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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000.
REGISTRATION NO. 33-92226
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811-09046
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3 [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.
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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, 2000 pursuant to paragraph (b) of Rule 485.
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60 days after filing pursuant to paragraph (a)(1) of Rule 485.
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on ___________ pursuant to paragraph (a)(1) 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>
PFL ENDEAVOR
VARIABLE LIFE
Issued Through
PFL ENDEAVOR VARIABLE LIFE ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 2000
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about the 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 variable life insurance product 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
This 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
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
GLOSSARY OF TERMS........................................................... 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
Corridor Percentage Table................................................... 18
Cash Value.................................................................. 21
Transfers................................................................... 22
Policy Loans................................................................ 22
Surrender and Cash Withdrawal Privileges.................................... 23
Examination of Policy Privilege............................................. 24
Benefits at Maturity........................................................ 24
Payment of Policy Benefits.................................................. 24
PAYMENT AND ALLOCATION OF PREMIUMS.......................................... 25
Issuance of a Policy........................................................ 25
Temporary Insurance Coverage................................................ 25
Premiums.................................................................... 26
Allocation of Premiums and Cash Value....................................... 27
Policy Lapse and Reinstatement.............................................. 28
CHARGES AND DEDUCTIONS...................................................... 28
Premium Expense Charges..................................................... 28
Contingent Surrender Charges................................................ 29
Monthly Deductions.......................................................... 30
Transaction Charges......................................................... 31
Variable Account Asset (Daily) Charges...................................... 31
Taxes....................................................................... 32
Investment Advisory Fee..................................................... 32
Group or Sponsored Arrangements............................................. 32
FEDERAL TAX MATTERS......................................................... 33
Introduction................................................................ 33
Tax Status of the Policy.................................................... 33
Tax Treatment of Policy Benefits............................................ 34
Possible Tax Law Changes.................................................... 35
Possible Charges for PFL's Taxes............................................ 35
</TABLE>
<TABLE>
<S> <C>
GENERAL PROVISIONS........................................................ 35
Postponement of Payments.................................................. 35
The Contract.............................................................. 36
Suicide................................................................... 36
Incontestability.......................................................... 36
Change of Owner or Beneficiary............................................ 36
Assignment................................................................ 36
Misstatement of Age or Sex................................................ 37
Reports and Records....................................................... 37
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS.............................. 37
VOTING RIGHTS OF THE VARIABLE ACCOUNT..................................... 37
STATE REGULATION OF PFL................................................... 38
EXECUTIVE OFFICERS AND DIRECTORS OF PFL................................... 38
DISTRIBUTION OF THE POLICIES.............................................. 38
LEGAL MATTERS............................................................. 38
IMSA...................................................................... 38
LEGAL PROCEEDINGS......................................................... 39
EXPERTS................................................................... 39
ADDITIONAL INFORMATION.................................................... 39
INFORMATION ABOUT PFL'S FINANCIAL STATEMENTS.............................. 39
APPENDIX A................................................................ 40
Past Investment Experience................................................ 40
APPENDIX B................................................................ 43
Illustration of Benefits.................................................. 43
APPENDIX C................................................................ 46
The PFL Endeavor Variable Life Account and the "Dollar Cost Averaging"
Investment Method........................................................ 46
INDEX TO FINANCIAL STATEMENTS............................................. 47
</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.
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.
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<PAGE>
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.
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
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select Portfolio(/1/)
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
(/1/)Formerly known as Endeavor Select 50 Portfolio.
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
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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 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.
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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 1999, 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 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
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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
You may check your policy at www.pfllife.com/fmd. Follow the logon procedures.
You will need your pre-assigned Personal Identification Number ("PIN") to
access information about your policy.
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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 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
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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
"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
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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.
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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
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(/3/).......... 0.80% 0.10% 0.32% 1.22%
Dreyfus U.S. Government
Securities(/4/)...................... 0.65% 0.12% -- 0.77%
Endeavor Asset Allocation(/5/)........ 0.75% 0.10% 0.02% 0.87%
Endeavor Money Market................. 0.50% 0.05% -- 0.55%
Endeavor Enhanced Index............... 0.75% 0.03% -- 0.78%
Endeavor High Yield(/6/).............. 0.746% 0.504% -- 1.25%
Endeavor Janus Growth(/7/)............ 0.775% 0.055% -- 0.83%
Endeavor Opportunity Value(/8/)....... 0.80% 0.05% 0.06% 0.91%
Endeavor Value Equity(/9/)............ 0.80% 0.07% 0.08% 0.95%
Endeavor Select....................... 1.00% 0.39% -- 1.39%
T. Rowe Price Equity Income(/10/)..... 0.80% 0.07% 0.01% 0.88%
T. Rowe Price Growth Stock(/11/)...... 0.80% 0.07% 0.01% 0.88%
T. Rowe Price International
Stock(/12/).......................... 0.90% 0.10% -- 1.00%
</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/)For the Dreyfus Small Cap Value Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.10%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.90%.
(/4/)For the Dreyfus U.S. Government Securities Portfolio, the management fees
were 0.65% and other expenses (reduced by custodial offset arrangements)
were 0.08%. Therefore, Total Portfolio Annual Expenses for the period
ended December 31, 1999 were 0.73%.
(/5/)For the Endeavor Asset Allocation Portfolio, the management fees were
0.75% and other expenses before reimbursements were 0.09%. Therefore,
Total Portfolio Annual Expenses and other expenses before reimbursements
(reduced by custodial offset arrangements) for the period ended December
31, 1999 were 0.84%.
(/6/) For the Endeavor High Yield Portfolio, the management fees before
waivers were 0.775% (after waivers 0.746%) and other expenses were
0.47%. Therefore, Total Portfolio Annual Expenses after waivers (reduced
by custodial offset arrangements) for the period ended December 31, 1999
were 1.22%.
(/7/) For the Endeavor Janus Growth Portfolio, the management fees before
waivers were 0.80%
12
<PAGE>
(after waivers 0.775%) and other expenses were 0.055%. Therefore, Total
Portfolio Annual Expenses after waivers (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 0.83%.
(/8/) For the Endeavor Opportunity Value Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.05%. Therefore,
Total Portfolio Annual Expenses before reimbursements (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 0.85%.
(/9/)For the Endeavor Value Equity Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.88%.
(/10/)For the T. Rowe Price Equity Income Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.07%. Therefore,
Total Portfolio Annual Expenses before reimbursements (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 0.87%.
(/11/)For the T. Rowe Price Growth Stock, the management fees were 0.80% and
other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.87%.
(/12/)For the T. Rowe Price International Stock Portfolio, the management fees
were 0.90% and other expenses (reduced by custodial offset arrangements)
were 0.01%. Therefore, Total Portfolio Annual Expenses for the period
ended December 31, 1999 were 0.91%.
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
Transamerica Company and a wholly owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc. is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily
in the insurance business. PFL is licensed in the District of Columbia, Guam,
and in all states except New York.
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 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:
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<PAGE>
ENDEAVOR SERIES TRUST
Subadvised by The Dreyfus Corporation
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Subadvised by Morgan Stanley Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by J.P. Morgan Investment Management Inc.
Endeavor Enhanced Index Portfolio
Subadvised by Massachusetts Financial Services Company
Endeavor High Yield Portfolio
Subadvised by Janus Capital Corporation
Endeavor Janus Growth Portfolio
Subadvised by OpCap Advisors
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Subadvised by Montgomery Asset Management, LLC
Endeavor Select Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming International, Inc.
T. Rowe Price International Stock Portfolio
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 fund portfolios.
The investment objectives and policies may be similar to other portfolios and
mutual funds managed by the same investment adviser or manager that are sold
directly to the public. You should not expect that the investment results of
the underlying fund portfolios to be the same as those of other portfolios or
mutual funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current prospectus for the Endeavor
Series Trust, which is attached to this prospectus. You should read that
prospectus carefully before you invest.
PFL may receive expense reimbursements or other revenues from the underlying
funds or their manager or subadvisers. The amount of these reimbursements or
revenues, if any, may be based on the amount of assets that PFL or the variable
account invests in the underlying fund 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
. 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.
15
<PAGE>
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 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
16
<PAGE>
. 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 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.
17
<PAGE>
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, 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>
18
<PAGE>
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.
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
19
<PAGE>
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
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.
20
<PAGE>
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.
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.
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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 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
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<PAGE>
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;
. 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.
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<PAGE>
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 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, 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
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<PAGE>
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.
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.
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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 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 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
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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.
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
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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").
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
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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
. 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 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.
30
<PAGE>
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 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.
31
<PAGE>
<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
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
32
<PAGE>
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, 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
33
<PAGE>
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 policyowners 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.
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
34
<PAGE>
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 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
35
<PAGE>
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 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.
36
<PAGE>
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 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.
37
<PAGE>
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 Principal
Position(s)(/1/) 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.
DISTRIBUTION OF THE POLICIES
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is a Transamerica Company and an indirect wholly owned subsidiary of
AEGON USA, Inc. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG Securities Corporation is registered as a broker/dealer under
the Securities Act of 1934. It is a member of the National Association of
Securities Dealers, Inc.
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
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of
38
<PAGE>
individual life insurance and annuity products. Companies must undergo a
rigorous self and independent assessment of their practices to become a member
of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to
these standards.
LEGAL PROCEEDINGS
There are no legal proceedings to which the variable account is a party or to
which the assets of the variable account are 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, 1999 and 1998 and for the three years in the period ended 1999, 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 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, 1999, 1998 and
1997, 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.
39
<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.
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.
40
<PAGE>
Average Annual Total Return of the Portfolios
(through 12/31/99)
<TABLE>
<CAPTION>
10 Years+ or
Life
Portfolio 1 Year 5 Years of Portfolio Inception Date
- --------- ------- ------- -------------- -----------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value...... 29.39% 17.88% 14.74% May 4, 1993
Dreyfus U.S. Government
Securities.................. (0.87%) 6.46% 5.64% May 13, 1994
Endeavor Asset Allocation.... 26.39% 21.09% 15.68% April 8, 1991
Endeavor Enhanced Index...... 18.16% N/A 27.39% May 1, 1997
Endeavor High Yield.......... 5.82% N/A 1.60% June 1, 1998
Endeavor Janus Growth........ N/A N/A 36.48%(/1/) May 1, 1999
Endeavor Opportunity Value... 18.16% N/A 27.39% November 18, 1996
Endeavor Value Equity........ (3.06%) 16.74% 13.61% May 27, 1993
Endeavor Select.............. 47.84% N/A 26.90% February 3, 1998
T. Rowe Price Equity Income.. 3.47% N/A 17.73% January 3, 1995
T. Rowe Price Growth Stock... 22.19% N/A 27.38% January 3, 1995
T. Rowe Price International
Stock....................... 32.35% N/A 14.79% March 24, 1995
(/1/)This number is not annualized.
The current yield for the Endeavor Money Market Portfolio for the seven days
ending December 31, 1999 was 3.45%. The effective yield for the Endeavor Money
Market Portfolio for the seven days ending December 31, 1999 was 3.52%.
Subaccount Performance. 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.
Adjusted Historical Average Annual Total Return of the Subaccounts*
(through 12/31/99)
<CAPTION>
10 Years+ or
Since
Portfolio 1 Year 5 Years Inception Date Inception Date
- --------- ------- ------- -------------- -----------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value...... 20.83% 14.62% 11.81% May 4, 1993
Dreyfus U.S. Government
Securities.................. (7.64%) 3.41% 2.73% May 13, 1994
Endeavor Asset Allocation.... 18.01% 17.76% 12.94% April 8, 1991
Endeavor Enhanced Index...... 10.26% N/A 22.80% May 1, 1997
Endeavor High Yield.......... (1.35%) N/A (3.11%) June 1, 1998
Endeavor Janus Growth........ N/A N/A 28.21%(/1/) May 1, 1999
Endeavor Opportunity Value... 10.26% N/A 23.16% November 18, 1996
Endeavor Value Equity........ (9.70%) 13.50% 10.69% May 27, 1993
Endeavor Select.............. 38.19% N/A 22.83% February 3, 1998
T. Rowe Price Equity Income.. (3.56%) N/A 14.46% January 3, 1995
T. Rowe Price Growth Stock... 14.05% N/A 24.87% January 3, 1995
T. Rowe Price International
Stock....................... 23.61% N/A 11.52% March 24, 1995
</TABLE>
(/1/)This number is not annualized.
The above subaccount performance figures do not reflect the surrender charge or
the cost of insurance charge, or rating or rider charges.
41
<PAGE>
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.
42
<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 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 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 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 0.93% of the average daily
net assets of all of the available portfolios (based on 1999 expense levels);
and (4) all applicable monthly deductions. The 0.93% expense level assumes an
equal allocation of amounts among the thirteen subaccounts and is based on an
average investment advisory fee and 1999 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
(2.83)%, 3.17%, and 9.17% (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.
43
<PAGE>
PFL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C> <C> <C>
Specified Amount: $165,000 Asset Based Charges: 2.83%/2.23%
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% 12% 0% 6% 12% 0% 6% 12%
Year Net (2.83%) 3.17% 9.17% (2.83%) 3.17% 9.17% (2.83%) 3.17% 9.17%
------ ----------- ------- ------ ------- ------- ----- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2100 165000 165000 165000 1448 1550 1651 93 195 296
2 4305 165000 165000 165000 2839 3131 3435 1338 1630 1934
3 6620 165000 165000 165000 4168 4740 5361 2582 3154 3776
4 9051 165000 165000 165000 5434 6375 7439 3764 4705 5769
5 11604 165000 165000 165000 6634 8032 9679 4881 6279 7925
6 14284 165000 165000 165000 7769 9711 12094 5932 7874 10257
7 17098 165000 165000 165000 8834 11406 14696 6913 9485 12775
8 20053 165000 165000 165000 9830 13120 17504 7825 11115 15499
9 23156 165000 165000 165000 10756 14846 20534 8667 12757 18445
10 26414 165000 165000 165000 11616 16594 23817 9443 14421 21644
11 29834 165000 165000 165000 12475 18453 27506 10801 16779 25833
12 33426 165000 165000 165000 13263 20335 31522 12056 19128 30315
13 37197 165000 165000 165000 13978 22240 35897 13206 21468 35125
14 41157 165000 165000 165000 14619 24167 40669 14249 23798 40299
15 45315 165000 165000 165000 15180 26112 45878 15180 26112 45878
16 49681 165000 165000 165000 15658 28073 51571 15658 28073 51571
17 54265 165000 165000 165000 16043 30040 57794 16043 30040 57794
18 59078 165000 165000 165000 16325 32007 64604 16325 32007 64604
19 64132 165000 165000 165000 16495 33964 72063 16495 33964 72063
20 69439 165000 165000 165000 16537 35901 80244 16537 35901 80244
30 (Age 65) 139522 165000 165000 271604 7633 52410 222626 7633 52410 222626
40 (Age 75) 253680 ** 165000 607014 ** 47353 567303 ** 47353 567303
50 (Age 85) 439631 ** ** 147373 ** ** 1403554 ** ** 1403554
60 (Age 95) 742526 ** ** 3354260 ** ** 3321050 ** ** 3321050
</TABLE>
- -------------------------
** In the absence of additional premium the policy will lapse.
NOTE--Asset Based Charges:
. The average fund expense charge is 0.93%
. 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.
44
<PAGE>
PFL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C> <C> <C>
Specified Amount: $165,000 Asset Based Charges: 2.83%/2.23%
Product Type: Standard Class Policy Annual Premium: $2,000
Using: Current Mortality NonSmoker 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% 12% 0% 6% 12% 0% 6% 12%
Year Net (2.83%) 3.17% 9.17% (2.83%) 3.17% 9.17% (2.83%) 3.17% 9.17%
------ ----------- ------- ------ ------- ------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2100 165000 165000 165000 1602 1708 1815 247 353 460
2 4305 165000 165000 165000 3146 3457 3782 1728 2048 2381
3 6620 165000 165000 165000 4608 5223 5890 3145 3777 4461
4 9051 165000 165000 165000 6014 7030 8177 4504 5547 6725
5 11604 165000 165000 165000 7364 8879 10659 5806 7361 9188
6 14284 165000 165000 165000 8664 10775 13358 7057 9223 11875
7 17098 165000 165000 165000 9912 12716 16292 8253 11132 14802
8 20053 165000 165000 165000 11105 14702 19479 9394 13086 17990
9 23156 165000 165000 165000 12244 16732 22943 10480 15086 21462
10 26414 165000 165000 165000 13339 18817 26724 11519 17143 25259
11 29834 165000 165000 165000 14467 21072 31009 13101 19845 29992
12 33426 165000 165000 165000 15549 23393 35702 14590 22558 35063
13 37197 165000 165000 165000 16588 25788 40849 15992 25289 40510
14 41157 165000 165000 165000 17598 28273 46509 17322 28053 46386
15 45315 165000 165000 165000 18578 30849 5273 18578 30849 52733
16 49681 165000 165000 165000 19523 33516 59576 19523 33516 59576
17 54265 165000 165000 165000 20403 36249 67077 20403 36249 67077
18 59078 165000 165000 165000 21219 39053 75309 21219 39053 75309
19 64132 165000 165000 165000 21961 41921 84345 21961 41921 84345
20 69439 165000 165000 165000 22626 44855 94273 22626 44855 94273
30 (Age 65) 139522 165000 165000 322812 23223 77373 264600 23223 77373 264600
40 (Age 75) 253680 165000 165000 736592 12750 121875 688404 12750 121875 688404
50 (Age 85) 439631 ** 200007 1820506 ** 190483 1733815 ** 190483 1733815
60 (Age 95) 742526 ** 285412 4225647 ** 282587 4183809 ** 282587 4183809
</TABLE>
- -------------------------
** In the absence of additional premium the policy will lapse.
NOTE--Asset Based Charges:
. The average fund expense charge is 0.93%
. 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.
45
<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.
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
subaccount, and although a policy's value in a subaccount or subaccounts 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.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PFL Life Insurance Company:
Report of Independent Auditors dated February 18, 2000.
Statutory-Basis Balance Sheets at December 31, 1999 and 1998.
Statutory-Basis Statement of Operations for the years ended December 31, 1999,
1998 and 1997.
Statutory-Basis Statement of Changes in Capital and Surplus for the years ended
December 31, 1999, 1998, and 1997.
Statutory-Basis Statement of Cash Flow for the years ended December 31, 1999,
1998, and 1997.
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
47
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included
the accompanying statutory-basis financial statement schedules required by
Article 7 of Regulation S-X. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States also are described in Note
1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $2,660 $154,129 $261,558 $418,347
Capital contribution.................... -- 153 -- 153
Net income.............................. -- -- 85,991 85,991
Change in net unrealized capital gains.. -- -- 3,592 3,592
Change in non-admitted assets........... -- -- (481) (481)
Change in asset valuation reserve....... -- -- (14,974) (14,974)
Dividend to stockholder................. -- -- (62,000) (62,000)
Surplus effect of sale of a division.... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division............................... -- -- 5 5
Amendment of reinsurance agreement...... -- -- 389 389
Surplus effect of reinsurance
agreement.............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................. -- -- (1,901) (1,901)
------ -------- -------- --------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income.............................. -- -- 65,498 65,498
Change in net unrealized capital gains.. -- -- 4,504 4,504
Change in non-admitted assets........... -- -- (260) (260)
Change in asset valuation reserve....... -- -- (21,763) (21,763)
Dividend to stockholder................. -- -- (120,000) (120,000)
Increase in liability for reinsurance in
unauthorized companies................. -- -- 2,036 2,036
Tax benefit on stock options exercised.. -- -- 2,476 2,476
Change in surplus in separate accounts.. -- -- 675 675
------ -------- -------- --------
Balance at December 31, 1998 2,660 154,282 205,586 362,528
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
Nature of Business
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia and Guam. Sales of the Company's products
are primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
are based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
adjustments to federal income taxes of prior years are charged or credited
directly to unassigned surplus, rather than reported as a component of expense
in the statement of operations; (n) gains or losses on dispositions of
business are charged or credited directly to unassigned surplus rather than
being reported in the statement of operations; and (o) a liability is
established for "unauthorized reinsurers" and changes in this liability are
charged or credited directly to unassigned surplus. The effects of these
variances have not been determined by the Company but are presumed to be
material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification") effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is anticipated that the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased
to be short-term investments.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for
potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve ("IMR"), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreement
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the contract owners and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner at the market value of the underlying assets
less the current surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities, including affiliated mutual funds and real estate investment
trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- -------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- -------- ----------
$4,837,196 $132,213 $ 54,155 $4,915,254
========== ======== ======== ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 related to these mortgage loans was
excluded from investment income. The Company requires all mortgaged properties
to carry fire insurance equal to the value of the underlying property.
At December 31, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate swaps and caps. All involve elements of
credit and market risks in excess of the amounts recognized in the
accompanying financial statements at a given point in time. The contract or
notional amounts of those instruments reflect the extent of involvement in the
various types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract)
that would result in an accounting loss and replacement cost risk (i.e., the
cost to replace the contract at current market rates should the counterparty
default prior to settlement date). Credit loss exposure resulting from
nonperformance by a counterparty for commitments to extend credit is
represented by the contractual amounts of the instruments.
At December 31, 1999 and 1998, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
Notional Amount
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 60,000
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. Reinsurance
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. Income Taxes
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1999). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1999 and 1998, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, respectively, in which the gross premiums are less than
the net premiums required by the standard valuation standards established by
the Insurance Division, Department of Commerce, of the State of Iowa. The
Company established policy reserves of $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
7. Dividend Restrictions
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, respectively.
8. Retirement and Compensation Plans
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
SFAS No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, respectively.
9. Related Party Transactions
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
During 1998, the Company issued life insurance policies to certain affiliated
companies, covering the lives of certain employees of those affiliates.
Premiums of $174,000 related to these policies were recognized during the
year, and aggregate reserves for policies and contracts are $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- --------- ---------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States Government and government
agencies and authorities............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</TABLE>
- -------------------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
30
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
Year ended December 31,
1998
Life insurance in
force.................. $6,384,095 $ 438,590 $ 39,116 $5,984,621 .6%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health..... 76,438 7,475 -- 68,963 --
Group life and
health............... 255,848 144,301 -- 111,547 --
Annuity............... 686,372 18,096 -- 668,276 --
---------- --------- -------- ---------- ---
$1,533,822 $ 173,564 $ 2,366 $1,362,624 .2%
========== ========= ======== ========== ===
Year ended December 31,
1997
Life insurance in
force.................. $5,025,027 $ 420,519 $ 35,486 $4,639,994 .8%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health..... 73,593 10,045 -- 63,548 --
Group life and
health............... 339,269 192,575 -- 146,694 --
Annuity............... 697,893 40,198 -- 657,695 --
---------- --------- -------- ---------- ---
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
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./7/
</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 with Post-Effective Amendment No. 2 to Form S-6 Registration Statement
for PFL Endeavor Variable Life Account (File No. 33-92226), filed April 28,
1999.
/7/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, 2000.
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, 2000
- ------------------------------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 27, 2000
- ------------------------------------
Craig D. Vermie
/s/ William L. Busler Director April 27, 2000
- ------------------------------------ (Principal Executive Officer)
William L. Busler
/s/ Larry N. Norman Director April 27, 2000
- ------------------------------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director April 27, 2000
- ------------------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Corporate Controller April 27, 2000
- ------------------------------------
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer April 27, 2000
- ------------------------------------
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
- -------------------------
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (7)
CONSENT OF 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 18, 2000 with respect to
the statutory-basis financial statements and schedules of PFL Life Insurance
Company, included in Post-Effective Amendment No. 3 to the Registration
Statement (Form S-6 No. 33-92226) and related Prospectus of PFL Endeavor
Variable Life.
/s/ Ernst & Young, LLP
Des Moines, Iowa
April 24, 2000
