after
all gain has been distributed;
. Loans taken from or secured by a policy classified as a modified endowment
contract are treated as distributions and taxed accordingly; and
. A 10 percent additional income tax is imposed on the amount subject to tax
except where the distribution or loan is made when the policyowner has
attained age 59 1/2 or is disabled, or where the distribution is part of a
series of substantially equal periodic payments for the life (or life
expectancy) of the policyowner or the joint lives (or joint life
expectancies) of the policyowner and the policyowner's beneficiary or
designated beneficiary.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a policy that
is not classified as a modified endowment contract are generally treated first
as a recovery of the policyowner's investment in the policy and only after the
recovery of all investment in the policy as taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for federal income tax purposes if policy
benefits are reduced during the first 15 policy years may be treated in whole
or in part as ordinary income subject to tax.
The tax consequences of loans from or secured by a policy that is not a
modified endowment contract may be uncertain. You should consult a tax adviser
before taking out a policy loan.
Finally, neither distributions from nor loans from or secured by a policy that
is not a modified endowment contract are subject to the 10 percent additional
income tax.
Investment in the Policy. Your investment in the policy is generally your
aggregate premiums. When a distribution is taken from the policy, your
investment in the policy is reduced by the amount of the distribution that is
tax-free.
Policy Loan Interest. In general, interest on a policy loan will not be
deductible.
Multiple Policies. All modified endowment contracts that are issued by PFL (or
its affiliates) to the same policyowner during any calendar year are treated as
one modified endowment contract for purposes of determining the amount
includable in the policyowner's income when a taxable distribution occurs.
Other Policy Owner Tax Matters. Businesses can use the policy in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and nonexempt welfare benefit plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and
36
<PAGE>
circumstances. If you are purchasing the policy for any arrangement the value
of which depends in part on its tax consequences, you should consult a
qualified tax adviser. In recent years, moreover, Congress has adopted new
rules relating to life insurance owned by businesses. Any business
contemplating the purchase of a new policy or a change in an existing policy
should consult a tax adviser.
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. Consult a tax adviser with respect to legislative
developments and their effect on the policy.
Possible Charges for PFL's Taxes
At the present time, PFL makes no charge for any federal, state or local taxes
(other than the charge for state premium taxes) that may be attributable to the
subaccounts or to the policies. PFL reserves the right to charge the
subaccounts for any future taxes or economic burden PFL may incur.
GENERAL PROVISIONS
Postponement of Payments
General. PFL may postpone the payment of any amount from the variable account
upon complete surrender, cash withdrawal, policy loan, or benefits payable at
death or maturity whenever:
. the New York Stock Exchange is closed (other than customary weekend and
holiday closing), or trading on the New York Stock Exchange is restricted as
determined by the Commission;
. the Commission by order permits postponement for your protection; or
. an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the variable account's net assets.
PFL may also postpone transfers under these circumstances. PFL does not intend
to process transactions during such a period. See the fixed account section of
this prospectus for restrictions applicable to payments from the fixed account.
Payment by Check. PFL may delay payments under the policy of any amounts
derived from premiums paid by check or bank draft until such time as the check
or bank draft has cleared your bank.
The Contract
The policy, endorsements, if any, the attached copy of the application and any
supplemental applications are the entire contract. Only statements in the
application and any supplemental applications can be used to void the policy or
defend a claim. The statements are considered representations and not
warranties. No policy provision can be waived or changed except by endorsement.
Only the President, a Vice President, officer of PFL, or Secretary of PFL can
agree to change or waive any provisions of the policy.
Suicide
If the insured, whether sane or insane, commits suicide within two years after
the policy date, PFL will pay only the premiums received, less any cash
withdrawals and outstanding indebtedness. In the event of lapse of the policy,
PFL will measure the suicide period from the effective date of reinstatement.
If the insured, while sane or insane, commits suicide within two years after
the effective date of any increase in insurance or any reinstatement, PFL's
total liability with respect to such increase or reinstatement will be the cost
of insurance charges deducted for such increase or reinstatement.
Incontestability
PFL cannot contest the policy as to the initial specified amount after it has
been in-force during the lifetime of the insured for two years from the policy
date. A new two-year contestability period will apply to
37
<PAGE>
each increase in specified amount beginning on the effective date of each such
increase, and will apply to statements made in the application for the
increase. If the policy is reinstated, a new two-year contestability period
(apart from any remaining contestability period) will apply from the date of
the application for reinstatement and will apply only to statements made in the
application for reinstatement.
Change of Owner or Beneficiary
The beneficiary, as named in the policy application or subsequently changed,
will receive the policy benefits at the insured's death. If death benefits
become payable under a settlement option and the beneficiary has the right to
withdraw the entire amount, the beneficiary may name and change contingent
beneficiaries. If the named beneficiary dies before the insured, the contingent
beneficiary, if named, becomes the beneficiary. If no beneficiary survives the
insured, the benefits payable at the insured's death will be paid to you or
your estate. As long as the policy is in-force, you may change the beneficiary
or the contract's ownership by written request in a form acceptable to PFL. If
you have not reserved the right to change the beneficiary, a written consent of
any irrevocable beneficiary will be needed prior to a change in the
beneficiary. The policy need not be returned unless requested by PFL. The
change will take effect as of the date the request is signed, whether or not
the insured is living when PFL receives the request. PFL will not, however, be
liable for any payment made or action taken before receipt of the request.
Assignment
You may assign the policy. PFL will not be bound by the assignment until a
written copy has been received at its administrative office and will not be
liable with respect to any payment made prior to receipt. PFL assumes no
responsibility for determining whether an assignment is valid or the extent of
the assignee's interest. An assignment could have tax consequences.
Misstatement of Age or Sex
If the insured's age or sex has been misstated, PFL will adjust the death
benefit based on what the cost of insurance charge for the most recent monthly
deduction would have purchased based on the correct age and sex.
Reports and Records
PFL will maintain all records relating to the variable account and the fixed
account. PFL will mail to you, at your last known address of record, any
reports required by any applicable law or regulation.
PFL will send you written confirmation within seven days of the following
transactions:
. unplanned and certain planned premium payments;
. cash value transfers between accounts;
. change in death benefit option or specified amount;
. total surrenders or cash withdrawals; and
. policy loans or repayments.
PFL will also send you an annual statement at the end of the policy year. The
statement will show for the year, among other things, the month and amount of
each:
. premium payment made;
. monthly deduction;
. transfer;
. cash withdrawal; and
. policy loan or repayment.
The annual statement will also show policy year-end net surrender value, death
benefit and policy loan value, as well as other policy activity during the
year.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
PFL holds the assets of the variable account. PFL maintains records of all
purchases and redemptions of fund shares by each of the subaccounts. Additional
protection for the assets of the variable account is provided by a blanket
fidelity bond issued to PFL and its affiliates in the amount of $10 million
(subject to a $1 million deductible), covering all the
38
<PAGE>
employees of PFL and its affiliates. A stockbrokers blanket bond, issued to
AEGON U.S.A., Inc., providing fidelity coverage, covers the activities of
registered representatives of AFSG Securities Corporation to a limit of
$10,000,000, subject to a $50,000 deductible.
VOTING RIGHTS OF THE VARIABLE ACCOUNT
PFL will vote all shares of the underlying portfolios 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.
Disregard of Voting Instructions. PFL may, when required by state insurance
regulatory authorities, disregard voting instructions if the instructions
require that the shares be voted so as:
. to cause a change in the sub-classification or investment objective of the
fund or one or more of its portfolios; or
. to approve or disapprove an investment advisory contract for a portfolio of
the fund.
If PFL reasonably disapproves of such changes, it may also disregard voting
instructions in favor of changes you initiate in the investment policy or the
investment adviser of a portfolio of the fund.
A change would be disapproved only if the proposed change is contrary to state
law or prohibited by state regulatory authorities, or PFL determined that the
change would have an adverse effect on its general account in that the proposed
investment policy for a portfolio may result in overly speculative or unsound
investments. In the event PFL does disregard voting instructions, a summary of
that action and the reasons for such action will be included in the next annual
report to you.
STATE REGULATION OF PFL
As a life insurance company organized and operated under Iowa law, PFL is
subject to provisions governing such companies and to regulation by the Iowa
Commissioner of Insurance.
PFL's books and accounts are subject to review and examination by the Iowa
Insurance Department at all times and a full examination of its operations is
conducted by the National Association of Insurance Commissioners at least once
every three years.
PFL intends to reinsure a portion of the risks assumed under the policies.
EXECUTIVE OFFICERS AND DIRECTORS OF PFL
<TABLE>
<CAPTION>
Name and
Position(s) (/1/) Principal Occupation(s)
With PFL Last Five Years
- --------------------------------------------
<C> <S>
William L. Busler Director,
Chairman of the
Board,
and President
- --------------------------------------------
Larry N. Norman Director and
Executive Vice President
- --------------------------------------------
Robert J. Kontz Vice President
and Corporate Controller
- --------------------------------------------
Brenda K. Clancy Vice President,
Treasurer and
Chief Financial
Officer
- --------------------------------------------
Patrick S. Baird Director, Senior
Vice President,
and Chief
Operating
Officer
- --------------------------------------------
Douglas C. Kolsrud Director, Senior
Vice President,
Chief Investment
Officer and
Corporate
Actuary
- --------------------------------------------
Craig D. Vermie Director, Vice
President,
Secretary and
General Counsel
</TABLE>
(/1/The)principal business address of each person listed is PFL Life Insurance
Company, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499, unless otherwise
noted.
39
<PAGE>
YEAR 2000 MATTERS
In May 1996, PFL Life Insurance Company (PFL) adopted and presently has in
place a Year 2000 Project Plan (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compliant. As of March 1, 1999,
substantially all of PFL's mission-critical systems are Year 2000 compliant.
The Year 2000 Project Plan remains on track as PFL continues with the
validation of its mission-critical and non-mission-critical systems, including
revalidation testing in 1999. In addition, PFL has undertaken aggressive
initiatives to test all systems that interface with any third parties and other
business partners. All of these steps are aimed at allowing current operations
to remain unaffected by the year 2000 date change.
As of the date of this prospectus, PFL has identified and made available what
it believes are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
The actions taken by management under The Year 2000 Project Plan are intended
to significantly reduce PFL's risk of a material business interruption based on
the Year 2000 issues. It should be noted that the Year 2000 computer problem,
and its resolution, is complex and multifaceted, and any company's success
cannot be conclusively known until the Year 2000 is reached. In spite of its
efforts or results, PFL's ability to function unaffected to and through the
Year 2000 may be adversely affected by actions, or failure to act, of third
parties beyond our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. Section 1
(1998).
DISTRIBUTION OF THE POLICIES
AFSG Securities Corporation (member NASD) 4333 Edgewood Road NE, Cedar Rapids,
Iowa 52499, is the principal underwriter of the policies. AFSG Securities
Corporation is an affiliate of PFL. AFSG Securities Corporation has entered or
will enter into one or more contracts with various broker-dealers for the
distribution of the policies. Commissions on policy sales are paid to dealers.
Commissions payable to a broker-dealer will be up to 65% of the guideline
premium (and 5% of any excess premiums). In addition, certain broker-dealers
may receive additional commissions and certain expense allowances based upon
the attainment of specific sales volume targets and other factors. Certain
broker-dealers may also receive annual continuing fees based on policy values.
These commissions are not deducted from premium payments, they are paid by PFL.
PFL intends to sell policies in all states where PFL can issue the policies.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, Washington, D.C., has provided advice on
certain legal matters concerning federal securities laws in connection with the
policies. All matters of Iowa law pertaining to the policy, including the
validity of the policy and PFL's right to issue the policy under Iowa Insurance
Law, have been passed upon by Frank A. Camp, Vice President and Division
General Counsel, PFL Life Insurance Company.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
members subscribe to a set of ethical standards involving the sales and service
of individually sold life insurance and annuities. As a member, we may use the
IMSA logo and language in advertisements.
LEGAL PROCEEDINGS
There are no legal proceedings to which the variable account is a party or to
which the assets of the variable account are
40
<PAGE>
subject. PFL, like other life insurance companies, is a defendant 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 variable
account or PFL.
EXPERTS
The statutory-basis financial statements and schedules of PFL as of December
31, 1998 and 1997 and for the three years in the period ended 1998, appearing
in this prospectus and registration statement have been audited by Ernst &
Young LLP, Independent Auditors, 801 Grand Avenue, Suite 3400, Des Moines, Iowa
50309, as set forth in their report thereon appearing elsewhere herein. The
statutory-basis financial statements referred to above are included in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
Actuarial matters included in this prospectus have been examined by Richard R.
Greer as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL 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
policy offered hereby. This prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the variable account, PFL and the policy offered hereby.
Statements contained in this prospectus as to the contents of the policy and
other legal instruments are summaries. For a complete statement of the terms
thereof reference is made to such instruments as filed. Information about the
variable account can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You may obtain
information about the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. In addition, the Securities and Exchange
Commission maintains a web site (http://www.sec.gov) that contains other
information regarding the variable account.
INFORMATION ABOUT PFL'S FINANCIAL STATEMENTS
PFL's statutory-basis financial statements and schedules that are included in
this prospectus should be considered only as bearing on PFL's ability to meet
its obligations under the policies. They should not be considered as bearing on
the investment performance of the assets held in the variable account.
PFL's financial statements for the years ended December 31, 1998, 1997 and
1996, have been prepared on the basis of statutory accounting principles,
rather than generally accepted accounting principles ("GAAP").
There are no financial statements for the variable account because as of the
date of this prospectus the variable account had not commenced operations, had
no assets or liabilities, and had incurred no expenses.
41
<PAGE>
APPENDIX A
PAST INVESTMENT EXPERIENCE
The information provided in this section shows the historical investment
experience of the portfolios and assumed investment experiences of the
subaccounts based on the historical investment experience of the portfolios. It
does not represent or project future investment performance. (The subaccounts
are new and therefore do not have actual investment experience).
PFL may advertise the "total return" and the "average return" of the
subaccounts and the portfolios. Both total return and average annual return
figures are based on historical earnings and are not intended to indicate
future performance.
"Total Return" for a portfolio refers to the total income generated by the
portfolio minus total portfolio operating expenses plus capital gains or
losses, realized or unrealized. "Total Return" for the subaccounts refers to
the total income generated by the portfolio less fees and operating expenses
and the variable account asset charges. "Average Annual Total Return" reflects
the hypothetical annually compounded return that would have produced the same
cumulative return if the portfolios or subaccount's performance had been
constant over the entire period. Because average annual total returns tend to
smooth out variations in the return of the portfolio, they are not the same as
actual year-by-year results. Total Returns and Average Annual Total Returns do
not reflect the surrender charge.
Performance information may be compared, in reports and promotional literature,
to:
. the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other unmanaged
indices so that investors may compare the subaccount results with those of a
group of unmanaged securities widely regarded by investors as representative
of the securities markets in general;
. other groups of variable life separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research
firm which ranks mutual funds and other investment products by overall
performance, investment objectives, and assets, or tracked by other
services, companies, publications, or persons, such as Morningstar, Inc.,
who rank such investment products on overall performance or other criteria;
or
. the Consumer Price Index (a measure for inflation) to assess the real rate
of return from an investment in the subaccount.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
PFL may provide information on various topics of interest to you and
prospective policyowners in advertising, sales literature, periodic
publications, or other materials. These topics may include:
. the relationship between sectors of the economy, the economy as a whole and
its effect on various securities markets, investment strategies and
techniques (such as value investing, market timing, dollar cost averaging,
asset allocation, constant ratio transfer and account rebalancing);
. the advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles, and hypothetical purchase and investment
scenarios;
. financial management and tax and retirement planning; and
. investment alternatives to certificates of deposit and other financial
instruments, including comparisons between the policies and the
characteristics of and market for such financial instruments.
42
<PAGE>
Total return data may be advertised based on the period of time that the
portfolios have been in existence. The results for any period prior to the
policies being offered will be calculated as if the policies had been offered
during that period of time, with all charges assumed to be those applicable to
the policies.
Portfolio Performance Data. The following portfolio performance information
reflects the total income generated by the portfolio minus total portfolio
operating expenses plus capital gains and losses, realized or unrealized. It
does not reflect the policy or separate account charges.
Average Annual Total Return of the Portfolios
(through 12/31/98)
<TABLE>
<CAPTION>
10 Years*
or Life Inception
Portfolio 1 Year 5 Years of Portfolio Date
- --------- ------- ------- ------------ ---------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 18.39% 14.30% 14.36% 04/08/91
Endeavor Value Equity................... 7.56% 18.41% 16.88% 05/27/93
Endeavor Opportunity Value.............. 5.18% N/A 10.52% 11/18/96
Endeavor Enhanced Index................. 31.39% N/A 33.27% 05/01/97
Endeavor Select 50...................... N/A N/A 6.60% 02/03/98
Endeavor High Yield..................... N/A N/A (3.10%) 06/01/98
Dreyfus Small Cap Value................. (2.18%) 11.56% 12.33% 05/04/93
Dreyfus U.S. Government Securities...... 7.38% N/A 7.10% 05/13/94
T. Rowe Price Equity Income............. 8.81% N/A 21.59% 01/03/95
T. Rowe Price Growth Stock.............. 28.67% N/A 28.72% 01/03/95
T. Rowe Price International Stock....... 15.44% N/A 11.52% 03/24/95
Endeavor Janus Growth(/1/).............. 64.47% 25.20% 22.61% 10/02/86
</TABLE>
(/1/Effective)April 30, 1999, shares of the WRL Growth Portfolio were removed
and replaced with shares of the Endeavor Janus Growth Portfolio.
Performance prior to May 1, 1999 reflects performance of the annuity
subaccount while it was invested in the WRL Growth Portfolio.
The annualized yield for the Endeavor Money Market Portfolio for the seven days
ending December 31, 1998 was 4.67%.
Subaccount Performance. Although as of the date of this prospectus the
subaccounts have not commenced operations and therefore have no performance
history, the following performance information of the subaccounts assumes that
the subaccounts have been in operation for the same periods as the
corresponding portfolio and investing in the corresponding portfolio. It
reflects the total income generated by the portfolio minus total portfolio
operating expenses, plus capital gains and losses, realized or unrealized,
minus the premium charges (5.00%), the monthly administrative charge ($5.00),
and variable account asset charges of 1.9% a year for the first 10 years.
43
<PAGE>
Average Annual Total Return of the Subaccounts (Hypothetical)
(through 12/31/98)
<TABLE>
<CAPTION>
10 Years* or
Since Inception
Portfolio 1 Year 5 Years Inception Date Date
- --------- ------- ------- -------------- ---------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............. 10.48% 11.10% 11.56% 04/08/91
Endeavor Value Equity................. 0.29% 15.14% 13.75% 05/27/93
Endeavor Opportunity Value............ (1.95%) N/A 5.90% 11/18/96
Endeavor Enhanced Index............... 22.71% N/A 27.02% 05/01/97
Endeavor Select 50.................... N/A N/A (0.48%) 02/03/98
Endeavor High Yield................... N/A N/A (10.50%) 06/01/98
Dreyfus Small Cap Value............... (8.88%) 8.42% 9.29% 05/04/93
Dreyfus U.S. Government Securities.... 0.12% N/A 3.95% 05/13/94
T. Rowe Price Equity Income........... 1.47% N/A 17.94% 01/03/95
T. Rowe Price Growth.................. 20.15% N/A 25.86% 01/03/95
T. Rowe Price International Stock..... 7.70% N/A 8.01% 03/24/95
Endeavor Janus Growth(1).............. 53.53% 21.80% 19.87% 10/02/86
</TABLE>
(/1/Effective)April 30, 1999, shares of the WRL Growth Portfolio were removed
and replaced with shares of the Endeavor Janus Growth Portfolio.
Performance prior to May 1, 1999 reflects performance of the annuity
subaccount while it was invested in the WRL Growth Portfolio.
* The above subaccount performance figures do not reflect the surrender charge
or the cost of insurance charge, or rating or rider charges.
Performance information for any subaccount reflects only the performance of a
hypothetical investment in the subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio in which the subaccount invests and the market conditions
during the given time period, and should not be considered as a representation
of what may be achieved in the future. Actual returns may be more or less than
those shown and will depend on a number of factors, including the investment
allocations by an owner and the different investment rates of return for the
portfolios.
44
<PAGE>
APPENDIX B
ILLUSTRATION OF BENEFITS
The tables in Appendix A illustrate the way in which a policy operates. They
show how the death benefit, cash value and net surrender value of a policy
issued to an insured of a given age and a given premium could vary over an
extended period of time assuming hypothetical gross rates of return equivalent
to constant after tax annual rates of 0%, 6% and 12%. The tables illustrate the
policy values that would result based on the assumptions that the premium is
paid as indicated, that the owner has not requested an increase or decrease in
the specified amount of the policy, and that no cash withdrawals or policy
loans have been made.
The death benefits, cash values and net surrender values under a policy would
be different from those shown if the actual rate of return averages 0%, 6% or
12% over a period of years, but fluctuates above and below those averages for
individual policy years. They would also differ if any policy loans were made
during the period of time illustrated.
The illustrations on page 37 is based on a policy for an insured who is [a 35
year old male with annual premiums of $2,000, a $165,000 specified amount and
death] benefit Option A. The illustrations on that page also assume the
guaranteed premium charges and cost of insurance rates (based on the 1980
Commissioners Standard Ordinary Mortality Table).
The illustrations on page 38 are based on the same factors as those on page A-
2, except that premium charges and cost of insurance charges are based on PFL's
current rates.
The illustrations on page 39 and 40 are based on the same factors as the
foregoing examples, but death benefit Option B is used.
The amounts shown for the death benefits, cash values and net surrender values
take into account (1) the premium charge, (2) the daily variable account asset
charges of 1.9% for the first 10 years and 1.3% thereafter, of the average net
assets of the subaccounts; (3) estimated daily expenses equivalent to an
effective arithmetic average annual expense level of 1.01% of the average daily
net assets of all of the available Portfolios (based on 1998 expense levels);
and (4) all applicable monthly deductions. The 1.01% expense level assumes an
equal allocation of amounts among the thirteen subaccounts and is based on an
average investment advisory fee and 1998 average operating expenses. Taking
into account the assumed charges of 2.91%, the gross annual investment return
rates of 0%, 6% and 12% are equivalent to net annual investment return rates of
(2.91)%, 7.09%, and 9.09% (first 10 years).
The hypothetical returns shown in the tables are without any tax charges that
may be attributable to the variable account since PFL is not currently making
such charges. In order to produce after tax returns of 0%, 6% or 12% if such
charges are made in the future, the variable account would have to earn a
sufficient amount in excess of 0%, 6% or 12% to cover any tax charges.
The "Premium Accumulated at 5%" column of each table shows the amount which
would accumulate if an amount equal to the premium were invested to earn
interest at 5% per year, compounded annually.
PFL will furnish, upon request, a comparable illustration reflecting the
proposed insured's age, sex, risk classification and desired plan features.
45
<PAGE>
PFL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<C> <C> <C> <S>
Specified Amount: $165,000 Asset Based Charges*: 2.91%/2.31%
Product Type: Standard Class Policy Annual Premium: $2,000
Using: Guaranteed Mortality Death Benefit: Option A
</TABLE>
<TABLE>
<CAPTION>
Premiums Death Benefit Cash Value Net Surrender Value
Accumulated ------------------------- ------------------------ ------------------------
at 5% Assuming Hypothetical Gross and Net Annual Investment Return of
End of ----------- ---------------------------------------------------------------------------
Policy Gross 0% 6% 0% 6% 0% 6%
Year Net (2.91%) 3.09% 12% 9.09% (2.91%) 3.09% 12% 9.09% (2.91%) 3.09% 12% 9.09%
------ ----------- ------- ------- --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 165,000 165,000 165,000 1,447 1,548 1,650 92 93 295
2 4,305 165,000 165,000 165,000 2,835 3,126 3,431 1,256 1,547 1,852
3 6,620 165,000 165,000 165,000 4,159 4,731 5,351 2,496 3,068 3,688
4 9,051 165,000 165,000 165,000 5,420 6,360 7,422 3,673 4,613 5,675
5 11,604 165,000 165,000 165,000 6,615 8,010 9,652 4,784 6,179 7,821
6 14,284 165,000 165,000 165,000 7,743 9,679 12,055 5,828 7,764 10,140
7 17,098 165,000 165,000 165,000 8,800 11,363 14,641 6,801 9,364 12,642
8 20,053 165,000 165,000 165,000 9,788 13,064 17,430 7,705 10,981 15,347
9 23,156 165,000 165,000 165,000 10,704 14,775 20,436 8,537 12,608 18,269
10 26,414 165,000 165,000 165,000 11,549 16,498 23,680 9,297 14,247 21,429
11 29,834 165,000 165,000 165,000 12,396 18,336 27,333 10,528 16,468 25,465
12 33,426 165,000 165,000 165,000 13,173 20,196 31,306 11,721 18,745 29,855
13 37,197 165,000 165,000 165,000 13,875 22,075 35,630 12,874 21,074 34,629
14 41,157 165,000 165,000 165,000 14,503 23,974 40,343 13,986 23,457 39,825
15 45,315 165,000 165,000 165,000 15,050 25,887 45,481 15,050 25,887 45,481
16 49,681 165,000 165,000 165,000 15,514 27,812 51,092 15,514 27,812 51,092
17 54,265 165,000 165,000 165,000 15,883 29,740 57,219 15,883 29,740 57,219
18 59,078 165,000 165,000 165,000 16,149 31,664 63,916 16,149 31,664 63,916
19 64,132 165,000 165,000 165,000 16,301 33,573 71,245 16,301 33,573 71,245
20 69,439 165,000 165,000 165,000 16,325 35,456 79,274 16,325 35,456 79,274
30 (Age 65) 139,522 165,000 165,000 266,544 7,098 50,984 218,479 7,098 50,984 218,479
40 (Age 75) 253,680 * 165,000 591,419 * 42,221 552,728 * 42,221 552,728
50 (Age 85) 439,631 * * 1,422,212 * * 1,354,488 * * 1,354,488
60 (Age 95) 742,526 * * 3,180,934 * * 3,149,439 * * 3,149,439
</TABLE>
- ----------------------------
* In the absence of additional premium the policy will lapse.
Note--Asset Based Charges:
. The average fund expense charge is 1.01%
. The variable account asset charge is 1.90% for the first ten policy years
only, after that, it will be reduced to 1.30%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including the investment allocations by an owner
and the different investment rates of return for the fund. The death benefit,
cash values and net surrender value for a policy would be different from those
shown if the actual investment rates of return averaged 0%, 6% and 12% over a
period of years, but fluctuated above or below that average for individual
policy years. No representation can be made by PFL or the fund that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
46
<PAGE>
PFL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<C> <C> <C> <S>
Specified Amount: $165,000 Asset Based Charges*: 2.91%/2.31%
Product Type: Standard Class Policy Annual Premium: $2,000
Using: Current Mortality Death Benefit: Option A
Nonsmoker
</TABLE>
<TABLE>
<CAPTION>
Premiums Death Benefit Cash Value Net Surrender Value
Accumulated ------------------------- ------------------------- -------------------------
at 5% Assuming Hypothetical Gross and Net Annual Investment Return of
End of ----------- -----------------------------------------------------------------------------
Policy Gross 0% 6% 0% 6% 0% 6%
Year Net (2.91%) 3.09% 12% 9.09% (2.91%) 3.09% 12% 9.09% (2.91%) 3.09% 12% 9.09%
------ ----------- ------- ------- --------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 165,000 165,000 165,000 1,602 1,708 1,814 247 353 459
2 4,305 165,000 165,000 165,000 3,142 3,454 3,778 1,700 2,011 2,335
3 6,620 165,000 165,000 165,000 4,601 5,215 5,881 3,074 3,689 4,355
4 9,051 165,000 165,000 165,000 6,002 7,016 8,161 4,391 5,406 6,551
5 11,604 165,000 165,000 165,000 7,346 8,857 10,634 5,651 7,163 8,939
6 14,284 165,000 165,000 165,000 8,639 10,744 13,321 6,861 8,966 11,542
7 17,098 165,000 165,000 165,000 9,879 12,675 16,239 8,016 10,812 14,376
8 20,053 165,000 165,000 165,000 11,064 14,647 19,406 9,117 12,700 17,460
9 23,156 165,000 165,000 165,000 12,194 16,662 22,847 10,164 14,632 20,817
10 26,414 165,000 165,000 165,000 13,278 18,728 26,593 11,163 16,613 24,478
11 29,834 165,000 165,000 165,000 14,396 20,959 30,833 12,637 19,200 29,074
12 33,426 165,000 165,000 165,000 15,467 23,254 35,474 14,097 21,885 34,104
13 37,197 165,000 165,000 165,000 16,493 25,618 40,557 15,546 24,672 39,610
14 41,157 165,000 165,000 165,000 17,491 28,070 46,142 17,001 27,580 45,652
15 45,315 165,000 165,000 165,000 18,457 30,608 52,276 18,457 30,608 52,276
16 49,681 165,000 165,000 165,000 19,389 33,234 59,014 19,389 33,234 59,014
17 54,265 165,000 165,000 165,000 20,254 35,921 66,391 20,254 35,921 66,391
18 59,078 165,000 165,000 165,000 21,055 38,672 74,476 21,055 38,672 74,476
19 64,132 165,000 165,000 165,000 21,782 41,484 83,342 21,782 41,484 83,342
20 69,439 165,000 165,000 165,000 22,432 44,357 93,072 22,432 44,357 93,072
30 (Age 65) 139,522 165,000 165,000 316,348 22,864 75,904 259,302 22,864 75,904 259,302
40 (Age 75) 253,680 165,000 165,000 717,425 12,256 118,733 670,491 12,256 118,733 670,491
50 (Age 85) 439,631 * 192,609 1,760,278 * 183,392 1,676,456 * 183,392 1,676,456
60 (Age 95) 742,526 * 273,661 4,065,582 * 270,884 4,025,329 * 270,884 4,025,329
</TABLE>
- ----------------------------
* In the absence of additional premium the policy will lapse.
Note--Asset Based Charges:
. The average fund expense charge is 1.01%
. The variable account asset charge is 1.90% for the first ten policy years
only, after that, it will be reduced to 1.30%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including the investment allocations by an owner
and the different investment rates of return for the fund. The death benefit,
cash values and net surrender value for a policy would be different from those
shown if the actual investment rates of return averaged 0%, 6% and 12% over a
period of years, but fluctuated above or below that average for individual
policy years. No representation can be made by PFL or the fund that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
47
<PAGE>
PFL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<C> <C> <C> <S>
Specified Amount: $165,000 Asset Based Charges*: 2.91%/2.31%
Product Type: Standard Class Policy Annual Premium: $2,000
Using: Guaranteed Mortality Death Benefit: Option B
</TABLE>
<TABLE>
<CAPTION>
Premiums Death Benefit Cash Value Net Surrender Value
Accumulated ------------------------- ------------------------ ------------------------
at 5% Assuming Hypothetical Gross and Net Annual Investment Return of
End of ----------- ---------------------------------------------------------------------------
Policy Gross 0% 6% 0% 6% 0% 6%
Year Net (2.91%) 3.09% 12% 9.09% (2.91%) 3.09% 12% 9.09% (2.91%) 3.09% 12% 9.09%
------ ----------- ------- ------- --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 166,443 166,543 166,644 1,443 1,543 1,644 88 188 289
2 4,305 167,822 168,113 168,416 2,822 3,113 3,416 1,243 1,533 1,836
3 6,620 169,135 169,703 170,320 4,135 4,703 5,320 2,472 3,040 3,657
4 9,051 170,381 171,313 172,366 5,381 6,313 7,366 3,634 4,566 5,619
5 11,604 171,556 172,937 174,562 6,556 7,937 9,562 4,725 6,106 7,731
6 14,284 172,660 174,572 176,918 7,660 9,572 11,918 5,745 7,657 10,003
7 17,098 173,687 176,213 179,441 8,687 11,213 14,441 6,688 9,214 12,441
8 20,053 174,641 177,859 182,146 9,641 12,859 17,146 7,558 10,776 15,063
9 23,156 175,516 179,503 185,043 10,516 14,503 20,043 8,349 12,336 17,876
10 26,414 176,314 181,144 188,148 11,314 16,144 23,148 9,063 13,893 20,897
11 29,834 177,106 182,882 191,621 12,106 17,882 26,621 10,238 16,013 24,753
12 33,426 177,820 184,620 195,365 12,820 19,620 30,365 11,368 18,169 28,914
13 37,197 178,451 186,355 199,403 13,451 21,355 34,403 12,450 20,354 33,402
14 41,157 178,999 188,083 203,758 13,999 23,083 38,758 13,482 22,566 38,241
15 45,315 179,458 189,795 208,454 14,458 24,795 43,454 14,458 24,795 43,454
16 49,681 179,823 191,486 213,517 14,823 26,486 48,517 14,823 26,486 48,517
17 54,265 180,084 193,139 218,967 15,084 28,139 53,967 15,084 28,139 53,967
18 59,078 180,229 194,741 224,830 15,229 29,741 59,830 15,229 29,741 59,830
19 64,132 180,249 196,275 231,130 15,249 31,275 66,130 15,249 31,275 66,130
20 69,439 180,128 197,720 237,891 15,128 32,720 72,891 15,128 32,720 72,891
30 (Age 65) 139,522 169,080 203,312 339,427 4,080 38,312 174,427 4,080 38,312 174,427
40 (Age 75) 253,680 * * 534,087 * * 369,087 * * 369,087
50 (Age 85) 439,631 * * 863,224 * * 698,224 * * 698,224
60 (Age 95) 742,526 * * 1,316,683 * * 1,151,683 * * 1,151,683
</TABLE>
- ----------------------------
* In the absence of additional premium the policy will lapse.
Note--Asset Based Charges:
. The average fund expense charge is 1.01%
. The variable account asset charge is 1.90% for the first ten policy years
only, after that, it will be reduced to 1.30%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including the investment allocations by an owner
and the different investment rates of return for the fund. The death benefit,
cash values and net surrender value for a policy would be different from those
shown if the actual investment rates of return averaged 0%, 6% and 12% over a
period of years, but fluctuated above or below that average for individual
policy years. No representation can be made by PFL or the fund that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
48
<PAGE>
PFL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<C> <C> <C> <S>
Specified Amount: $165,000 Asset Based Charges*: 2.91%/2.31%
Product Type: Standard Class Policy Annual Premium: $2,000
Current Mortality
Using: Nonsmoker Death Benefit: Option B
</TABLE>
<TABLE>
<CAPTION>
Premiums Death Benefit Cash Value Net Surrender Value
Accumulated ------------------------- ------------------------ ------------------------
at 5% Assuming Hypothetical Gross and Net Annual Investment Return of
End of ----------- ---------------------------------------------------------------------------
Policy Gross 0% 6% 0% 6% 0% 6%
Year Net (2.91%) 3.09% 12% 9.09% (2.91%) 3.09% 12% 9.09% (2.91%) 3.09% 12% 9.09%
------ ----------- ------- ------- --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12,100 166,599 166,705 166,811 1,599 1,705 1,811 244 350 456
2 4,305 168,135 168,446 168,769 3,135 3,446 3,769 1,692 2,003 2,326
3 6,620 169,586 170,198 170,862 4,586 5,198 5,862 3,059 3,671 4,335
4 9,051 170,977 171,986 173,126 5,977 6,986 8,126 4,366 5,376 6,515
5 11,604 172,307 173,810 175,575 7,307 8,810 10,575 5,613 7,115 8,880
6 14,284 173,585 175,674 178,231 8,585 10,674 13,231 6,806 8,895 11,452
7 17,098 174,806 177,576 181,108 9,806 12,576 16,108 7,943 10,714 14,245
8 20,053 175,968 179,514 184,222 10,968 14,514 19,222 9,021 12,567 17,275
9 23,156 177,072 181,486 187,593 12,072 16,486 22,593 10,042 14,455 20,563
10 26,414 178,127 183,500 191,252 13,127 18,500 26,252 11,012 16,386 24,137
11 29,834 179,210 185,668 195,379 14,210 20,668 30,379 12,451 18,909 28,620
12 33,426 180,242 187,888 199,879 15,242 22,888 34,879 13,872 21,519 33,509
13 37,197 181,224 190,164 204,787 16,224 25,164 39,787 15,277 24,217 38,840
14 41,157 182,175 192,515 210,162 17,175 27,515 45,162 16,685 27,025 44,671
15 45,315 183,091 194,939 216,043 18,091 29,939 51,043 18,091 29,939 51,043
16 49,681 183,970 197,436 222,478 18,970 32,436 57,478 18,970 32,436 57,478
17 54,265 184,773 199,968 229,477 19,773 34,968 64,477 19,773 34,968 64,477
18 59,078 185,502 202,537 237,095 20,502 37,537 72,095 20,502 37,537 72,095
19 64,132 186,148 205,131 245,380 21,148 40,131 80,380 21,148 40,131 80,380
20 69,439 186,705 207,745 254,389 21,705 42,745 89,389 21,705 42,745 89,389
30 (Age 65) 139,522 185,275 232,144 400,201 20,275 67,144 235,201 20,275 67,144 235,201
40 (Age 75) 253,680 172,186 251,515 747,168 7,186 86,515 582,168 7,186 86,515 582,168
50 (Age 85) 439,631 * 208,257 1,533,693 * 43,257 1,368,693 * 43,257 1,368,693
60 (Age 95) 742,526 * * 3,252,217 * * 3,087,217 * * 3,087,217
</TABLE>
- ----------------------------
* In the absence of additional premium the policy will lapse.
Note--Asset Based Charges
. The average fund expense charge is 1.01%
. The variable account asset charge is 1.90% for the first ten policy years
only, after that, it will be reduced to 1.30%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including the investment allocations by an owner
and the different investment rates of return for the fund. The death benefit,
cash values and net surrender value for a policy would be different from those
shown if the actual investment rates of return averaged 0%, 6% and 12% over a
period of years, but fluctuated above or below that average for individual
policy years. No representation can be made by PFL or the fund that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
49
<PAGE>
APPENDIX C
THE PFL ENDEAVOR VARIABLE LIFE ACCOUNT AND
THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
The investment performance of many common stocks has generally been positive
over certain relatively long periods. Common stocks have, however, also been
subject to market declines, often dramatic ones, and general volatility of
prices over shorter time periods. The price fluctuations of common stocks has
historically been greater than that of high grade debt securities.
The relative volatility of common stock prices as compared with prices of high
grade debt instruments offers both advantages and disadvantages to investors.
Unfortunately, many investors who otherwise might be interested in common
stocks see only the disadvantages and not the advantages of stock price
fluctuation. The primary disadvantage, of course, is that price declines can be
prolonged and substantial, and when this occurs, investors cannot liquidate
their investments without realizing losses. Price declines, however, also offer
investors important opportunities.
Opportunity arises from the fact that investors can purchase more common stock
for the same amount of money than they would before prices declined. Investors
may take advantage of this if they remain willing to continue investing in both
rising and falling markets. The dollar cost averaging method of investing
demonstrates this.
In this method of investing:
. Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually),
. Stock Market fluctuations, especially the savings on purchases from price
declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
<TABLE>
<CAPTION>
Investments at Common Stock Shares
Regular Intervals Market Price Purchased
----------------- ------------ ---------
<S> <C> <C> <C>
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
---- ----
$900 87.5
</TABLE>
<TABLE>
<S> <C>
Total Value of 87.5 shares @$15/share......................... $1,312.50
Less Investment made........................................ (900.00)
---------
Gain/Profit............................................. $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per share,
dollar cost averaging has permitted the investor to purchase more shares at a
savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss in
declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of market fluctuations.
50
<PAGE>
How does the dollar cost averaging method relate to the PFL Endeavor Variable
Life Insurance Policy? A policyowner may invest his or her net premium in a
Sub-Account, and although a policy's value in a Sub- Account or Sub-Accounts is
affected by several factors other than investment experience (e.g., cash value
charges and charges against the variable account), the dollar cost averaging
method can be generally applied to the policy to the extent that the
policyowner pays a planned periodic premium on a regular basis and he or she
allocates net premium resulting from those planned periodic premiums to the
Growth Subaccount in relatively constant amounts.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PFL Life Insurance Company:
<TABLE>
<S> <C>
Report of Independent Auditors dated February 19, 1999.
Statutory-Basis Balance Sheets at December 31, 1998 and 1997.
Statutory-Basis Statement of Operations for the years ended December 31,
1998, 1997 and 1996.
Statutory-Basis Statement of Changes in Capital and Surplus for the years
ended December 31, 1998, 1997, and 1996.
Statutory-Basis Statement of Cash Flow for the years ended December 31,
1998, 1997, and 1996.
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
</TABLE>
52
<PAGE>
FINANCIAL STATEMENTS--STATUTORY BASIS
PFL LIFE INSURANCE COMPANY
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
<PAGE>
PFL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS--STATUTORY BASIS
Years ended December 31, 1998, 1997 and 1996
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 2
Statements of Operations--Statutory Basis................................. 3
Statements of Changes in Capital and Surplus--Statutory Basis............. 4
Statements of Cash Flows--Statutory Basis................................. 5
Notes to Financial Statements--Statutory Basis............................ 6
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 24
Supplementary Insurance Information....................................... 25
Reinsurance............................................................... 26
</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 as of December 31, 1998 and 1997, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1998 and
1997, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1998.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 19, 1999
1
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
ADMITTED ASSETS
---------------
<S> <C> <C>
Cash and invested assets:
Cash and short-term investments............................ $ 83,289 $ 23,939
Bonds...................................................... 4,822,442 4,913,144
Stocks:
Preferred................................................ 14,754 2,750
Common (cost: 1998--$34,731; 1997--$33,058).............. 49,448 42,345
Affiliated entities (cost: 1998--$8,060; 1997--$10,798).. 5,613 8,031
Mortgage loans on real estate.............................. 1,012,433 935,207
Real estate, at cost less accumulated depreciation ($9,500
in 1998; $8,655 in 1997):
Home office properties................................... 8,056 8,283
Properties acquired in satisfaction of debt.............. 11,778 11,814
Investment properties.................................... 44,325 36,416
Policy loans............................................... 60,058 57,136
Other invested assets...................................... 76,482 29,864
---------- ----------
Total cash and invested assets......................... 6,188,678 6,068,929
Premiums deferred and uncollected........................... 15,318 16,101
Accrued investment income................................... 65,308 69,662
Receivable from affiliate................................... 643 --
Federal income taxes recoverable............................ 639 --
Transfers from separate accounts............................ 70,866 60,193
Other assets................................................ 29,511 37,624
Separate account assets..................................... 3,348,611 2,517,365
---------- ----------
Total admitted assets.................................. $9,719,574 $8,769,874
========== ==========
<CAPTION>
LIABILITIES AND CAPITAL AND SURPLUS
-----------------------------------
<S> <C> <C>
Liabilities:
Aggregate reserves for policies and contracts:
Life..................................................... $1,357,175 $ 884,018
Annuity.................................................. 3,925,293 4,204,125
Accident and health...................................... 205,736 169,328
Policy and contract claim reserves:
Life..................................................... 9,101 8,635
Accident and health...................................... 48,906 57,713
Other policyholders' funds................................. 162,266 143,831
Remittances and items not allocated........................ 19,690 153,745
Asset valuation reserve.................................... 91,588 69,825
Interest maintenance reserve............................... 50,575 30,287
Federal income taxes payable............................... -- 1,889
Short-term notes payable to affiliates..................... 9,421 16,400
Other liabilities.......................................... 76,766 75,070
Payable for securities..................................... 57,645 --
Payable to affiliates...................................... -- 13,240
Separate account liabilities............................... 3,342,884 2,512,406
---------- ----------
Total liabilities...................................... 9,357,046 8,340,512
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding.................................... 2,660 2,660
Paid-in surplus............................................ 154,282 154,282
Unassigned surplus......................................... 205,586 272,420
---------- ----------
Total capital and surplus.............................. 362,528 429,362
---------- ----------
Total liabilities and capital and surplus.............. $9,719,574 $8,769,874
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 516,111 $ 202,435 $ 204,872
Annuity............................... 667,920 657,695 725,966
Accident and health................... 178,593 207,982 227,862
Net investment income................... 446,984 446,424 428,337
Amortization of interest maintenance re-
serve.................................. 8,656 3,645 2,434
Commissions and expense allowances on
reinsurance ceded...................... 32,781 49,859 73,931
---------- ---------- ----------
1,851,045 1,568,040 1,663,402
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health bene-
fits................................. 135,184 146,583 147,024
Surrender benefits.................... 732,796 658,071 512,810
Other benefits........................ 152,209 126,495 101,288
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................. 473,158 149,575 140,126
Annuity............................... (278,665) (203,139) 188,002
Accident and health................... 36,407 30,059 26,790
Other................................. 17,550 16,998 19,969
---------- ---------- ----------
1,268,639 924,642 1,136,009
Insurance expenses:
Commissions............................. 136,569 157,300 177,466
General insurance expenses.............. 48,018 57,571 57,282
Taxes, licenses and fees................ 19,166 8,715 13,889
Net transfers to separate accounts...... 265,702 297,480 171,785
Other expenses.......................... 1,016 119 526
---------- ---------- ----------
470,471 521,185 420,948
---------- ---------- ----------
1,739,110 1,445,827 1,556,957
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital
gains (losses) on investments............ 111,935 122,213 106,445
Federal income tax expense................ 49,835 43,381 41,177
---------- ---------- ----------
Gain from operations before net realized
capital gains (losses) on investments.... 62,100 78,832 65,268
Net realized capital gains (losses) on
investments (net of related federal
income taxes and amounts transferred to
interest maintenance reserve)............ 3,398 7,159 (3,503)
---------- ---------- ----------
Net income................................ $ 65,498 $ 85,991 $ 61,765
========== ========== ==========
</TABLE>
See accompanying notes.
3
<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, 1996............... $2,660 $154,129 $ 220,739 $ 377,528
Net income............................. -- -- 61,765 61,765
Change in net unrealized capital
gains................................. -- -- 2,351 2,351
Change in non-admitted assets.......... -- -- (148) (148)
Change in asset valuation reserve...... -- -- (10,930) (10,930)
Dividend to stockholder................ -- -- (20,000) (20,000)
Prior period adjustment................ -- -- 5,025 5,025
Surplus effect of sales of divisions... -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a
division.............................. -- -- 29 29
Amendment of reinsurance agreement..... -- -- 421 421
Change in liability for reinsurance in
unauthorized companies................ -- -- 2,690 2,690
------ -------- --------- ---------
Balance at December 31, 1996............. 2,660 154,129 261,558 418,347
Capital contribution................... -- 153 -- 153
Net income............................. -- -- 85,991 85,991
Change in net unrealized capital
gains................................. -- -- 3,592 3,592
Change in non-admitted assets.......... -- -- (481) (481)
Change in asset valuation reserve...... -- -- (14,974) (14,974)
Dividend to stockholder................ -- -- (62,000) (62,000)
Surplus effect of sale of a division... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division.............................. -- -- 5 5
Amendment of reinsurance agreement..... -- -- 389 389
Surplus effect of reinsurance
agreement............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................ -- -- (1,901) (1,901)
------ -------- --------- ---------
Balance at December 31, 1997............. 2,660 154,282 272,420 429,362
Net income............................. -- -- 65,498 65,498
Change in net unrealized capital
gains................................. -- -- 4,504 4,504
Change in non-admitted assets.......... -- -- (260) (260)
Change in asset valuation reserve...... -- -- (21,763) (21,763)
Dividend to stockholder................ -- -- (120,000) (120,000)
Increase in liability for reinsurance
in unauthorized companies............. -- -- 2,036 2,036
Tax benefit on stock options
exercised............................. -- -- 2,476 2,476
Change in surplus in separate
accounts.............................. -- -- 675 675
------ -------- --------- ---------
Balance at December 31, 1998............. $2,660 $154,282 $ 205,586 $ 362,528
====== ======== ========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Premiums and other considerations, net
of reinsurance......................... $ 1,396,428 $ 1,119,936 $ 1,240,748
Net investment income................... 469,246 452,091 431,456
Life and accident and health claims..... (138,249) (154,383) (147,556)
Surrender benefits and other fund
withdrawals............................ (732,796) (658,071) (512,810)
Other benefits to policyholders......... (152,167) (126,462) (101,254)
Commissions, other expenses and other
taxes.................................. (197,135) (225,042) (248,321)
Net transfers to separate accounts...... (276,375) (319,146) (210,312)
Federal income taxes.................... (72,176) (47,909) (35,551)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- (4,826) (5,812)
Cash received in connection with a
reinsurance agreement.................. -- 1,477 --
Other, net.............................. (93,095) 89,693 (41,677)
Net cash provided by operating
activities............................. 203,681 127,358 368,911
Investing Activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,347,174 3,284,095 2,112,831
Common stocks......................... 34,564 34,004 27,214
Mortgage loans on real estate......... 192,210 138,162 74,351
Real estate........................... 5,624 6,897 18,077
Cash received from ceding commissions
associated with the sale of a
division............................. -- 8 45
Other................................. 7,210 57,683 22,568
----------- ----------- -----------
3,586,782 3,520,849 2,255,086
Cost of investments acquired:
Bonds and preferred stocks............ (3,251,822) (3,411,442) (2,270,105)
Common stocks......................... (36,379) (37,339) (29,799)
Mortgage loans on real estate......... (257,039) (159,577) (324,381)
Real estate........................... (11,458) (2,013) (222)
Policy loans.......................... (2,922) (2,922) (1,539)
Cash paid in association with the sale
of a division........................ -- (591) (662)
Other................................. (44,514) (15,674) (6,404)
----------- ----------- -----------
(3,604,134) (3,629,558) (2,633,112)
----------- ----------- -----------
Net cash used in investing activities... (17,352) (108,709) (378,026)
Financing Activities
Issuance (repayment) of short-term
intercompany notes payable............. $ (6,979) $ 16,400 $ --
Capital contribution.................... -- 153 --
Dividends to stockholder................ (120,000) (62,000) (20,000)
----------- ----------- -----------
Net cash used in financing activities... (126,979) (45,447) (20,000)
----------- ----------- -----------
Increase (decrease) in cash and short-
term investments....................... 59,350 (26,798) (29,115)
Cash and short-term investments at
beginning of year...................... 23,939 50,737 79,852
----------- ----------- -----------
Cash and short-term investments at end
of year................................ $ 83,289 $ 23,939 $ 50,737
=========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(Dollars in thousands)
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
In connection with the sale of certain affiliated business units, the
Company has assumed various blocks of business from these former affiliates
through mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
. During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale,
during 1996 the Company transferred $123 in assets, substantially all of
which was cash, and $70 of liabilities. The difference between the assets
and liabilities of $(53) plus a tax credit of $19 was charged directly to
unassigned surplus. During 1997, the Company transferred $591 in assets,
substantially all of which was cash and $343 of liabilities. The difference
between the assets and liabilities of $(248) net of a tax credit of $87 was
charged directly to unassigned surplus.
. On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to annually increase reinsurance ceded (primarily group
health business) by 2 1/2% through 1997. As a result, during 1996, the
Company transferred $5,991 in assets, including $5,812 of cash and short-
term investments and liabilities of $6,146. The difference between the
assets and liabilities of $155, plus a tax credit of $266 was credited
directly to unassigned surplus. During 1997, the Company transferred $5,045
in assets, including $4,826 of cash and short-term investments, and
liabilities of $5,164. The difference between the assets and liabilities of
$119 plus a tax credit of $270 was credited directly to unassigned surplus.
. During 1993, the Company sold the Oakbrook Division (primarily group health
business). The initial transfer of risk occurred through an indemnity
reinsurance agreement. The policies will then be assumed by the reinsurer
by novation as state regulatory and policyholder approvals are received.
During 1996, the Company paid $539 in association with this sale; the
payment, net of a tax credit of $189, was charged directly to unassigned
surplus. In addition, the Company received from the third party
administrator a ceding commission of one percent of the premiums collected
between January 1, 1994 and December 31, 1996. As a result of the sale, in
1996, the Company received $45 for ceding commissions; the commissions net
of the related tax effect of $(16) were charged directly to unassigned
surplus. Also, during 1996, the Company paid $539 in association with this
sale; this payment, net of a tax credit of $189, was charged directly to
unassigned surplus. In 1997,
6
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the Company received $8 for ceding commissions; the commissions net of the
related tax effect of $3 were credited directly to unassigned surplus.
. During 1997, the Company entered into a reinsurance agreement with a non-
affiliate. As a result of the agreement, the Company received $1,480 of
assets, including $1,477 of cash and short-term securities, and $861 of
liabilities. The difference between the assets and liabilities of $619, net
of a tax effect of $217 was credited directly to unassigned surplus.
Nature of Business
The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from reserves
based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products
7
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; and (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus. The effects
of these variances have not been determined by the Company but are presumed to
be material.
In 1998, the National Association of Insurance Commissioners ("NAIC")
adopted codified statutory accounting principles ("Codification").
Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is unclear whether the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.
Investments
Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the investment. The Company reviews
its prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
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
8
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
a formula prescribed by the NAIC, the Company defers, in the Interest
Maintenance Reserve ("IMR"), the portion of realized gains and losses on sales
of fixed income investments, principally bonds and mortgage loans,
attributable to changes in the general level of interest rates and amortizes
those deferrals over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or on real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1998, 1997 and 1996,
the Company excluded investment income due and accrued of $102, $177 and
$1,541, respectively, with respect to such practices.
The Company uses interest rate swaps and caps as part of its overall
interest rate risk management strategy for certain life insurance and annuity
products. The Company entered into several interest rate swap contracts to
modify the interest rate characteristics of the underlying liabilities. The
net interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreements
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
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.
9
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(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 policyholders and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the policyholders. The Company received variable contract premiums
of $345,319, $281,095 and $227,864 in 1998, 1997 and 1996, respectively. All
variable account contracts are subject to discretionary withdrawal by the
policyholder at the market value of the underlying assets less the current
surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company, and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not record
any expense related to this plan, as the expense is recognized by AEGON N.V.
However, the Company is allowed to record a deduction in the consolidated tax
return filed by the Company and certain affiliates. The tax benefit of this
deduction has been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the
10
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
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
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
11
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1998 1997
--------------------- ---------------------
Carrying Carrying
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted Assets
Cash and short-term investments.... $ 83,289 $ 83,289 $ 23,939 $ 23,939
Bonds.............................. 4,822,442 4,900,516 4,913,144 5,046,527
Preferred stocks................... 14,754 14,738 2,750 8,029
Common stocks...................... 49,448 49,448 42,345 42,345
Affiliated common stock............ 5,613 5,613 8,031 8,031
Mortgage loans on real estate...... 1,012,433 1,089,315 935,207 983,720
Policy loans....................... 60,058 60,058 57,136 57,136
Interest rate cap.................. 4,445 725 5,618 1,513
Interest rate swaps................ 1,916 6,667 -- 2,546
Separate account assets............ 3,348,611 3,348,611 2,517,365 2,517,365
Liabilities
Investment contract liabilities.... 4,084,683 4,017,509 4,345,181 4,283,461
Separate account liabilities....... 3,271,005 3,213,251 2,452,205 2,452,205
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- ------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- ------- ----------
$4,837,196 $132,213 $54,155 $4,915,254
========== ======== ======= ==========
</TABLE>
12
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Bonds:
United States Government and
agencies........................ $ 188,241 $ 2,562 $ 21 $ 190,782
State, municipal and other
government...................... 61,532 2,584 1,774 62,342
Public utilities................. 121,582 5,384 2,952 124,014
Industrial and miscellaneous..... 1,955,587 85,233 7,752 2,033,068
Mortgage and other asset-backed
securities...................... 2,586,202 55,382 5,263 2,636,321
---------- -------- ------- ----------
4,913,144 151,145 17,762 5,046,527
Preferred stocks................... 2,750 5,279 -- 8,029
---------- -------- ------- ----------
$4,915,894 $156,424 $17,762 $5,054,556
========== ======== ======= ==========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1998,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 151,747 $ 148,410
Due after one year through five years................. 1,211,064 1,232,329
Due after five years through ten years................ 753,543 761,787
Due after ten years................................... 304,497 326,258
---------- ----------
2,420,851 2,468,784
Mortgage and other asset-backed securities............ 2,401,591 2,431,732
---------- ----------
$4,822,442 $4,900,516
========== ==========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes......................... $374,478 $373,496 $364,356
Dividends on equity investments..................... 1,357 1,460 1,436
Interest on mortgage loans.......................... 77,960 80,266 69,418
Rental income on real estate........................ 6,553 7,501 9,526
Interest on policy loans............................ 4,080 3,400 3,273
Other investment income............................. 2,576 613 1,799
-------- -------- --------
Gross investment income............................. 467,004 466,736 449,808
Investment expenses................................. 20,020 20,312 21,471
-------- -------- --------
Net investment income............................... $446,984 $446,424 $428,337
======== ======== ========
</TABLE>
13
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,347,174 $3,284,095 $2,112,831
========== ========== ==========
Gross realized gains........................ $ 48,760 $ 30,094 $ 19,876
Gross realized losses....................... (8,072) (17,265) (19,634)
---------- ---------- ----------
Net realized gains.......................... $ 40,688 $ 12,829 $ 242
========== ========== ==========
</TABLE>
At December 31, 1998, investments with an aggregate carrying value of
$5,935,160 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
---------------------------
Year Ended December 31
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Debt securities................................... $ 40,688 $ 12,829 $ 242
Short-term investments............................ 1,533 (19) (197)
Equity securities................................. (879) 6,972 1,798
Mortgage loans on real estate..................... 12,637 2,252 (5,530)
Real estate....................................... 3,176 4,252 1,210
Other invested assets............................. (2,523) 1,632 12
-------- -------- -------
54,632 27,918 (2,465)
Tax effect........................................ (22,290) (10,572) (1,235)
Transfer to interest maintenance reserve.......... (28,944) (10,187) 197
-------- -------- -------
Net realized gains (losses)....................... $ 3,398 $ 7,159 $(3,503)
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Change in Unrealized
---------------------------
Year Ended December 31
---------------------------
1998 1997 1996
-------- ------- ---------
<S> <C> <C> <C>
Debt securities.................................. $(60,604) $40,289 $(115,867)
Equity securities................................ 5,750 5,653 2,929
-------- ------- ---------
Change in unrealized appreciation
(depreciation).................................. $(54,854) $45,942 $(112,938)
======== ======= =========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were
as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Unrealized gains..................................... $15,980 $10,356 $ 9,590
Unrealized losses.................................... (3,710) (3,836) (8,723)
------- ------- -------
Net unrealized gains................................. $12,270 $ 6,520 $ 867
======= ======= =======
</TABLE>
14
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
During 1998, the Company issued mortgage loans with interest rates ranging
from 5.88% to 7.86%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 90% for commercial
loans and 95% for residential loans. Mortgage loans with a carrying value of
$245 were non-income producing for the previous twelve months. Accrued
interest of $89 related to these mortgage loans was excluded from investment
income. The Company requires all mortgaged properties to carry fire insurance
equal to the value of the underlying property.
At December 31, 1998 and 1997, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $16,104 and $11,985, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
----- -----
<S> <C> <C>
South Atlantic............................ 32% 29%
E. North Central.......................... 16 12
Pacific................................... 15 15
Mountain.................................. 10 10
Middle Atlantic........................... 10 7
W. South Central.......................... 6 9
W. North Central.......................... 5 6
E. South Central.......................... 3 8
New England............................... 3 4
</TABLE>
Property Type Distribution
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
----- -----
<S> <C> <C>
Retail.................................... 35% 35%
Office.................................... 30 31
Industrial................................ 21 6
Apartment................................. 12 14
Other..................................... 2 14
</TABLE>
At December 31, 1998, the Company had no investments (excluding U.S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate exchange agreements (swaps and caps),
options, and commitments to extend credit and all involve elements of credit
and market risks in excess of the amounts recognized in the accompanying
financial statements at a given point in time. The contract or notional
amounts of those instruments reflect the extent of involvement in the various
types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the
15
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
counterparty defaults after the Company has delivered funds or securities
under terms of the contract) that would result in an accounting loss and
replacement cost risk (i.e., the cost to replace the contract at current
market rates should the counterparty default prior to settlement date). Credit
loss exposure resulting from nonperformance by a counterparty for commitments
to extend credit is represented by the contractual amounts of the instruments.
At December 31, 1998 and 1997, the Company's outstanding financial
instruments with on and off-balance sheet risks, shown in notional amounts,
are summarized as follows:
<TABLE>
<CAPTION>
Notional Amount
-----------------
1998 1997
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $100,000 $100,000
Receive floating (uncapped)--pay floating (capped)........ 53,011 67,229
Receive floating (LIBOR)--pay floating (S&P).............. 60,000 --
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums............................. $1,533,822 $1,312,446 $1,457,450
Reinsurance assumed......................... 2,366 2,038 1,796
Reinsurance ceded........................... (173,564) (246,372) (300,546)
---------- ---------- ----------
Net premiums earned......................... $1,362,624 $1,068,112 $1,158,700
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $173,297,
$183,638 and $168,155 during 1998, 1997 and 1996, respectively. At December
31, 1998 and 1997, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $47,956 and
$60,437, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1998 and
1997 of $2,163,905 and $2,434,130, respectively.
At December 31, 1998, amounts recoverable from unauthorized reinsurers of
$55,379 (1997--$73,080) and reserve credits for reinsurance ceded of $49,835
(1997--$78,838) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $106,226 at December 31, 1998 that can be drawn on
for amounts that remain unpaid for more than 120 days.
16
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
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.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)......... $39,177 $42,775 $37,256
Tax reserve adjustment............................... 607 2,004 2,211
Excess tax depreciation.............................. (223) (392) (384)
Deferred acquisition costs--tax basis................ 11,827 4,308 5,583
Prior year under (over) accrual...................... 1,750 (1,016) (499)
Dividend received deduction.......................... (1,053) (941) (454)
Charitable contribution.............................. -- (848) --
Other items--net..................................... (2,250) (2,509) (2,536)
------- ------- -------
Federal income tax expense........................... $49,835 $43,381 $41,177
======= ======= =======
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1998). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984 through 1986 and
related interest of $1,686, net of a tax effect of $590. An examination is
underway for years 1993 through 1995.
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relates to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon
17
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics, are summarized as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1998 1997
------------------ ------------------
Percent Percent
of of
Amount Total Amount Total
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................. $ 82,048 1% $ 8,912 0%
Subject to discretionary withdrawal at
book value less surrender charge........ 515,778 5 755,300 8
Subject to discretionary withdrawal at
market value............................ 3,211,896 34 2,454,845 27
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)............................ 5,519,265 58 5,821,049 63
Not subject to discretionary withdrawal
provision............................... 228,030 2 203,522 2
---------- --- ---------- ---
9,557,017 100% 9,243,628 100%
Less reinsurance ceded................... 2,124,769 2,372,495
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities................ $7,432,248 $6,871,134
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of operations
of the separate accounts statement:
Transfers to separate accounts.................... $345,319 $281,095 $227,864
Transfers from separate accounts.................. 79,808 9,819 75,172
-------- -------- --------
Net transfers to separate accounts.................. 265,511 271,276 152,692
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees......................................... 191 26,204 19,093
-------- -------- --------
Transfers as reported in the summary of operations
of the life, accident and health annual statement.. $265,702 $297,480 $171,785
======== ======== ========
</TABLE>
18
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1998 and 1997, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
December 31, 1997
Life and annuity:
Ordinary direct first year business................ $ 2,316 $1,698 $ 618
Ordinary direct renewal business................... 22,724 6,834 15,890
Group life direct business......................... 1,523 646 877
Reinsurance ceded.................................. (1,464) (81) (1,383)
------- ------ -------
25,099 9,097 16,002
Accident and health:
Direct............................................. 148 -- 148
Reinsurance ceded.................................. (49) -- (49)
------- ------ -------
Total accident and health............................ 99 -- 99
------- ------ -------
$25,198 $9,097 $16,101
======= ====== =======
</TABLE>
At December 31, 1998 and 1997, the Company had insurance in force
aggregating $44,233 and $69,271, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $998 and $1,128 to cover
these deficiencies at December 31, 1998 and 1997, respectively.
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to
19
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 1999, without the prior approval of
insurance regulatory authorities, is $62,100.
The Company paid dividends to its parent of $120,000, $62,000 and $20,000 in
1998, 1997 and 1996, respectively.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $380, $422 and $1,056 for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $233, $226 and $297 for
the years ended December 31, 1998, 1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $62, $62 and $184 for the years ended December 31, 1998, 1997
and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996, the Company paid $18,706, $18,705 and $17,028, respectively,
for these services, which approximates their costs to the affiliates.
20
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 4.95% at December 31, 1998. During 1998, 1997 and 1996, the Company paid
net interest of $1,491, $1,188 and $174, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash
from its parent.
At December 31, 1998 and 1997, the Company has short-term notes payable to
an affiliate of $9,421 and $16,400, respectively. Interest on these notes
accrues at rates ranging from 5.13% to 5.52% at December 31, 1998 and at 5.60%
at December 31, 1997.
During 1998, the Company issued life insurance policies to certain
affiliated companies, covering the lives of certain employees of those
affiliates. Premiums of $174,000 related to these policies were recognized
during the year, and aggregate reserves for policies and contracts are
$181,720 at December 31, 1998.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $17,901 and $17,700 and an offsetting
premium tax benefit of $7,631 and $7,984 at December 31, 1998 and 1997,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,985, $(975) and $2,617 for December 31, 1998, 1997 and 1996,
respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 issue generally refers to the improper processing of
dates and incorrect date calculations that might occur in computer software
and hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software
that has date-sensitive coding might recognize a code of 00 as the year 1900
rather than the year 2000.
The Company has developed a Year 2000 Project Plan (the "Plan") to address
the Year 2000 issue as it affects the Company's internal IT ("Information
Technology") and non-IT systems, and to assess Year 2000 issues relating to
third parties with whom the Company has critical relationships.
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected
21
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
systems and equipment; remediation of identified systems and equipment;
internal testing and certification that each internal system is Year 2000
compliant; and a review of existing and revised business resumption and
contingency plans to address potential Year 2000 issues. The Company has
remediated and tested substantially all of its mission-critical internal IT
systems as of December 31, 1998. The Company continues to remediate and test
certain non-critical internal IT systems, internal non-IT systems and will
continue with a revalidation testing program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its
systems interface with other systems not under the Company's control. The
Company's most significant interfaces and uses of third-party vendor systems
are in the bank, financial services and trust areas. The Company utilizes
various banks to handle numerous types of financial and sales transactions.
Several of these banks also provide trustee and custodial services for the
Company's investment holdings and transactions. These services are critical to
a financial services company such as the Company as its business centers
around cash receipts and disbursements to policyholders and the investment of
policyholder funds. The Company has received written confirmation from its
vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. The Company anticipates that a
considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party
business partners and expects to continue working with its business partners
on any interfacing of systems. However, the timing of external system
compliance cannot currently be predicted with accuracy because the
implementation of Year 2000 readiness will vary from one company to another.
The Company does have some exposure to date-sensitive embedded technology
such as micro-controllers, but the Company views this exposure as minimal.
Unlike other industries that may be equipment intensive, like manufacturing,
the Company is a life insurance, and financial services organization providing
insurance annuities and pension products to its customers. As such, the
primary equipment and electronic devices in use are computers and telephone-
related equipment. This type of hardware can have date-sensitive embedded
technology which could have Year 2000 problems. Because of this exposure, the
Company has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is
in the process of replacing any equipment that will not properly process date-
sensitive data in the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one
or more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could
experience an interruption in the ability to collect and process premiums or
deposits, process claim payments, accurately maintain policyholder
information, accurately maintain accounting records, and/or perform adequate
customer service. Should the worst case scenario occur, it could, dependent
upon its duration, have a material impact on the Company's business and
financial condition. Simple failures can be repaired and returned to
production within a matter of hours with no material impact. Unanticipated
failures with a longer service disruption period could have a more serious
impact. For this reason, the Company is placing significant emphasis on risk
management and Year 2000 business resumption contingency planning in 1999 by
modifying its existing business resumption and disaster recovery plans to
address potential Year 2000 issues.
The actions taken by management under the Year 2000 Project Plans are
intended to significantly reduce the Company's risk of a material business
interruption based on the Year 2000 issues. It should
22
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
be noted that the Year 2000 computer problem, and its resolution, is complex
and multifaceted, and any company's success cannot be conclusively known until
the Year 2000 is reached. In spite of its efforts or results, the Company's
ability to function unaffected to and through the Year 2000 may be adversely
affected by actions (or failure to act) of third parties beyond our knowledge
or control. It is anticipated that there may be problems that will have to be
resolved in the ordinary course of business on and after the Year 2000.
However, the Company does not believe that the problems will have a material
adverse affect on the Company's operations or financial condition.
23
<PAGE>
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1998
(Dollars in thousands)
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- ---------- ---------------
<S> <C> <C> <C>
Fixed Maturities
Bonds:
United States Government and government
agencies and authorities.............. $ 926,370 $ 943,313 $ 926,370
States, municipalities and political
subdivisions.......................... 107,975 114,146 107,975
Foreign governments.................... 54,670 53,950 54,670
Public utilities....................... 139,732 142,230 139,732
All other corporate bonds.............. 3,593,695 3,646,877 3,593,695
Redeemable preferred stock............... 14,754 14,738 14,754
---------- ---------- ----------
Total fixed maturities................... 4,837,196 4,915,254 4,837,196
Equity Securities
Common stocks:
Affiliated entities.................... 8,060 5,613 5,613
Banks, trust and insurance............. 5,935 7,193 7,193
Industrial, miscellaneous and all
other................................. 28,796 42,255 42,255
---------- ---------- ----------
Total equity securities.................. 42,791 55,061 55,061
Mortgage loans on real estate............ 1,012,433 1,012,433
Real estate.............................. 52,381 52,381
Real estate acquired in satisfaction of
debt.................................... 11,778 11,778
Policy loans............................. 60,058 60,058
Other long-term investments.............. 76,482 76,482
Cash and short-term investments.......... 83,289 83,289
---------- ----------
Total investments........................ $6,176,408 $6,188,678
========== ==========
</TABLE>
- -------------------------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
24
<PAGE>
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future Benefits,
Policy Claims
Benefits Policy and Net Losses and Other
and Unearned Contract Premium Investment Settlement Operating Premiums
Expenses Premiums Liabilities Revenue Income* Expenses Expenses* Written
---------- -------- ----------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1998
Individual life......... $1,355,283 $ -- $ 8,976 $ 514,194 $ 85,258 $ 545,720 $ 87,455 --
Individual health....... 94,294 9,631 12,123 68,963 8,004 48,144 30,442 $ 68,745
Group life and health... 93,405 10,298 36,908 111,547 11,426 82,690 54,352 108,769
Annuity................. 3,925,293 -- -- 667,920 342,296 592,085 298,222 --
---------- ------- ------- ---------- -------- ---------- --------
$5,468,275 $19,929 $58,007 $1,362,624 $446,984 $1,268,639 $470,471
========== ======= ======= ========== ======== ========== ========
Year Ended December 31,
1997
Individual life......... $ 882,003 $ -- $ 8,550 $ 200,175 $ 75,914 $ 211,921 $ 36,185 --
Individual health....... 62,033 9,207 12,821 63,548 5,934 37,706 29,216 $ 63,383
Group life and health... 88,211 11,892 44,977 146,694 11,888 103,581 91,568 143,580
Annuity................. 4,204,125 -- -- 657,695 352,688 571,434 364,216 --
---------- ------- ------- ---------- -------- ---------- --------
$5,236,372 $21,099 $66,348 $1,068,112 $446,424 $ 924,642 $521,185
========== ======= ======= ========== ======== ========== ========
Year Ended December 31,
1996
Individual life......... $ 734,350 $ -- $ 7,240 $ 202,082 $ 66,538 $ 197,526 $ 38,067 --
Individual health....... 39,219 8,680 13,631 55,871 5,263 32,903 29,511 $ 55,678
Group life and health... 78,418 14,702 53,486 174,781 12,877 105,459 122,953 171,320
Annuity................. 4,408,419 -- -- 725,966 343,659 800,121 230,417 --
---------- ------- ------- ---------- -------- ---------- --------
$5,260,406 $23,382 $74,357 $1,158,700 $428,337 $1,136,009 $420,948
========== ======= ======= ========== ======== ========== ========
</TABLE>
- -------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
25
<PAGE>
PFL LIFE INSURANCE COMPANY
REINSURANCE
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998
Life insurance in force.. $6,384,095 $438,590 $39,116 $5,984,621 .6%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health...... 76,438 7,475 -- 68,963 --
Group life and health.. 255,848 144,301 -- 111,547 --
Annuity................ 686,372 18,096 -- 668,276 --
---------- -------- ------- ---------- ---
$1,533,822 $173,564 $ 2,366 $1,362,624 .2%
========== ======== ======= ========== ===
Year Ended December 31,
1997
Life insurance in force.. $5,025,027 $420,519 $35,486 $4,639,994 .8%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health...... 73,593 10,045 -- 63,548 --
Group life and health.. 339,269 192,575 -- 146,694 --
Annuity................ 697,893 40,198 -- 657,695 --
---------- -------- ------- ---------- ---
$1,312,446 $246,372 $ 2,038 $1,068,112 .2%
========== ======== ======= ========== ===
Year Ended December 31,
1996
Life insurance in force.. $4,863,416 $477,112 $30,685 $4,416,989 .7%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health...... 68,699 12,828 -- 55,871 --
Group life and health.. 390,296 215,515 -- 174,781 --
Annuity................ 794,311 68,345 -- 725,966 --
---------- -------- ------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======= ========== ===
</TABLE>
26
<PAGE>
PFL Endeavor Variable Life
Separate Account Financials
The PFL Endeavor Variable Life product did not commence operations as of
December 31, 1998, therefore there are no separate account financials available.
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(E)
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.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement includes the following papers and documents:
The facing sheet.
A reconciliation and tie-in of information shown in the Prospectus with
the items of Form N-8B-2.
The Prospectus.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
Representation pursuant to Section 26(e).
The signatures.
Written consents of the following persons have been previously filed.
Frank A. Camp, Esq.
Sutherland, Asbill & Brennan LLP
Ernst & Young, Independent Accountants
Richard R. Greer, Actuary
The following exhibits:
<TABLE>
<S> <C>
1.A.(1) Resolution of the Board of Directors of PFL establishing the
Account./4/
(2) Not applicable.
(3)(a) Form of Principal Underwriting Agreement./4/
(b) Form of Agents Contract./4/
(c) Commission Schedule./4/
(4) Not applicable.
(5) Form of Policy./5/
(6)(a) Certificate of Incorporation of PFL./1/
(b) By-Laws of PFL./1/
(7) Not applicable.
(8) Participation Agreements:
(a)(1) Among Endeavor Series Trust, Endeavor Management Co. and PFL
Life Insurance Company./2/
(a)(2) Addendum No. 4 to Participation Agreement among Endeavor Series
Trust, Endeavor Management Co., and PFL Life Insurance
Company./4/
(b)(1) Among WRL Series Fund, Inc., Western Reserve Life Assurance Co.
of Ohio, and PFL Life Insurance Company./3/
(b)(2) Addendum No. 4 to Participation Agreement among WRL Series Fund,
Inc., Western Reserve Life Assurance Co. of Ohio, and PFL Life
Insurance Company./4/
(9) None.
(10) Form of Application./5/
2.A. Opinion and Consent of Counsel./5/
B. Consent of Sutherland, Asbill & Brennan LLP./5/
3. Not applicable.
4. None.
5. Not applicable.
6. Opinion and Consent of Actuary ./5/
7. Consent of Independent Auditors./6/
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
8. Not applicable.
9. Memorandum describing PFL's issuance, transfer, and redemption
procedures for the Policy./4/
10. Performance Data Calculations/6/
</TABLE>
- ----------------------------
/1/Incorporated by reference to Pre-Effective Amendment No. 2 to the Form N-3
Registration Statement for the PFL Endeavor Target Account (File No. 333-
36297), filed February 27, 1998.
/2/Incorporated by reference to Post-Effective Amendment No. 14, Exhibit No.
6, to the Form N-1A Registration Statement for the Endeavor Series Trust
(File No. 33-27352), filed on April 29, 1996.
/3/Incorporated by reference to Post-Effective Amendment No. 1 to the Form N-4
Registration Statement for PFL Life Variable Annuity Account A (File No.
333-26209), filed on April 29, 1998.
/4/Filed with Pre-Effective Amendment No. 1 to the Form S-6 Registration
Statement for PFL Endeavor Variable Life Account (File No. 33-92226), filed
on July 10, 1998.
/5/Filed with Pre-Effective Amendment No. 2 to Form S-6 Registration Statement
for PFL Endeavor Variable Life Account (File No. 33-92226), filed on
September 10, 1998.
/6/Filed herewith.
II-3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the registrant, PFL
Endeavor Variable Life Account, has duly caused this Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in Cedar Rapids, IA on the 27th
day of April, 1999.
PFL ENDEAVOR VARIABLE LIFE ACCOUNT
(Seal) 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 dates indicated.
<TABLE>
<CAPTION>
Title Date
----- ----
<S> <C> <C>
/s/ Patrick S. Baird Director April 27, 1999
- -----------------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 27, 1999
- -----------------------
Craig D. Vermie
/s/ William L. Busler Director April 27, 1999
- ----------------------- (Principal Executive Officer)
William L. Busler
/s/ Larry N. Norman Director April 27, 1999
- -----------------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director April 27, 1999
- -----------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Corporate Controller April 27, 1999
- -----------------------
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer April 27, 1999
- -----------------------
Brenda K. Clancy
</TABLE>
<PAGE>
Registration No.
33-92226
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM S-6
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL ENDEAVOR VARIABLE LIFE ACCOUNT
---------------
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description of Exhibit Page No.*
- ----------- ---------------------- ---------
7. Consent of Independent Auditors
10. Performance Data Calculations
- ---------------------------
* Page numbers included only in manually executed original.
<PAGE>
Exhibit (7)
-----------
Consent of Independent Auditors
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Prospectus and to the use of our report dated February 19, 1999 with respect to
the statutory-basis financial statements and schedules of PFL Life Insurance
Company, included in Post-Effective Amendment No. 2 to the Registration
Statement (Form S-6 No. 33-92226) and related Prospectus of PFL Endeavor
Variable Life.
Des Moines, Iowa
April 27, 1999
<PAGE>
Exhibit (10)
------------
Performance Data Calculations
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
WRL GROWTH
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
-------------------------------------------
SURRENDER PROVISIONS:
-------------------------------------------
<S> <C> <C> <C> <C>
Year Rate % Free
Initial premium 1,000.00 ---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
-------------- 5 0.00% 100%
Total Insurance Charges 1.9200% 6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN 64.47% 10 0.00% 100%
5 YEAR ANNUAL RETURN 25.20% -------------------------------------------
10 YEAR ANNUAL RETURN 22.61%
ANNUAL RETURN SINCE INCEPTION 20.91%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-88 950.00 0.00% 0.00 950.00
31-Dec-89 1,164.80 1.92% 20.30 1,144.50
31-Dec-90 1,403.27 1.92% 24.46 1,378.81
31-Dec-91 1,690.55 1.92% 29.47 1,661.08
31-Dec-92 2,037.79 1.92% 35.61 2,002.18
31-Dec-93 2,454.88 1.92% 42.79 2,412.09
31-Dec-94 2,957.46 1.92% 51.55 2,905.91
31-Dec-95 3,562.93 1.92% 62.10 3,500.83
31-Dec-96 4,294.77 1.92% 75.04 4,219.73
31-Dec-97 5,173.81 1.92% 90.18 5,083.63
31-Dec-98 6,233.04 1.92% 108.64 6,124.40 100.00% 6,124.40 10.000000 19.87% 19.87%
31-Dec-98 6,124.40
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-93 950.00 0.00% 0.00 950.00
31-Dec-94 1,189.40 1.92% 20.54 1,168.86
31-Dec-95 1,463.41 1.92% 25.27 1,438.14
30-Dec-96 1,800.55 1.92% 31.09 1,769.46
31-Dec-97 2,216.73 1.92% 38.37 2,178.36
31-Dec-98 2,727.31 1.92% 47.09 2,680.22 0.00% 100.00% 2,680.22 5.000000 21.80% 21.80%
31-Dec-98 2,680.22
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 1,562.47 1.92% 24.12 1,538.35 0.00% 100.00% 1,538.35 1.000000 53.83% 53.83%
31-Dec-98 1,538.35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
ENDEAVOR ASSET ALLOCATION
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
-----------------------------------------
SURRENDER PROVISIONS:
-----------------------------------------
<S> <C> <C> <C>
Year Rate % Free
Initial premium 1,000.00 ---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
-------------- 5 0.00% 100%
Total Insurance Charges 1.9200% 6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN 18.39% 10 0.00% 100%
5 YEAR ANNUAL RETURN 14.30% -----------------------------------------
ANNUAL RETURN SINCE INCEPTION 14.36%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
08-Apr-91 950.00 0.00% 0.00 950.00
31-Dec-91 1,047.98 1.92% 14.03 1,033.95
31-Dec-92 1,182.86 1.92% 21.34 1,161.52
31-Dec-93 1,328.31 1.92% 23.90 1,304.41
31-Dec-94 1,491.72 1.92% 26.84 1,464.88
31-Dec-95 1,675.24 1.92% 30.15 1,645.09
31-Dec-96 1,882.02 1.92% 33.95 1,848.07
31-Dec-97 2,113.45 1.92% 38.03 2,075.42
31-Dec-98 2,373.45 1.92% 42.71 2,330.74 0.00% 100.00% 2,330.74 7.737000 11.56% 11.56%
31-Dec-98 2,330.74
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-93 950.00 0.00% 0.00 950.00
31-Dec-94 1,085.85 1.92% 19.54 1,066.31
31-Dec-95 1,218.79 1.92% 21.94 1,196.85
30-Dec-96 1,368.00 1.92% 24.62 1,343.38
31-Dec-97 1,536.05 1.92% 27.72 1,508.33
31-Dec-98 1,724.02 1.92% 31.03 1,692.99 0.00% 100.00% 1,692.99 5.000000 11.10% 11.10%
31-Dec-98 1,692.99
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 1,124.71 1.92% 19.92 1,104.79 0.00% 100.00% 1,104.79 1.000000 10.48% 10.48%
31-Dec-98 1,104.79
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
ENDEAVOR VALUE EQUITY
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
--------------------------------------------
SURRENDER PROVISIONS:
----------------------------------------
<S> <C> <C> <C> <C> <C>
Initial premium 1,000.00 Year Rate % Free
Premium charges 5.00% ---- ---- ------
1 0.00% 100%
Mortality & Expense 1.9000% 2 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 3 0.00% 100%
------------- 4 0.00% 100%
Total Insurance Charges 1.9200% 5 0.00% 100%
6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN 7.56% 10 0.00% 100%
5 YEAR ANNUAL RETURN 18.41% ----------------------------------------
ANNUAL RETURN SINCE INCEPTION 16.88%
</TABLE>
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
27-May-93 950.00 0.00% 0.00 950.00
31-Dec-93 1,042.75 1.92% 11.43 1,031.32
31-Dec-94 1,205.41 1.92% 21.47 1,183.94
31-Dec-95 1,383.79 1.92% 24.65 1,359.14
31-Dec-96 1,589.24 1.92% 28.38 1,560.86
31-Dec-97 1,824.34 1.92% 32.50 1,791.84
31-Dec-98 2,094.30 1.92% 37.31 2,056.99 0.00% 100.00% 2,056.99 5.600000 13.75% 13.75%
31-Dec-98 2,056.99
</TABLE>
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-93 950.00 0.00% 0.00 950.00
31-Dec-94 1,124.90 1.92% 19.92 1,104.98
31-Dec-95 1,308.40 1.92% 23.17 1,285.23
30-Dec-96 1,521.84 1.92% 26.95 1,494.89
31-Dec-97 1,770.92 1.92% 31.44 1,739.48
31-Dec-98 2,059.72 1.92% 36.47 2,023.25 0.00% 100.00% 2,023.25 5.000000 15.14% 15.14%
31-Dec-98 2,023.25
</TABLE>
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 1,021.82 1.92% 18.93 1,002.89 0.00% 100.00% 1,002.89 1.000000 0.29% 0.29%
31-Dec-98 1,002.89
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
ENDEAVOR OPPORTUNITY VALUE
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
-------------------------------------------
SURRENDER PROVISIONS:
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial premium 1,000.00 Year Rate % Free
Premium charges 5.00% ---- ---- ------
1 0.00% 100%
Mortality & Expense 1.9000% 2 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 3 0.00% 100%
------------- 4 0.00% 100%
Total Insurance Charges 1.9200% 5 0.00% 100%
6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN 5.18% 10 0.00% 100%
5 YEAR ANNUAL RETURN 0.00% -------------------------------------------
ANNUAL RETURN SINCE INCEPTION 10.52%
</TABLE>
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
18-Nov-96 950.00 0.00% 0.00 950.00
31-Dec-96 961.26 1.92% 2.16 959.10
31-Dec-97 1,060.00 1.92% 19.38 1,040.62
31-Dec-98 1,150.09 1.92% 21.03 1,129.06 0.00% 100.00% 1,129.06 2.117800 5.90% 5.90%
31-Dec-98 1,129.06
</TABLE>
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 999.21 1.92% 18.71 980.50 0.00% 100.00% 980.50 1.000000 -1.95% -1.95%
31-Dec-98 980.50
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
ENDEAVOR ENHANCED INDEX
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
----------------------------------------
SURRENDER PROVISIONS:
----------------------------------------
<S> <C> <C>
Initial premium 1,000.00 Year Rate % Free
Premium charges 5.00% ---- ---- ------
1 0.00% 100%
Mortality & Expense 1.9000% 2 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 3 0.00% 100%
------------- 4 0.00% 100%
Total Insurance Charges 1.9200% 5 0.00% 100%
6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN 31.39% 10 0.00% 100%
5 YEAR ANNUAL RETURN 0.00% ----------------------------------------
ANNUAL RETURN SINCE INCEPTION 33.27%
</TABLE>
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
1,000.00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
02-May-97 950.00 0.00% 0.00 950.00
31-Dec-97 1,150.18 1.92% 13.42 1,136.76
31-Dec-98 1,514.96 1.92% 25.46 1,489.50 0.00% 100.00% 1,489.50 1.665800 27.02% 27.02%
31-Dec-98 1,489.50
</TABLE>
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
1,000.00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 1,248.21 1.92% 21.10 1,227.11 0.00% 100.00% 1,227.11 1.000000 22.71% 22.71%
31-Dec-98 1,227.11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
DREYFUS SMALL CAP VALUE
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
-----------------------------------------
SURRENDER PROVISIONS:
-----------------------------------------
<S> <C> <C> <C> <C>
Initial premium 1,000.00 Year Rate % Free
---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
------------- 5 0.00% 100%
Total Insurance Charges 1.9200% 6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN -2.18% 10 0.00% 100%
5 YEAR ANNUAL RETURN 11.56% -----------------------------------------
ANNUAL RETURN SINCE INCEPTION 12.33%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
04-May-93 950.00 0.00% 0.00 950.00
31-Dec-93 1,025.80 1.92% 12.52 1,013.28
31-Dec-94 1,138.22 1.92% 20.65 1,117.57
31-Dec-95 1,255.37 1.92% 22.78 1,232.59
31-Dec-96 1,385.01 1.92% 25.20 1,359.81
31-Dec-97 1,527.47 1.92% 27.72 1,499.75
31-Dec-98 1,684.67 1.92% 30.57 1,654.10 0.00% 100.00% 1,654.10 5.663000 9.29% 9.29%
31-Dec-98 1,654.10
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-93 950.00 0.00% 0.00 950.00
31-Dec-94 1,059.82 1.92% 19.29 1,040.53
31-Dec-95 1,160.82 1.92% 21.13 1,139.69
30-Dec-96 1,271.43 1.92% 23.15 1,248.28
31-Dec-97 1,393.00 1.92% 25.43 1,367.57
31-Dec-98 1,525.66 1.92% 27.78 1,497.88 0.00% 100.00% 1,497.88 5.000000 8.42% 8.42%
31-Dec-98 1,497.88
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 929.29 1.92% 18.04 911.25 0.00% 100.00% 911.25 1.000000 -8.88% -8.88%
31-Dec-98 911.25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
DREYFUS U.S. GOVERNMENT SECURITIES
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
---------------------------------------------
SURRENDER PROVISIONS:
---------------------------------------------
<S> <C> <C> <C> <C>
Initial premium 1,000.00 Year Rate % Free
---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
-------------- 5 0.00% 100%
Total Insurance Charges 1.9200% 6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN 7.38% 10 0.00% 100%
5 YEAR ANNUAL RETURN 0.00% ---------------------------------------------
ANNUAL RETURN SINCE INCEPTION 7.10%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
13-May-94 950.00 0.00% 0.00 950.00
31-Dec-94 992.33 1.92% 11.85 980.48
31-Dec-95 1,050.10 1.92% 19.49 1,030.61
31-Dec-96 1,103.99 1.92% 20.55 1,083.44
31-Dec-97 1,160.36 1.92% 21.54 1,138.82
31-Dec-98 1,219.68 1.92% 22.64 1,197.04 0.00% 100.00% 1,197.04 4.638400 3.95% 3.95%
31-Dec-98 1,197.04
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 1,020.11 1.92% 18.91 1,001.20 0.00% 100.00% 1,001.20 1.000000 0.12% 0.12%
31-Dec-98 1,001.20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
T. ROWE PRICE EQUITY INCOME
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
------------------------------------------
SURRENDER PROVISIONS:
------------------------------------------
<S> <C> <C> <C> <C>
Initial premium 1,000.00 Year Rate % Free
---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
-------------- 5 0.00% 100%
Total Insurance Charges 1.9200% 6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN 8.81% 10 0.00% 100%
5 YEAR ANNUAL RETURN 0.00% ------------------------------------------
ANNUAL RETURN SINCE INCEPTION 21.59%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
03-Jan-95 950.00 0.00% 0.00 950.00
31-Dec-95 1,153.25 1.92% 20.03 1,133.22
31-Dec-96 1,378.62 1.92% 24.18 1,354.44
31-Dec-97 1,646.86 1.92% 28.81 1,618.05
31-Dec-98 1,967.39 1.92% 34.42 1,932.97 0.00% 100.00% 1,932.97 3.994500 17.94% 17.94%
31-Dec-98 1,932.97
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 1,033.70 1.92% 19.04 1,014.66 0.00% 100.00% 1,014.66 1.000000 1.47% 1.47%
31-Dec-98 1,014.66
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
T. ROWE PRICE GROWTH STOCK
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
---------------------------------------------
SURRENDER PROVISIONS:
---------------------------------------------
<S> <C> <C> <C> <C>
Year Rate % Free
Initial premium 1,000.00 ---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
--------------
Total Insurance Charges 1.9200% 5 0.00% 100%
6 0.00% 100%
7 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 8 0.00% 100%
1 YEAR ANNUAL RETURN 28.67% 9 0.00% 100%
5 YEAR ANNUAL RETURN 0.00% 10 0.00% 100%
ANNUAL RETURN SINCE INCEPTION 28.72% ---------------------------------------------
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
03-Jan-95 950.00 0.00% 0.00 950.00
31-Dec-95 1,220.31 1.92% 11.62 1,208.69
31-Dec-96 1,556.90 1.92% 14.99 1,541.91
31-Dec-97 1,984.74 1.92% 19.05 1,965.69
31-Dec-98 2,530.24 1.92% 24.29 2,505.95 0.00% 100.00% 2,505.95 3.994500 25.86% 25.86%
31-Dec-98 2,505.95
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 1,222.37 1.92% 20.85 1,201.52 0.00% 100.00% 1,201.52 1.000000 20.15% 20.15%
31-Dec-98 1,201.52
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
T. ROWE PRICE INTERNATIONAL STOCK
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
---------------------------------------------
SURRENDER PROVISIONS:
---------------------------------------------
<S> <C> <C> <C> <C>
Initial premium 1,000.00 Year Rate % Free
---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
--------------
Total Insurance Charges 1.9200% 5 0.00% 100%
6 0.00% 100%
7 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 8 0.00% 100%
1 YEAR ANNUAL RETURN 15.44% 9 0.00% 100%
5 YEAR ANNUAL RETURN 0.00% 10 0.00% 100%
ANNUAL RETURN SINCE INCEPTION 11.52% ---------------------------------------------
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
24-Mar-95 950.00 0.00% 0.00 950.00
31-Dec-95 1,033.50 1.92% 14.71 1,018.79
31-Dec-96 1,136.49 1.92% 20.75 1,115.74
31-Dec-97 1,244.27 1.92% 22.66 1,221.61
31-Dec-98 1,362.34 1.92% 24.81 1,337.53 0.00% 100.00% 1,337.53 3.775300 8.01% 8.01%
31-Dec-98 1,337.53
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
31-Dec-97 950.00 1.92% 0.00 950.00
31-Dec-98 1,096.68 1.92% 19.65 1,077.03 0.00% 100.00% 1,077.03 1.000000 7.70% 7.70%
31-Dec-98 1,077.03
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
ENDEAVOR SELECT 50
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
-----------------------------------------
SURRENDER PROVISIONS:
-----------------------------------------
<S> <C> <C> <C> <C>
Initial premium 1,000.00 Year Rate % Free
---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
------------- 5 0.00% 100%
Total Insurance Charges 1.9200% 6 0.00% 100%
7 0.00% 100%
8 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 9 0.00% 100%
1 YEAR ANNUAL RETURN 0.00% 10 0.00% 100%
5 YEAR ANNUAL RETURN 0.00% -----------------------------------------
ANNUAL RETURN SINCE INCEPTION 6.60%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
03-Feb-98 950.00 0.00% 0.00 950.00
31-Dec-98 1,012.70 1.92% 17.09 995.61 0.00% 100.00% 995.61 0.906800 -0.48% -0.48%
31-Dec-98 995.61
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-97 0.00 1.92% 0.00 0.00
31-Dec-98 - 1.92% 0.00 0.00 0.00% 100.00% 0.00 1.000000 #NUM! #DIV/0!
31-Dec-98 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
PFL ENDEAVOR VARIABLE UNIVERSAL LIFE
ENDEAVOR HIGH YIELD
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
-----------------------------------------
SURRENDER PROVISIONS:
-----------------------------------------
<S> <C> <C> <C> <C>
Initial premium 1,000.00 Year Rate % Free
---- ---- ------
Premium charges 5.00% 1 0.00% 100%
2 0.00% 100%
Mortality & Expense 1.9000% 3 0.00% 100%
Administrative Charge Factor ($5 X 12 / $30,000) 0.0200% 4 0.00% 100%
-------------
Total Insurance Charges 1.9200% 5 0.00% 100%
6 0.00% 100%
7 0.00% 100%
RETURNS OF UNDERLYING MUTUAL FUND PORTFOLIO: 8 0.00% 100%
1 YEAR ANNUAL RETURN 0.00% 9 0.00% 100%
5 YEAR ANNUAL RETURN 0.00% 10 0.00% 100%
-----------------------------------------
ANNUAL RETURN SINCE INCEPTION -3.10%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00
01-Jun-98 950.00 0.00% 0.00 950.00
31-Dec-98 920.55 1.92% 10.48 910.07 0.00% 100.00% 910.07 0.583600 -14.91% -14.91%
31-Dec-98 910.07
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-97 0.00 1.92% 0.00 0.00
31-Dec-98 - 1.92% 0.00 0.00 0.00% 100.00% 0.00 1.000000 #NUM! #DIV/0!
31-Dec-98 0.00
</TABLE>
