As filed with the Securities and Exchange Commission on August 31, 1999
Registration File Nos. ________/811-9115
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
LEGACY BUILDER VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
PFL LIFE INSURANCE COMPANY
(Name of Depositor)
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
(Complete Address of Depositor's Principal Executive Offices)
Frank A. Camp, Esq.
Vice President and Division General Counsel
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
(Name and Complete Address of Agent for Service)
Copies 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 the Registration Statement.
Title of securities being registered: Endeavor Legacy Builder Plus flexible
premium variable life insurance policy.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
____________, 1999
PFL Life Insurance Company is offering Endeavor Legacy Builder Plus (the
"Policy"), the flexible premium variable life insurance policy described in this
prospectus. This prospectus provides information that a prospective owner
should know before investing in the Policy. You should consider the Policy in
conjunction with other insurance you own.
You can allocate your Cash Value to:
. the Legacy Builder Variable Life Separate Account (the "variable
account"), which invests in the portfolios listed on this page; or
. a fixed account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the variable account
must accompany this prospectus. Please read these documents before investing
and save them for future reference.
Please note that the Policies and the portfolios:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goals
. are subject to risks, including loss of the amount invested.
The Policy generally will be a "modified endowment contract" for Federal income
tax purposes. This means all loans, surrenders and partial surrenders are
treated first as distributions of taxable income, and then as a return of basis.
Prior to your age 59 1/2, all these distributions generally are subject to a 10%
penalty tax.
The Securities and Exchange Commission has not approved or disapproved this
Policy or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
___________________________________________________
Endeavor Legacy Builder Plus
Flexible Premium Variable Life
Insurance Policy
issued by
Legacy Builder Variable Life
Separate
Account
and
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499
(800) 732-7754
___________________________________________________
The available portfolios are:
[_] Endeavor Series Trust
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Endeavor Value Equity Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Enhanced Index Portfolio
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Endeavor Select 50 Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Table of Contents
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Glossary................................................................ 1
Policy Summary.......................................................... 3
Risk Summary............................................................ 8
Portfolio Expense Table................................................. 10
The Company and the Fixed Account....................................... 11
PFL Life Insurance Company........................................... 11
The Fixed Account.................................................... 11
The Variable Account and the Portfolios................................. 11
The Variable Account................................................. 11
The Portfolios....................................................... 12
Your Right to Vote Portfolio Shares.................................. 15
The Policy.............................................................. 15
Purchasing a Policy.................................................. 15
When Insurance Coverage Takes Effect................................. 15
Extending the Maturity Date.......................................... 16
Ownership Rights..................................................... 16
Changing the Owner................................................. 16
Selecting and Changing the Beneficiary............................. 16
Assigning the Policy............................................... 17
Canceling a Policy................................................... 17
Premiums................................................................ 17
Premium Payments..................................................... 17
Allocating Premiums.................................................. 18
Policy Values........................................................... 18
Cash Value........................................................... 18
Growth Accelerator................................................... 19
Cash Surrender Value................................................. 19
Subaccount Value..................................................... 19
Unit Value........................................................... 20
Fixed Account Value.................................................. 20
Charges and Deductions.................................................. 20
Premium Expense Charge............................................... 21
Monthly Deduction.................................................... 21
Cost of Insurance.................................................. 21
Monthly Policy Charge.............................................. 22
Daily Charge......................................................... 22
Surrender Charge..................................................... 22
Partial Surrender Charge............................................. 22
Transfer Charge...................................................... 23
Portfolio Expenses................................................... 23
Death Benefit........................................................... 23
Death Benefit........................................................ 23
Payment Options...................................................... 24
Full and Partial Surrenders............................................. 24
Full Surrenders...................................................... 24
Partial Surrenders................................................... 25
Transfers25
Dollar Cost Averaging................................................ 26
Asset Rebalancing Program............................................ 27
Loans................................................................... 28
Loan conditions...................................................... 28
Effect of Policy Loans............................................... 29
Policy Lapse and Reinstatement.......................................... 29
Lapse................................................................ 29
Reinstatement........................................................ 29
Federal Tax Considerations.............................................. 30
Other Policy Information................................................ 32
Our Right to Contest the Policy...................................... 32
Suicide Exclusion.................................................... 32
Misstatement of Age or Sex........................................... 33
Modifying the Policy................................................. 33
Payments We Make..................................................... 33
Reports to Owners.................................................... 34
Records.............................................................. 34
Policy Termination................................................... 34
Performance Data........................................................ 34
Additional Information.................................................. 40
Sale of the Policies................................................. 40
Legal Matters........................................................ 40
Legal Proceedings.................................................... 40
Year 2000 Matters.................................................... 40
Financial Statements................................................. 41
Additional Information about PFL Life
Insurance Company
PFL's Executive Officers and Directors............................... 41
Illustrations........................................................... 42
Glossary
Age
The insured's age on the Policy Date plus the number of completed Policy years
since the Policy Date.
Beneficiary
The person(s) you select to receive the death benefit from this Policy.
Cash Value
The sum of your Policy's value in the subaccounts and the fixed account
(including amounts held in the fixed account to secure any loans).
Cash Surrender Value
The amount we pay when you surrender your Policy. It is equal to: (1) the Cash
Value as of the date of surrender; minus (2) any surrender charge; minus (3) any
outstanding Policy loan; minus (4) any loan interest you owe.
Company (we, us, our, PFL)
PFL Life Insurance Company
Death benefit proceeds
The amount we will pay to the beneficiary when we receive proof of the insured's
death. We will reduce the proceeds by the amount of any outstanding loans
(including any interest you owe), and any due and unpaid monthly deductions.
Free look period
The period when you may return the Policy and receive a refund. The length of
the free look period varies by state. Your Policy's schedule page shows the
applicable free look period.
Initial premium
The amount you must pay before insurance coverage begins under this Policy.
Your Policy's schedule page shows the initial premium. It must be at least
$10,000.
Insured
The person whose life is insured by this Policy.
Lapse
If the Policy has an outstanding loan and you do not have enough Cash Value to
pay the monthly deduction, the surrender charge and any outstanding loan amount
(including any interest you owe on the loan(s)), the Policy will enter a 61-day
grace period. The Policy will lapse (terminate without value) if you do not make
a sufficient payment by the end of a grace period.
Loan Amount
The total amount of all outstanding Policy loans, including both principal and
interest due.
Maturity Date
The Policy anniversary when the insured reaches age 100 and life insurance
coverage under this Policy ends. You may elect to continue the Policy beyond
insured's age 100 under the extended maturity provision. However, the extended
maturity provision may not be available in all states.
Monthly Date
This is the same day of each month as the Policy Date. If there is no Valuation
Date in a calendar month that coincides with the Policy Date, the Monthly Date
is the next Valuation Date. On each Monthly Date, we determine Policy charges
and deduct them from the Cash Value.
Monthly Deduction
The amount we deduct from the Cash Value each month. The monthly deduction
includes the cost of insurance charge, and any monthly administration charge.
Net Premium
The amount we receive as premium, less the premium expense charge.
Office
Our administrative and service office is Financial Markets Division, P.O. Box
3183, Cedar Rapids, Iowa 52406-3183; or 4333 Edgewood Road NE, Cedar Rapids,
Iowa 52499-0001. The telephone number is 1-800-732-7754.
1
Owner (you, your)
The person entitled to exercise all rights as owner under the Policy.
Policy Date
The date when we complete our underwriting process, full life insurance coverage
goes into effect, we issue the Policy, and we begin to deduct the Monthly
Deductions. Your Policy's schedule page shows the Policy Date. The free look
period begins on the Policy Date. We measure Policy months, years, and
anniversaries from the Policy Date.
Premiums
All payments you make under the Policy other than loan repayments.
Reallocation Date
The date shown on the Policy schedule page when we reallocate any premium (plus
interest) held in the fixed account to the subaccounts and fixed account as you
directed in your application. The Reallocation Date varies by state according
to a state's free look requirement. In states that require a full refund of
premium upon exercise of the free look right, the Reallocation Date is 5 days
after the end of the free look period. In other states, the Reallocation Date
is the Policy Date.
Subaccount
A subdivision of the Legacy Builder Variable Life Separate Account. We invest
each subaccount's assets exclusively in shares of one investment portfolio.
Surrender
To cancel the Policy by signed request from the owner.
Valuation Date
Each day that both the New York Stock Exchange and PFL Life Insurance Company
are open for business, except for any days when a subaccount's corresponding
investment portfolio does not value its shares. As of the date of this
prospectus, there are no days when both the New York Stock Exchange and PFL are
open for business and an investment portfolio does not value its shares.
Valuation Period
The period beginning at the close of business of the New York Stock Exchange on
one Valuation Date and continuing to the close of business on the next Valuation
Date.
Variable account
Legacy Builder Variable Life Separate Account. It is a separate investment
account that is divided into subaccounts, each of which invests in a
corresponding portfolio of a designated mutual fund.
Variable account value
The total value of your Policy allocated to the subaccounts of the variable
account.
Written notice
The written notice you must sign and send us to request or exercise your rights
as owner under the Policy. To be complete, it must: (1) be in a form we accept,
(2) contain the information and documentation that we determine in our sole
discretion is necessary for us to take the action you request or for you to
exercise the right specified, and (3) be received at our Office.
You (your, owner)
The person entitled to exercise all rights as owner under the Policy.
2
Policy Summary
This summary describes important features of the Policy and corresponds to
sections in this prospectus which discuss the topics in more detail. All
capitalized words and phrases, and a number of others, are defined or explained
in the Glossary.
Premiums
. You can select a premium payment plan but you are not required to pay
premiums according to the plan. You can vary the frequency and amount, and
can skip premium payments. We will not accept any premiums after the insured
reaches age 100.
. In general, the minimum initial premium is $10,000, and the minimum
additional premium is $5,000.
. If the insured qualifies for simplified underwriting:
. Conditional life insurance coverage begins as soon as you complete an
application and pay an initial premium.
. The maximum initial premium you may pay is $1,500 multiplied by the
insured's age at issue. (For example, if the insured is age 50 at issue, the
maximum initial premium for simplified underwriting is $75,000.)
. You may pay the maximum initial premium at issue or at any time during the
first 2 Policy years; however, premiums paid in the second Policy year may
not exceed premiums paid in the first Policy year.
. In the second and subsequent Policy years, you have different premium
payment options depending on what premiums you paid in the previous Policy
year. See "Premiums" for further information.
. If the insured undergoes full underwriting:
. You designate the total premium for which we will underwrite the insured
(the "underwriting premium").
. At issue, you must pay an amount equal to the greater of: (1) 50% of the
underwriting premium; or (2) the underwriting premium minus $100,000.
. In the second and subsequent Policy years, you have different premium
payment options depending on what premiums you paid in the previous Policy
year. See "Premiums" for further information.
. If you have no outstanding loans (or if you fully repay a loan), then we
guarantee that your Policy will never lapse.
. If you have an outstanding loan, your Policy will enter a 61-day grace period
whenever the loan amount exceeds the Cash Value minus any surrender charge.
Your Policy will terminate without value unless you make a sufficient payment
during the grace period. See "Risk of Lapse," and "Policy Lapse and
Reinstatement."
. Once we issue your Policy, the free look period begins. You may return the
Policy during this period and receive a refund. See "Canceling a Policy."
. We put all premiums (minus any premium expense charge) in the fixed account
until the Reallocation Date.
3
Investment options
You may allocate your money among the variable account investment options, and
the fixed account options.
Variable Account:
. You may allocate the money in your Policy to any of the subaccounts of the
variable account. We do not guarantee any money you place in the subaccounts.
The value of each subaccount will increase or decrease, depending on the
investment performance of the corresponding portfolio. You could lose some or
all of your money.
. Each subaccount invests exclusively in one of the following investment
portfolios of the Endeavor Series Trust:
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Endeavor Value Equity Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Enhanced Index Portfolio
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Endeavor Select 50 Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Fixed Account:
. You may also place money in the basic fixed account where it earns interest
at an annual rate of at least 3%. We may declare a higher rate of interest,
but we are not obligated to do so.
. At the time of purchase, you may place some or all of your initial net
premium in the Dollar Cost Averaging Fixed Account ("DCA Fixed Account").
Money you place in the DCA Fixed Account will earn interest at an annual
rate of at least 3.0%. We will transfer money out of the DCA Fixed Account
in equal installments over a period of 6 months (or other periods available
at the time of issue) and place it in the variable subaccounts according to
your instructions.
4
Cash Value
. Cash Value is the sum of your amounts in the subaccounts and the fixed
account. If you have any loans outstanding, Cash Value also includes amounts
we hold in our fixed account to secure any loans.
. Cash Value varies from day to day, depending on the investment experience of
the subaccounts you choose, the interest we credit to the fixed account, the
charges we deduct, and any other transactions (transfers, partial surrenders,
and loans.)
. Cash Value is the starting point for calculating important values under the
Policy, such as the Cash Surrender Value and the death benefit.
. Your Policy may lapse if you do not have sufficient Cash Surrender Value to
pay the monthly deductions.
. Growth Accelerator: At the end of each month in any Policy year, we will
credit your Cash Value with additional interest at an annual rate of 0.50% if
your Policy satisfies the following requirements at the beginning of the
Policy year:
. Cash Value is greater than 200% of the total premiums paid; and
. Cash Value exceeds $50,000.
. We do not guarantee a minimum Cash Value. Cash Value can go down -- all the
way to zero.
Charges and Deductions
$ Premium expense charge: We deduct a premium expense charge equal to the
----------------------
actual premium tax imposed by the state where we issue your Policy. Premium
taxes currently range from 0.50% to 3.50% of each premium payment. We credit
the remaining net premium to your Cash Value.
$ Monthly Deduction. On the Policy Date and on each Monthly Date, we deduct
-----------------
the following charges on a pro-rata basis from each subaccount and the fixed
account:
. a cost of insurance charge for the Policy
. a monthly Policy charge including two components:
(1) a monthly administrative charge of $2.50 if the Cash Value at the
beginning of a Policy year is less than $50,000; and
(2) a monthly asset based charge equal to 0.55% annually of the assets in
the variable account. We deduct this charge from the assets in the
variable account during the first 10 Policy years.
$ Surrender charge: During the first 6 Policy years after a premium payment,
----------------
we deduct a 7% surrender charge on any surrender attributable tothe premium.
A separate surrender charge applies to each premium payment.
We deduct a 7% surrender charge on the entire amount of any full or partial
surrender during the first Policy year. After the first Policy year, you may
partially surrender amounts up to your Policy's gain (Cash Value minus
premiums) free of charge; however, the 7% surrender charge will apply to the
portion of any partial surrender that exceeds the gain and is attributable to
a premium paid within the 6 Policy years prior to the partial surrender.
$ Daily Charge: We deduct a daily charge equal (on an annual basis) to 0.75%
------------
of the average daily net assets of the variable account.
$ Transfer charge: We currently assess no charge for transfers. We reserve the
---------------
right to charge $10 for the 13th and each additional transfer in a Policy
year.
$ Portfolio Expenses: The portfolios deduct investment advisory (management)
------------------
fees and other expenses from their assets. These charges vary by portfolio
and in 1998 the total annual amount of these charges ranged from 0.60% to
1.49% of average portfolio assets.
5
Surrenders
. Full surrender: At any time while the Policy is in force, you may make a
written request to surrender your Policy and receive the Cash Surrender Value
(that is, the Cash Value minus any surrender charge, and minus any
outstanding loan amount including any accrued interest).
. Partial surrenders: You may make a written request to withdraw part of the
Cash Value, subject to the following rules:
. You must request at least $500;
. At least $5,000 of Cash Surrender Value must remain in the Policy after
the partial surrender;
. During the first Policy year, any amount you surrender is subject to a
surrender charge; and
. After the first Policy year, you may surrender amounts up to your Policy's
gain (Cash Value minus premiums paid) free of charge.
. A partial surrender automatically causes a pro-rata reduction in the death
benefit.
. Full and partial surrenders may be taxable and, prior to your age 59 1/2, may
be subject to a 10% tax penalty.
. When assessing the 7% surrender charge, we deem premiums to be withdrawn on a
"first-in-first-out" (FIFO) basis.
Death Benefit
. While the Policy is in force, the death benefit is the greater of: (1) the
Basic Death Benefit; or (2) the Guaranteed Minimum Death Benefit ("GMDB").
. Basic Death Benefit: The Basic Death Benefit is equal to the Cash Value
divided by the net single premium. The net single premium is calculated using
guaranteed cost of insurance charges with a 4.5% interest rate. The Basic
Death Benefit will change monthly due to changes in the Cash Value. The net
single premium will change annually.
. Guaranteed Minimum Death Benefit: The GMDB is the greater of premiums paid or
highest Cash Value on a Policy anniversary prior to the insured's age 75
(both adjusted for partial surrenders). At the insured's age 75, the GMDB
remains fixed for the remainder of the Policy. For Policies issued after age
74, the GMDB will be the premiums paid less partial surrenders.
. We deduct any unpaid loans from the proceeds payable on the insured's death.
6
Transfers
. Each year, you may make an unlimited number of transfers of Cash Value from
the subaccounts and the fixed account.
. Transfers from subaccounts must be at least $500, or, if less, the total
value in the subaccount.
. Transfers from the fixed account each Policy year may not exceed the greater
of:
. 25% of the amount in the fixed account; or
. $1,000.
If the balance after the transfer is less than $1,000, we will transfer the
entire amount in the fixed account.
. We may charge $10 for the 13th and each additional transfer during a Policy
year.
. We do not impose transfer charges for Dollar Cost Averaging or Asset
Rebalancing.
Loans
. You may take a loan against the Policy for any amount from $500 up to 90% of
the Cash Value net of surrender charge, minus any outstanding loans and
interest you owe.
. To secure the loan, we transfer an amount equal to the loan from the variable
account and fixed account to the loan account (part of our general account).
. Amounts in the loan account earn interest at the guaranteed minimum rate of
3% per year.
. We currently charge you an interest rate of 4.5% per year on your loan. We
guarantee that this interest rate will not exceed 6% per year. Interest is
due and payable at the end of each calendar quarter. Unpaid interest becomes
part of the outstanding loan.
. Loan interest generally is not tax deductible (consult your tax advisor for
possible exceptions).
. You may repay all or part of your outstanding loans at any time. Loan
repayments must be at least $500, and must be clearly marked as "loan
repayments" or they will be credited as premiums if they equal or exceed
minimum premium amounts.
. We deduct any unpaid loans from the proceeds payable on the insured's death.
. Loans taken from, or secured by, this Policy generally will be taxed as
distributions and, prior to age 59 1/2, a tax penalty may apply.
. The "no-lapse guarantee" does not apply if there is an outstanding loan.
7
Risk Summary
Investment If you invest your Cash Value in one or more subaccounts, then
Risk you will be subject to the risk that investment performance
will be unfavorable and that the Cash Value will decrease. You
could lose everything you invest. If you select the fixed
account, then we credit your Cash Value with a declared rate of
interest, but you assume the risk that the rate may decrease,
although it will never be lower than a guaranteed minimum
annual effective rate of 3%.
Because we deduct charges from Cash Value every month, if
investment results are negative or not sufficiently favorable,
then your Cash Surrender Value may fall to zero. If your Cash
Surrender Value is zero and you have an outstanding loan, then
your Policy will enter a 61-day grace period. Unless you make a
sufficient payment during the grace period, the Policy will
lapse without value and insurance coverage will no longer be in
effect. However, if investment experience is sufficiently
favorable and you have kept the Policy in force for a
substantial time, then you may be able to draw upon Cash Value,
through partial surrenders and loans.
Risk of If you do not have an outstanding loan, we guarantee that your
Lapse Policy will never lapse (terminate without value), regardless
of investment performance.
If you have an outstanding loan and your Cash Surrender Value
becomes zero, then the Policy will enter a 61-day grace period.
Whenever your Policy enters the grace period, if you do not
make a sufficient payment before the grace period ends, your
Policy will lapse, insurance coverage will no longer be in
effect, and you will receive no benefits. The payment must be
sufficient enough to cause the Cash Surrender Value to exceed
zero, after deducting all due and unpaid monthly deductions and
outstanding loans. You might not be able to reinstate a policy
that has lapsed (depending on applicable state law).
Tax Risks We anticipate that the Policy should be deemed a life insurance
contract under Federal tax law. However, there is some
uncertainty in this regard. The Policy generally will be
treated as a modified endowment contract ("MEC") under Federal
tax laws (except, in some cases for a Policy issued in exchange
for another life issuance policy that was not a MEC). If a
Policy is treated as a MEC, then surrenders, partial
surrenders, and loans under a Policy will be taxable as
ordinary income to the extent there are earnings in the Policy.
In addition, a 10% penalty tax may be imposed on surrenders,
partial surrenders, and loans taken before you reach age 59
1/2. You should consult a qualified tax advisor for assistance
in all tax matters involving your Policy.
Surrender The 7% surrender charge under this Policy applies for 6 Policy
Charge years after each premium payment. You should purchase this
Policy only if you have the financial ability to keep it in
force for a substantial period of time.
Even if you do not ask to surrender your Policy, surrender
charges may play a role in determining whether your Policy will
lapse. Cash Surrender Value (that is, Cash Value minus any
surrender charges and outstanding loans) is one measure we use
to determine whether your Policy will enter a grace period, and
possibly lapse.
8
Partial You may request partial surrenders of a portion of the Cash
Surrender Surrender Value. After the first Policy year, you may
Limits request partial surrenders of amounts up to your Policy's gain
free of charge. The amount partially surrendered must be at
least $500 and must not cause the Cash Surrender Value after
the partial surrender to be less than $5,000. We impose a 7%
surrender charge on the portion of any surrender that exceeds
the gain in the Policy and is attributable to a premium paid
within the 6 Policy years prior to the surrender.
A partial surrender reduces the Cash Surrender Value, so it
will increase the risk that the Policy will lapse. A partial
surrender will reduce the death benefit and also may have tax
consequences.
Loan Risks A Policy loan, whether or not repaid, will affect Cash Value
over time because we subtract the amount of the loan from the
subaccounts and fixed account as collateral. We then credit a
fixed interest rate of 3.0% to the collateral in the loan
account. As a result, the loan collateral does not participate
in the investment results of the subaccounts nor does it
receive any higher current interest rate credited to the fixed
account. The longer the loan is outstanding, the greater the
effect is likely to be. Depending on the investment results of
the subaccounts and the interest rate credited to the fixed
account, the effect could be favorable or unfavorable.
A Policy loan affects the death benefit because a loan reduces
the death benefit proceeds and Cash Surrender Value by the
amount of the outstanding loan, plus any interest you owe on
Policy loans.
While a loan is outstanding, the "no-lapse guarantee" does not
apply. See Policy Lapse and Reinstatement.
A Policy loan could make it more likely that a Policy would
terminate. There is a risk that if the loan reduces your Cash
Surrender Value to too low an amount and investment results are
unfavorable, then the Policy will lapse, resulting in loss of
insurance and possibly adverse tax consequences. A loan will
likely be taxed as a partial surrender and a 10% penalty tax
may apply.
Comparison Like fixed benefit life insurance, the Policy offers a death
with Other benefit and provides a Cash Value, loan privileges and a value
Insurance on surrender. However, the Policy differs from a fixed
Policies benefit policy because it allows you to place your premiums in
investment subaccounts. The amount and duration of life
insurance protection will vary with the investment performance
of the amounts you place in the subaccounts. In addition, the
Cash Surrender Value will always vary with the investment
results of your selected subaccounts.
As you consider purchasing this Policy, keep in mind that it
may not be to your advantage to replace existing insurance with
the Policy.
9
Illustrations The hypothetical illustrations in this prospectus or 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 Policy charges and
hypothetical rates of return affect death benefit levels, Cash
Value and Cash Surrender Value of the Policy. We may also
illustrate Policy values based on the adjusted historical
performance of the portfolios since the portfolios' inception,
reduced by Policy and subaccount charges. The hypothetical and
adjusted historic portfolio rates illustrated should not be
considered to represent past or future performance. Actual
rates of return undoubtedly will be higher or lower than those
illustrated, so the values under your Policy will be different
from those illustrated.
Portfolio Expense Table
The following table shows the fees and expenses charged by the portfolios. The
purpose of the table is to assist you in understanding the various costs and
expenses that you will bear directly and indirectly. The table reflects charges
and expenses of the portfolios for the fiscal year ended December 31, 1998,
except as otherwise noted. Expenses of the portfolios may be higher or lower in
the future. For more information on the fees and expenses described in this
table, see the portfolios' prospectus.
Annual Portfolio Operating Expenses (as a percentage of average portfolio
assets)
Portfolio Management Other Total Annual
Fees Expenses Expenses
Endeavor Asset Allocation Portfolio (1) 0.75% 0.03% 0.78%
Endeavor Money Market Portfolio 0.50% 0.10% 0.60%
T. Rowe Price Equity Income Portfolio 0.80% 0.05% 0.85%
T. Rowe Price Growth Stock Portfolio 0.80% 0.07% 0.87%
T. Rowe Price International Stock Portfolio (2) 0.90% 0.08% 0.98%
Endeavor Value Equity Portfolio (1) 0.80% 0.04% 0.84%
Endeavor Opportunity Value Portfolio (3) 0.80% 0.18% 0.98%
Endeavor Enhanced Index Portfolio 0.75% 0.35% 1.10%
Dreyfus U.S. Government Securities Portfolio (3) 0.65% 0.07% 0.72%
Dreyfus Small Cap Value Portfolio (1) 0.80% 0.06% 0.86%
Endeavor Select 50 Portfolio (4) 1.10% 0.39% 1.49%
Endeavor High Yield Portfolio (5) 0.775% 0.525% 1.30%
Endeavor Janus Growth Portfolio (6) 0.775% 0.095% 0.87%
(1) The amount of Total Annual Expenses reflects fees paid indirectly, and
credits allowed by the custodian. Without these fees paid indirectly or
credits, Total Annual Expenses would have been 0.80% for Endeavor Asset
Allocation Portfolio, 0.85% for Endeavor Value Equity Portfolio, and 0.94%
for Dreyfus Small Cap Value Portfolio.
(2) The amount of Total Annual Expenses reflects credits allowed by the
custodian. Without these credits, Other Expenses would have been 0.20% and
Total Annual Expenses would have been 1.10% for T. Rowe Price International
Stock Portfolio.
(3) The amount of Total Annual Expenses reflects waivers or reimbursements, fees
paid indirectly, and credits allowed by the custodian. Without these
waivers or reimbursements, fees paid indirectly, or credits, Total Annual
Expenses would have been 1.00% for Endeavor Opportunity Value Portfolio, and
0.73% for Dreyfus U.S. Government Securities Portfolio.
(4) The amount of Total Annual Expenses reflects waivers or reimbursements, and
credits allowed by the custodian. Without these waivers or reimbursements,
or credits, Other Expenses would have been 0.45% and Total Annual Expenses
would have been 1.55% for Endeavor Select 50 Portfolio.
(5) The Portfolio commenced operations on June 1, 1998 and the amount of Total
Annual Expenses is annualized for the year ended December 31, 1998. The
amount of Total Annual Expenses reflects waivers or reimbursements, and
credits allowed by the custodian. Without these waivers or reimbursements,
or credits,
10
Other Expenses would have been 0.805% and Total Annual Expenses would have
been 1.58% for Endeavor High Yield Portfolio.
(6) Portfolio commenced operations on April 30, 1999. Amounts listed above are
estimated annualized amounts for the year ending December 31, 1999.
Endeavor Management Co. (the "Manager") currently limits its annual fee to
0.775% of the Portfolio's average daily net assets (the investment
management agreement provides for an annual fee of 0.80%). This fee waiver
will continue for a period of at least one year. In addition, the
Portfolio's Total Annual Expenses (excluding interest, taxes, brokerage
fees, commissions and extraordinary charges) for a period of at least one
year will not exceed 0.87% of the Portfolio's average daily net assets.
Without such fee waiver and expense limitation, the Manager estimates that
Total Annual Expenses would be 0.99%.
The Company and the Fixed Account
PFL Life Insurance Company
PFL Life Insurance Company is the insurance company issuing the Policy. PFL was
incorporated under Iowa law on April 19, 1961. PFL established the separate
account to support the investment options under this Policy and under other
variable life insurance policies we may issue. Our general account supports the
fixed account options under the Policy.
IMSA. PFL is a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA members subscribe to a set of ethical standards involving the
sales and service of individually sold life insurance and annuities. As a
member of IMSA, PFL may use the IMSA logo and language in advertisements.
The Fixed Account
The basic fixed account is part of PFL's general account. We use general
account assets to support our insurance and annuity obligations other than those
funded by separate accounts. Subject to applicable law, PFL has sole discretion
over investment of the fixed account's assets. PFL bears the full investment
risk for all amounts contributed to the fixed account. PFL guarantees that the
amounts allocated to the fixed account will be credited interest daily at a net
effective interest rate of at least 3%. We will determine any interest rate
credited in excess of the guaranteed rate at our sole discretion.
The Dollar Cost Averaging Fixed Account. At the time you purchase a Policy, you
may place your entire initial premium in the Dollar Cost Averaging Fixed Account
("DCA Fixed Account"). Money you place in the DCA Fixed Account will earn
interest at an annual rate of at least 3%. We may declare a higher rate of
interest at our sole discretion. We will transfer money out of the DCA Fixed
Account in equal installments over a period of 6 months and place it in the
subaccounts and basic fixed account according to your instructions. The first
such transfer occurs on the Monthly Date after the Reallocation Date. In the
last month of the DCA Fixed Account term, we will transfer interest accrued on
the premium.
There is no charge for participating in the DCA Fixed Account, and transfers
under this program do not count in determining any transfer charge.
We reserve the right to stop offering the DCA Fixed Account at any time for any
reason.
The fixed account is not registered with the Securities and Exchange Commission
and the staff of the Securities and Exchange Commission has not reviewed the
disclosure in this prospectus relating to the fixed account.
11
The Variable Account and the Portfolios
The Variable Account
PFL established the variable account as a separate investment account under Iowa
law on November 20, 1998. PFL owns the assets in the variable account and is
obligated to pay all benefits under the Policies. PFL may use the variable
account to support other variable life insurance policies PFL issues. The
variable account is registered with the Securities and Exchange Commission as an
unit investment trust under the Investment Company Act of 1940 and qualifies as
a "separate account" within the meaning of the Federal securities laws.
The variable account is divided into subaccounts, each of which invests in
shares of a specific portfolio of the Endeavor Series Trust (the "Trust"). The
subaccounts buy and sell portfolio shares at net asset value. Any dividends and
distributions from a portfolio are reinvested at net asset value in shares of
that portfolio.
Income, gains, and losses credited to, or charged against, a subaccount of the
variable account reflect the subaccount's own investment experience and not the
investment experience of our other assets. The variable account's assets may
not be used to pay any of PFL's liabilities other than those arising from the
Policies. If the variable account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The variable account may include other subaccounts that are not available under
the Policies and are not discussed in this prospectus. Where permitted by
applicable law, PFL reserves the right to:
1. Create new separate accounts;
2. Combine separate accounts, including the variable account;
3. Remove, combine or add subaccounts and make the new subaccounts
available to you at our discretion;
4. Make new portfolios available under the variable account or remove
existing portfolios;
5. Substitute new portfolios for any existing portfolios if shares of the
portfolio are no longer available for investment or if we determine that
investment in a portfolio is no longer appropriate in light of the
variable account's purposes;
6. Deregister the variable account under the Investment Company Act of 1940
if such registration is no longer required;
7. Operate the variable account as a management investment company under
the Investment Company Act of 1940 or as any other form permitted by
law; and
8. Make any changes required by the Investment Company Act of 1940 or any
other law.
We will not make any such changes without receiving any necessary approval of
the Securities and Exchange Commission and applicable state insurance
departments. We will notify you of any changes.
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The Portfolios
The variable account invests in shares of certain portfolios of the Trust. The
Trust is registered with the Securities and Exchange Commission as an open-end
management investment company. Such registration does not involve supervision
of the management or investment practices or policies of the Trust by the
Securities and Exchange Commission.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio operates as
a separate investment fund, and the income or losses of one portfolio generally
have no effect on the investment performance of any other portfolio. Pending
any prior approval by a state insurance regulatory authority, certain
subaccounts and corresponding portfolios may not be available to residents of
some states.
Endeavor Management Co. has overall responsibility for the general management
and administration of the portfolios, and has engaged investment sub-advisers
for each of the Trust's portfolios.
The following table lists each portfolio's investment sub-adviser, and
summarizes each portfolio's investment objective(s) and policies. There is no
assurance that any of the portfolios will achieve its stated objective(s). You
can find more detailed information about the portfolios, including a description
of risks, in the prospectus for the Trust. You should read the Trust's
prospectus carefully.
Portfolio (Sub-Adviser) Investment Objective
- ----------------------- --------------------
Endeavor Asset Allocation . Seeks to provide high total return through a
(Morgan Stanley Asset managed asset allocation portfolio of equity,
Management Inc.) fixed income and money market securities.
Endeavor Money Market . Seeks to provide current income, preservation of
(Morgan Stanley Asset capital and liquidity though investment in short-
Management Inc.) term money market instruments.
T. Rowe Price Equity . Seeks to provide substantial dividend income as
Income (T. Rowe Price well as long-term growth of capital by primarily
Associates, Inc.) investing in the dividend-paying common stocks of
established companies.
T. Rowe Price Growth Stock . Seeks to provide long-term capital growth, and
(T. Rowe Price secondarily, increasing dividend income through
Associates, Inc.) investments in the common stocks of well-
established growth companies.
T. Rowe Price . Seeks to provide long-term growth of capital
International Stock (Rowe through investments primarily in the common
Price-Fleming stocks of established non-U.S. companies.
International, Inc.)
Endeavor Value Equity . Seeks to provide long-term capital growth through
(Opcap Advisors) investment in securities of "large cap" companies
that are believed by the investment adviser to be
undervalued in the marketplace.
Endeavor Opportunity Value . Seeks growth of capital.
(Opcap Advisors)
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Portfolio (Sub-adviser) Investment Objective
- ----------------------- --------------------
Endeavor Enhanced Index . Seeks to earn a total return modestly in excess of
(J.P. Morgan Investment the total return performance of the Standard &
Management Inc.) Poor's 500 Composite Stock Price Index ("S&P 500
Index") (including the reinvestment of dividends)
while maintaining a volatility of return similar
to the S&P 500 Index.
Dreyfus U.s. Government . Seeks to provide as high a level of total return
Securities (The Dreyfus as is consistent with prudent investment
Corporation) strategies by investing under normal conditions at
least 75% of its assets in U.S. government debt
obligations and mortgage-backed securities issued
or guaranteed by the U.S. government, its agencies
or government-sponsored entities.
Dreyfus Small Cap Value . Seeks capital growth by investing in companies
(The Dreyfus Corporation) with a median capitalization of approximately $750
million, with at least 75% of the portfolio's
investments in companies with capitalizations
between $150 million and $1.5 billion.
Endeavor Select 50 . Seeks to provide long-term capital growth by
(Montgomery Asset investing in at least 50 different equity
Management, LLC) securities of companies of all sizes throughout
the world.
Endeavor High Yield . Seeks to provide high current income by investing
(Massachusetts Financial primarily in a professionally managed diversified
Services Company) portfolio of fixed income securities some of which
may involve equity features. Capital growth, if
any, is a consideration incidental to the
objective of high current income.
Endeavor Janus Growth . Seeks long-term growth of capital.
(Janus Capital
Corporation)
In addition to the variable account, the Endeavor Series Trust may sell shares
to other separate investment accounts established by other insurance companies
to support variable annuity contracts and variable life insurance policies or
qualified retirement plans. It is possible that, in the future, it may become
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the portfolios simultaneously. Although
neither PFL nor the Endeavor Series Trust currently foresee any such
disadvantages, either to variable life insurance policy owners or to variable
annuity contract owners, the Endeavor Series Trust's Board of Trustees will
monitor events in order to identify any material conflicts between the interests
of such variable life insurance policy owners and variable annuity contract
owners, and will determine what action, if any, it should take. Such action
could include the sale of fund shares by one or more of the separate accounts,
which could have adverse consequences. Material conflicts could result from, for
example, (1) changes in state insurance laws, (2) changes in Federal income tax
laws, or (3) differences in voting instructions between those given by variable
life insurance policy owners and those given by variable annuity contract
owners.
If the Endeavor Series Trust's Board of Trustees were to conclude that separate
funds should be established for variable life insurance and variable annuity
separate accounts, then variable life insurance policy owners and variable
annuity contract owners would no longer have the economies of scale resulting
from a larger combined fund.
These portfolios are not available for purchase directly by the general public,
and are not the same as other portfolios with very similar or nearly identical
names that are sold directly to the public. However,
14
the investment objectives and policies of certain portfolios available under the
Policy are very similar to the investment objectives and policies of other
portfolios that are or may be managed by the same investment adviser or manager.
Nevertheless, the investment performance and results of the portfolios available
under the Policy may be lower or higher than the investment results of such
other (publicly available) portfolios. There can be no assurance, and we make no
representation, that the investment results of any of the portfolios available
under the Policy will be comparable to the investment results of any other
portfolio, even if the other portfolio has the same investment adviser or
manager, the same investment objectives and policies, and a very similar name.
Please read the Endeavor Series Trust prospectus to obtain more complete
information regarding the portfolios. Keep that prospectus for future
reference.
Your Right to Vote Portfolio Shares
Even though we are the legal owner of the portfolio shares held in the
subaccounts, and have the right to vote on all matters submitted to shareholders
of the portfolios, we will vote our shares only as Policy owners instruct, so
long as such action is required by law.
Before a vote of a portfolio's shareholders occurs, you will receive voting
materials. We will ask you to instruct us on how to vote and to return your
proxy to us in a timely manner. You will have the right to instruct us on the
number of portfolio shares that corresponds to the amount of Cash Value you have
in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some owners, we will vote
those shares in the same proportion as the timely voting instructions we
receive. Should Federal securities laws, regulations and interpretations
change, we may elect to vote portfolio shares in our own right. If required by
state insurance officials, or if permitted under Federal regulation, we may
disregard certain owner voting instructions. If we ever disregard voting
instructions, we will send you a summary in the next annual report to Policy
owners advising you of the action and the reasons we took such action.
The Policy
Purchasing a Policy
To purchase a Policy, you must submit a completed application and an initial
premium to us at our Office. You may also send the application and initial
premium to us through any licensed life insurance agent who is also a registered
representative of a broker-dealer having a selling agreement with AFSG
Securities Corporation, the principal underwriter for the Policy.
We determine the basic death benefit for a Policy based on the age of the
insured when we issue the Policy, the initial premium paid, and other
characteristics of the proposed insured(s) such as age, gender and risk class.
Generally, the Policy is available for insureds between issue ages 30-80 for
standard risk classes, and between issue ages 30-70 for non-standard risk
classes. We use different underwriting standards (simplified underwriting, or
full underwriting) in relation to the Policy. We can provide you with details
as to these underwriting standards when you apply for a Policy. We must receive
evidence of insurability that satisfies our underwriting standards before we
will issue a Policy. We reserve the right: (1) to modify our underwriting
requirements at any time; or (2) to reject an application for any reason
permitted by law. There is no insurance coverage until we complete our
underwriting process and accept the application.
15
When Insurance Coverage Takes Effect
Once we determine that the insured meets our underwriting requirements,
insurance coverage begins, we issue the Policy, and we begin to deduct monthly
charges from your premium. This date is the Policy Date. On the Policy Date, we
will allocate your premium (less charges) to the fixed account. On the
Reallocation Date, we will transfer your Cash Value from the fixed account to
the subaccounts or maintain your Cash Value in the fixed account as you directed
on your application. The Reallocation Date varies by state according to a
state's free look requirement. In states that require a full refund of premium
upon exercise of the free look right, the Reallocation Date is 5 days after the
end of the free look period. In other states, the Reallocation Date is the
Policy Date.
Full insurance coverage under the Policy will take effect only if the proposed
insured is alive and in the same condition of health as described in the
application when we deliver the Policy to you, and if the initial premium is
paid.
Extending the Maturity Date
You may request to extend the Maturity Date for your Policy. You must make your
request in writing and we must receive it at least 90 days, but no more than 180
days, prior to the scheduled Maturity Date. After you extend the Maturity Date,
we will automatically extend your Maturity Date every year unless you direct us
in writing to do otherwise. Interest on any outstanding Policy loan will
continue to accrue during the period for which the Maturity Date is extended.
The Cash Value at the Maturity Date will be equal to the death benefit, less any
indebtedness. If you choose to extend the Maturity Date, the Cash Value will
continue to earn interest and no monthly deductions will be deducted from the
Cash Value.
Ownership Rights
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. The owner is
the insured unless the application specifies a different person as the insured.
If the owner dies before the insured and no contingent owner is named, then
ownership of the Policy will pass to the owner's estate. The owner may exercise
certain rights described below.
Changing the Owner
. You may change the owner by providing a written request to us at any time
while the insured is alive.
. The change takes effect on the date that the written request is signed.
. We are not liable for any actions we take before we receive the written
request.
. Changing the owner does not automatically change the beneficiary or the
insured.
. Changing the owner may have tax consequences.
Selecting and Changing the Beneficiary
. You designate the beneficiary (the person to receive the death benefit
when the insured dies) in the application.
. If you designate more than one beneficiary, then each beneficiary shares
equally in any death benefit proceeds unless the beneficiary designation
states otherwise.
16
. If the beneficiary dies before the insured, then any contingent
beneficiary becomes the beneficiary.
. If both the beneficiary and contingent beneficiary die before the
insured, then we will pay the death benefit to the owner or the owner's
estate once the insured dies.
. You can change the beneficiary by providing us with a written request
while the insured is living.
. The change in beneficiary is effective as of the date you sign the
written request.
. We are not liable for any actions we take before we receive the written
request.
Assigning the Policy
. You may assign Policy rights while the insured is alive.
. The owner retains any ownership rights that are not assigned.
. Assignee may not change the owner or the beneficiary, and may not elect
or change an optional method of payment. We will pay any amount payable
to the assignee in a lump sum.
. Claims under any assignment are subject to proof of interest and the
extent of the assignment.
. If you assign your Policy as collateral for a loan, you should consider
that loans secured by this Policy are treated as distributions and could
be subject to income tax and a 10% penalty if you are under age 59 1/2.
. We are not:
. bound by any assignment unless we receive a written notice of the
assignment;
. responsible for the validity of any assignment; or
. liable for any actions we take before we receive written notice of
the assignment.
. Assigning the Policy may have tax consequences.
Canceling a Policy
You may cancel a Policy during the free-look period by returning it to PFL at
4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499, or to the agent who sold it.
The free-look period generally expires 10 days after you receive the Policy, but
this period will be longer if required by state law. If you decide to cancel
the Policy during the free-look period, we will treat the Policy as if we never
issued it. Within seven calendar days after we receive the returned Policy, we
will refund either (a) an amount equal to the Cash Value plus any charges we
deducted, or (b) where required by state law, we will refund all premiums paid
for the Policy.
Premiums
Premium Payments
Before we issue a Policy, you must pay an initial premium equal to at least
$10,000. Thereafter, you may pay premiums at any time and in any amount of
$5,000 or more. However, because most additional premium payments will increase
the death benefit, we will require additional underwriting for most additional
premium payments. We reserve the right to limit the number and amount of any
premium payments. You make all premium payments to our Office or to one of our
authorized agents.
We have the right to limit or refund any premium, if the premium would
disqualify the Policy as a life insurance contract under the Internal Revenue
Code. Your Policy's schedule page will show the maximum additional premium you
can pay during the first two Policy Years without additional underwriting. If
we return a portion of your premium based on the maximum premium amount, we will
17
not allow you to make additional premium payments until they are allowed by the
maximum premium limitations. We reserve the right to modify our premium
limitations at any time.
You can stop paying premiums at any time and your Policy will continue in force
until the earlier of the maturity date (when the insured reaches age 100), or
the date when either (1) the insured dies, or (2) the grace period ends without
a sufficient payment, or (3) we receive your signed request to surrender the
Policy.
Tax-Free Exchanges (1035 Exchanges). We may accept as part of your initial
premium money from one contract that qualified for a tax-free exchange under
Section 1035 of the Internal Revenue Code, contingent upon receipt of the cash
from that contract. We will accept a Section 1035 exchange of a contract with
an outstanding loan; however, we will not preserve the loan (i.e., you will pay
off the loan and transfer the net policy value). If you contemplate a tax-free
exchange, you should consult a competent tax advisor to discuss the potential
tax effects of such a transaction.
Allocating Premiums
When you apply for a Policy, you must instruct us to allocate your net premium
to one or more subaccounts of the variable account and to the fixed account
according to the following rules:
. You must put at least 1% of each net premium in any subaccount or the
fixed account you select (you can, of course, put nothing in some
subaccounts or the fixed account).
. Allocation percentages must be in whole numbers and the sum of the
percentages must equal 100.
. You can change the allocation instructions for additional premiums
without charge at any time by providing us with written notification (or
any other notification we deem satisfactory).
. Any allocation change will be effective on the date we record the change.
. We reserve the right to limit the number of premium allocation changes;
and to limit the number of subaccount allocations in effect at any one
time.
We will credit interest on your initial net premium from the date we receive
payment and the necessary documents to the Reallocation Date. Interest will be
credited at the current fixed account rate. Interest is guaranteed to equal at
least 3% annually.
Investment returns from amounts allocated to the subaccounts will vary with the
investment experience of these subaccounts and will be reduced by Policy
charges. You bear the entire investment risk for amounts you allocate to the
subaccounts.
On the Policy Date, we will allocate your Cash Value to the fixed account. We
also allocate any net premiums we receive from the Policy Date to the
Reallocation Date to the fixed account. On the Reallocation Date, we will
reallocate the Cash Value in the fixed account to the subaccounts or retain it
in the fixed account in accordance with the allocation percentages provided in
the application. We invest all net premiums paid after the Reallocation Date on
the Valuation Date we receive them. We credit these net premiums to the
subaccounts (as appropriate) at the unit value next determined after we receive
your payment. (Please refer to the Glossary for an explanation of the
Reallocation Date.)
18
Policy Values
Cash Value . serves as the starting point for calculating values under a
Policy;
. equals the sum of all values in the fixed account and in each
subaccount of the variable account;
. is determined on the Policy Date and on each Valuation Date;
and
. has no guaranteed minimum amount and may be more or less than
premiums paid (except for amounts allocated to the fixed
account).
Growth Accelerator
At the end of each month in any Policy year, we will credit your Cash Value with
additional interest at an annual rate of 0.50% if your Policy satisfies the
following requirements at the beginning of the Policy year:
. Cash Value is greater than 200% of the total premiums paid; and
. Cash Value exceeds $50,000.
We will allocate the additional interest to the variable account and the fixed
account on a pro-rata basis. We guarantee to credit the monthly interest
(0.04167% multiplied by the Cash Value at the end of each month); however, the
Policy needs to be requalified to meet the specified requirements on a year-to-
year basis. There is no charge for this benefit.
Cash Surrender Value
The Cash Surrender Value is the amount we pay to you when you surrender your
Policy. We determine the Cash Surrender Value at the end of the Valuation
Period when we receive your written surrender request.
Cash Surrender . the Cash Value as of such date; minus
Value on any . any surrender charge as of such date; minus
Valuation Date . any outstanding Policy loans; minus
equals: . any interest you owe on the Policy loans.
Subaccount Value
Each subaccount's value is the Cash Value in that subaccount. At the end of any
Valuation Period, the subaccount's value is equal to the number of units that
the Policy has in the subaccount, multiplied by the unit value of that
subaccount.
The number of . the initial units purchased at the unit value on the Policy
units in any Date; plus
subaccount on . units purchased with additional net premiums; plus
any Valuation . units purchased via transfers from another subaccount or the
Date equals: fixed account; plus
. units purchased via growth accelerator, if any; minus
. units redeemed to pay for monthly deductions; minus
. units redeemed to pay for partial surrenders; minus
. units redeemed as part of a transfer to another subaccount
or the fixed account.
19
Every time you allocate or transfer money to or from a subaccount, we convert
that dollar amount into units. We determine the number of units we credit to,
or subtract from, your Policy by dividing the dollar amount by the unit value
for that subaccount at the end of the Valuation Period.
Unit Value
We determine a unit value for each subaccount to reflect how investment results
affect the Policy values. Unit values will vary among subaccounts. The unit
value of each subaccount was originally established at $10 per unit. The unit
value may increase or decrease from one Valuation Period to the next.
The unit value of . the total value of the assets held in the subaccount,
any subaccount at determined by multiplying the number of shares of the
the end of a designated portfolio owned by the subaccount times the
Valuation Period portfolio's net asset value per share; minus
is calculated as: . a deduction for the mortality and expense risk charge;
minus
. the accrued amount of reserve for any taxes or other
economic burden resulting from applying tax laws that we
determine to be properly attributable to the subaccount;
and the result divided by
. the number of outstanding units in the subaccount.
Fixed Account Value
On the Policy Date, the fixed account value is equal to the net premiums
allocated to the fixed account, less the portion of the first monthly deduction
taken from the fixed account.
The fixed account . the net premium(s) allocated to the fixed account;
value at the end of plus
any Valuation Period . any amounts transferred to the fixed account; plus
is equal to: . interest credited to the fixed account; plus
. amount credited via growth accelerator, if any; minus
. amounts charged to pay for monthly deductions; minus
. amounts withdrawn from the fixed account; minus
. amounts transferred from the fixed account to a
subaccount.
Charges and Deductions
This section describes the charges and deductions that we make under the Policy
to compensate for: (1) the services and benefits we provide; (2) the costs and
expenses we incur; and (3) the risks we assume.
Services and . the death benefit, cash and loan benefits under the
benefits we Policy
provide: . investment options, including premium allocations
. administration of elective options and the distribution
of reports to owners
20
Costs and . costs associated with processing and underwriting
expenses we incur: applications, issuing and administering the Policy
. overhead and other expenses for providing services and
benefits
. sales and marketing expenses
. other costs of doing business, such as collecting
premiums, maintaining records, processing claims,
effecting transactions, and paying Federal, state and
local premium and other taxes and fees
Risks we assume: . that the cost of insurance charges we may deduct are
insufficient to meet our actual claims because insureds
die sooner than we estimate
. that the costs of providing the services and benefits
under the Policies exceed the charges we deduct
Premium Expense Charge
When you make a premium payment, we deduct a premium expense charge equal to the
premium tax imposed by the state where we issue your Policy. State premium
taxes currently range from 0.50% to 3.50% of each premium payment. After we
deduct any premium expense charge, we apply the remaining amount (the net
premium) to the subaccounts and the fixed account according to your allocation
instructions. The premium expense charge compensates us for state premium
taxes.
Monthly Deduction
We deduct a monthly deduction from the Cash Value on the Policy Date and on each
Monthly Date. We will make deductions from each subaccount and the fixed account
on a pro rata basis (i.e., in the same proportion that the value in each
subaccount and the fixed account bears to the total Cash Value on the Monthly
Date). If the value of any subaccount or the fixed account is insufficient to
pay that subaccount or fixed account's portion of the monthly deduction, we will
take the monthly deduction 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 will also vary.
The monthly deduction has two components:
1. The cost of insurance charge for the Policy; plus
2. The monthly Policy charge, if applicable.
Cost of Insurance. We assess a monthly cost of insurance charge to compensate
us for underwriting the death benefit (i.e., the anticipated cost of paying the
amount of the death benefit that exceeds your Cash Surrender Value upon the
insured's death). The charge depends on a number of variables (age, gender,
risk class) that would cause it to vary from Policy to Policy and from Monthly
Date to Monthly Date.
21
Cost of The cost of insurance charge is equal to:
Insurance
Charge . the cost of insurance rates; multiplied by
. the net amount at risk for your Policy on the Monthly Date.
The net amount at risk is equal to:
. the death benefit at the beginning of the month; divided by
. a "risk rate divisor" (a factor that reduces the net amount
at risk, for purposes of computing the cost of insurance,
by taking into account assumed monthly earnings at an
annual rate of 3%); minus
. the Cash Value at the beginning of the month.
We base the cost of insurance rates on the insured's age, gender, and risk
class. The actual monthly cost of insurance rates are based on our expectations
as to future mortality experience. The rates will never be greater than the
guaranteed amount stated in your Policy. These guaranteed rates are based on
the 1980 Commissioner's Standard Ordinary (C.S.O.) Mortality Tables (smoker/non-
smoker) and the insured's age and rate class. For standard rate classes, these
guaranteed rates will never be greater than the rates in the C.S.O. tables.
When required, we use a unisex table.
Monthly Policy Charge. We assess a monthly Policy charge to compensate us for
administrative expenses such as record keeping, processing death benefit claims
and Policy changes, and overhead costs. The monthly Policy charge includes two
components:
(1) a monthly administrative charge of $2.50 if the Cash Value at the
beginning of a Policy year is less than $50,000; and
(2) a monthly asset based charge equal to an annual rate of 0.55% of the
assets in the variable account. We deduct this charge from the assets
in the variable account during the first 10 Policy years.
Daily Charge
We deduct a daily charge from each subaccount to compensate us for certain
mortality and expense risks we assume. The mortality risk is that an insured
will live for a shorter time than we project. The expense risk is that the
expenses that we incur will exceed the administrative charge limits we set in
the Policy. The daily charge is equal to:
. the assets in each subaccount, multiplied by
. the daily pro rata portion of the annual charge rate of 0.75%.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We expect to profit from this charge. We may use any profits for any lawful
purpose including covering distribution costs.
Surrender Charge
If you fully surrender your Policy during the first 6 Policy years following any
premium payment, we deduct a surrender charge from your Cash Value and pay the
remaining amount (less any outstanding
22
loan amount) to you. The payment you receive is called the Cash Surrender Value.
The surrender charge is equal to 7% of the premium(s) that was paid within 6
years of the surrender.
The surrender charge may be significant. You should carefully calculate this
charge before you request a surrender. Under some circumstances the level of
surrender charges might result in no Cash Surrender Value available if you
surrender your Policy in the first few years after paying a premium.
Partial Surrender Charge
You may request partial surrenders of a portion of the Cash Surrender Value;
however, the entire amount surrendered in the first Policy year is subject to a
surrender charge. After the first Policy year, you may partially surrender
amounts up to your Policy's gain (Cash Value minus premium) free of charge. We
deduct a 7% surrender charge on the portion of any partial surrender that
exceeds the gain and is attributable to a premium paid within 6 Policy years
prior to the partial surrender. For this purpose, we deem any gain to be
withdrawn first, and then the oldest premiums in the order they were paid (i.e.,
first-in-first-out, or "FIFO").
Transfer Charge
. We guarantee that you can make 12 transfers each year free from charge.
We currently allow an unlimited number of free transfers.
. We reserve the right to charge $10 for each transfer in excess of 12
during a Policy Year. We will not increase this charge.
. For purposes of assessing the transfer charge, each written or telephone
request is considered to be one transfer, regardless of the number of
subaccounts (or fixed account) affected by the transfer.
. We deduct the transfer charge from the amount being transferred.
. Transfers we effect on the Reallocation Date, and transfers due to dollar
cost averaging, asset rebalancing, and loans, do not count as transfers
for the purpose of assessing this charge.
Portfolio Expenses
The value of the net assets of each subaccount reflects the investment advisory
fees and other expenses incurred by the corresponding portfolio in which the
subaccount invests. See the Portfolio Annual Expenses Table in this prospectus,
and the portfolios' prospectuses for further information on these fees and
expenses.
Death Benefit
Death Benefit
While the Policy is in force, the death benefit is the greater of:
(1) the Basic Death Benefit; or
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(2) the Guaranteed Minimum Death Benefit ("GMDB").
. Basic Death Benefit: The Basic Death Benefit is the minimum amount that
must be payable at the insured's death, before reduction for any
outstanding loans, for the Policy to be treated as life insurance under the
Internal Revenue Code. We determine the Basic Death Benefit by dividing the
Cash Value by the net single premium. The net single premium is calculated
using guaranteed cost of insurance charges with a 4.5% interest rate. The
Basic Death Benefit will change monthly due to changes in the Cash Value.
The net single premium will change annually.
. Guaranteed Minimum Death Benefit: Until the insured's age 75, the GMDB is
the greater of premiums paid (less partial surrenders) or the highest Cash
Value on a Policy anniversary (adjusted for subsequent partial surrenders).
At age 75, the GMDB remains fixed for the remainder of the Policy. For
Policies issued after age 74, the GMDB will be the premiums paid less
partial surrenders. If you take a partial surrender, the GMDB is reduced on
a "dollar for dollar" basis.
As long as the Policy is in force, we will pay the death benefit proceeds on an
individual Policy once we receive satisfactory proof of the insured's death. We
may require return of the Policy. We will pay the death benefit proceeds to the
primary beneficiary or a contingent beneficiary. If the beneficiary dies before
the insured and there is no contingent beneficiary, we will pay the death
benefit proceeds to the Owner or the Owner's estate. We will pay the death
benefit proceeds in a lump sum or under a payment option. See Payment Options.
Death benefit . the death benefit (described above); minus
proceeds equal: . any past due monthly deductions; minus
. any outstanding Policy loan on the date of death; minus
. any interest you owe on the Policy loan(s).
If all or part of the death benefit proceeds are paid in one sum, we will pay
interest on this sum only if required by applicable state law, from the date we
receive due proof of the insured's death to the date we make payment.
We may further adjust the amount of the death benefit proceeds under certain
circumstances. See Our Right to Contest the Policy; and Misstatement of Age or
Sex.
Payment Options
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. Information
concerning these settlement options is available on request.
Full and Partial Surrenders
Full Surrenders
You may make a written request to surrender your Policy for its Cash Surrender
Value as calculated at the end of the Valuation Date when we receive your
request.
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Full surrender . The insured must be alive and the Policy must be in force
conditions: when you make your written request. A surrender is
effective as of the date when we receive your written
request. We may require that you return the Policy.
. You will incur a surrender charge of 7% of any premium
payments made within 6 years before the surrender. See
Charges and Deductions -- Surrender Charge.
. Once you surrender your Policy, all coverage and other
benefits under it cease.
. We will pay you the Cash Surrender Value in a lump sum
within seven days unless you request other arrangements.
Surrendering the Policy may have adverse tax consequences. See Federal Tax
Considerations - Tax Treatment of Policy Benefits.
Partial Surrenders
You may request a partial surrender of a portion of your Cash Value subject to
certain conditions.
. You must make your partial surrender request to us in writing.
. You must request at least $500.
. You may withdraw up to the Policy's gain (Cash Value minus premiums)
free of charge after the first Policy year.
. At least $5,000 of Cash Surrender Value must remain in the Policy after
the partial surrender.
. We assess a surrender charge equal to 7% of the whole amount surrendered
in the first Policy year.
. We assess a surrender charge equal to 7% of the portion of any partial
surrender after the first Policy year that exceeds the gain and is
attributable to a premium payment made within 6 years before the partial
surrender. See Charges and Deductions -- Partial Surrenders.
. We deduct the surrender charge from the remaining Cash Value.
. You can specify the subaccount(s) and fixed account from which to make
the partial surrender; otherwise we will deduct the amount (including
any partial surrender charge) from the subaccounts and the fixed account
on a pro-rata basis (that is, according to the percentage of Cash Value
contained in each subaccount and the fixed account).
. We will process the partial surrender at the unit values next determined
after we receive your request.
. We generally will pay a partial surrender request within seven days
after the Valuation Date when we receive the request.
Partial surrenders may have adverse tax consequences. See Federal Tax
Considerations - Tax Treatment of Policy Benefits.
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Transfers
You may make transfers from (i.e., out of) the subaccounts or from the fixed
account. We determine the amount you have available for transfers at the end of
the Valuation Period when we receive your transfer request. We may modify or
revoke the transfer privilege at any time. The following features apply to
transfers under the Policy:
. You may make an unlimited number of transfers in a Policy Year.
. You may request transfers in writing (in a form we accept), or by
telephone.
. For transfers out of the variable subaccounts, you must transfer at least
$500, or, if less, the total value in the subaccount.
. For transfers out of the fixed account, you may not transfer more than
25% of the value in the fixed account (not including amounts securing
Policy loans), or $1,000 (whichever is greater). If the balance after the
transfer is less than $1,000, we will transfer the entire amount in the
fixed account. We allow one transfer out of the fixed account every 12
months.
. We may deduct a $10 charge from the amount transferred for the 13th and
each additional transfer in a Policy Year. Transfers we effect on the
Reallocation Date, and transfers resulting from loans, dollar cost
averaging and asset rebalancing are not treated as transfers for the
purpose of the transfer charge.
. We consider each written or telephone request to be a single transfer,
regardless of the number of subaccounts (or fixed account) involved.
. We process transfers based on unit values determined at the end of the
Valuation Date when we receive your transfer request.
Your Policy, as applied for and issued, will automatically receive telephone
transfer privileges unless you provide other instructions. The telephone
transfer privileges allow you to give authority to the registered representative
or agent of record for your Policy to make telephone transfers and to change the
allocation of future payments among the subaccounts and the fixed account on
your behalf according to your instructions. To make a telephone transfer, you
may call 1-800-732-7754.
Please note the following regarding telephone transfers:
. We are not liable for any loss, damage, cost or expense from complying
with telephone instructions we reasonably believe to be authentic. You
bear the risk of any such loss.
. We will employ reasonable procedures to confirm that telephone
instructions are genuine.
. Such procedures may include requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of transactions to you, and/or tape recording telephone
instructions received from you.
. If we do not employ reasonable confirmation procedures, we may be liable
for losses due to unauthorized or fraudulent instructions.
26
The corresponding portfolio of any subaccount determines its net asset value per
each share once daily, as of the close of the regular business session of the
New York Stock Exchange ("NYSE") (usually 4:00 p.m. Eastern time), which
coincides with the end of each Valuation Period. Therefore, we will process any
transfer request we receive after the close of the regular business session of
the NYSE, using the net asset value for each share of the applicable portfolio
determined as of the close of the next regular business session of the NYSE.
Dollar Cost Averaging
When purchasing a Policy, you may place some or all of your initial net premium
in the Dollar Cost Averaging Fixed Account ("DCA Fixed Account"). Dollar cost
averaging is an investment strategy designed to reduce the investment risks
associated with market fluctuations. The strategy spreads the allocation of
your premium into the subaccounts over a period of time. This allows you to
potentially reduce the risk of investing most of your premium into the
subaccounts at a time when prices are high. The success of this strategy is not
assured and depends on market trends. You should carefully consider your
financial ability to continue the program over a long enough period of time to
purchase units when their value is low as well as when it is high.
Money you place in the DCA Fixed Account will earn interest at an annual rate of
at least 3%. We will transfer money out of the DCA Fixed Account in equal
installments over a specified period of 6 months (or other periods available at
issue) and place it in the subaccounts and fixed account according to your
instructions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the DCA Fixed
Account may be adjusted downward, but not below the minimum guaranteed effective
annual interest rate of 3%.
There is no charge for dollar cost averaging. A transfer under this program is
not considered a transfer for purposes of assessing the transfer fee.
Dollar cost averaging . we receive your request to cancel your
will terminate if: participation;
. the value in the DCA Fixed Account is depleted;
. you elect to participate in the asset rebalancing
program; or
. you elect to participate in any asset allocation
services provided by a third party.
We may modify, suspend, or discontinue the dollar cost averaging program at any
time.
Asset Rebalancing Program
We also offer an asset rebalancing program under which we will automatically
transfer amounts periodically to maintain a particular percentage allocation
among the subaccounts. Cash Value allocated to each subaccount will grow or
decline in value at different rates. The asset rebalancing program
automatically reallocates the Cash Value in the subaccounts at the end of each
period to match your Policy's currently effective premium allocation schedule.
The asset rebalancing program will transfer Cash Value from those subaccounts
that have increased in value to those subaccounts that have declined in value
(or not increased as much). Over time, this method of investing may help you
buy low and sell high. The asset rebalancing program does not guarantee gains,
nor does it assure that any subaccount will not have losses. Cash Value in the
fixed account and the DCA Fixed Account are not available for this program.
27
To participate in the . you must complete an asset rebalancing request form
asset rebalancing and submit it to us before the maturity date
program: . you must have a minimum Cash Value of $10,000.
You may elect for asset rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy Date. You may modify your allocations
quarterly. Once we receive the asset rebalancing request form, we will effect
the initial rebalancing of Cash Value on the next such anniversary, in
accordance with the Policy's current premium allocation schedule. We will credit
the amounts transferred at the unit value next determined on the dates the
transfers are made. If a day on which rebalancing would ordinarily occur falls
on a day on which the New York Stock Exchange ("NYSE") is closed, rebalancing
will occur on the next day the NYSE is open. There is no charge for the asset
rebalancing program. Any reallocation which occurs under the asset rebalancing
program will not be counted towards the 12 free transfers allowed during each
Policy Year. You can begin or end this program only once each Policy year. We
may modify, suspend, or discontinue the asset rebalancing program at any time.
Asset rebalancing . you elect to participate in the DCA Fixed Account;
will cease if: . we receive your request to discontinue participation;
. you make a transfer to or from any subaccount other
than under a scheduled rebalancing; or
. you elect to participate in any asset allocation
services provided by a third party
Loans
===============================================================================
While the Policy is in force, you may borrow money from us using the Policy as
the only security for the loan. A loan that is taken from, or secured by, a
Policy may have tax consequences.
Loan conditions:
. You may take a loan against the Policy for amounts from $500 up to 90% of
the Cash Value net of any surrender charge, minus outstanding loans and
any interest you owe.
. To secure the loan, we transfer an amount equal to the loan from the
variable account and fixed account to the loan account, which is a part
of the fixed account. If your loan application does not specify any
allocation instructions, we will transfer the loan from the subaccounts
and the fixed account on a pro-rata basis (that is, according to the
percentage of Cash Value contained in each subaccount and the fixed
account).
. Amounts in the loan account earn interest at the guaranteed minimum rate
of 3% per year, compounded annually. We may credit the loan account with
an interest rate different than the fixed account.
. We normally pay the amount of the loan within seven days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See Payments We Make.
. We currently charge you an interest rate of 4.50% (the guaranteed maximum
is 6%) per year on your loan. Interest is due and payable at the end of
each calendar quarter, or, if earlier, on
28
on the date of any loan increase or repayment. Unpaid interest becomes
part of the outstanding loan and accrues interest accordingly.
. You may repay all or part of your outstanding loans at any time. Loan
repayments must be at least $500, and must be clearly marked as "loan
repayments" or they will be credited as premiums if they meet minimum
premium requirements.
. Upon each loan repayment, we will transfer an amount equal to the loan
repayment from the loan account to the fixed and/or variable account
according to your current premium allocation schedule.
. We deduct any unpaid loans from the Cash Surrender Value and death
benefit proceeds payable on the insured's death.
. If any unpaid loan, including interest you owe, equals or exceeds the
Cash Value, causing the Cash Surrender Value to become zero, then your
Policy will enter a 61-day grace period. See Policy Lapse and
Reinstatement, below.
Effect of Policy Loans
A Policy loan affects the Policy, because we reduce the death benefit proceeds
and Cash Surrender Value under the Policy by the amount of any outstanding loan
plus interest you owe on the loans. Repaying the loan causes the death benefit
proceeds and Cash Surrender Value to increase by the amount of the repayment.
As long as a loan is outstanding, we hold an amount equal to the loan in the
loan account. This amount is not affected by the variable account's investment
performance and may not be credited with the interest rates accruing on the
fixed account. Amounts transferred from the variable account to the loan
account will affect the Cash Value, even if the loan is repaid, because we
credit such amounts with an interest rate we declare rather than a rate of
return reflecting the investment results of the variable account.
There are risks involved in taking a Policy loan, including the potential for a
Policy to lapse if projected earnings, taking into account outstanding loans,
are not achieved. If the Policy is a "modified endowment contract" (see Federal
Tax Considerations, below), then a loan will be treated as a partial surrender
for Federal income tax purposes. A Policy loan may also have possible adverse
tax consequences that could occur if a Policy lapses with loans outstanding.
See Loan Risks.
We will notify you (and any assignee of record) if the sum of your loans plus
any interest you owe on the loans is more than the Cash Surrender Value. If you
do not submit a sufficient payment within 61 days from the date of the notice,
your Policy may lapse.
Policy Lapse and Reinstatement
===============================================================================
Lapse
If you have no outstanding Policy loans, then we guarantee that your Policy will
not lapse, regardless of investment performance. If you do have an outstanding
loan, then certain circumstances will cause your Policy to enter a grace period
during which you must make a sufficient payment to keep your Policy in force:
. If you have an outstanding Policy loan and your Policy's Cash Surrender
Value becomes zero (or negative), then the Policy will enter a 61-day
grace period.
29
If your Policy enters into a grace period, we will mail a notice to your last
known address and to any assignee of record. The 61-day grace period begins on
the date of the notice. The notice will specify the minimum payment required and
the final date by which we must receive the payment to keep the Policy from
lapsing. If we do not receive the specified minimum payment by the end of the
grace period, all coverage under the Policy will terminate and you will receive
no benefits. The payment must be sufficient enough to cause the Cash Surrender
Value to exceed zero, after deducting all due and unpaid monthly deductions and
outstanding loans.
Reinstatement
You may not reinstate your Policy if it lapses unless we issued your Policy in a
state which requires that the Policy include a reinstatement provision. If your
Policy was issued in a state which requires that the Policy include a
reinstatement provision, then you may request a reinstatement of a lapsed Policy
within five years of the date of lapse (and prior to the Maturity Date). To
reinstate a Policy, you must:
. submit a written application for reinstatement;
. provide evidence of insurability satisfactory to us; and
. make a premium payment that is large enough to cover the sum of:
. the monthly deductions not previously paid during the grace period,
plus
. $10,000.
We will not reinstate any outstanding loans (including interest you owe). The
amount in the loan account on the reinstatement date will be zero. Your Cash
Surrender Value on the reinstatement date will equal the premium you pay at
reinstatement minus the sum of:
(1) monthly deductions to cover the grace period;
(2) one additional monthly deduction; and
(3) any surrender charge.
The reinstatement date for your Policy will be the monthly date on or following
the day we approve your application for reinstatement. We may decline a request
for reinstatement.
Federal Tax Considerations
===============================================================================
The following summarizes some of the basic Federal income tax considerations
associated with a Policy and does not purport to be complete or to cover all
situations. This discussion is not intended as tax advice. Please consult
counsel or other qualified tax advisors for more complete information. We base
this discussion on our understanding of the present Federal income tax laws as
they are currently interpreted by the Internal Revenue Service (the "IRS").
Federal income tax laws and the current interpretations by the IRS may change.
Tax Status of the Policy. A Policy must satisfy certain requirements set forth
in the Internal Revenue Code ("Code") 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. The guidance as to how these
requirements are to be generally applied is limited and the manner in which such
requirements should be applied to certain features of the Policy is not directly
addressed by the available legal authorities. Nevertheless, we believe that a
Policy should satisfy the applicable Code requirements. Because of the absence
of pertinent interpretations of the Code requirements, there is, however, some
uncertainty about the application of such requirements to the Policy. If it is
subsequently determined that a Policy does not
30
satisfy the applicable requirements, we may take appropriate steps to bring the
Policy into compliance with such requirements and we reserve the right to
restrict Policy transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the owners of the assets of the
separate account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the contract
owners have been currently taxed on income and gains attributable to the
separate account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility to allocate premiums and Cash
Values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over variable
account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the owner of the variable account assets
supporting the Policy.
In addition, the Code requires that the investments of the variable account be
"adequately diversified" in order to treat the Policy as a life insurance
contract for Federal income tax purposes. We intend that the variable account,
through the portfolios, 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. We believe that the death benefit under a Policy generally should
be excludible from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. You should
consult a tax advisor on these consequences.
Generally, you 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 (e.g., by assignment), then
the tax consequences depend on whether the Policy is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. Under the Code, certain life insurance contracts
are classified as "Modified Endowment Contracts" ("MECs") and receive less
favorable tax treatment than other life insurance contracts. The Policy will
generally be classified as a MEC, although some policies issued in exchange for
life insurance contracts that are not classified as MECs may not be classified
as a MEC. You should consult a tax advisor to determine the circumstances, if
any, under which your Policy would not be classified as a MEC.
Distributions from Modified Endowment Contracts. Policies classified as MECs
are subject to the following tax rules:
. All distributions other than death benefits from a MEC, including
distributions upon surrender and partial surrenders, will be treated
first as distributions of gain taxable as ordinary income and as tax-free
recovery of the owner's investment in the Policy only after all gain has
been distributed.
. Loans taken from such a Policy (or secured by such a Policy, e.g., by
assignment) are treated as distributions and taxed accordingly.
. A 10% additional income tax penalty is imposed on the amount included in
income except where the distribution or loan is made when you have
attained age 59 1/2 or are disabled, or where the distribution is part of
a series of substantially equal periodic payments for your life (or life
expectancy) or the joint lives (or joint life expectancies) of you the
beneficiary.
31
Distributions from Policies that are not Modified Endowment Contracts.
Distributions (other than death benefits) from a Policy that is not a MEC are
generally treated first as a recovery of your investment in the Policy, and as
taxable income after the recovery of all investment in the Policy. 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.
Loans from or secured by a Policy that is not a MEC are generally not treated as
distributions. However, if the difference between the interest rate credited on
an amount in the loan account and the interest rate changed on the policy loan
is negligible, the tax consequences are uncertain. In these circumstances, you
should consult a tax adviser as to such consequences.
Finally, neither distributions from nor loans from (or secured by) a Policy that
is not a MEC are subject to the 10% additional tax.
Investment in the Policy. Your investment in the Policy is generally your
aggregate premium payments. 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.
Deductibility of Policy Loan Interest. In general, interest you pay on a loan
from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
Multiple Policies. All MECs that we issue (or that our affiliates issue) to the
same owner during any calendar year are treated as one MEC for purposes of
determining the amount includible in the owner's income when a taxable
distribution occurs.
Continuing the Policy Beyond Age 100. The tax consequences of continuing the
Policy beyond the 100th birthday of the insured are uncertain. You should
consult a tax advisor as to these consequences.
Business Uses of the Policy. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans, split
dollar insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans and business uses of the Policy may
vary depending on the particular facts and circumstances of each individual
arrangement and business uses of the Policy. Therefore, if you are
contemplating using the Policy in any arrangement the value of which depends in
part on its tax consequences, you should be sure to consult a tax advisor as to
tax attributes of the arrangement. In recent years, 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. While the likelihood of legislative or other changes
is uncertain, there is always a possibility that the tax treatment of the Policy
could change by legislation or otherwise. It is even possible that any
legislative change could be retroactive (effective prior to the date of the
change). Consult a tax advisor with respect to legislative developments and
their effect on the Policy.
Other Policy Information
===============================================================================
Our Right to Contest the Policy
In issuing this Policy, we rely on all statements made by or for you and/or the
insured in the application or in a supplemental application. Therefore, if you
make any material misrepresentation of a fact in the application (or any
supplemental application), then we may contest the Policy's validity or may
resist a claim under the Policy.
32
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after the Policy has been in force during the insured's
lifetime for two years from the Policy Date, or if reinstated, for two years
from the date of reinstatement.
Suicide Exclusion
If the insured commits suicide, while sane or insane, within two years of the
Policy Date, the Policy will terminate and our liability is limited to an amount
equal to the premiums paid, less any loans, and less any partial surrenders
previously paid.
Misstatement of Age or Sex
If the insured's age or sex was stated incorrectly in the application or any
supplemental application, we will adjust the death benefit to the amount that
would have been payable at the correct age and sex based on the most recent
deduction for cost of insurance. If the insured's age has been overstated or
understated, we will calculate future monthly deductions using the cost of
insurance based on the insured's correct age and sex.
Modifying the Policy
Only one of our officers may modify this Policy or waive any of our rights or
requirements under this Policy. Any modification or waiver must be in writing.
No agent may bind us by making any promise not contained in this Policy.
Upon notice to you, we may modify the Policy:
. to conform the Policy, our operations, or the variable account's
operations to the requirements of any law (or regulation issued by a
government agency) to which the Policy, our company or the variable
account is subject; or
. to assure continued qualification of the Policy as a life insurance
contract under the Federal tax laws; or
. to reflect a change in the variable account's operation.
If we modify the Policy, we will make appropriate endorsements to the Policy.
If any provision of the Policy conflicts with the laws of a jurisdiction that
govern the Policy, we reserve the right to amend the provision to conform with
such laws.
Payments We Make
We usually pay the amounts of any surrender, partial surrender, death benefit
proceeds, or settlement options within seven business days after we receive all
applicable written notices and/or due proofs of death. However, we can postpone
such payments if:
. the NYSE is closed, other than customary weekend and holiday closing, or
trading on the NYSE is restricted as determined by the Securities and
Exchange Commission (SEC); or
. the SEC permits, by an order or less formal interpretation (e.g., no-
action letter), the postponement of any payment for the protection of
Owners; or
33
. the SEC determines that an emergency exists that would make the disposal
of securities held in the variable account or the determination of their
value not reasonably practicable.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, partial surrenders, death benefit proceeds, or payments
under a payment option until such check or draft has been honored.
Reports to Owners
Once each calendar quarter, we plan to mail to Owners at their last known
address a report showing the following information as of the end of the report
period:
. the current Cash Value
. the current Cash Surrender Value
. the current death benefit
. any activity (e.g., premiums paid, partial surrenders, deductions, loans
or loan repayments, other transactions) since the last report
. any other information required by law
We may amend these reporting procedures at any time, and/or provide less
frequent reports.
Records
We will maintain all records relating to the variable account and the fixed
account.
Policy Termination
Your Policy will terminate on the earliest of:
. the maturity date (insured's age . the end of the grace period without
100) a sufficient payment
. the date the insured dies . the date you surrender the Policy
Performance Data
===============================================================================
Hypothetical illustrations based on adjusted historic portfolio performance
In order to demonstrate how the actual investment experience of the portfolios
could have affected the death benefit, Cash Value and Cash Surrender Value of
the Policy, we may provide hypothetical illustrations using the actual
investment experience of each portfolio since its inception. These hypothetical
illustrations are designed to show the performance that could have resulted if
the Policy had been in existence during the period illustrated.
The values we illustrate for death benefit, Cash Value and Cash Surrender Value
take into account any charges and deductions from the Policy, the variable
account and the portfolios. We have not deducted
34
DREYFUS SMALL CAP VALUE
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------ ------------------------ -------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
5/31/1993 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1993 121,229 121,071 54,038 53,957 50,538 50,457 N/A
12/31/1994 113,200 112,779 51,955 51,751 48,455 48,251 -2.52%
12/31/1995 122,825 122,034 58,019 57,631 54,519 54,131 13.21%
12/31/1996 146,850 145,456 71,363 70,666 67,863 67,166 24.70%
12/31/1997 175,536 173,272 87,717 86,560 84,217 83,060 24.63%
12/31/1998 163,506 160,780 83,979 82,551 80,479 79,051 -2.91%
* Assuming the policy was purchased on 5/31/1993
DREYFUS US GOVERNMENT SECURITIES
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------ ------------------------ -------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
5/31/1994 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1994 107,991 107,850 48,136 48,064 44,636 44,564 N/A
12/31/1995 118,743 118,301 54,499 54,285 50,999 50,785 14.79%
12/31/1996 115,008 114,267 54,326 53,963 50,826 50,463 1.05%
12/31/1997 119,459 118,325 58,052 57,485 54,552 53,985 8.34%
12/31/1998 122,114 120,540 61,022 60,217 57,522 56,717 6.59%
* Assuming the policy was purchased on 5/31/1994
ENDEAVOR ASSET ALLOCATION
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------ ------------------------ -------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
4/30/1991 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1991 122,698 122,515 54,692 54,601 51,192 51,101 N/A
12/31/1992 127,185 126,686 58,374 58,133 54,874 54,633 8.20%
12/31/1993 141,312 140,369 66,752 66,290 63,252 62,790 15.92%
12/31/1994 127,361 126,118 61,891 61,271 58,391 57,771 -5.99%
12/31/1995 149,029 147,063 74,471 73,467 70,971 69,967 22.01%
12/31/1996 167,208 164,365 85,880 84,392 82,380 80,892 16.95%
12/31/1997 191,384 187,325 101,102 98,957 101,102 98,957 19.26%
12/31/1998 216,643 211,042 117,510 114,471 117,510 114,471 17.52%
* Assuming the policy was purchased on 4/30/1991
ENDEAVOR ENHANCED INDEX
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------ ------------------------ -------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
5/31/1997 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1997 124,550 124,387 55,518 55,435 52,018 51,935 N/A
12/31/1998 155,615 155,037 71,423 71,143 67,923 67,643 30.42%
* Assuming the policy was purchased on 5/31/1997
ENDEAVOR HIGH YIELD
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------ ------------------------ -------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
6/30/1998 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1998 105,385 105,267 46,975 46,913 43,475 43,413 N/A
* Assuming the policy was purchased on 6/30/1998
ENDEAVOR JANUS GROWTH
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------ ------------------------ -------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
30/06/1992 109,800 109,800 48,943 48,934 45,443 45,434 N/A
31/12/1992 119,448 119,315 53,244 53,174 49,744 49,674 N/A
31/12/1993 118,094 117,680 54,202 54,000 50,702 50,500 1.07%
31/12/1994 102,973 102,334 48,639 48,325 45,139 44,825 -9.00%
31/12/1995 144,152 142,821 70,051 69,386 66,551 65,886 46.05%
31/12/1996 161,879 159,839 80,892 79,849 77,392 76,349 17.09%
31/12/1997 181,211 178,249 93,073 91,521 89,573 88,021 16.68%
31/12/1998 285,470 280,035 150,349 147,432 150,349 147,432 63.29%
* Assuming the policy was purchased on 6/30/1992
ENDEAVOR OPPORTUNITY VALUE
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------- ------------------------- -------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
30/11/1996 109,800 109,800 48,943 48,934 45,443 45,434 N/A
31/12/1996 110,259 110,239 49,147 49,129 45,647 45,629 N/A
31/12/1997 122,439 122,140 56,196 56,047 52,696 52,547 15.95%
31/12/1998 104,715 104,190 49,462 49,202 45,962 45,702 -10.77%
* Assuming the policy was purchased on 11/30/1996
ENDEAVOR SELECT 50
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------- ------------------------- --------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
28/02/1998 109,800 109,800 48,943 48,934 45,443 45,434 N/A
31/12/1998 109,481 109,277 48,800 48,700 45,300 45,200 N/A
* Assuming the policy was purchased on 2/28/1998
ENDEAVOR VALUE EQUITY
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------- ------------------------- --------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
31/05/1993 109,800 109,800 48,943 48,934 45,443 45,434 N/A
31/12/1993 111,463 111,318 49,684 49,610 46,184 46,110 N/A
31/12/1994 110,310 109,900 50,629 50,430 47,129 46,930 3.31%
31/12/1995 141,257 140,348 66,726 66,280 63,226 62,780 33.61%
31/12/1996 166,480 164,900 80,902 80,112 77,402 76,612 22.93%
31/12/1997 197,822 195,271 98,854 97,550 95,354 94,050 23.90%
31/12/1998 203,183 199,796 104,406 102,631 100,906 99,131 6.76%
* Assuming the policy was purchased on 5/31/1993
T.ROWE PRICE EQUITY INCOME
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------- ------------------------- --------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
31/01/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
31/12/1995 140,376 140,089 62,573 62,433 59,073 58,933 N/A
31/12/1996 160,038 159,308 73,453 73,102 69,953 69,602 18.99%
31/12/1997 195,312 193,868 92,259 91,555 88,759 88,055 27.34%
31/12/1998 202,224 200,089 98,272 97,208 94,772 93,708 8.00%
* Assuming the policy was purchased on 1/31/1995
T.ROWE PRICE GROWTH STOCK
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------- ------------------------- --------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
31/01/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
31/12/1995 147,592 147,290 65,789 65,642 62,289 62,142 N/A
31/12/1996 169,508 168,735 77,799 77,428 74,299 73,928 19.87%
31/12/1997 207,347 205,814 97,944 97,197 94,444 93,697 27.63%
31/12/1998 253,905 251,225 123,387 122,051 119,887 118,551 27.73%
* Assuming the policy was purchased on 1/31/1995
T.ROWE PRICE INTERNATIONAL STOCK
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
Death Benefit Cash Value Cash Surrender Value Adjusted Historical
------------------------- ------------------------- --------------------------
Current Guaranteed Current Guaranteed Current Guaranteed Annual Total Return
------- ---------- ------- ---------- ------- ---------- -------------------
30/04/1991 109,800 109,800 48,943 48,934 45,443 45,434 N/A
31/12/1991 113,520 113,351 50,601 50,516 47,101 47,016 N/A
31/12/1992 103,993 103,584 47,727 47,530 44,227 44,030 -4.33%
31/12/1993 117,195 116,412 55,359 54,976 51,859 51,476 17.61%
31/12/1994 105,192 104,165 51,118 50,606 47,618 47,106 -6.38%
31/12/1995 110,517 109,059 55,226 54,481 51,726 50,981 9.55%
31/12/1996 121,276 119,214 62,289 61,209 58,789 57,709 14.38%
31/12/1997 118,547 116,032 62,624 61,296 62,624 61,296 1.85%
31/12/1998 130,429 127,056 70,746 68,916 70,746 68,916 14.59%
* Assuming the policy was purchased on 4/30/1991
any charges for premium taxes. These charges could be substantial and would
lower the performance figures significantly if reflected.
Each of the following hypothetical illustrations is based on the historical
investment performance of the portfolios. Each illustration assumes that the
entire premium of $50,000 is allocated to the particular subaccount, and that
there are no transfers, no loans, and no partial surrenders. The values would be
different for an insured of a different sex, age, or risk class. The annual
total return figures are the total returns of the portfolio for each year, less
the 0.75% daily charge deducted from the variable account.
Additional Information
Sale of the Policies
The Policy will be sold by individuals who are licensed as our life insurance
agents and who are also registered representatives of broker-dealers having
written sales agreements for the Policy with AFSG Securities Corporation (AFSG),
the principal underwriter of the Policy. AFSG is located at 4425 North River
Blvd. NE, Cedar Rapids, Iowa 52402, is registered with the SEC under the
Securities Exchange Act of 1934 as a broker-dealer, and is a member of the
National Association of Securities Dealers, Inc. The maximum sales commission
payable to PFL agents or other registered representatives will be approximately
7% of the initial premium. In addition, certain production, persistency and
managerial bonuses may be paid.
Legal Matters
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to the Policy under the Federal securities laws.
Frank A. Camp, Vice President and Division General Counsel, PFL Life Insurance
Company, has passed upon all matters of Iowa law pertaining to the Policy.
Legal Proceedings
Like other life insurance companies, we are involved in lawsuits. We are not
aware of any class action lawsuits naming us as a defendant or involving the
variable account. In some lawsuits involving other insurers, substantial damages
have been sought and/or material settlement payments have been made. We believe
that there are no pending or threatened lawsuits that will adversely impact us
or the variable account.
Year 2000 Matters
We have in place a Year 2000 Project Plan (the "Plan") to review and analyze
existing hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compliant. As of the date of this
prospectus, all of our mission-critical systems are Year 2000 compliant and
ready. The Plan is continuing as scheduled, as we continue with the validation
of our mission-critical and non-mission-critical systems, including revalidation
testing in 1999. In addition, PFL has undertaken aggressive initiatives to test
all systems that interface with any third parties and other business partners.
All of these steps are aimed at allowing current operations to remain unaffected
by the Year 2000 date change.
As of the date of this prospectus, we have identified and made available what we
believe are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
40
Our actions under the Plan are intended to significantly reduce PFL's risk of a
material business interruption based on the Year 2000 issues. Resolving the Year
2000 computer problem is complex and multifaceted. We cannot know conclusively
whether a response plan is successful until the Year 2000 arrives (or an earlier
date if the systems or equipment address Year 2000 data prior to the Year 2000).
In spite of its efforts or results, PFL's ability to function unaffected to and
through the Year 2000 may be adversely affected by actions, or failure to act,
of third parties beyond our knowledge or control. See the portfolios'
prospectuses for information on their preparation for Year 2000.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. Section 1
(1998).
Financial Statements
This prospectus does not include financial statements of the variable account
because, as of the date of this prospectus, the variable account had not yet
commenced operations, had no assets, and had incurred no liabilities. PFL's
financial statements appear in Appendix ___. PFL's financial statements should
be distinguished from the variable account's financial statements and you should
consider our financial statements only as bearing upon our ability to meet our
obligations under the Policies.
Additional Information about PFL Life Insurance Company
PFL is a stock life insurance company that is a wholly owned indirect subsidiary
of AEGON USA, Inc. AEGON USA, Inc. is a wholly owned indirect subsidiary of
AEGON nv, a Netherlands corporation that is a publicly traded international
insurance group. PFL's home office is located at 4333 Edgewood Road NE, Cedar
Rapids, Iowa 52499.
PFL was incorporated in 1961 under Iowa law and is subject to regulation by the
Iowa Commissioner of Insurance. PFL is engaged in the business of issuing life
insurance policies and annuity contracts, and is licensed to do business in the
District of Columbia, Guam and all states except New York. PFL submits annual
statements on its operations and finances to insurance officials in all states
and jurisdictions in which it does business. PFL has filed the Policy described
in this prospectus with insurance officials in those jurisdictions in which the
Policy is sold.
PFL intends to reinsure a portion of the risks assumed under the Policies.
PFL's Executive Officers and Directors
PFL is governed by a board of directors. The following table sets forth the name
and principal occupation during the past five years of each of PFL's directors
and senior officers. Each person is located at PFL Life Insurance Company, 4333
Edgewood Road, NE, Cedar Rapids, IA 52449.
Board of Directors and Senior Officers
- --------------------------------------------------------------------------------------------------------------
Name Position with PFL Principal Occupation During Past 5 years
- --------------------------------------------------------------------------------------------------------------
William L. Busler Director, Chairman of the Director, Chairman of the Board, and President
Board, and President
- --------------------------------------------------------------------------------------------------------------
Larry N. Norman Director, Executive Vice Director, Executive Vice President
President
- --------------------------------------------------------------------------------------------------------------
Patrick S. Baird Director, Senior Vice Executive Vice President (1995-present), Chief
President, and Chief Operating Officer (1996-present), Chief Financial
Operating Officer Officer (1992-1995), Vice President and Chief Tax
Officer (1984-1995) of AEGON USA.
- --------------------------------------------------------------------------------------------------------------
41
- ---------------------------------------------------------------------------------------------------------------------
Name Positions with PFL Principal Occupation During Past 5 years
- ---------------------------------------------------------------------------------------------------------------------
Douglas C. Kolsrud Director, Senior Vice Director, Senior Vice President, Chief Investment
President, Chief Investment Officer and Corporate Actuary
Officer and Corporate
Actuary
- ---------------------------------------------------------------------------------------------------------------------
Craig D. Vermie Director, Vice President, Director, Vice President, Secretary and General Counsel
Secretary and General
Counsel
- ---------------------------------------------------------------------------------------------------------------------
Robert J. Kontz Vice President and Vice President and Corporate Controller
Corporate Controller
- ---------------------------------------------------------------------------------------------------------------------
Brenda K. Clancy Vice President, Treasurer Vice President, Treasurer and Chief Financial Officer
and Chief Financial Officer
- ---------------------------------------------------------------------------------------------------------------------
PFL holds the assets of the variable account physically segregated and apart
from the general account. PFL maintains records of all purchases and sale of
portfolio shares by each of the subaccounts. A blanket bond in the amount of $10
million (subject to a $1 million deductible), covering directors, officers and
all employees of AEGON USA, Inc. and its affiliates has been issued to PFL and
its affiliates. A Stockbrokers Blanket Bond, issued to AEGON USA providing
fidelity coverage, covers the activities of registered representatives of AFSG
to a limit of $10 million (subject to a $50,000 deductible).
Illustrations
The following illustrations show how certain values under a sample Policy would
change with different rates of fictional investment performance over an extended
period of time. In particular, the illustrations show how the death benefit,
Cash Value, and Cash Surrender Value under a Policy covering a male insured of
age 55 on the Policy Date, would change over time if the planned premiums were
paid and the return on the assets in the subaccounts were a uniform gross annual
rate (before any expenses) of 0%, 6% or 12%. The tables also show how the Policy
would operate if premiums accumulated at 5% interest. The tables illustrate
Policy values that would result based on assumptions that you pay the premiums
indicated, you do not increase your principal sum, and you do not make any
partial surrenders or Policy loans. The values under the Policy will be
different from those shown even if the returns averaged 0%, 6% or 12%, but
fluctuated over and under those averages throughout the years shown.
The hypothetical investment returns are provided only to illustrate the
mechanics of a hypothetical Policy and do not represent past or future
investment rates of return. Actual rates of return for a particular Policy may
be more or less than the hypothetical investment rates of return. The actual
return on your Cash Value will depend on factors such as the amounts you
allocate to particular portfolios, the amounts deducted for the Policy's monthly
charges, the portfolios' expense ratios, your Policy loan and partial surrender
history, and rates of inflation.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of ____% of the average daily net assets. This annual
expense ratio is based on the average of the expense ratios of each of the
portfolios for the last fiscal year and takes into account current expense
reimbursement arrangements. For information on portfolio expenses, see the
Portfolio Expense Table in this prospectus, and see the portfolios'
prospectuses.
42
Separate illustrations on each of the following pages reflect our current cost
of insurance charges and the higher guaranteed maximum cost of insurance that we
have has the contractual right to charge. The illustrations assume no charges
for Federal or state taxes or charges for supplemental benefits. However, these
illustrations assume a premium tax charge of 2%; actual premium tax charges
could be higher or lower, depending on the state of issue.
After deducting portfolio expenses, the illustrated gross annual investment
rates of return of 0%, 6% and 12% would correspond to approximate net annual
rates for the variable account of _____%, ____%, and _____%, respectively.
The illustrations are based on PFL's sex distinct rates for non-tobacco users.
Upon request, we will furnish a comparable illustration based upon the proposed
insured's individual circumstances. Such illustrations may assume different
hypothetical rates of return than those illustrated in the following
illustrations.
43
PFL FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 55
SPECIFIED AMOUNT: $109,800 INITIAL PREMIUM: $50,000
USING CURRENT PRACTICE CHARGES FOR NON-TOBACCO USERS, APPROVED PREFERRED CLASS
End of Premiums
Policy Accumulated DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
Year at 5% --------------------------- --------------------------------- ----------------------------------
Assuming Hypothetical Gross and Net Annual Investment Return of
Gross 0% 6% 12% 0% 6% 12% 0% 6% 12%
Net -1.69% 4.31% 10.31% -1.69% 4.31% 10.31% -1.69% 4.31% 10.31%
1 52,500 107,647 113,600 119,523 47,953 50,853 53,752 44,453 47,353 50,252
2 55,125 102,302 114,550 127,395 46,922 52,799 58,993 43,422 49,299 55,493
3 57,881 97,248 115,550 135,833 45,906 54,815 64,736 42,406 51,315 61,236
4 60,775 92,475 116,595 144,878 44,908 56,902 71,033 41,408 53,402 67,533
5 63,814 87,960 117,689 154,576 43,925 59,062 77,932 40,425 55,562 74,432
6 67,005 83,699 118,837 164,980 42,960 61,297 85,493 39,460 57,797 81,993
7 70,355 79,670 120,041 176,154 42,008 63,610 93,776 42,008 63,610 93,776
8 73,873 75,868 121,309 188,161 41,075 66,002 102,849 41,075 66,002 102,849
9 77,566 72,277 122,645 201,077 40,153 68,474 112,830 40,153 68,474 112,830
10 81,445 68,891 124,058 214,987 39,248 71,030 123,713 39,248 71,030 123,713
11 85,517 66,030 126,194 231,152 38,571 74,082 136,383 38,571 74,082 136,383
12 89,793 63,352 128,497 248,790 37,902 77,259 150,341 37,902 77,259 150,341
13 94,282 60,820 130,920 267,931 37,245 80,571 165,724 37,245 80,571 165,724
14 98,997 58,419 133,469 288,716 36,596 84,026 182,682 36,596 84,026 182,682
15 103,946 56,151 136,149 311,304 35,962 87,632 201,381 35,962 87,632 201,381
16 109,144 53,964 138,875 335,638 35,310 91,324 221,829 35,310 91,324 221,829
17 114,601 51,856 141,637 361,829 34,643 95,094 244,156 34,643 95,094 244,156
18 120,331 50,000 144,434 390,008 33,956 98,931 268,487 33,956 98,931 268,487
19 126,348 50,000 147,267 420,327 33,200 102,821 294,953 33,200 102,821 294,953
20 132,665 50,000 150,133 452,937 32,353 106,798 323,690 32,353 106,798 323,690
21 139,298 50,000 153,029 487,992 31,394 110,765 354,854 31,394 110,765 354,854
22 146,263 50,000 155,944 525,639 30,304 114,760 388,611 30,304 114,760 388,611
23 153,576 50,000 158,871 566,029 29,055 118,778 425,144 29,055 118,778 425,144
24 161,255 50,000 161,795 609,309 27,614 122,813 464,650 27,614 122,813 464,650
25 169,318 50,000 164,703 655,619 25,941 126,859 507,315 25,941 126,859 507,315
26 177,784 50,000 167,624 705,284 23,998 130,935 553,466 23,998 130,935 553,466
27 186,673 50,000 170,555 758,529 21,719 135,028 603,307 21,719 135,028 603,307
28 196,006 50,000 173,492 815,577 19,009 139,119 657,024 19,009 139,119 657,024
29 205,807 50,000 176,432 876,682 15,749 143,191 714,808 15,749 143,191 714,808
30 216,097 50,000 179,375 942,116 11,787 147,233 776,881 11,787 147,233 776,881
Note:
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 cash 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 years, but fluctuated above or below that average for individual policy
years. No presentation can be made by PFL or the fund that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration must be preceded or accompanied by a
current prospectus.
PFL FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 55
SPECIFIED AMOUNT: $109,800 INITIAL PREMIUM: $50,000
USING GUARANTEED CHARGES FOR NON-TOBACCO USERS, APPROVED PREFERRED CLASS
End of Premiums
Policy Accumulated DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
Year at 5% -------- -------- ------- -------- ------- --------- -------- ----- --------
Assuming Hypothetical Gross and Net Annual Investment Return of
Gross 0% 6% 12% 0% 6% 12% 0% 6% 12%
Net -1.69% 4.31% 10.31% -1.69% 4.31% 10.31% -1.69% 4.31% 10.31%
1 52,500 107,427 113,367 119,278 47,846 50,739 53,632 44,346 47,239 50,132
2 55,125 101,835 114,027 126,814 46,697 52,547 58,711 43,197 49,047 55,211
3 57,881 96,529 114,696 134,829 45,555 54,397 64,242 42,055 50,897 60,742
4 60,775 91,498 115,364 143,349 44,421 56,286 70,264 40,921 52,786 66,764
5 63,814 86,720 116,033 152,399 43,292 58,213 76,812 39,792 54,713 73,312
6 67,005 82,191 116,700 162,013 42,171 60,175 83,927 38,671 56,675 80,427
7 70,355 77,890 117,365 172,226 41,054 62,169 91,651 41,054 62,169 91,651
8 73,873 73,811 118,027 183,070 39,944 64,190 100,025 39,944 64,190 100,025
9 77,566 69,936 118,684 194,583 38,835 66,232 109,137 38,835 66,232 109,137
10 81,445 66,262 119,338 206,808 37,732 68,293 118,947 37,732 68,293 118,947
11 85,517 63,094 120,600 220,907 36,836 70,759 130,266 36,836 70,759 130,266
12 89,793 60,101 121,926 236,067 35,935 73,264 142,567 35,935 73,264 142,567
13 94,282 57,248 123,261 252,257 35,034 75,808 155,927 35,034 75,808 155,927
14 98,997 54,524 124,606 269,545 34,132 78,391 170,431 34,132 78,391 170,431
15 103,946 51,929 125,956 287,997 33,232 81,009 186,161 33,232 81,009 186,161
16 109,144 50,000 127,308 307,683 32,326 83,653 203,198 32,326 83,653 203,198
17 114,601 50,000 128,660 328,677 31,330 86,315 221,617 31,330 86,315 221,617
18 120,331 50,000 130,008 351,053 30,212 88,982 241,486 30,212 88,982 241,486
19 126,348 50,000 131,352 374,905 28,945 91,640 262,878 28,945 91,640 262,878
20 132,665 50,000 132,695 400,329 27,499 94,282 285,877 27,499 94,282 285,877
21 139,298 50,000 134,040 427,439 25,837 96,907 310,589 25,837 96,907 310,589
22 146,263 50,000 135,387 456,347 23,921 99,517 337,134 23,921 99,517 337,134
23 153,576 50,000 136,739 487,176 21,700 102,114 365,654 21,700 102,114 365,654
24 161,255 50,000 138,092 520,046 19,111 104,748 396,303 19,111 104,748 396,303
25 169,318 50,000 139,443 555,071 16,073 107,331 429,223 16,073 107,331 429,223
26 177,784 50,000 140,786 592,364 12,469 109,898 464,543 12,469 109,898 464,543
27 186,673 50,000 142,115 632,045 8,141 112,437 502,373 8,141 112,437 502,373
28 196,006 50,000 143,425 674,234 2,875 114,934 542,802 2,875 114,934 542,802
29 205,807 50,000 144,714 719,080 * 117,373 585,923 * 117,373 585,923
30 216,097 50,000 145,986 766,751 * 119,749 631,863 * 119,749 631,863
Note:
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 cash 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 years, but fluctuated above or below that average for individual policy
years. No presentation can be made by PFL or the fund that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration must be preceded or accompanied by a
current prospectus.
* The policy has no cash value, however, the policy will stay in force with a
death benefit if the policy does not have loan outstanding.
PART II.
OTHER INFORMATION
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.
REPRESENTATION PURSUANT TO SECTION 26(E) (2) (A)
PFL Life Insurance Company ("PFL Life") hereby represents that the fees and
charges deducted under the Contracts, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life.
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.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 51 pages
The undertaking to file reports
Representation Pursuant to Section 26(e) (2) (A)
The statement with respect to indemnification
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Richard R. Greer, Actuary
(b) Frank A. Camp, Esq.
(c) Sutherland Asbill & Brennan LLP
(d) Ernst & Young LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to the
instructions as to exhibits in Form N-8B-2:
A. (1) Resolutions of the Board of Directors of PFL Life establishing
the Separate Account (6)
(2) Not Applicable
(3) Distribution of Policies:
(a) Form of Principal Underwriting Agreement (4)
(b) Form of Broker-Dealer Supervision and Sales Agreement by and
between AFSG Securities Corporation and the Broker-Dealer
(4)
(4) Not Applicable
(5) Specimen Flexible Premium Variable Life Insurance Policy (10)
(6) (a) Certificate of Incorporation of PFL Life (2)
(b) By-Laws of PFL Life (2)
(7) Not Applicable
(8) Participation Agreements:
(a) Among MFS Variable Insurance Trust and PFL Life and
Massachusetts Financial Services Company (6)
(b) Among AIM Variable Insurance Funds, Inc., PFL Life and AFSG
Securities Corporation (4)
(c) Among PFL Life and Dreyfus Variable Investment Fund (7)
(d) Amendment to Participation Agreement Among PFL Life and
Dreyfus Variable Investment Fund (6)
(e) Amendment to Participation Agreement Among Oppenheimer
Variable Account Funds, OppenheimerFunds, Inc. and PFL Life
(6)
(f) Among Oppenheimer Variable Account Funds, OppenheimerFunds,
Inc. and PFL Life (4)
(g) Among WRL Series Fund, Inc. and PFL Life and AUSA Life
Insurance Company, Inc. and amendments thereto (3)
(h) Among Variable Insurance Product Funds and Variable Insurance
Products Fund II, Fidelity Distributors Corporation, and PFL
Life, and amendments thereto (5)
(i) Amendments dated November 27, 1998 to Participation
Agreements:
(i) Among MFS Variable Insurance Trust, Massachusetts
Financial Services Company and PFL Life (8)
(ii) Among PFL Life and Dreyfus Variable Investment Fund (8)
(iii) Among Oppenheimer Variable Account Funds,
OppenheimerFunds, Inc. and PFL Life (8)
(iv) Among AIM Variable Insurance Funds, Inc., AIM
Distributors, Inc., PFL Life and AFSG Securities
Corporation (8)
(v) Among WRL Series Fund, Inc., PFL Life and AUSA Life
Insurance Company, Inc. (8)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance Policy
(9)
(11) Memorandum describing issuance, transfer and redemption
procedures (9)
2. See Exhibit 1.A.
3. Opinion of Counsel as to the legality of the securities being registered (9)
4. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I
5. Not Applicable
6. Opinion and consent of Richard R. Greer as to actuarial matters pertaining
to the securities being registered (9)
7. Consent of Frank A. Camp, Esq. (9)
8. Consent of Sutherland Asbill & Brennan LLP (9)
9. Consent of Ernst & Young LLP (9)
10. Powers of Attorney (10)
__________________
(1) This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File No. 33-92226) filed on July 10,
1998 and hereby is incorporated by reference.
(2) This exhibit was previously filed on Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-3 (File No. 333-36297) filed on February
27, 1998 and is hereby incorporated by reference.
(3) This exhibit was previously filed on Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File No. 333-26209) filed on April 29,
1998 and is hereby incorporated by reference.
(4) This exhibit was previously filed on Post-Effective Amendment No. 4 to the
Registration Statement on Form N-4 (File 333-07509) filed on April 30, 1998
and is hereby incorporated by reference.
(5) This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File 333-07509) filed on December 6,
1996 and is hereby incorporated by reference.
(6) This exhibit was previously filed on the Initial Registration Statement on
Form S-6 (File 333-68087) filed on November 30, 1998 and is hereby
incorporated by reference.
(7) This exhibit was previously filed on the Initial Registration Statement on
Form N-4 (File 333-26209) filed on April 30, 1997 and is hereby
incorporated by reference.
(8) This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File 333-68087) filed June 8, 1999 and
is incorporated by reference.
(9) To be filed by amendment.
(10) Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Legacy Builder Variable Life Separate 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, Iowa on the 27th day of August, 1999.
(Seal) LEGACY BUILDER VARIABLE LIFE
SEPARATE ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ WILLIAM L. BUSLER
---------------------
William L. Busler, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
TITLE DATE
-------------------- ---------------
/s/ PATRICK S. BAIRD Director August 27, 1999
- ------------------------
Patrick S. Baird
/s/ CRAIG D. VERMIE Director August 27, 1999
- ------------------------
Craig D. Vermie
/s/ WILLIAM L. BUSLER Director August 27, 1999
- ------------------------ (Principal Executive
William L. Busler Officer)
/s/ LARRY N. NORMAN Director August 27, 1999
- ------------------------
Larry N. Norman
/s/ DOUGLAS C. KOLSRUD Director August 27, 1999
- ------------------------
Douglas C. Kolsrud
/s/ ROBERT J. KONTZ Corporate Controller August 27, 1999
- ------------------------
Robert J. Kontz*
/s/ BRENDA K. CLANCY Treasurer August 27, 1999
- ------------------------
Brenda K. Clancy
* Principal Accounting Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
1.A.(5) Specimen Flexible Variable Life Insurance Policy
10 Powers of Attorney