As filed with the Securities and Exchange Commission on November 30, 1998
Registration File Nos. ________/811-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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LEGACY BUILDER VARIABLE LIFE SEPARATE ACCOUNT
---------------------------------------------
(Exact Name of Trust)
PFL LIFE INSURANCE COMPANY
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(Name of Depositor)
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
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(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
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(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
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Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant hereby elects to register an indefinite amount of securities being
offered.
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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.
Company
LOGO
P R O S P E C T U S
MAY 1, 1999
LEGACY BUILDER II(SM)
issued by
PFL Life Insurance Company
A MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE OF THIS PROSPECTUS.
An investment in this Policy is not a
bank deposit. The Policy is not insured
or guaranteed by the Federal Deposit
Insurance Corporation or any other
THE SECURITIES AND EXCHANGE government agency.
COMMISSION HAS NOT APPROVED
OR DISAPPROVED THESE SECURITIES A prospectus for the Portfolios of the
OR PASSED UPON THE ADEQUACY
OF THIS PROSPECTUS. ANY [ ] AIM Variable Insurance Fund
REPRESENTATION TO THE CONTRARY [ ] MFS Variable Insurance Trust
IS A CRIMINAL OFFENSE. [ ] Dreyfus Stock Index Fund
[ ] Dreyfus Variable Investment Fund
[ ] Oppenheimer Variable Account Funds and
[ ] WRL Series Fund, Inc.
must accompany this prospectus. Please
read these documents before investing and
save them for future reference.
TABLE OF CONTENTS
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Glossary .............................................................. 1
Policy Summary ........................................................ 4
Risk Summary .......................................................... 10
Portfolio Annual Expense Table ........................................ 13
PFL and the Fixed Account ............................................. 14
PFL Life Insurance Company ........................................ 14
The Fixed Account Options ......................................... 14
The Standard Fixed Account .................................... 14
The Fixed Dollar Cost Averaging ("Fixed DCA") Account ......... 14
The Separate Account and the Portfolios ............................... 15
The Separate Account .............................................. 15
The Portfolios .................................................... 16
Addition, Deletion, or Substitution of Investments ................ 19
Your Right to Vote Portfolio Shares ............................... 19
The Policy ............................................................ 20
Purchasing a Policy ............................................... 20
When Insurance Coverage Takes Effect .............................. 20
Ownership Rights .................................................. 22
Changing the Owner ................................................ 22
Choosing the Beneficiary .......................................... 22
Changing the Beneficiary .......................................... 22
Assigning the Policy .............................................. 23
Canceling a Policy ................................................ 23
Premiums .............................................................. 23
Initial Premium ................................................... 23
Additional Premiums ............................................... 24
Allocating Premiums ............................................... 24
Policy Values ......................................................... 26
Cash Value ........................................................ 26
Net Surrender Value ............................................... 26
Subaccount Value .................................................. 26
Unit Value ........................................................ 27
Fixed Account Value ............................................... 27
Transfers ............................................................. 28
General ........................................................... 28
Standard Dollar Cost Averaging .................................... 29
Asset Rebalancing Program ......................................... 29
Standard Fixed Account Transfers .................................. 30
Charges and Deductions ................................................ 31
Premium Deductions ................................................ 31
Daily Charge ...................................................... 31
Monthly Deduction ................................................. 31
Cost of Insurance Charge ...................................... 33
Surrender Charge .................................................. 33
Transfer Charge ................................................... 34
i
Portfolio Expenses ......................................................... 34
Guaranteed Minimum Death Benefit Rider Charge .............................. 34
Death Benefit .................................................................. 34
Death Benefit Proceeds ..................................................... 34
Death Benefit .............................................................. 35
Effects of Partial Withdrawals on the Death Benefit ........................ 35
Guaranteed Minimum Death Benefit Rider ..................................... 36
Changing the Specified Amount .............................................. 36
Payment Options ............................................................ 36
Surrenders and Partial Withdrawals ............................................. 36
Surrenders ................................................................. 36
Partial Withdrawals ........................................................ 37
Loans .......................................................................... 38
General .................................................................... 38
Interest Rate Charged ...................................................... 38
Loan Reserve Interest Rate Credited ........................................ 39
Preferred Loans ............................................................ 39
Effect of Policy Loans ..................................................... 39
Policy Lapse ................................................................... 40
Lapse ...................................................................... 40
Federal Income Tax Considerations .............................................. 40
Tax Treatment of Policy Benefits ........................................... 41
Other Policy Information ....................................................... 43
Our Right to Contest the Policy ............................................ 43
Suicide Exclusion .......................................................... 43
Misstatement of Age or Gender .............................................. 43
Modifying the Policy ....................................................... 43
Payments We Make ........................................................... 44
Reports to Owners .......................................................... 44
Records .................................................................... 45
Policy Termination ......................................................... 45
Supplemental Benefits (Riders) ............................................. 45
Extended Maturity Date ................................................. 45
Accelerated Death Benefit .............................................. 45
Guaranteed Minimum Death Benefit ....................................... 45
Performance Data ............................................................... 46
Hypothetical illustrations based on adjusted historic Portfolio performance 46
Additional Information ......................................................... 53
Sale of the Policies ....................................................... 53
Legal Matters .............................................................. 53
Legal Proceedings .......................................................... 53
Year 2000 Matters .......................................................... 53
Financial Statements ....................................................... 55
Additional Information about PFL Life Insurance Company .................... 55
PFL's Executive Officers and Directors ..................................... 56
Additional Information about the Separate Account .......................... 57
Illustrations .................................................................. 57
Index to Financial Statements .................................................. 59
PFL Life Insurance Company ................................................. 59
ii
GLOSSARY
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age The age of the person insured on his or her last birthday before the Policy
Date, plus the number of completed years since the Policy Date.
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beneficiary(ies) The person or persons you select to receive the death benefit from this policy.
You name primary beneficiary and any contingent beneficiaries.
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Cash Value The sum of your Policy's value in the subaccounts and the fixed account. If
there is a Policy loan outstanding, the Cash Value includes any amounts held
in the company's general account to secure the Policy loan.
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company (we, PFL Life Insurance Company ("PFL").
us, our)
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daily charge The amount we deduct each Valuation Date from assets in the subaccounts as
part of the calculation of the unit value for each subaccount.
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death benefit The amount we will pay to the beneficiary on the Insured's death. We will
proceeds reduce the death benefit proceeds by the amount of any outstanding loan
amount (including any interest you owe on the Policy loan(s)), and plus any
due and unpaid monthly deduction.
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fixed account A set of options to which you may allocate premiums and Cash Value. We
options guarantee that any amounts you allocate to the fixed account options will earn
interest at a declared rate. The fixed account options are the standard fixed
account and the Fixed Dollar Cost Averaging Account ("Fixed DCA Ac-
count").
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free look period The period during which you may return the Policy and receive a refund as
described in this prospectus. The length of the free look period varies by
state. The free look period is listed in the Policy.
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Funds Investment companies registered with the U.S. Securities and Exchange
Commission. The Policy allows you to invest in the Portfolios of the Funds
through our subaccounts.
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in force While coverage under the Policy is active and the Insured's life remains
insured.
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initial premium The amount you must pay before insurance coverage begins under this Policy.
The initial premium is shown on the schedule page of your Policy.
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Insured(s) The person or persons whose lives are insured by this Policy. Joint Insureds
must be spouses.
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Joint and Last A Policy that pays the death benefit to the beneficiary on the death of the
last-to-die of the two named Insureds.
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Survivor
Policy
1
lapse When life insurance coverage ends because you do not have enough Cash
Value in the Policy to pay the monthly deduction, the surrender charges and
any outstanding loan amount (including any interest you owe on the Policy
loan(s)), and you have not made a sufficient payment by the end of a grace
period. The Policy will not lapse if you have purchased the Guaranteed
Minimum Death Benefit rider and the rider is in effect.
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loan amount The total amount of all outstanding Policy loans, including both principal and
interest due.
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maturity date The Policy anniversary when the younger Insured reaches age 100 and life
insurance coverage under this Policy ends. You may continue coverage, at
your option, under the Policy's extended maturity date benefit provision.
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Monthiversary The same date each month as the Policy Date. If there is no Valuation Date in
the calendar month that coincides with the Policy Date, the Monthiversary is
the next Valuation Date.
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Monthly Policy The charge deducted from the Cash Value (less the loan amount) on each
Charge Monthiversary. .
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Net Surrender The amount we will pay you if you surrender the Policy while it is in force.
Value The Net Surrender Value on the date you surrender is equal to: the Cash
Value, minus any surrender charge, and minus any outstanding loan amount
(including any interest you owe on Policy loan(s)).
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Office Our administrative and service office is Financial Markets Division, Variable
Annuity Department, P.O. Box 3183, Cedar Rapids, Iowa 52406-3183 or 4333
Edgewood Road NE, Cedar Rapids, Iowa 52499-0001. Our phone number is
1-800-525-6205.
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Policy Date The date when our underwriting process is complete, full life insurance
coverage goes into effect, we issue the Policy, and we begin to deduct the
Monthly Policy Charge. The Policy Date is shown on the schedule page of
your Policy. It is also the date when, depending on your state of residence,
we allocate your premium (plus interest) either to the Reallocation Account or
to the subaccounts and fixed account options you selected on your applica-
tion. The free look period begins on the Policy Date. We measure Policy
months, years, and anniversaries from the Policy Date.
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premiums All payments you make under the Policy other than loan repayments.
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Reallocation The standard fixed account.
Account
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Reallocation The date shown on the schedule page of your Policy when we reallocate any
Date premium (plus interest) held in the Reallocation Account to the subaccounts
and fixed account options you selected on your application. We place your
premium in the Reallocation Account only if your state requires us to return
the full premium in the event you exercise your free look right. In all other
states, the Reallocation Date is the Policy Date.
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2
separate The Legacy Builder Variable Life Separate Account. It is a separate invest-
account ment account that is divided into subaccounts. We established the separate
account to receive and invest premiums under the Policy and other variable
life insurance policies we may issue.
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Specified The death benefit we will pay under the Policy, as shown on the Policy
Amount schedule page, provided the Policy is in force and has not lapsed. The
Specified Amount varies by the Insured's age, gender and risk class. Any
partial withdrawal proportionately decreases the Specified Amount.
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subaccount A subdivision of the separate account that invests exclusively in shares of one
investment portfolio of the Fund.
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Surrender If, during the first 9 Policy years, you fully surrender the Policy, a Surrender
Charge Charge will be taken from the Cash Value.
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termination When the Insured's life (Surviving Insured under the Joint Policy) is no
longer insured under the Policy.
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Valuation Date Each day the New York Stock Exchange is open for trading, except days
when a subaccount's corresponding Portfolio does not value its shares.
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Valuation The period beginning at the end of one Valuation Date and continuing to the
Period end of the next Valuation Date.
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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.
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You, your (the The person entitled to exercise all rights as owner under the Policy.
owner)
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3
POLICY SUMMARY
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THE POLICY IN GENERAL The Legacy Builder II(SM) is a modified single premium
variable life insurance policy. You may buy it as individual or as joint and
last survivor life insurance.
The Policy is designed to be long-term in nature in order to provide
significant life insurance benefits for the Insured(s) named in the Policy.
You should consider the Policy in conjunction with other insurance you own.
The Policy is not suitable as a short-term savings vehicle.
/graphic omitted/
PREMIUMS
/bullet/ If the Insured qualifies for simplified underwriting, conditional
life insurance coverage begins as soon as you complete an
application and pay an initial premium of at least $20,000. Once we
determine that the Insured meets our underwriting requirements, full
insurance coverage begins and we will issue your Policy, and we will
begin to deduct monthly and daily insurance charges from your
premium. This date is the Policy Date. On that date, we will
allocate your premium (plus interest) to either the Reallocation
Account or to the subaccounts and fixed account options, depending
on the state in which you live.
/bullet/ If the Insured qualifies for simplified underwriting, the maximum
premium you can pay at the time of your application is:
-- $50,000 (for Ages 35-49)
-- $100,000 (for Ages 50-80)
Other limits apply for joint policies and policies with full
underwriting.
/bullet/ Once we issue your Policy, the FREE LOOK PERIOD begins. You may
return the Policy during this period and receive a refund. Depending
on your state of residence, we will place your premium (plus
interest) in the Reallocation Account during the free look period.
See p. .
/bullet/ We will accept additional premiums only in certain limited
circumstances.
/graphic omitted/
DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT
IN SUBACCOUNT AND/OR FIXED ACCOUNT OPTIONS
/bullet/ From the initial premium: NONE
/bullet/ From additional premiums: NONE
4
/graphic omitted/
INVESTMENT OPTIONS
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You may direct the money in your Policy to any of the subaccounts of the
separate account. THE MONEY YOU PLACE IN THE SUBACCOUNTS IS NOT
GUARANTEED. THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR DECREASE,
DEPENDING ON INVESTMENT PERFORMANCE. YOU COULD LOSE SOME OR ALL OF YOUR
MONEY.
Each subaccount invests exclusively in one investment portfolio of a Fund.
The Portfolios available to you are:
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth & Income Fund
AIM V.I. Value Fund
DREYFUS STOCK INDEX FUND
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Money Market Portfolio
Dreyfus Small Company Stock
Portfolio
MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth Series
MFS Foreign & Colonial Emerging
Markets Equity Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Global Securities Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer High Income Fund
Oppenheimer Strategic Bond Fund
WRL SERIES FUND, INC.
WRL Emerging Growth Portfolio
WRL Global Portfolio
WRL Growth Portfolio
FIXED ACCOUNT OPTIONS
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You may also direct the money in your Policy to the fixed account options.
Money you place in the standard fixed account option will earn interest at
current interest rates declared from time to time. The interest rate will
equal at least 3%.
At the time of purchase, you may place the entire initial premium in the
Fixed Dollar Cost Averaging (Fixed DCA) Account. Money you place in the
Fixed DCA Account will earn interest at an annual rate of at least 3%.
Money will be transferred out of the Fixed DCA Account in equal monthly
installments and placed in the subaccounts and standard fixed option of
your choice.
/graphic omitted/
5
CASH VALUE
/bullet/ The sum of your Policy's value in the subaccounts and the fixed
account. If there is a loan outstanding, the Cash Value includes any
amounts held in the company's general account to secure the Policy
loan.
/bullet/ Cash Value varies from day to day, depending on the investment
experience of the subaccounts you choose, the interest credited to
the fixed account options, the charges deducted and any other Policy
transactions (such as transfers, withdrawals, and Policy loans).
/bullet/ Cash Value is the starting point for calculating important values
under the Policy, such as Net Surrender Value and the death benefit.
/bullet/ There is no guaranteed minimum Cash Value. The Policy may lapse if
you do not have sufficient Cash Value in the Policy to pay the
Monthly Policy Charge(s), the surrender charges and/or any
outstanding loan amount (including interest you owe on any Policy
loan(s)). The Policy will not lapse if you have purchased the
Guaranteed Minimum Death Benefit rider and the rider is in effect.
/graphic omitted/
TRANSFERS
/bullet/ You can transfer Cash Value among the subaccounts and the standard
fixed account. We reserve the right to charge a $10 transfer
processing fee for each transfer after the 12th transfer in a Policy
year.
/bullet/ Policy loans reduce the amount of Cash Value available for
transfers.
/bullet/ Dollar cost averaging and asset rebalancing programs are available.
/bullet/ Transfers from the standard fixed account may be made no later than
30 days after each Policy anniversary, and are limited to the
greater of:
/arrow/ 25% of the value in the standard fixed account OR
/arrow/ the amount transferred from the fixed account in the prior
Policy year.
/graphic omitted/
6
CHARGES AND DEDUCTIONS
/bullet/ On the Policy Date and on each Monthiversary, we deduct the Monthly
Policy Charge from your Cash Value (reduced by the loan amount). The
Monthly Policy Charge pays for policy administrative expenses and
the cost of providing death benefits under the Policy. The Monthly
Policy Charge will vary with the gender of the Insured, the number
of Insureds, and the number of Policy Years you have owned the
Policy.
/bullet/ On each Valuation Date, we will deduct a Daily Charge from the unit
value of each subaccount, at an annual rate equal to 0.50%.
/bullet/ Each Portfolio assesses management fees and operating expenses from
the money you place with the Portfolio, at the rate shown in the
Portfolio Annual Expenses Table. See also the Fund prospectuses.
/bullet/ The company reserves the right to charge a maximum Monthly Cost of
Insurance Charge. See page . Currently, we do not assess a Cost of
Insurance Charge. A declining surrender charge of up to 9.75% of
each premium will apply to a full surrender or a lapse occurring
during the first 9 Policy years.
/bullet/ If you select the Guaranteed Minimum Death Benefit rider at
application, we will deduct .02% each month from your Cash Value on
each Monthiversary.
/graphic omitted/
LOANS
/bullet/ You may take a loan against the Policy for amounts up to 90% of the
Cash Value, less any surrender charges and any outstanding loan
amount.
/bullet/ We currently charge 6.0% interest annually, payable in arrears on
any outstanding loan amount; a lower rate applies to any preferred
loans.
/bullet/ We currently permit preferred loans to be taken anytime. Under this
provision, you may borrow an amount equal to the Cash Value less
total premiums paid, less any outstanding loan amount. We currently
charge a 3.0% preferred loan rate.
/bullet/ The amount borrowed is secured by a transfer of a portion of Cash
Value to a loan reserve account that is part of our general account.
You will earn 3.0% interest on amounts in the loan reserve account.
/bullet/ Federal income taxes and a penalty tax may apply to loans you make
against the Policy.
/bullet/ If you take a loan, we will terminate any Guaranteed Minimum Death
Benefit rider.
/graphic omitted/
7
DEATH BENEFIT
/bullet/ So long as the Policy does not lapse, the death benefit is the
greater of:
/arrow/ a variable death benefit or
/arrow/ the current Specified Amount, on the date of death of the
Insured (last Insured to die, if a Joint Policy).
/bullet/ We will reduce the death benefit proceeds by the amount of any
outstanding loan amount (including any interest you owe on Policy
loan(s)), and any due and unpaid monthly deduction.
/bullet/ The variable death benefit is equal to the Cash Value multiplied by
the appropriate limitation percentage. See the table on page .
/bullet/ You may not decrease or increase the Specified Amount.
/bullet/ The death benefit should be income tax free to the beneficiary.
/bullet/ The death benefit is available in a lump sum or a variety of payout
options.
/bullet/ If you purchase the GUARANTEED MINIMUM DEATH BENEFIT RIDER and the
rider is in effect, then, if the Net Surrender Value on any
Monthiversary is not sufficient to cover the Monthly Policy Charge
on such day, then coverage will be provided as indicated below, and
no grace period will begin, provided no Policy loans have been taken
under the Policy.
If a death benefit is payable due to the provisions of this rider,
then the following minimum death benefit is applicable:
(1) Duringthe first fifteen Policy years, or before the Policy
anniversary next following the Insured's (younger Joint Insured,
if under a Joint Policy) 75th birthday, if sooner, the minimum
death benefit payable will be as described directly above.
(2) After the first fifteen Policy years, or on or after the Policy
anniversary next following the Insured's (younger Joint Insured,
if under a Joint Policy) 75th birthday, if sooner, the minimum
death benefit payable will be the initial premium, reduced by
any partial withdrawals. However, in no event will this minimum
death benefit ever be less than $1,000.
If you take a Policy loan, the Guaranteed Minimum Death Benefit
rider terminates and your Policy could lapse.
/bullet/ A partial withdrawal will reduce the Specified Amount by the amount
of the withdrawal times the ratio of the initial Specified Amount to
the initial premium.
/graphic omitted/
8
PARTIAL WITHDRAWALS AND SURRENDERS
/bullet/ You can take one withdrawal of Cash Value every 12 months after the
first Policy year.
/bullet/ The amount of the withdrawal is limited to your Policy's earnings
which we compute as: the Cash Value, MINUS any outstanding Policy
loans, MINUS any interest you owe on Policy loans, and MINUS total
premiums paid.
/bullet/ There is no surrender charge on partial withdrawals.
/bullet/ A partial withdrawal reduces the current Specified Amount (the
minimum death benefit) by:
Amount of withdrawal X INITIAL SPECIFIED AMOUNT
initial premium
/bullet/ A partial withdrawal does not void a Guaranteed Minimum Death
Benefit rider, but it reduces the death benefit we would pay, as
described above. In no event will any partial withdrawal reduce the
minimum death benefit below $1,000.
/bullet/ Federal income taxes and a penalty tax may apply to partial
withdrawals and surrenders.
/bullet/ You may fully surrender the Policy at any time. You will receive the
Net Surrender Value (Cash Value, minus any surrender charges, minus
any Policy loans outstanding, and minus any interest you owe on
Policy loans).
9
RISK SUMMARY
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INVESTMENT If you direct us to invest your Cash Value in
RISK one or more subaccounts, you will be subject to
the risk that investment performance will be
unfavorable and that the Cash Value of your Policy
will decrease. If you select the fixed account
options, you are credited with a declared rate of
interest, but you assume a risk that the rate may
decrease, although it will never be lower than a
guaranteed minimum annual effective rate of 3.0%.
Because charges continue to be deducted from Cash
Value, if investment results are suf- ficiently
unfavorable, the Net Surrender Value of your
Policy may fall to zero. In that case, if the
Guaranteed Minimum Death Benefit rider is not in
effect, the Policy will lapse without value and
insurance coverage will no longer be in effect,
unless you make an additional payment sufficient
to prevent a lapse. On the other hand, if
investment experience is sufficiently favorable
and you have kept the Policy in force for a
substantial time, you may be able to draw upon
Cash Value, through withdrawals and Policy loans.
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RISK OF LAPSE If the Net Surrender Value of your Policy (that
is, the Cash Value, minus surrender charges and
minus outstanding loan amounts) is too low to pay
a Monthly Policy Charge, loan charges and rider
fees when due, and if the Guaranteed Minimum Death
Benefit rider is not in effect, the Policy will be
in default and a grace period will begin. There is
the risk that if withdrawals, loans and monthly
deductions reduce your Net Surrender Value to too
low an amount and/or if the investment experience
of your selected subaccounts is unfavorable, then
the Policy could lapse. In that case, you will
have a 61-day grace period to make a sufficient
payment. If a sufficient payment is not paid
before the grace period ends, your Policy will end
without value, insurance coverage will no longer
be in effect, and you will receive no benefits.
You may not reinstate this Policy after it has
lapsed.
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TAX RISKS We expect that the Policy will be deemed a life
(INCOME TAX insurance contract under Federal tax law, so that
AND MEC) the death benefit paid to the beneficiary will not
be subject to Federal income tax. However, the
Policy may be treated as a modified endowment
contract ("MEC") under Federal tax laws. As a
result, partial withdrawals, surrenders and loans
under a Policy that is a MEC will be taxable as
ordinary income to the extent of its earnings in
the Policy. In addition, a 10% penalty tax may be
imposed on partial withdrawals, surrenders and
loans taken before you reach age 591/2. You should
consult a qualified tax advisor for assistance in
all tax matters involving your Policy.
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10
LIMITS ON The Policy permits you to take only one partial
WITHDRAWALS withdrawal in any twelve month period, after the
first Policy year has been completed. The amount
you may withdraw is limited to earnings. We
calculate earnings as Cash Value, reduced by any
outstanding loan amount (including any interest
due on the Policy loans) and any premiums paid. A
partial withdrawal will reduce the Specified
Amount (and the minimum death benefits under the
Guaranteed Minimum Death Benefit rider) by: Amount
of withdrawal X initial Specified Amount initial
Premium This reduction may be significant.
However, in no event will any withdrawal reduce
the minimum death benefit under the Guaranteed
Minimum Death Benefit rider below $1,000. Federal
income taxes and a tax penalty may apply to
partial withdrawals and surrenders.
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EFFECTS OF A Policy loan, whether or not repaid, will affect
POLICY LOANS Cash Value over time because we subtract the
amount of the loan from the subaccounts and fixed
account options as collateral. We then credit a
fixed interest rate of 3.0% to the loan
collateral. As a result, the loan collateral does
not participate in the investment results of the
subaccounts nor does it receive the current
interest rates credited to the fixed account
options. The longer the loan is outstand- ing, the
greater the effect is likely to be. Depending on
the investment results of the subaccounts and the
interest rates credited to the fixed account, the
effect could be favorable or unfavorable.
A Policy loan affects the death benefit because a
loan terminates a Guaranteed Minimum Death Benefit
rider. In addition, a Policy loan reduces the
death benefit proceeds and Net Surrender Value by
the amount of the outstanding loan, plus any
interest you owe on Policy loans.
A Policy loan could make it more likely that a
Policy would terminate. There is a risk if the
loan reduces your Net Surrender Value to too low
an amount and investment experience is
unfavorable, that the Policy will lapse, resulting
in adverse tax consequences. You will have a
61-day grace period to submit a sufficient payment
to avoid the Policy's termination without value
and the end of insurance coverage.
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11
COMPARISON Like fixed benefit life insurance, the Policy
WITH OTHER offers a death benefit and provides a Cash Value,
INSURANCE loan privileges and a value on surrender. However,
POLICIES the Policy differs from a fixed benefit policy
because it allows you to place your premium in
investment subaccounts. The amount and duration of
life insurance protection and of the Policy's Cash
Value will vary with the investment performance of
the assets you place in the subaccounts. In
addition, the Cash Value and Net Surrender Values
will always vary with the investment experience 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.
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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 Specified Amount,
Policy charges and hypothetical rates of return
affect death benefit levels, Cash Value and Net
Surrender Value of the Policy. We may also
illustrate Policy values based on the adjusted
historical performance of the Portfolios since the
Portfolios' inception, reduced by Policy and
subaccount charges. The hypothetical and adjusted
historic portfolio rates illustrated should not be
considered to represent past or future
performance. There is the risk that actual rates
of return may be higher or lower than those
illustrated, so that the values under your Policy
will be different from those in the illustrations.
12
PORTFOLIO ANNUAL EXPENSE TABLE
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This table shows the fees and expenses charged by the Portfolios. More detail
concerning the Portfolio's fees and expenses is contained in the prospectuses
for the Funds.
ANNUAL PORTFOLIO OPERATING EXPENSES
(As a percentage of average Portfolio assets after fee waivers and expense
reimbursements)
TOTAL
MANAGEMENT OTHER EXPENSES ANNUAL
PORTFOLIO FEES (AFTER REIMBURSEMENT) EXPENSES
AIM V.I. Capital Appreciation (1) 0.63% 0.05% 0.68%
AIM V.I. Government Securities (1) 0.50% 0.37% 0.87%
AIM V.I. Growth & Income (1) 0.63% 0.06% 0.69%
AIM V.I. Value (1) 0.62% 0.08% 0.70%
Dreyfus Money Market 0.50% 0.12% 0.62%
Dreyfus Small Company Stock 0.75% 0.64% 1.39%
Dreyfus Stock Index 0.25% 0.05% 0.30%
MFS Emerging Growth (2) 0.75% 0.12% 0.87%
MFS Foreign & Colonial Emerging
Markets Equity (2) 1.25% 0.25% 1.50%
MFS Research (2) 0.75% 0.13% 0.88%
MFS Total Return (2) 0.75% 0.25% 1.00%
MFS Utilities (2) 0.75% 0.25% 1.00%
Oppenheimer Global Securities 0.70% 0.06% 0.76%
Oppenheimer Growth 0.73% 0.02% 0.75%
Oppenheimer Growth & Income 0.75% 0.08% 0.83%
Oppenheimer High Income 0.75% 0.07% 0.82%
Oppenheimer Strategic Bond 0.75% 0.08% 0.83%
WRL Emerging Growth (3) 0.80% 0.13% 0.93%
WRL Global (3) 0.80% 0.20% 1.00%
WRL Growth (3) 0.80% 0.07% 0.87%
(1) A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Portfolios
reimbursed AIM in an amount up to 0.25% of the average net asset value
of each Portfolio, for expenses incurred in providing, or assuring that
participating insurance companies provide, certain administrative
services. Currently, the fee only applies to the average net asset value
of each Portfolio in excess of the net asset value of each Portfolio as
calculated on April 30, 1998.
(2) Each MFS Portfolio has an expense offset arrangement that reduces each
Portfolio's custodian fee based upon the amount of cash maintained by
the Portfolio with its custodian and dividend disbursing agent, and may
enter into other such arrangements and directed brokerage arrangements
(which would also have the effect of reducing the Portfolio's expenses).
Any such fee reductions are not reflected under "Other Expenses." The
adviser for these Portfolios has agreed to bear expenses for each
Portfolio, subject to reimbursement by each Portfolio, such that each
Portfolio's "Other Expenses" shall not exceed 0.25% of the average daily
net assets of each Portfolio during the current fiscal year. Otherwise,
"Other Expenses" and "Total Portfolio Annual Expenses" for 1998 would
be: 0. % and 0. %, respectively, for MFS Total Return; 0. % and
0. %, respectively, for MFS Utilities; and 0. % and 0. %,
respectively, for MFS Foreign & Colonial Emerging Markets Equity.
13
(3) Effective January 1, 1997, the WRL Series Fund, Inc. adopted a Plan of
Distribution ("Distribution Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 and pursuant to the Distribution Plan,
entered into a Distribution Agreement with InterSecurities, Inc.
("ISI"), principal underwriter for the WRL Series Fund, Inc. Under the
Distribution Plan, the WRL Series Fund, Inc., on behalf of its
Portfolios, is authorized to pay to various service providers, as direct
payment for expenses incurred in connection with the distribution of a
Portfolio's shares, up to a maximum rate of 0.15% (fifteen
one-hundredths of one percent) on an annualized basis of the average
daily net assets. This fee is measured and accrued daily and paid
monthly. ISI has determined that it will not seek payment by the WRL
Series Fund, Inc. of distribution expenses incurred with respect to any
Portfolio during the fiscal year ending December 31, 1999. We will
notify you in advance if ISI decides to seek reimbursement.
The purpose of the preceding Table is to assist the Owner in understanding
the various costs and expenses that a Owner will bear directly and indirectly.
The Table reflects charges and expenses of the Portfolios of the Funds for the
fiscal year ended December 31, 1998. Expenses of the Funds may be higher or
lower in the future. For more information on the charges described in this
Table, see the Funds' prospectuses which accompany this prospectus.
PFL AND THE FIXED ACCOUNT
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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.
THE FIXED ACCOUNT OPTIONS
The 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
the 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 options 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 STANDARD FIXED ACCOUNT. Money you place in the standard fixed account
option will earn interest compounded daily at a current interest rate in effect
at the time of your allocation. The interest rate is guaranteed never to be
less than 3% per year. We may declare current interest rates from time to time.
We may declare more than one interest rate for different money based upon the
date of allocation or transfer to the standard fixed account.
THE FIXED DOLLAR COST AVERAGING ("FIXED DCA") ACCOUNT. To be eligible for
dollar cost averaging, you must elect the Fixed DCA Account on your application
and put your
14
entire initial premium in the Fixed DCA Account. Money you place in the Fixed
DCA Account will earn interest at rates we declare from time to time. Money
will be transferred out of the Fixed DCA Account in equal monthly installments
with the first transfer starting on the first Monthiversary after the
Reallocation Date. Interest accrued on the premiums will be transferred in the
last month of the Fixed DCA Account term. Money in the Fixed DCA Account may be
transferred entirely to other subaccounts or the standard fixed account after
one month.
There is no charge for participating in the Fixed DCA Account.
We reserve the right to stop offering the Fixed DCA Account at any time
for any reason. We may offer a higher 30-day interest rate guaranteed for one
month. If you exercise your free look right, the portion of the initial premium
held in the Fixed DCA Account will be credited with interest at the rate we
then credit to the standard fixed account.
FIXED DOLLAR COST /bullet/ we receive written notice from you instructing us to cancel
AVERAGING WILL END IF: the program,
/bullet/ you elect to participate in the Asset Rebalancing Program,
or
/bullet/ you elect to participate in any asset allocation service
provided by a third party.
THE FIXED ACCOUNT OPTIONS HAVE NOT BEEN 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
OPTIONS.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
The separate account is divided into subaccounts, each of which invests in
shares of a specific Portfolio of one of the following Funds:
/bullet/ AIM Variable Insurance Funds, Inc. (managed by A I M Advisors, Inc.)
/bullet/ Dreyfus Variable Investment Fund and Dreyfus Stock Index Fund
(managed by The Dreyfus Corporation)
/bullet/ MFS Variable Insurance Trust (managed by Massachusetts Financial
Services Company)
/bullet/ Oppenheimer Variable Account Funds (managed by Oppenheimer Funds,
Inc.)
/bullet/ WRL Series Fund, Inc. (managed by WRL Investment Management, Inc.)
The subaccounts buy and sell Portfolio shares at net asset value without any
sales charge. Any dividends and distributions from a Portfolio are reinvested
at net asset value in shares of that Portfolio.
15
Income, gains, and losses credited to, or charged against, a subaccount of
the separate account reflect the subaccount's own investment experience and not
the investment experience of our other assets. The separate account's assets
may not be used to pay any of our liabilities other than those arising from the
Policies. If the separate account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The separate account may include other subaccounts that are not available
under the Policies and are not discussed in this prospectus. We may substitute
another subaccount, portfolio or insurance company separate account under the
Policies if, in our judgment, investment in a subaccount or portfolio would no
longer be possible or becomes inappropriate to the purposes of the Policies, or
if investment in another subaccount or insurance company separate account is in
the best interest of owners. No substitution shall take place without notice to
owners and prior approval of the Securities and Exchange Commission
(Commission) and insurance company regulators, to the extent required by the
1940 Act and applicable law.
THE PORTFOLIOS
The separate account invests in shares of certain Portfolios of the Funds.
Each of the Funds is a mutual fund that is registered with the Commission as an
open-end management investment company. Such registration does not involve
supervision of the management or investment practices or policies of the Funds
by the 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.
Each Portfolio's investment objective(s) and policies are summarized
below. 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 prospectuses for the Funds. You should
read the Funds' prospectuses carefully.
PORTFOLIO INVESTMENT OBJECTIVE
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AIM V.I. /arrow/ Portfolio seeks capital appreciation through investments in common
CAPITAL stocks, with emphasis on medium-sized and smaller emerging growth
APPRECIATION companies.
AIM V.I. /arrow/ Portfolio seeks to achieve a high level of current income consistent
GOVERNMENT with reasonable concern for safety of principal by investing in debt
SECURITIES securities issued, guaranteed or otherwise backed by the United States
Government.
16
PORTFOLIO INVESTMENT OBJECTIVE
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AIM V.I. /arrow/ Portfolio seeks growth of capital, with current income as a secondary
GROWTH & objective.
INCOME
AIM V.I. /arrow/ Portfolio seeks to achieve long-term growth of capital by investing
VALUE primarily in equity securities judged by AIM to be undervalued
relative to the current or projected earnings of the companies issuing
the securities, or relative to current market values of assets owned by
the companies issuing the securities or relative to the equity markets
generally. Income is a secondary objective.
DREYFUS /arrow/ Portfolio seeks to provide as high a level of current income as is
MONEY MARKET consistent with the preservation of capital and the maintenance of
liquidity.
DREYFUS SMALL /arrow/ Portfolio seeks to provide investment results that are greater than the
COMPANY total return performance of publicly-traded common stocks in the
STOCK aggregate, as represented by the Russell 2500/registered trademark/ Index.
DREYFUS STOCK /arrow/ Portfolio seeks to provide investment results that correspond to the
INDEX price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite
Stock Price Index.
MFS /arrow/ Portfolio seeks to provide long-term growth of capital.
EMERGING
GROWTH
MFS FOREIGN /arrow/ Portfolio seeks capital appreciation.
& COLONIAL
EMERGING
MARKETS
EQUITY
MFS RESEARCH /arrow/ Portfolio seeks to provide long-term growth of capital and future
income.
MFS TOTAL /arrow/ Portfolio seeks to provide above-average income (compared to a
RETURN portfolio invested entirely in equity securities) consistent with the
prudent employment of capital, and secondarily to provide a
reasonable opportunity for growth of capital and income.
MFS UTILITIES /arrow/ Portfolio seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities).
OPPENHEIMER /arrow/ Portfolio seeks long-term capital appreciation by investing a
GLOBAL substantial portion of its assets in securities of foreign issuers,
SECURITIES "growth-type" companies, cyclical industries and special situations
which are considered to have appreciation possibilities, but which may
be considered to be speculative.
17
PORTFOLIO INVESTMENT OBJECTIVE
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OPPENHEIMER /arrow/ Portfolio seeks to achieve capital appreciation by investing in
GROWTH securities of well-known established companies.
OPPENHEIMER /arrow/ Portfolio seeks a high total return (which includes growth in the value
GROWTH & of its shares as well as current income) from equity and debt
INCOME securities.
OPPENHEIMER /arrow/ Portfolio seeks a high level of current income from investment in high
HIGH INCOME yield fixed-income securities. The Portfolio's investments include
unrated securities or high risk securities in the lower rating categories,
commonly known as "junk bonds," which are subject to a greater risk
of loss of principal and nonpayment of interest than higher-rated
securities.
OPPENHEIMER /arrow/ Portfolio seeks a high level of current income principally derived from
STRATEGIC BOND interest on debt securities and seeks to enhance such income by
writing covered call options on debt securities.
WRL /arrow/ Portfolio seeks capital appreciation by investing primarily in common
EMERGING stocks of small and medium sized companies.
GROWTH
WRL GLOBAL /arrow/ Portfolio seeks long-term growth of capital in a manner consistent
with preservation of capital, primarily through investments in common
stocks of foreign and domestic issuers.
WRL GROWTH /arrow/ Portfolio seeks growth of capital by investing primarily in common
stocks listed on a national securities exchange or traded on NASDAQ.
In addition to the separate account, shares of the Funds are also sold to
other separate accounts established by PFL or its affiliates to support
variable annuity contracts and variable life insurance policies. 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 Funds
simultaneously. Although neither PFL nor the Funds currently foresee any such
disadvantages, either to variable life insurance policyowners or to variable
annuity contract owners, each Fund's Board of Directors will monitor events in
order to identify any material conflicts between the interests of such variable
life insurance policyowners 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 policyowners and those given by variable annuity contract owners.
If a Fund's Board of Directors were to conclude that separate funds should
be established for variable life insurance and variable annuity separate
accounts, PFL will bear the attendant expenses, but variable life insurance
policyowners and variable annuity contract owners would no longer have the
economies of scale resulting from a larger combined fund.
18
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right to transfer separate account assets to another
separate account that we determine to be associated with the class of contracts
to which the Policy belongs. We also reserve the right, subject to compliance
with applicable law, to make additions to, deletions from, or substitutions for
the investments that are held by any subaccount or that any subaccount may
purchase. We will only make any such addition, deletion or substitution of
shares of another Portfolio of a Fund or of another open-end, registered
investment company, if the shares of a Portfolio are no longer available for
investment, or if in our judgement further investment in any Portfolio would
become inappropriate in view of the purposes of the separate account. We will
not add, delete or substitute any shares attributable to your interest in a
subaccount without notice to and prior approval of the Commission, to the
extent required by the 1940 Act or other applicable law. Nothing contained
herein shall prevent the separate account from purchasing other securities for
other Portfolios or classes of policies, or from permitting a conversion
between Portfolios or classes of policies on the basis of requests made by
Owners.
PFL also reserves the right to establish additional subaccounts of the
separate account, each of which would invest in a new Portfolio of a Fund, or
in shares of another investment company, with a specified investment objective.
We may establish new subaccounts when, in our sole discretion, marketing, tax
or investment conditions warrant. We will make any new subaccounts available to
existing Owners on a basis we determine. PFL may also eliminate one or more
subaccounts if, in our sole discretion, marketing, tax, or investment
conditions warrant.
In the event of any such substitution or change, PFL may make such changes
in this and other policies as may be necessary or appropriate to reflect such
substitution or change. If we deem it to be in the best interests of persons
having voting rights under the Policies, and when permitted by law, the
separate account may be (1) operated as a management company under the 1940
Act, (2) deregistered under the 1940 Act in the event such registration is no
longer required, (3) managed under the direction of a committee, or (4)
combined with one or more other separate accounts, or subaccounts.
PLEASE READ THE ATTACHED FUND PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS.
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 Policyowners
instruct, so long as such action is required by law.
Before a vote of a Portfolio's shareholders occurs, you will receive
voting materials from us. 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) divided by
$100.
19
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
Policyowners advising you of the action and the reasons we took such action.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, a prospective owner 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 Specified Amount for a Policy based on the initial
premium paid and other characteristics of the proposed Insured(s), such as age,
gender and risk class. We base the minimum initial premium for your Policy on
the Guideline Single Premium established under Federal tax laws given the age,
gender, and risk class of the Insured. We currently require a minimum initial
premium of $20,000.
We use different underwriting standards (simplified, expanded) 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.
Generally, for simplified underwriting we will issue a Policy for Insured(s)
between the ages of 35 to 80 for a single life policy, and between the ages of
45 to 80 for a joint and survivor life policy. For expanded underwriting, we
will issue a Policy for Insured(s) between the ages of 18 to 34 and 81 to 90
for a single life policy, and between the ages of 81 to 90 for a joint and
survivor life policy. We reserve the right to reject an application for any
reason permitted by law.
WHEN INSURANCE COVERAGE TAKES EFFECT
Full insurance coverage under the Policy will take effect only if the
proposed Insured(s) is alive and in the same condition of health as described
in the application when the Policy is delivered to the Owner, and if the
initial premium is paid.
CONDITIONAL INSURANCE COVERAGE. If the Insured qualifies for simplified
underwriting, conditional insurance coverage begins as soon as you complete an
application and pay an initial premium of at least $20,000. If the Insured does
not qualify for simplified underwriting, conditional insurance coverage begins
on the date all medical tests and exams are completed. Conditional insurance
coverage is void if the check or draft sent to pay the initial premium is not
honored when we first present it for payment.
20
THE AMOUNT OF /bullet/ the Specified Amount applied for, or
CONDITIONAL INSURANCE /bullet/ $300,000
COVERAGE IS THE LESSER OF: reduced by all amounts payable under all other life insurance or
accidental death benefits that the Insured has in force or pending
with us.
Conditional life insurance coverage is void if the application contains
any material misrepresentation. Benefits will also be denied if any proposed
insured commits suicide.
Conditional life insurance coverage terminates automatically, and without
notice, on the earliest of:
/bullet/ the date we notify you that the application is declined and the
initial premium is returned; or
/bullet/ the date we determine the Insured has satisfied our underwriting
requirements (the Policy Date); or
/bullet/ 10 days following our offer of insurance, on any person proposed,
under a different plan or at an increased premium or different
rate class; or
/bullet/ at the end of the fraction of a year which the payment bears to
the premium required to provide one month of insurance in the
amount as described above; or
/bullet/ 60 days from the beginning of conditional insurance coverage.
FULL INSURANCE COVERAGE. Once we determine that the Insured meets our
underwriting requirements, full insurance coverage begins, we issue the Policy,
and we begin to deduct monthly and daily insurance charges from your premium.
This date is the Policy Date. On the Policy Date, we will allocate your premium
(plus interest) to the subaccounts and fixed account options you elected on
your application, provided you live in a state that does not require a refund
of full premium during the free look period. If your state requires us to
return the full premium in the event you exercise your free look right, we will
place your premium (plus interest) in the Reallocation Account until the
Reallocation Date. See Reallocation Account, page .
21
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 /bullet/ Change the Owner by providing written notice to
OWNER us at any time while the Insured is alive and
the Policy is in force.
/bullet/ Change is effective as of the date that the
written notice is signed.
/bullet/ Changing the Owner does not automatically change
the beneficiary.
/bullet/ Changing the Owner may have tax consequences.
/bullet/ We are not liable for payments we made before we
received the written notice.
CHOOSING THE /bullet/ The Owner designates the beneficiary (the person
BENEFICIARY to receive the death benefit when the Insured
dies) in the application.
/bullet/ If you designate more than one beneficiary, then
each beneficiary shares equally in any death
benefit proceeds unless the beneficiary
designation states otherwise.
/bullet/ If the beneficiary dies before the Insured, then
any contingent beneficiary becomes the
beneficiary.
/bullet/ If both the beneficiary and contingent
beneficiary die before the Insured, then the
death benefit will be paid to the Owner or the
Owner's estate upon the Insured's death.
CHANGING THE /bullet/ Change the beneficiary by providing us with a
BENEFICIARY written notice.
/bullet/ Change is effective as of the date the Owner
signs the written notice.
/bullet/ We are not liable for any payments we made before
we received the written notice.
22
ASSIGNING THE /bullet/ The Owner may assign Policy rights while the
POLICY Insured is alive.
/bullet/ The Owner retains any ownership rights that are
not assigned.
/bullet/ Assignee may not change the Owner or the
beneficiary, and may not elect or change an
optional method of payment. Any amount payable to
the assignee will be paid in a lump sum.
/bullet/ Claim under any assignment are subject to proof
of interest and the extent of the assignment.
/bullet/ We are not:
/arrow/ bound by any assignment unless we
receive a written notice of the
assignment
/arrow/ responsible for the validity of any
assignment
/arrow/ liable for any payment we made before we
received written notice of the assignment
/arrow/ any assignment which results in adverse
tax consequences to the Owner, Insured(s)
or beneficiary(ies)
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 expires 10 days after you receive the Policy. The
free-look period is 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 it had
never been issued. Within seven calendar days after we receive the returned
Policy, we will refund an amount equal to the sum of:
/bullet/ the total amount of monthly deductions made and any other charges
imposed on amounts allocated to the subaccounts and the fixed
account options; PLUS
/bullet/ the value of amounts allocated to the subaccounts and the fixed
account options on the date we (or our agent) receive the
returned Policy.
If any state law prohibits the calculation above, we will refund the total
of all premiums paid for the Policy. See Allocating Premiums, p. .
PREMIUMS
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INITIAL PREMIUM
The initial premium for a given Specified Amount depends on a number of
factors including the age, gender, and risk class of the proposed Insured(s).
For a given initial premium, we will specify the exact Specified Amount that
you must purchase. For joint and
23
survivor life policies, we will provide the Specified Amount at the time of
application based upon the specific ages, gender, and risk classes of the
proposed Insureds.
We currently require a minimum initial premium of $20,000. The current
underwriting requirements and maximum initial premium amounts are set forth in
Appendix . We reserve the right to modify these requirements and premium
amounts at any time.
We will credit interest on your initial premium from the date we receive
payment. Interest will be credited at the current standard fixed account rate.
Interest is guaranteed to equal at least 3% annually.
TAX-FREE EXCHANGES (1035 EXCHANGES). We will 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. If you contemplate such an
exchange, you should consult a competent tax advisor to learn the potential tax
effects of such a transaction.
Subject to our underwriting requirements, we will permit you to make one
additional cash payment within three business days of our receipt of the
proceeds from the 1035 exchange before we determine your Policy's Specified
Amount.
ADDITIONAL PREMIUMS
You will have limited flexibility to add additional premiums to the Policy
since we require that the initial premium equal the maximum amount that can be
applied to the Policy at issue. In general, you may not pay any additional
premiums on the Policy for several years in order for the Policy to continue to
qualify as a life insurance contract as defined in Federal tax laws and
regulations. At the time the Policy allows for the payment of additional
premiums, we reserve the right to limit or refund any premium if:
/bullet/ the amount is below our current minimum additional premium
requirement; OR
/bullet/ the premium would increase the death benefit by more than the
amount of the premium; OR
/bullet/ accepting the premium would disqualify the Policy as a life
insurance contract as defined in Federal tax laws and
regulations.
You may pay premiums by any method we deem acceptable. We will treat any
payment you make as a loan repayment unless you clearly mark it as a premium.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us to allocate your premium
to one or more subaccounts of the separate account and to the fixed account
options according to the following rules:
/bullet/ allocation percentages must be in whole numbers;
/bullet/ you must put your entire initial premium in the Fixed DCA Account
at the time of your application;
/bullet/ if you select standard dollar cost averaging, you must put at
least $5,000 into the standard fixed account.
24
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.
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.
REALLOCATION ACCOUNT. If your state requires us to return your initial
premium in the event you exercise your free-look right, we will allocate the
initial premium (plus interest) on the Policy Date to the Reallocation Account.
While held in the Reallocation Account, your premium (plus interest) will earn
interest at the current rates for the standard fixed account. The premium will
remain in the Reallocation Account for the length of your state's free look
period plus five days.
The following chart shows by state the number of days from the Policy Date
that your premium (plus interest) will remain in the Reallocation Account.
STATES REQUIRING FULL REFUND OF PREMIUM
TIME PREMIUM IS IN TIME PREMIUM IS
REALLOCATION IN REALLOCATION
STATE ACCOUNT STATE ACCOUNT
CO # 20 days NC * # 15 days
CT 15 days ND 15 days
DC * 15 days NY 15 days
GA 15 days OK * 15 days
IL 15 days PA * 15 days
IN # 15 days SC * 15 days
MA # 15 days TX 15 days
MD # 15 days UT * 15 days
MI *# 15 days VT * 15 days
MN 15 days VA 15 days
MO * 15 days WV 15 days
* The period is 50 days from the application date or 15 days from your
receipt of the Policy, whichever is later.
# If the Policy is a replacement, the period is 25 days.
In the states listed above, on the first Valuation Date on or after the
Reallocation Date, we will reallocate all cash value from the Reallocation
Account to the subaccounts and fixed account options you selected on the
application. If you requested either Fixed DCA or
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Standard Dollar Cost Averaging, we will reallocate the Cash Value to either the
Fixed DCA Account or standard fixed account, respectively on the Reallocation
Date.
In all other states, the Reallocation Date is the same as the Policy Date
and we will allocate your premium (plus interest) on the Policy Date to the
subaccounts and the fixed account options in accordance with the instructions
you gave us on your application.
POLICY VALUES
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CASH VALUE
CASH VALUE /bullet/ serves as the starting point for calculating values
under a Policy
/bullet/ equals the sum of all values in each subaccount and the
fixed account options
/bullet/ is determined on the Policy Date and on each Valuation
Date
/bullet/ has no guaranteed minimum amount and may be more or
less than premiums paid
NET SURRENDER VALUE
The Net Surrender Value is the amount we pay when you surrender your
Policy. We determine the Net Surrender Value at the end of the Valuation Period
when we receive your written surrender request.
NET SURRENDER /bullet/ the Cash Value as of such date; MINUS
VALUE ON ANY /bullet/ any surrender charge as of such date; MINUS
VALUATION DATE /bullet/ any outstanding Policy loan(s); MINUS
EQUALS: /bullet/ any interest you owe on any Policy loan(s).
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 /bullet/ the initial units purchased on the Policy Date; PLUS
UNITS IN ANY /bullet/ units purchased with additional premium(s); PLUS
SUBACCOUNT ON /bullet/ units purchased via transfers from another subaccount
ANY VALUATION or the fixed account; MINUS
DATE EQUALS: /bullet/ units redeemed to pay for monthly deductions; MINUS
/bullet/ units redeemed to pay for partial withdrawals; MINUS
/bullet/ units redeemed as part of a transfer to another
subaccount or the fixed account.
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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 /bullet/ the total value of the assets held in the
OF ANY subaccount, determined by multiplying the number
SUBACCOUNT AT of shares of the designated Portfolio owned by the
THE END OF A subaccount times the Portfolio's net asset value
VALUATION per share; MINUS
PERIOD /bullet/ a charge equal to the daily net assets of the
IS CALCULATED AS: subaccount multiplied by the daily equivalent of
the Daily Charge;MINUS
/bullet/ 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
/bullet/ the number of outstanding units in the subaccount.
FIXED ACCOUNT VALUE
On the Policy Date, the fixed account value is equal to the premiums
allocated to the fixed account, less the portion of the first monthly deduction
taken from the fixed account.
THE FIXED ACCOUNT /bullet/ the premium(s) allocated to the fixed account; PLUS
VALUE AT THE END OF /bullet/ any amounts transferred to the fixed account; PLUS
ANY VALUATION /bullet/ interest credited to the fixed account; MINUS
PERIOD IS EQUAL TO: /bullet/ amounts charged to pay for monthly deductions; MINUS
/bullet/ amounts withdrawn from the fixed account; MINUS
/bullet/ amounts transferred from the fixed account to a
subaccount.
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TRANSFERS
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GENERAL
You may make transfers among the subaccounts or from the subaccounts to
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:
/checkmark/ You may make an unlimited number of transfers in a Policy
year.
/checkmark/ You may request transfers in writing (in a form we accept), or
by telephone.
/checkmark/ There is no minimum amount that must be transferred.
/checkmark/ There is no minimum amount that must remain in a subaccount
after a transfer.
/checkmark/ We reserve the right to deduct a $10 charge from the amount
transferred for the 13th and each additional transfer in a
Policy year.
/checkmark/ We consider all transfers made in any one day to be a single
transfer.
/checkmark/ Transfers resulting from loans, Standard and Fixed Dollar Cost
Averaging, Asset Rebalancing, and exercising exchange
privileges are not treated as transfers for the purpose of the
transfer charge.
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 1-800-525-6205.
Please note the following regarding telephone transfers:
/arrow/ 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.
/arrow/ We will employ reasonable procedures to confirm that telephone
instructions are genuine.
/arrow/ Such procedures may include requiring forms of personal
identification prior to acting upon telephone instructions,
providing written confirmation of transactions to Owners, and/or
tape recording telephone instructions received from Owners.
/arrow/ If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
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
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of the regular business session of the NYSE, on any day the NYSE is open, 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.
STANDARD DOLLAR COST AVERAGING
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.
Under Standard Dollar Cost Averaging, we automatically transfer a set
dollar amount from the standard fixed account to one or more subaccounts that
you choose. We will make the transfers monthly as of the end of the Valuation
Date starting on the first Monthiversary after the Reallocation Date.
TO START DOLLAR COST /arrow/ you must request Standard Dollar Cost Averaging on your
AVERAGING: application
/arrow/ you must have at least $5,000 in the standard fixed
account
/arrow/ each transfer under dollar cost averaging must be at least
$500
There is no charge for Standard Dollar Cost Averaging.
STANDARD DOLLAR COST /arrow/ we receive your request to cancel your participation;
AVERAGING WILL /arrow/ the value in the standard fixed account is depleted;
TERMINATE IF: /arrow/ you elect to participate in asset rebalancing program; OR
/arrow/ you elect to participate in any asset allocation services
provided by a third party.
We may modify, suspend, or discontinue the Standard Dollar Cost Averaging
at any time.
ASSET REBALANCING PROGRAM
We also offer an Asset Rebalancing Program under which you may 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. Cash Value
in the standard fixed account, the Standard Dollar Cost Averaging program and
the Fixed DCA Account are not available for this program.
To participate in the Asset Rebalancing Program, you must complete an
asset rebalancing request form and submit it to us before the maturity date.
29
You may elect 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 NYSE is closed, rebalancing will occur on the next
day the NYSE is open. There is no charge for the Asset Rebalancing Program.
ASSET REBALANCING /arrow/ you elect to participate in the Fixed DCA Account;
WILL CEASE IF: /arrow/ you elect to participate in the Standard Dollar Cost
Averaging program;
/arrow/ we receive your request to discontinue participation;
/arrow/ you make a transfer to or from any subaccount other than
under a scheduled rebalancing; OR
/arrow/ you elect to participate in any asset allocation services
provided by a third party
We may modify, suspend, or discontinue the Asset Rebalancing Program at
any time.
STANDARD FIXED ACCOUNT TRANSFERS
You may make one transfer per Policy year from the standard fixed account.
The transfer must be made no later than 30 days after your Policy anniversary.
You must send us a written notice so that we receive it no later than 30 days
after a Policy anniversary. We will make the transfer on the date we receive
the written notice. We reserve the right to limit the maximum amount you may
transfer to the greater of:
/arrow/ 25% of the amount in the standard fixed account, or
/arrow/ the amount transferred from the standard fixed account in the
immediately prior Policy Year (excluding transfers from the
Fixed DCA Account).
30
CHARGES AND DEDUCTIONS
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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 /bullet/ the death benefit, cash and loan benefits under the Policy
BENEFITS WE /bullet/ investment options, including premium allocations
PROVIDE: /bullet/ administration of elective options
/bullet/ the distribution of reports to Owners
COSTS AND /bullet/ costs associated with processing and
EXPENSES WE INCUR: underwriting applications, issuing and
administering the Policy (including any
Policy riders)
/bullet/ overhead and other expenses for providing
services and benefits, sales and marketing
expenses
/bullet/ 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: /bullet/ that the charges we deduct may be
insufficient to meet our actual claims
because Insureds die sooner than we
estimate
/bullet/ that the costs of providing the services and
benefits under the Policies may exceed the
charges we are allowed to deduct
PREMIUM DEDUCTIONS
We deduct no charges from premiums before allocating the premiums to the
separate account and the fixed account options according to your instructions.
DAILY CHARGE
Each Valuation Date, we deduct a Daily Charge at the annual rate of 0.50%
from assets in the subaccounts as part of the calculation of the unit value for
each subaccount.
MONTHLY DEDUCTION
We deduct a monthly deduction from the Cash Value on the Policy Date and
on each Monthiversary (the same day of each succeeding month as the Policy
Date, or, if there is no comparable Valuation Date, the next Valuation Date).
We will deduct this charge from each account in accordance with the current
allocation instructions. If the value of any account is insufficient to pay
that account's portion of the monthly deduction, we will take the monthly
deduction on a pro rata basis from all accounts (I.E., in the same proportion
that the value in each subaccount and the fixed account bears to the total Cash
Value on the Monthiversary).
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The monthly deduction is equal to:
/arrow/ The Monthly Policy Charge based on the separate account's assets;
PLUS
/arrow/ The Monthly Policy Charge based on the fixed account's assets;
PLUS
/arrow/ The monthly Cost of Insurance charge for the Policy, if any; PLUS
/arrow/ The monthly charge for any benefits provided by riders attached to
the Policy (currently, only the Guaranteed Minimum Death Benefit
rider).
MONTHLY POLICY CHARGE. The Monthly Policy Charge, based on the separate
account's assets, is equal to: (1) the separate account monthly deduction
charge (see table below) divided by 12; multiplied by (2) the sum of the
subaccount values on the Monthiversary.
The Monthly Policy Charge, based on the fixed account's assets, is equal
to: (1) the fixed account monthly deduction charge (see table below) divided by
12; multiplied by (2) the fixed account value on the Monthiversary, minus any
outstanding Policy loan(s).
The Monthly Policy Charge for each Policy varies based on the Policy year,
gender, and whether the Policy is issued on a single life basis or a joint and
last survivor basis.
The Monthly Policy Charge and the Daily Charge for single life and joint
and survivor life Policies are as follows:
SINGLE LIFE POLICY Male/Unisex Female
Policy Years Policy Years Policy Years Policy Years
1-10 11+ 1-10 11+
Separate account Daily Charge
charges (from unit value) .50% .50% .50% .50%
(annualized rate)
Monthly
Deduction Charge
(as a % of separate
account assets) 2.00% 1.00% 1.85% .85%
Total 2.50% 1.50% 2.35% 1.35%
Fixed account Monthly
charges Deduction Charge
(annualized rate) (as a % of fixed
account assets) 2.00% 1.00% 1.85% .85%
Total 2.00% 1.00% 1.85% .85%
32
JOINT & SURVIVOR LIFE POLICY Policy Years 1-10 Policy Years 11+
Separate account charges Daily Charge (from unit value) .50% .50%
(annualized rate)
Monthly Deduction Charge (as 1.50% .50%
a % of separate account assets)
Total 2.00% 1.00%
Fixed account charges Monthly Deduction Charge (as 1.50% .50%
(annualized rate) a % of fixed account assets)
Total 1.50% .50%
COST OF INSURANCE CHARGE. We reserve the right to assess a monthly Cost of
Insurance Charge. The charge would depend on a number of variables (age,
gender, risk class) that would cause it to vary from Policy to Policy and from
Monthiversary to Monthiversary. If applicable, we would calculate the Cost of
Insurance Charge each month for the Specified Amount at issue. We do not
currently assess this charge, and we do not intend to assess this charge.
However, if we begin to assess this charge in the future, we will waive
surrender charges upon any surrender of the Policy. See Surrender Charge, p.
.
The guaranteed maximum monthly Cost of Insurance Rates are based on the
gender, age, plan of insurance, and risk class of the Insured(s). Any change in
the current rates will not exceed those shown in your Policy's Table of
Guaranteed Maximum Life Insurance Rates.
We currently place Insureds into standard (tobacco) and select
(non-tobacco) risk classes. The guaranteed rates are based on the 1980
Commissioners' Standard Ordinary Mortality Tables, Male or Female, Tobacco or
Non-Tobacco Mortality Rates ("1980 CSO Tables"). Cost of Insurance Rates for an
Insured in a non-tobacco class are less than or equal to rates for an Insured
of the same age and gender in a tobacco class.
The Policies are based on mortality tables that distinguish between men
and women. As a result, the Policy may pay different benefits to men and women
of the same age and risk class. We also offer Policies based on unisex
mortality tables if required by state law.
SURRENDER CHARGE
If you surrender your Policy during the first 9 years, we deduct a
surrender charge from your Cash Value and pay the remaining Cash Value to you.
The payment you receive is called the Net Surrender Value. We reduce the
surrender charge at older ages in compliance with state laws. We calculate the
surrender charge as a percentage of premium(s) paid based on the following
schedule:
33
CONTINGENT CONTINGENT
SURRENDER SURRENDER
CHARGE (AS A CHARGE (AS A
PERCENTAGE OF PERCENTAGE OF
POLICY YEAR INITIAL PREMIUM) POLICY YEAR INITIAL PREMIUM)
1 9.75% 6 7%
2 9.50% 7 6%
3 9.25% 8 4%
4 9% 9 2%
5 8% 10 0%
If we begin to assess a Cost of Insurance Charge on Policies as noted
above, we will waive all future surrender charges.
TRANSFER CHARGE
The first 12 transfers during each Policy year are free. We currently
assess a transfer charge of $10 for the 13th and each additional transfer
during a Policy year. For the purposes of assessing the transfer charge, each
written request for transfers is considered to be one transfer, regardless of
the number of subaccounts affected by the transfer. We deduct the transfer
charge from the amount being transferred. Transfers due to loans, any dollar
cost averaging or asset rebalancing program 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 Fund prospectuses for further information on these fees and
expenses.
GUARANTEED MINIMUM DEATH BENEFIT RIDER CHARGE
If you select the Guaranteed Minimum Death Benefit rider at application,
we will deduct .01% each month from your Cash Value on each Monthiversary.
DEATH BENEFIT
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DEATH BENEFIT PROCEEDS
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. For Policies issued on a joint and survivor basis, we will pay death
benefit proceeds on the death of the last Insured. We may require return of the
Policy. We will pay the death benefit proceeds to the primary beneficiary(ies)
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
34
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 /bullet/ the death benefit (described below); MINUS
PROCEEDS EQUAL: /bullet/ any past due monthly deductions if the Insured dies during
the grace period (see Policy Lapse and Reinstatement);
MINUS
/bullet/ any outstanding Policy loan on the date of death; MINUS
/bullet/ any interest you owe on Policy loan(s).
If all or part of the death benefit proceeds are paid in one sum, we will
pay interest on this sum as 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 Gender.
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined as of
a date of death of the Insured (the last of Insureds to die, if a Joint
Policy).
THE DEATH BENEFIT /bullet/ available death benefit; or
IS THE GREATER OF: /bullet/ the current Specified Amount.
The variable death benefit is equal to the Cash Value on the date of death
multiplied by the applicable limitation percentage. The limitation percentage
is a percentage based on the age of the Insured at the beginning of each Policy
year. The following table indicates the applicable limitation percentages for
different ages:
AGE
(YOUNGER INSURED,
IF JOINT POLICY) LIMITATION PERCENTAGE
40 and under 250%
41 to 45 250% minus 7% for each age over age 40
46 to 50 215% minus 6% for each age over age 45
51 to 55 185% minus 7% for each age over age 50
56 to 60 150% minus 4% for each age over age 55
61 to 65 130% minus 2% for each age over age 60
66 to 70 120% minus 1% for each age over age 65
71 to 75 115% minus 2% for each age over age 70
76 to 90 105%
91 to 94 105% minus 1% for each age over age 90
95 and above 100%
EFFECTS OF PARTIAL WITHDRAWALS ON THE DEATH BENEFIT
A partial withdrawal will reduce the Specified Amount by an amount equal
to the amount of the partial withdrawal multiplied by the ratio of the initial
Specified Amount to the initial premium. For an example, see "Partial
Withdrawals," page___.
35
GUARANTEED MINIMUM DEATH BENEFIT RIDER
If you purchase the Guaranteed Minimum Death Benefit rider at the time you
apply for the Policy and the rider is in effect upon the Insured's (younger
Insured if a Joint Policy) date of death, we guarantee to provide a death
benefit as follows:
/arrow/ If the Net Surrender Value on any Monthiversary is not sufficient
to cover the Monthly Policy Charge on such day, then coverage will
be provided as indicated below, and no grace period will begin,
provided no Policy loans have been taken under the Policy;
/arrow/ If a death benefit is payable due to the provisions of this rider,
then the following minimum death benefit is applicable;
/arrow/ During the first fifteen Policy years, or before the Policy
anniversary next following the Insured's (younger Joint Insured,
if under a Joint Policy) 75th birthday, if sooner, the minimum
death benefit payable will be as described under Death Benefit,
page ;
/arrow/ After the first fifteen Policy years, or on or after the Policy
anniversary next following the Insured's (younger Joint Insured,
if under a Joint Policy) 75th birthday, if sooner, the minimum
death benefit payable will be the initial premium, reduced by any
partial withdrawals.
However, in no event will this minimum death benefit ever be less than $1,000.
CHANGING THE SPECIFIED AMOUNT
You may not increase or decrease the Specified Amount on your Policy.
However, a partial withdrawal will reduce the Specified Amount and the amount
payable under the Guaranteed Minimum Death Benefit rider. If you need a higher
Specified Amount, you must apply for a second policy.
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. None of these
options vary with the investment performance of a separate account.
SURRENDERS AND PARTIAL WITHDRAWALS
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SURRENDERS
You may make a written request to surrender your Policy for its Net
Surrender Value as calculated at the end of the Valuation Date on which we
receive your request. The
36
Insured must be alive and the Policy must be in force when you make your
written request. A surrender is effective as of the date when we receive your
written request. You will incur a surrender charge if you surrender the Policy
during the first 9 Policy years. See Charges and Deductions. Once you surrender
your Policy, all coverage and other benefits under it cease and cannot be
reinstated. We will pay you the Net Surrender Value in a lump sum within seven
days unless you request other arrangements. A surrender may have tax
consequences. See Federal Tax Considerations.
PARTIAL WITHDRAWALS
After the first Policy year, you may request a partial withdrawal of a
portion of your Cash Value subject to certain conditions.
PARTIAL /arrow/ You must make your partial withdrawal request to us in
WITHDRAWAL writing.
CONDITIONS: /arrow/ Only one partial withdrawal is allowed during a
12-month period.
/arrow/ The most you can request is the excess of the Cash
Value MINUS total outstanding loans, MINUS any interest
you owe on the Policy loans, and MINUS total premiums
paid.
/arrow/ You can specify the subaccount(s) and the standard
fixed account from which to make the withdrawal,
otherwise we will deduct the amount from the separate
account and the fixed account in accordance with the
current allocation instruction.
/arrow/ We generally will pay a partial withdrawal request
within seven days following the Valuation Date we
receive the request. There is no charge for a partial
withdrawal.
A partial withdrawal will reduce the Cash Value by the amount of the
partial withdrawal. A partial withdrawal will reduce the Specified Amount by an
amount equal to the amount of the partial withdrawal multiplied by the ratio of
the initial Specified Amount to the initial premium.
An example of a partial withdrawal's effect on the Specified Amount is
shown below. A partial withdrawal will also reduce the Guaranteed Minimum Death
Benefit by an amount equal to the amount of the partial withdrawal multiplied
by the ratio of the initial Specified Amount to the initial premium.
In no event will any withdrawal reduce the Specified Amount below $1,000.
Example: A Policy with a Specified Amount of $200,000 on a male standard
(age 35) has a Guideline Single Premium of $48,920. The ratio of the initial
Specified Amount to the initial premium is 4.09 (I.E., 200,000 divided by
48,920). If a $19,000 partial withdrawal is taken after the first Policy year,
the Specified Amount will be reduced by $77,710 (I.E., 4.09 multiplied by
$19,000).
37
LOANS
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GENERAL
After the Policy Date as long as the Policy remains in force, you may
borrow money from us using the Policy as the only security for the loan. Taking
a loan will terminate the Guaranteed Minimum Death Benefit rider, if any. See
Guaranteed Minimum Death Benefit rider, page . A loan that is taken from, or
secured by, a Policy may have tax consequences. See Federal Tax Considerations.
POLICY LOANS ARE /bullet/ you must borrow at least $500
SUBJECT TO CERTAIN /bullet/ the maximum amount you may borrow is 90% of the Cash
CONDITIONS: Value, less any surrender charge and any outstanding loan
amount
When you take a loan, we will withdraw an amount equal to the requested
loan from each of the subaccounts and the fixed account based on your current
premium allocation instructions (unless you specify otherwise). We will
transfer that amount to the loan reserve. The loan reserve is the portion of
the fixed account used as collateral for a Policy loan.
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.
You can repay a loan at any time while the Policy is in force. WE WILL
CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY AS LOAN REPAYMENTS UNLESS THE
PAYMENTS ARE CLEARLY SPECIFIED AS PREMIUMS.
At each Policy anniversary, we will compare the amount of the outstanding
loan to the amount in the loan reserve. We will also make this comparison any
time you repay all or part of the loan, or make a request to borrow an
additional amount. At each such time, if the amount of the outstanding loan
exceeds the amount in the loan reserve, we will withdraw the difference from
the subaccounts and the standard fixed account and transfer it to the loan
reserve, in the same manner as when a loan is made. If the amount in the loan
reserve exceeds the amount of the outstanding loan, we will withdraw the
difference from the loan reserve and transfer it to the subaccounts and the
standard fixed account in the same manner as current premiums are allocated. No
charge will be imposed for these transfers, and these transfers are NOT treated
as transfers in calculating the transfer charge. We reserve the right to
require the transfer to the fixed account if the loans were originally
transferred from the fixed account.
INTEREST RATE CHARGED
The annual interest rate you may pay on a Policy loan is 6.0% and is
payable in arrears on each Policy anniversary. Loan interest that is unpaid
when due will be added to the amount of the loan on each Policy anniversary and
will bear interest at the same rate.
38
LOAN RESERVE INTEREST RATE CREDITED
We will credit the amount in the loan reserve with interest at an
effective annual rate of 3.0%. We may credit a higher rate, but we are not
obligated to do so.
PREFERRED LOANS
At any time after the Policy Date, you may borrow against the Policy up to
an amount that is equal to the Cash Value MINUS total premiums paid LESS any
withdrawals. Such a loan is called a preferred loan. We will charge interest on
a preferred loan at an annual rate of 3.0%, payable in arrears. Any existing
loan, other than a preferred loan, is not eligible for a preferred loan rate.
Amounts in the loan reserve securing preferred loans accrue interest at the
same 3.0% annual rate as other loans. Consult a tax advisor before taking a
preferred loan because such a loan may have adverse tax consequences. We
reserve the right to modify or discontinue the preferred loan feature.
EFFECT OF POLICY LOANS
A Policy loan affects the Policy, because we reduce the death benefit
proceeds and Net 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 Net 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 reserve. This amount is not affected by the separate account's
investment performance and may not be credited with the interest rates accruing
on the fixed account options. Amounts transferred from the separate account to
the loan reserve will affect the value in the separate account because we
credit such amounts with an interest rate declared by us rather than a rate of
return reflecting the investment performance of the separate account. A Policy
loan will cause a Guaranteed Minimum Death Benefit rider to terminate.
There are risks involved in taking a Policy loan, a few of which include
the potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved. A Policy loan may also have possible
adverse tax consequences that could occur if a Policy lapses with loans
outstanding. See Risks, page .
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 Net Surrender Value. If
you do not submit a sufficient payment within 61 days from the date of the
notice, your Policy may lapse.
We will accept policy exchanges under Section 1035 of the Internal Revenue
Code where the policy from another company has an outstanding policy loan of no
more than 40% of the policy's cash value transferred to our Policy. We intend
to treat these as preferred loan amounts.
39
POLICY LAPSE
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LAPSE
Your Policy may lapse (terminate without value) if the Net Surrender Value
on any Monthiversary is less than the monthly deductions due on that day. The
monthly deductions may exceed the Net Surrender Value if:
/bullet/ we begin to impose monthly Cost of Insurance Charges, OR
/bullet/ the sum of all outstanding Policy loans plus accrued loan
interest exceeds the Net Surrender Value.
If the Net Surrender Value is not enough to pay the monthly deductions, we
will mail a notice to your last known address and any assignee of record. 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. We generally require
that you make the payment within 61 days after the date of the notice. This
61-day period is called the GRACE PERIOD. If we do not receive the specified
minimum payment by the end of the grace period, all coverage under the Policy
will terminate without value.
You may not reinstate this Policy after it has lapsed.
If you purchase the Guaranteed Minimum Death Benefit rider, then no grace
period will begin (and the Policy will not lapse) if there have been no Policy
loans.
See Guaranteed Minimum Death Benefit rider, page___.
FEDERAL INCOME TAX CONSIDERATIONS
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The following summary provides a general description of the 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 under Federal tax law. The
manner in which these requirements are to be applied to certain innovative
features of the Policy are not directly addressed by the Code or the limited
guidance as to how these requirements are to be applied. 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
40
the application of such requirements to the Policy, particularly in the case of
Policies insuring more than one person. If it is subsequently determined that a
Policy does not 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 your 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 separate
account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the owner of the separate account assets
supporting the Policy.
In addition, the Code requires that the investments of the separate
account be "adequately diversified" in order to treat the Policy as a life
insurance contract for Federal income tax purposes. We intend that the separate
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 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. A tax advisor
should be consulted 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 (E.G., by assignment), a
Policy, 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. IN MOST
SITUATIONS, THE POLICIES WILL BE CLASSIFIED AS MECS. There are, however,
certain limited situations where a Policy may not be classified as a MEC. If
you do not want your Policy to be classified as a MEC, a tax advisor should be
consulted to determine the circumstances, if any, under which your Policy would
not be classified as a MEC.
41
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as
MECs are subject to the following tax rules:
/bullet/ All distributions (that is, payouts from the Policy), including
distributions upon surrender and partial withdrawals, will be
treated as ordinary income subject to tax up to an amount equal
to the excess (if any) of the unloaned Cash Value (Net Surrender
Value for surrenders) immediately before the distribution plus
prior distributions over the Owner's total investment in the
Policy at that time. "Total investment in the Policy" means the
aggregate amount of any premiums or other considerations paid for
a Policy, plus any previously taxed distributions, minus any
credited dividends.
/bullet/ Loans taken from or secured by (E.G., by assignment) such a
Policy are treated as distributions and taxed accordingly.
/bullet/ A 10 percent additional income tax is imposed on the amount
included in income except where the distribution or loan is made
when you have attained age 591/2 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.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT
CONTRACTS. Distributions 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 not treated as
distributions.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a MEC are subject to the 10 percent additional tax.
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.
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
42
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.
POSSIBLE TAX LAW CHANGES. While the likelihood of legislative 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
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OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for 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.
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.
SUICIDE EXCLUSION
If the Insured (either Insured if a Joint Policy) 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 withdrawals paid. We will pay this amount to the
beneficiary in one sum.
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the Insured (either Insured if a Joint Policy) was
stated incorrectly in the application or any supplemental application, the
death benefit will be adjusted based on what the initial premium would have
purchased based on the Insured(s) correct age and gender.
MODIFYING THE POLICY
Only our President or Secretary 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.
43
Upon notice to the Owner, we may modify the Policy to:
/arrow/ conform the Policy, our operations, or the separate account's
operations to the requirements of any law (or regulation issued
by a government agency) to which the Policy, our company or the
separate account is subject;
/arrow/ assure continued qualification of the Policy as a life insurance
contract under the Federal tax laws; or
/arrow/ reflect a change in the separate 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 will amend the provision to conform
with such laws.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, partial withdrawal, 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:
/bullet/ the NYSE is closed, other than customary weekend and holiday
closing, or trading on the NYSE is restricted as determined by
the Commission; OR
/bullet/ the Commission permits, by an order, the postponement for the
protection of Owners; OR
/bullet/ the Commission determines that an emergency exists that would
make the disposal of securities held in the separate 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 withdrawals, death benefit proceeds, or payments
under a settlement option until such check or draft has been honored.
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
Owners at their last known address a report showing the following information
as of the end of the report period:
/CHECK MARK/ the current Cash Value /CHECK MARK/ any activity since the last report
/CHECK MARK/ the current Net Surrender Value /CHECK MARK/ projected values
/CHECK MARK/ the current death benefit /CHECK MARK/ investment experience of each subaccount
/CHECK MARK/ any outstanding loans /CHECK MARK/ any other information required by law
You may request additional copies of reports, but we may charge a fee for
such additional copies. In addition, we will send written confirmations of any
premium payments
44
and other financial transactions you request. We also will send copies of the
annual and semi-annual report to shareholders for each Portfolio in which you
are indirectly invested.
RECORDS
We will maintain all records relating to the separate account and the
fixed account.
POLICY TERMINATION
Your Policy will terminate on the earliest of:
/bullet/ the maturity date /bullet/ the end of the grace period
/bullet/ the date the Insured dies (or the /bullet/ the date the Policy is
last of the Joint Insureds dies) surrendered
SUPPLEMENTAL BENEFITS (RIDERS)
The following supplemental benefits (riders) are available and may be
added to a Policy. Monthly charges for these are deducted from Cash Value as
part of the Monthly Policy Charge. The riders available with the Policies
provide fixed benefits that do not vary with the investment experience of the
separate account.
EXTENDED MATURITY DATE. You may request that we extend the Policy's
maturity date (when the Insured (younger Insured, if a Joint Policy) is 100
years old) to the next Policy anniversary. Your request must be in writing and
we must receive it at least 90 days before the scheduled maturity date. If you
want to extend the maturity date beyond the next Policy anniversary, you must
submit an additional written request within 90 days before that Policy
anniversary. Interest on any outstanding loan will continue to accrue during
the period for which the maturity date is extended. All benefits and charges
will continue as set forth in the Policy. Charges and cost of insurance rates
for ages 99 and above will be those in effect at age 99. The tax consequences
of extending the Policy's maturity date beyond age 100 are unclear. A tax
advisor should be consulted before extending the Policy's maturity date.
ACCELERATED DEATH BENEFIT. This rider allows us to pay the death benefit
once we receive satisfactory proof that the Insured has incurred a condition
resulting from illness which a medical doctor has determined will reduce life
expectancy to one year or less.
GUARANTEED MINIMUM DEATH BENEFIT. This rider is described in the Death
Benefit Section. See page .
45
PERFORMANCE DATA
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We are a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
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 Net Surrender
Value of the Policy, we will 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 Net Surrender
Value take into account all charges and deductions from the Policy, the
separate account and the Portfolios.
In preparing the illustrations, we have deducted the Monthly Policy Charge
and the Daily Charge as if the Policy had been in existence. We have assumed
for purposes of deducting the Monthly Policy Charge that the actual historic
rate of return in each calendar year was uniformly earned throughout that year.
The actual performance of the Portfolios, however, varied each day and that
could have affected the charges deducted and the performance illustrated.
For each Portfolio, the illustrations below show an initial premium of
$100,000 and a Specified Amount of $174,000 for a male age 65, non-tobacco
select risk class.
46
The following example shows how the hypothetical net return of the AIM V.I.
Capital Appreciation Fund would have affected benefits for a Policy dated
January 1, 1999. This example assumes that the Net Premiums and related Cash
Values were in the subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
AIM V.I. CAPITAL APPRECIATION FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the AIM V.I.
Government Securities Fund would have affected benefits for a Policy dated
January 1, 1999. This example assumes that the Net Premiums and related Cash
Values were in the subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
AIM VI GOVERNMENT SECURITIES FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the AIM V.I.
Growth & Income Fund would have affected benefits for a Policy dated January 1,
1999. This example assumes that the Net Premiums and related Cash Values were
in the subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
AIM V.I. GROWTH & INCOME FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
47
The following example shows how the hypothetical net return of the AIM V.I.
Value Fund would have affected benefits for a Policy dated January 1, 1999.
This example assumes that the Net Premiums and related Cash Values were in the
subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
AIM V.I. VALUE FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the Dreyfus
Stock Index Fund would have affected benefits for a Policy dated January 1,
1999. This example assumes that the Net Premiums and related Cash Values were
in the subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
DREYFUS STOCK INDEX FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the Dreyfus
Money Market Portfolio would have affected benefits for a Policy dated January
1, 1999. This example assumes that the Net Premiums and related Cash Values
were in the subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
DREYFUS MONEY MARKET PORTFOLIO
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
48
The following example shows how the hypothetical net return of the Dreyfus
Small Company Stock Portfolio would have affected benefits for a Policy dated
January 1, 1999. This example assumes that the Net Premiums and related Cash
Values were in the subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
DREYFUS SMALL COMPANY STOCK PORTFOLIO
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the MFS Emerging
Growth Seires would have affected benefits for a Policy dated January 1, 1999.
This example assumes that the Net Premiums and related Cash Values were in the
subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
MFS EMERGING GROWTH SERIES
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the MFS Foreign
& Colonial Emerging Markets Equity Series would have affected benefits for a
Policy dated January 1, 1999. This example assumes that the Net Premiums and
related Cash Values were in the subaccount for the entire period and that the
values were determined on the first Valuation Date following January 1st of
each year.
MFS FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
49
The following example shows how the hypothetical net return of the MFS Research
Series would have affected benefits for a Policy dated January 1, 1999. This
example assumes that the Net Premiums and related Cash Values were in the
subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
MFS RESEARCH SERIES
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the MFS Total
Return Series would have affected benefits for a Policy dated January 1, 1999.
This example assumes that the Net Premiums and related Cash Values were in the
subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
MFS TOTAL RETURN SERIES
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the MFS
Utilities Series would have affected benefits for a Policy dated January 1,
1999. This example assumes that the Net Premiums and related Cash Values were
in the subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
MFS UTILITIES SERIES
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
50
The following example shows how the hypothetical net return of the Oppenheimer
Global Securities Fund would have affected benefits for a Policy dated January
1, 1999. This example assumes that the Net Premiums and related Cash Values
were in the subaccount for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
OPPENHEIMER GLOBAL SECURITIES FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the Oppenheimer
Growth Fund would have affected benefits for a Policy dated January 1, 1999.
This example assumes that the Net Premiums and related Cash Values were in the
subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
OPPENHEIMER GROWTH FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the Oppenheimer
Growth & Income Fund would have affected benefits for a Policy dated January 1,
1999. This example assumes that the Net Premiums and related Cash Values were
in the subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
OPPENHEIMER GROWTH & INCOME FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
51
The following example shows how the hypothetical net return of the Oppenheimer
High Income Fund would have affected benefits for a Policy dated January 1,
1999. This example assumes that the Net Premiums and related Cash Values were
in the subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
OPPENHEIMER HIGH INCOME FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the Oppenheimer
Strategic Bond Fund would have affected benefits for a Policy dated January 1,
1999. This example assumes that the Net Premiums and related Cash Values were
in the subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
OPPENHEIMER STRATEGIC BOND FUND
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the WRL Emerging
Growth Portfolio would have affected benefits for a Policy dated January 1,
1999. This example assumes that the Net Premiums and related Cash Values were
in the subaccount for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
WRL EMERGING GROWTH PORTFOLIO
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
52
The following example shows how the hypothetical net return of the WRL Growth
Portfolio would have affected benefits for a Policy dated January 1, 1999. This
example assumes that the Net Premiums and related Cash Values were in the
subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
WRL GROWTH PORTFOLIO
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
The following example shows how the hypothetical net return of the WRL Global
Portfolio would have affected benefits for a Policy dated January 1, 1999. This
example assumes that the Net Premiums and related Cash Values were in the
subaccount for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
WRL GLOBAL PORTFOLIO
Male Issue Age 65, $100,000 Single Premium
($174,000 Specified Amount, Non-Tobacco Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
CURRENT GUARANTEED CURRENT GUARANTEED
--------- ------------ --------- -----------
Policy Anniversary on January 1 of 1999 $ $ $ $
Please see Appendix A for full illustrations based on hypothetical rates
of return.
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 Commission
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.
53
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.
All matters of Iowa law pertaining to the Policy have been passed upon by Frank
A. Camp, Vice President and Division General Counsel, PFL Life Insurance
Company.
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 separate 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 separate account.
YEAR 2000 MATTERS
We have in place a Year 2000 Assessment and Planning Project (the "Plan")
to review and analyze existing hardware and software systems, and voice and
data communications systems, to determine if they are Year 2000 compatible. The
Plan provides for a management process which ensures that when a particular
system, or software application, is determined to be "non-complaint," the
proper steps are in place to either remedy the "non-compliance" or cease using
the particular system or software. The Plan also requires the Chief Information
Officer to report to the Board of Directors on a regular and routine basis the
status of efforts under the Plan. We also have engaged the services of a
third-party provider that specializes in Year 2000 issues.
The Plan has four specific objectives:
/bullet/ develop an inventory of all applications
/bullet/ evaluate those applications to determine the most prudent manner
to move them to Year 2000 compliance, if necessary;
/bullet/ estimate budgets, resources and schedules for moving the
applications to Year 2000 compliance; and
/bullet/ define testing and deployment requirements to successfully manage
the changes of any codes.
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 engaging outside third parties, to ensure that the Plan will be
completed.
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). Even with the appropriate and diligent pursuit of
a well-conceived response plan, including testing procedures, there is no
certainty that any company will achieve complete success. Also, the actions (or
failure to act) of third parties beyond our knowledge or control may affect our
ability to function unaffected to and through the Year 2000. See the
Portfolios' prospectuses for information on their preparation for Year 2000.
54
FINANCIAL STATEMENTS
This prospectus does not include financial statements of the separate
account because, as of the date of this prospectus, the separate account had
not yet commenced operations, had no assets, and had incurred no liabilities.
Our financial statements appear on the following pages. Our financial
statements should be distinguished from the separate 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.
55
PFL'S EXECUTIVE OFFICERS AND DIRECTORS
PFL is governed by a board of directors. The following table sets forth
the name, address and principal occupation during the past five years of each
of PFL's executive officers and directors.
BOARD OF DIRECTORS
NAME AND ADDRESS PRINCIPAL OCCUPATION
AND POSITION WITH PFL DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------------
William L. Busler* Director, Chairman of the Board, and President
Director, Chairman of the
Board, and President
- ---------------------------------------------------------------------------------------------------------------
Larry N. Norman* Director, Executive Vice President
Director, Executive Vice President
- ---------------------------------------------------------------------------------------------------------------
Patrick S. Baird* Executive Vice President (1995-present), Chief Operating Officer
Director, Senior Vice (1996-present), Chief Financial Officer (1992-1995), Vice President and
President, and Chief Chief Tax Officer (1984-1995) of AEGON USA.
Operating Officer
- ---------------------------------------------------------------------------------------------------------------
Douglas C. Kolsrud* Director, Senior Vice President, Chief Investment Officer and
Director, Senior Vice Corporate Actuary
President, Chief Investment
Officer and Corporate Actuary
- ---------------------------------------------------------------------------------------------------------------
Craig D. Vermie Director, Vice President, Secretary and General Counsel
Director, Vice President,
Secretary and General Counsel
<FN>
* Located at PFL Life Insurance Company, 4333 Edgewood Road, NE, Cedar Rapids,
IA 52449.
</FN>
The following table gives the name, address and principal occupation during the
past five years of the senior officers of PFL (other than officers listed above
as directors).
SENIOR OFFICERS
NAME AND ADDRESS PRINCIPAL OCCUPATION
AND POSITION WITH PFL DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------
Robert J. Kontz Vice President and Corporate Controller
Vice President and Corporate
Controller
- ----------------------------------------------------------------------------------------
Brenda K. Clancy Vice President, Treasurer and Chief Financial Officer
Vice President, Treasurer and
Chief Financial Officer
- ----------------------------------------------------------------------------------------
<FN>
* Located at PFL Life Insurance Company, 4333 Edgewood Road, NE, Cedar Rapids,
IA 52449.
</FN>
56
PFL holds the assets of the separate 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 issued to AEGON
U.S. Holding Corporation ("AEGON U.S.") in the amount of $5 million (subject to
a $1 million deductible), covering all of the employees of AEGON U.S. and its
affiliates, including PFL. A Stockbrokers Blanket Bond, issued to AEGON U.S.A.
Securities, Inc. providing fidelity coverage, covers the activities of
registered representatives of AFSG to a limit of $12 million.
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
PFL established the separate account as a separate investment account
under Iowa law in 1998. PFL owns the assets in the separate account and is
obligated to pay all benefits under the Policies. The separate account may be
used to support other variable life insurance policies of PFL. The separate
account is registered with the 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.
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 Net Surrender Value under a Policy covering a male
Insured of age 65 on the Policy Date, would change over time if the single
premium was 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 the premium accumulated at 5% interest. 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 and daily charges, the Portfolios' expense ratios, your Policy loan and
withdrawal history, and rates of inflation.
The illustrations assume that the assets in the Portfolios are subject to
an annual expense ratio of 0.__% 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 take into account current expense
reimbursement arrangements. For information on Portfolio expenses, see the
Funds' prospectuses.
57
The illustrations also reflect the Monthly Policy Charge and the Daily
Charge for the hypothetical Insured. 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 may have the contractual right to
charge. The illustrations assume that no Policy loans have been taken and
assume no charges for Federal or state taxes or charges for supplemental
benefits.
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 separate account of -1.45%, 4.55% and 10.55%,
respectively.
[THE ILLUSTRATIONS ARE BASED ON PFL'S GENDER DISTINCT RATES FOR
NON-TOBACCO USERS. UPON REQUEST, PFL 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.]
58
Index to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PFL LIFE INSURANCE COMPANY
Report of Independent Auditors dated February__, 1999.
Statutory-Basis Balance sheets at December 31, 1998 and 1997.
Statutory-Basis Statements of Operations for the years ended December 31, 1998,
1997 and 1996.
Statutory-Basis Statements of Changes in Capital and Surplus for the years
ended December 31, 1998, 1997, and 1996.
Statutory-Basis Statements of Cash Flows for the years ended December 31, 1998,
1997, and 1996.
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
59
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 58 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
II-1
(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
(a) Individual Policy Form (VL20)
(b) Joint Policy Form (JL20)
(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
(b) Among AIM Variable Insurance Funds, Inc., PFL Life and AFSG
Securities Corporation (4)
(c) Among PFL Life and Dreyfus Variable Investment Fund (4)
(d) Amendment to Participation Agreement Among PFL Life and
Dreyfus Variable Investment Fund
(e) Amendment to Participation Agreement Among Oppenheimer
Variable Account Funds, Oppenheimerfunds, Inc. and PFL Life
(f) Among Oppenheimer Variable Account Funds, Oppenheimerfunds,
Inc. and PFL Life (4)
(g) Among WRL Series Fund, Inc. and PFL Life 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)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance Policy
(6)
(11) Memorandum describing issuance, transfer and redemption
procedures (6)
2. See Exhibit 1.A.
3. Opinion of Counsel as to the legality of the securities being registered
(6)
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 (6)
7. Consent of Frank A. Camp, Esq. (6)
8. Consent of Sutherland Asbill & Brennan LLP (6)
9. Consent of Ernst & Young LLP (6)
10. Powers of Attorney
- ----------------------------------------
(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.
II-2
(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 333-7509) 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 333-7509) filed on December 6,
1996 and is hereby incorporated by reference.
(6) To be filed by Amendment.
II-3
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 November, 1998.
(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 November 27, 1998
- ----------------------------
Patrick S. Baird
/s/ CRAIG D. VERMIE Director November 27, 1998
- ----------------------------
Craig D. Vermie
/s/ WILLIAM L. BUSLER Director November 27, 1998
- ---------------------------- (Principal Executive
William L. Busler Officer)
/s/ LARRY N. NORMAN Director November 27, 1998
- ----------------------------
Larry N. Norman
/s/ DOUGLAS C. KOLSRUD Director November 27, 1998
- ----------------------------
Douglas C. Kolsrud
/s/ ROBERT J. KONTZ Corporate Controller November 27, 1998
- ----------------------------
Robert J. Kontz*
/s/ BRENDA K. CLANCY Treasurer November 27, 1998
- ----------------------------
Brenda K. Clancy
* Principal Accounting Officer
Exhibit Index
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- -----------
1.A.(1) Resolutions of the Board of Directors of PFL Life
establishing the Separate Account
1.A.(5)(a) Individual Specimen Flexible Variable Life Insurance Policy
1.A.(5)(b) Joint Specimen Flexible Variable Life Insurance Policy
1.A.(8)(a) Participation Agreement Among MFS Variable Insurance Funds,
Inc., PFL Life and Massachusetts Financial Services Company
1.A.(8)(d) Amendment to Participation Agreement Among PFL Life and
Dreyfus Variable Investment Fund
1.A.(8)(e) Amendment to Participation Agreement Among Oppenheimer
Variable Account Funds, Oppenheimerfunds, Inc. and PFL Life
10 Powers of Attorney