<PAGE>
PFL Endeavor Target Account
Semi-Annual Report
June 30, 1999
<PAGE>
Policyholder Letter
Dear Valued Policyholder:
We are pleased to present you with the market activity information on PFL
Endeavor Target Account for the period ending June 30, 1999. We hope that you
will find the underlying investment information interesting and informative.
This correspondence is also an opportunity to remind you that we welcome your
comments and ideas as to how we can serve you even better. If you have any
questions or comments, please call the Variable Annuity Department at 800-525-
6205.
You can be assured of our continuing commitment to providing quality products
and excellent service to our policyholders.
Sincerely yours,
[SIGNATURE APPEARS HERE]
Vincent J. McGuinness, Jr.
President and Chief Executive Officer
PFL Target Account
-1-
<PAGE>
Portfolio Manager Letter
First Trust Advisors, L.P.
Our 1999 forecast is for a noninflationary U.S. economy. This will result in
twin pillars of investment opportunity of good stock markets and bond markets.
Wholesale prices were down in June, although they showed some pressure in the
raw materials stage of production. U.S. consumer prices was unchanged in May
for the first time in 14 months, following a 0.7% surge in April. In June, the
CPI was unchanged. The main components of the decrease were lower oil cost and
airline ticket prices.
Year-to-date, July 16, 1999, the Dow Jones Industrial Average is up 21.93%, the
S&P 500 is up 15.16% and the Nasdaq Composite Index is up 30.66%. The year-to-
date Bloomberg/EFFAS Government Bond Indices performance for U.S. Treasuries
maturing from 1 to 3 years are up 1.47% and for all U.S. Treasuries maturing in
10 years or more are down -5.578%.
Our 1999 forecast is for corporate profits to be modestly positive in 99 as
measured by the S&P 500 companies. Although we don't expect significant
increases in plant and equipment investment, we believe the U.S. consumer,
foreign demand and some inventory increases will result in an average real 1999
average GDP of approximately 3.5% with the first half stronger than the second
half. Inflation should be held in check with CPI averaging 2.25%. Interest
rates will trade around the 5.5% level for the 30-year bond by the end of the
year, the 3 month bill will trade at 4.6% and Federal funds rate will trade
near its current 5.0% target rate.
Two economic camps have staked their territory for 1999 forecasts:
"accelerating inflation" and "accelerating productivity". The former group
looks at robust GDP, low unemployment, and recovering Asian economies as
reasons to anticipate inflation which will translate into higher interest rates
and lower equity prices. In large part the accelerating productivity group
agrees with the robust first half GDP scenario. However, the "accelerating
productivity" group sees continuing productivity gains providing a low
inflation environment resulting in even lower interest rates than today.
Moreover, they see foreign economies, with depressed currencies, maintaining
intense price competition on U.S. manufacturers of finished goods. Our 1999
forecast is premised upon accelerating productivity.
Notwithstanding the "accelerating productivity" group's conclusion of "don't
worry, be happy", on June 30th, Chairman Greenspan took back the Asian crisis-
induced easing, and deployed at least one dose of post-crisis medicine to
vaccinate the economy from inflation risks caused by too much growth.
Continuing on his "irrational exuberance" theme, Chairman Greenspan and the
FOMC raised the Fed. Funds rate .25% to 5.0%. The Fed, in our view, had little
rationale for tightening. Our belief is based on two conclusions regarding the
U.S economy: 1) inflation is well contained; and, 2) the U.S. non-inflationary
growth rate is above the Fed's 3.0% target.
The Producer Price Index, has been benign last year and this year, save the
March-April oil price increase and some recent commodity price increases. The
first quarter, 1999 saw an average CPI of 1.5%. Although the April monthly CPI
came in at up 0.7% due primarily to oil price increases, May and June both came
in without any increase. With 1998 CPI averaging slightly over 1.5%, we do not
see an inflationary "clear and present danger", ex post.
If there is no evidence of existing inflation, then what is the case for
anticipating inflationary pressure in the U.S. economy? Because the economy has
been growing at a 4% rate, the Fed believes that the economy is
-2-
<PAGE>
growing 1% above its noninflationary rate. They arrive at this conclusion by
adding the labor market growth, 1%, to the productivity growth, 2.0%. The
excess growth is deemed by Chairman Greenspan as the "wealth effect" caused by
the significant increases in stock market values. However, this supposes that
not only labor market growth is measurable but that productivity is measurable.
While the productivity of a largely manufacturing economy is difficult to
measure, the productivity increases of a service and technology driven economy
as the U.S. has become is virtually impossible to measure. For example, Barnes
& Noble, the book sellers, have 1998 sales/employee of approximately $100,000.
A much more technology, read internet, driven company called Amazon.com had
1998 sales/employee of $375,000. Amazon's 3-year average productivity increase
exceeded 50%. We believe, from this and other examples, that the productivity
gains in the economy far exceed the targeted 2% gains, albeit as yet only
anecdodally measurable. Therefore, companies are managing to cover increased
costs by increasing efficiency rather than increasing prices.
As is usually the case, economists look at the same data and reach differing
conclusions. So we, as investors, must look at the economic winds and decide
whether they are a portend of a summer breeze or a stormy blow. From our
economic conclusions, we can bias our portfolio to our conclusions while not
betting on them. Through this bias from our neutral allocation we can add
performance to the portfolio return while not significantly under-performing if
our economic overlay is incorrect. After implementing our portfolio bias, the
markets need to be monitored to validate or vary our bias while keeping our
neutral allocation close at hand.
First Trust Advisors, L.P.
Information contained above is based on our opinions and may be changed without
notice. Statistical information has been taken from sources deemed reliable but
is not guaranteed.
-3-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 5--July Series Subaccount
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK--96.3%
Automotives--19.2%
Delphi Automotive Systems Corporation.................... 33,604 $ 623,771
General Motors Corporation............................... 48,690 3,213,540
-----------
3,837,311
-----------
Consumer Products--16.6%
Philip Morris Companies, Inc. ........................... 82,498 3,315,388
-----------
Machinery--18.5%
Caterpillar, Inc. ....................................... 61,516 3,690,960
-----------
Paper & Paper Products--19.1%
International Paper Company.............................. 75,639 3,819,769
-----------
Telecommunications--22.9%
AT&T Corporation......................................... 82,162 4,585,667
-----------
Total Common Stock
(Cost $17,500,726)............................................. 19,249,095
-----------
TOTAL INVESTMENTS
(Cost $17,500,726*)....................................... 96.3% 19,249,095
OTHER ASSETS AND LIABILITIES (Net)......................... 3.7% 732,168
------ -----------
NET ASSETS................................................. 100.0% $19,981,263
====== ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-4-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 10--July Series Subaccount
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK--96.2%
Automotives--9.9%
Delphi Automotive Systems Corporation.................... 12,161 $ 225,746
General Motors Corporation............................... 18,202 1,201,332
-----------
1,427,078
-----------
Consumer Products--8.7%
Philip Morris Companies, Inc. ........................... 30,902 1,241,874
-----------
Diversified Manufacturing--9.0%
Minnesota Mining & Manufacturing Company................. 14,794 1,286,153
-----------
Financial Services--10.2%
J.P. Morgan & Company, Inc. ............................. 10,386 1,459,233
-----------
Machinery--9.6%
Caterpillar, Inc. ....................................... 23,001 1,380,060
-----------
Miscellaneous Manufacturing Industries--7.9%
Eastman Kodak Company.................................... 16,646 1,127,767
-----------
Oil & Gas Extraction--9.2%
Exxon Corporation........................................ 17,055 1,315,367
-----------
Paper & Paper Products--10.0%
International Paper Company.............................. 28,288 1,428,544
-----------
Petroleum Refining--9.7%
Chevron Corporation...................................... 14,646 1,394,116
-----------
Telecommunications--12.0%
AT&T Corporation......................................... 30,975 1,728,792
-----------
Total Common Stock
(Cost $12,426,471)...................................... 13,788,984
-----------
TOTAL INVESTMENTS
(Cost $12,426,471*)....................................... 96.2% 13,788,984
OTHER ASSETS AND LIABILITIES (Net)......................... 3.8% 550,085
------ -----------
NET ASSETS................................................. 100.0% $14,339,069
====== ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-5-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 5--January Series Subaccount
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK--94.6%
Consumer Products--12.4%
Philip Morris Companies, Inc. ............................ 27,720 $1,113,997
----------
Diversified Chemicals--21.3%
duPont (E.I.) de Nemours & Company........................ 27,948 1,909,198
----------
Diversified Manufacturing--20.2%
Minnesota Mining & Manufacturing Company.................. 20,842 1,811,951
----------
Machinery--21.5%
Caterpillar, Inc.......................................... 32,227 1,933,620
----------
Tires & Rubber--19.2%
Goodyear Tire & Rubber Company............................ 29,399 1,729,029
----------
Total Common Stock
(Cost $7,759,208)........................................ 8,497,795
----------
TOTAL INVESTMENTS
(Cost $7,759,208*)......................................... 94.6% 8,497,795
OTHER ASSETS AND LIABILITIES (Net).......................... 5.4% 484,576
------ ----------
NET ASSETS.................................................. 100.0% $8,982,371
====== ==========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-6-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 10--January Series Subaccount
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK--93.7%
Automotives--8.9%
Delphi Automotive Systems Corporation..................... 5,487 $ 101,858
General Motors Corporation................................ 10,106 666,996
----------
768,854
----------
Consumer Products--6.2%
Philip Morris Companies, Inc. ............................ 13,528 543,656
----------
Diversified Chemicals--10.7%
duPont (E.I.) de Nemours & Company........................ 13,628 930,963
----------
Diversified Manufacturing--10.2%
Minnesota Mining & Manufacturing Company.................. 10,174 884,502
----------
Financial Services--11.1%
J.P. Morgan & Company, Inc. .............................. 6,879 966,500
----------
Machinery--10.8%
Caterpillar, Inc. ........................................ 15,732 943,920
----------
Miscellaneous Manufacturing Industries--7.8%
Eastman Kodak Company..................................... 10,048 680,752
----------
Oil & Gas Extraction--8.8%
Exxon Corporation......................................... 9,897 763,306
----------
Petroleum Refining--9.5%
Chevron Corporation....................................... 8,726 830,606
----------
Tires & Rubber--9.7%
Goodyear Tire & Rubber Company............................ 14,343 843,548
----------
Total Common Stock
(Cost $7,642,207)........................................ 8,156,607
----------
TOTAL INVESTMENTS
(Cost $7,642,207*)......................................... 93.7% 8,156,607
OTHER ASSETS AND LIABILITIES (Net).......................... 6.3% 544,018
------ ----------
NET ASSETS.................................................. 100.0% $8,700,625
====== ==========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-7-
<PAGE>
Statement of Assets and Liabilities
PFL Endeavor Target Account
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Total Subaccount Subaccount Subaccount Subaccount
----------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Investment in
securities, at market
value $49,692,481 $19,249,095 $13,788,984 $8,497,795 $8,156,607
Cash 2,246,742 694,551 526,065 486,066 540,060
Dividends and/or
interest receivable 122,006 57,752 38,011 10,618 15,625
Fund subscription
receivable 238,611 -- 4,380 215,710 18,522
----------- ----------- ----------- ---------- ----------
Total assets $52,299,849 $20,001,399 $14,357,439 $9,210,189 $8,730,823
=========== =========== =========== ========== ==========
Liabilities and
contract owners'
equity
Liabilities:
Management fee payable $ 30,141 $ 12,168 $ 8,445 $ 4,732 $ 4,796
Accrued Expenses
payables 19,630 6,597 4,545 4,301 4,187
Fund redemption payable 6,037 6,037
----------- ----------- ----------- ---------- ----------
Total liabilities 55,808 24,802 12,990 9,033 8,983
Deferred annuity
contracts terminable
by owners 52,244,042 19,976,597 14,344,449 9,201,156 8,721,840
----------- ----------- ----------- ---------- ----------
Total liabilities and
contract owner's
equity $52,299,849 $20,001,399 $14,357,439 $9,210,189 $8,730,823
=========== =========== =========== ========== ==========
</TABLE>
Contract owners' equity
See accompanying notes
-8-
<PAGE>
Statement of Operations
PFL Endeavor Target Account
For the Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Total Subaccount Subaccount Subaccount Subaccount
---------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net investment income
Investment income:
Dividends $ 473,130 $ 214,360 $ 159,995 $ 49,087 $ 49,688
Interest -- -- -- -- --
---------- ---------- ---------- -------- --------
Total investment
income 473,130 214,360 159,995 49,087 49,688
---------- ---------- ---------- -------- --------
Expenses:
Investment management
fee 139,466 64,577 45,808 14,745 14,336
Administration fees 19,836 4,959 4,959 4,959 4,959
Custodian fees 16,404 4,763 4,419 3,510 3,712
Transfer agent fees 84 47 33 2 2
Legal fees 11,128 5,808 4,600 360 360
Audit fees 6,357 2,339 1,984 1,017 1,017
Trustee fees and
expenses 4,424 2,429 1,775 110 110
Printing 16,173 6,504 3,223 3,223 3,223
Other 6,850 2,046 2,048 1,378 1,378
Policy Fees 1,671 1,197 286 181 7
Mortality and expense
risk charge 287,200 132,310 94,466 30,270 30,154
---------- ---------- ---------- -------- --------
Total gross expenses 509,593 226,979 163,601 59,755 59,258
Less:
Waiver/reimbursement
from investment
manager (6,610) -- -- (3,180) (3,430)
Credits allowed by
custodian (10,674) (4,005) (41) (3,213) (3,415)
---------- ---------- ---------- -------- --------
Total net expenses 984,618 222,974 163,560 53,362 52,413
---------- ---------- ---------- -------- --------
Net investment
income (19,179) (8,614) (3,565) (4,275) (2,725)
---------- ---------- ---------- -------- --------
Net realized capital
gain/(loss) on
investments 356,737 328,506 25,438 (6,626) 9,419
Net change in
unrealized
appreciation of
investments:
Beginning of the
period 1,609,611 1,220,253 389,358 -- --
End of the period 4,363,870 1,748,370 1,362,513 738,587 514,400
---------- ---------- ---------- -------- --------
Net change in
unrealized
appreciation of
investments 2,754,259 528,117 973,155 738,587 514,400
---------- ---------- ---------- -------- --------
Net realized and
unrealized capital
gain/(loss) from
investments 3,110,996 856,623 998,593 731,961 523,819
---------- ---------- ---------- -------- --------
Net unrealized
appreciation from
investments
Increase from
operations $3,091,817 $ 848,009 $ 995,028 $727,686 $521,094
========== ========== ========== ======== ========
</TABLE>
See accompanying notes
-9-
<PAGE>
Statement of Changes in Contract Owners' Equity
PFL Endeavor Target Account
For the Six Months Ended June 30, 1999 (Unaudited) and
For the Period July 1, 1998 (commencement of operations) through December 31,
1998
<TABLE>
<CAPTION>
Dow Target 5
July Series
Total Subaccount
------------------------ ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Operations
Net investment
income............... $ (19,179) $ 10,261 $ (8,614) $ 4,821
Net change in
unrealized
appreciation of
investments.......... 2,754,259 1,609,611 528,117 1,220,253
----------- ----------- ----------- --------------
Increase from
operations........... 3,091,817 1,619,872 848,009 1,225,074
----------- ----------- ----------- --------------
Contract transactions
Net contract purchase
payments............. 16,630,394 16,360,693 2,619,902 9,410,629
Transfer payments from
other subaccounts or
general account...... 8,898,338 6,753,903 2,666,023 3,801,466
Contract terminations,
withdrawals, and
other deductions..... (855,098) (250,135) (409,688) (180,568)
----------- ----------- ----------- --------------
Increase from contract
transactions......... 24,673,634 22,864,461 4,876,237 13,031,527
----------- ----------- ----------- --------------
Net increase in
contract owners'
equity............... 27,765,451 24,484,333 5,724,246 14,256,601
Beginning of the
period............... 24,478,591 -- 14,252,351 --
----------- ----------- ----------- --------------
End of the period..... $52,244,042 $24,484,333 $19,976,597 $14,256,601.00
=========== =========== =========== ==============
</TABLE>
Contract owner's equity
See accompanying notes
-10-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Dow Target 10 Dow Target 5 Dow Target 10
July Series January Series January Series
Subaccount Subaccount Subaccount
- ------------------------------ ----------------------- -----------------------
<CAPTION>
1999 1998 1999 1998 1999 1998
- ----------- -------------- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C>
$ (3,565) $ 5,440 $ (4,275) $ -- $ (2,725) $ --
973,155 389,358 738,587 -- 514,400 --
- ----------- -------------- ---------- ----- ---------- -----
995,028 394,798 727,686 -- 521,094 --
- ----------- -------------- ---------- ----- ---------- -----
2,164,757 6,950,064 5,877,326 -- 5,968,409 --
1,319,685 2,952,437 2,649,395 -- 2,263,235 --
(361,261) (69,567) (53,251) -- (30,898) --
- ----------- -------------- ---------- ----- ---------- -----
3,123,181 9,832,934 8,473,470 -- 8,200,746 --
- ----------- -------------- ---------- ----- ---------- -----
4,118,209 10,227,732 9,201,156 -- 8,721,840 --
10,226,240 -- -- -- -- --
- ----------- -------------- ---------- ----- ---------- -----
$14,344,449 $10,227,732.00 $9,201,156 $ -- $8,721,840 $ --
=========== ============== ========== ===== ========== =====
</TABLE>
-11-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
June 30, 1999 (Unaudited)
1.Organization and Summary of Significant Accounting Policies
Organization:
The PFL Endeavor Target Account (the Target Account) is a segregated investment
subaccount of PFL Life Insurance Company (PFL Life), an indirect wholly-owned
subsidiary of AEGON N.V., a holding company organized under the laws of The
Netherlands.
The Target Account is registered with the Securities and Exchange Commission
(SEC) as an open-end management investment company pursuant to provisions of
the Investment Company Act of 1940. The SEC, however, does not supervise the
management or the investment practices or policies of the Target Account. The
Target Account is currently divided into four investment subaccounts, Dow
Target 5--January Series, Dow Target 10--January Series, Dow Target 5--July
Series and Dow Target 10--July Series. Investment activity in these investment
subaccounts is available for investment to contract owners of The Endeavor
Variable Annuity, The Endeavor Platinum Variable Annuity, and The Endeavor ML
Variable Annuity (the Variable Annuities), issued by PFL Life. Net purchase
payments received by the Target Account for the Variable Annuities are invested
in the subaccounts as selected by the contract owner. The Target 5--January
Series and the Target 10--January Series commenced operations on January 4,
1999. The Target 5--July Series and Target 10--July Series commenced operations
on July 1, 1998.
Portfolio Valuation:
The Target Account's investments are valued at market value as determined using
the last reported sale price at the close of the New York Stock Exchange on
June 30, 1999.
Securities Transactions and Investment Income:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments are credited or charged to contract owners equity.
Concentration of Risk:
An investment in the Target Account may be subject to additional risk due to
the relative lack of diversity in its portfolio.
Income Taxes:
Operations of the Target Account form a part of PFL Life, which is taxed as a
life insurance company under Subchapter L of the Internal Revenue Code of 1986,
as amended (the "Code"). The operations of the Target Account are accounted for
separately from other operations of PFL Life for purposes of federal income
taxation. The Target Account is not separately taxable as a regulated
investment company under Subchapter M of the Code and is not otherwise taxable
as an entity separate from PFL Life. Under existing federal income tax laws,
the income of the Target Account, to the extent applied to increase reserves
under the variable annuity contracts, is not taxable to PFL Life.
2.Fees and Expenses
The Target Account is managed by Endeavor Investment Advisers (the "Investment
Manager") pursuant to a management agreement. The Investment Manager is a
general partnership of which Endeavor Management Co.
-12-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
June 30, 1999 (Unaudited)
2.Fees and Expenses (continued)
is the managing partner. The limited partner in the Investment Manager is AUSA
Financial Markets, Inc., an affiliate of PFL Life. The Investment Manager is
responsible for providing investment management and administrative services to
the Target Account. First Trust Advisers L.P. (the Adviser) is the Account's
investment Adviser. As compensation for these services, the Target Account pays
the Investment Manager a monthly fee based on a percentage of the average daily
net assets at the annual rate of 0.75% for each Subaccount. In addition, the
Investment Manager pays the Adviser a fee equal to 0.35% of the average daily
net assets.
The Subaccounts pay all expenses not assumed by the Investment Manager. First
Data Investor Services Group, Inc. (Investor Services Group), a wholly-owned
subsidiary of First Data Corporation, serves as Administrator to the
Subaccounts and is paid a flat fee of $10,000 per annum for each Subaccount.
Investor Services Group also serves as the Fund's transfer agent.
From time to time the Investment Manager may waive a portion or all of the fees
otherwise payable to it and/or reimburse the Target Account for expenses. The
Investment Manager has voluntarily undertaken to waive its fees and has agreed
to bear certain expenses to ensure that total expenses do not exceed 1.30% of
the Subaccount's average daily net assets. For the period ended June 30, 1999,
the Investment Manager waived and reimbursed expenses of $6,610. Boston Safe
Deposit and Trust Company (BSDT), an indirect wholly-owned subsidiary of Mellon
Bank Corporation, serves as the Subaccount's custodian. BSDT has agreed to
compensate the Target Account and decrease custody fees for cash balances left
uninvested by each Subaccount. For the period ended June 30, 1999, the Target
Account's expenses were reduced by a total of $10,674.
No director, officer or employee of the Investment Manager, Endeavor Management
Co., the Advisers or Investor Services Group received any compensation from the
Fund for serving as an officer or Trustee of the Fund. The Target Account pays
each Trustee who is not a director, officer or employee of the Investment
Manager, Endeavor Management Co., the Advisers, Investor Services Group or any
of their affiliates $1,000 per annum plus $100 per regularly scheduled meeting
attended and reimburses them for travel and out-of-pocket expenses.
Policy fees include an annual charge of the lesser of 2% of the policy value or
$35 per contract which will commence on the first policy anniversary of each
contract owner's account. For policies issued on or after May 1, 1995, the fee
is waived if the sum of the premium payments less the sum of all partial
withdrawals is at least $50,000 on the policy anniversary. Charges for
administrative fees to the variable annuity contracts are an expense of the
Target Account.
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annually Compounding Death Benefit and the Annual Step-Up
Death Benefit, this charge is equal to an effective annual rate of 1.25% of the
value of the contract owners' individual account. For the Return of Premium
Death Benefit, the corresponding charge is equal to an effective annual rate of
1.10% of the value of the contract owners' individual account. PFL Life also
deducts a daily administrative charge equal to an annual rate of .15% of the
contract owners' account for administrative expenses. For certain policies of
Endeavor Variable Annuity and of Endeavor ML Variable annuity sold on or after
May 1, 1997, during the first seven policy years, PFL deducts a daily
Distribution Finance Charge equal to an effective annual rate of .15% of the
contract owners' account. For, the Endeavor Platinum Variable Annuity, during
the first ten policy years, PFL Life deducts a daily distribution financing
charge equal to an annual rate of .25% of the value of the contract owners'
account.
-13-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
June 30, 1999 (Unaudited)
3.Securities Transactions
Purchases and proceeds from sales of securities, excluding short term
investments, for the perioed ended June 30, 1999 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
---------- ----------
<S> <C> <C>
Dow Target 5--July Series Subaccount $6,549,989 $2,719,329
Dow Target 10--July Series Subaccount 3,020,847 889,980
Dow Target 5--January Series Subaccount 8,902,336 1,136,502
Dow Target 10--January Series Subaccount 7,854,197 221,409
</TABLE>
Net unrealized appreciation of investments at June 30, 1999 was composed of the
following:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Appreciation
------------ -------------- ------------
<S> <C> <C> <C>
Dow Target 5--July Series Subaccount $2,287,137 $(538,768) $1,748,369
Dow Target 10--July Series Subaccount 1,754,012 (391,499) 1,362,513
Dow Target 5--January Series
Subaccount 738,587 -- 738,587
Dow Target 10--January Series
Subaccount 586,256 (71,856) 514,400
</TABLE>
-14-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
June 30, 1999 (Unaudited)
4.Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at June 30, 1999
follows:
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit or
Return of Premium Death Benefit Annual Step-Up Death Benefit
------------------------------------------ -----------------------------------------
Accumulation Accumulation Total Accumulation Accumulation Total
Units Owned Unit Value Contract Value Units Owned Unit Value Contract Value
--------------------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Dow Target 5 July Series Subaccount:
PFL Endeavor Variable
Annuity 2,866,667.714 $1.188454 $3,406,903 6,534,007.906 $1.186696 $ 7,753,881
PFL ML Endeavor
Variable Annuity 245,429.371 1.188454 291,682 877,254.574 1.186696 1,041,034
Platinum Endeavor
Variable Annuity 2,258,503.438 1.187277 2,681,469 4,050,195.188 1.185530 4,801,628
---------- -----------
$6,380,054 $13,596,543
========== ===========
Dow Target 10 July Series Subaccount:
PFL Endeavor Variable
Annuity 2,170,152.023 $1.124325 $2,439,956 3,280,738.888 $1.122664 $ 3,683,167
PFL ML Endeavor
Variable Annuity 373,181.197 1.124325 419,577 1,887,732.694 1.122664 2,119,290
Platinum Endeavor
Variable Annuity 653,109.970 1.123217 733,584 4,412,492.708 1.121560 4,948,875
---------- -----------
$3,593,117 $10,751,332
========== ===========
Dow Target 5 January Series Subaccount:
PFL Endeavor Variable
Annuity 1,983,751.765 $1.127398 $2,236,478 2,406,365.574 $1.126592 $ 2,710,992
PFL ML Endeavor
Variable Annuity 27,699.502 1.127398 31,228 874,714.721 1.126592 985,447
Platinum Endeavor
Variable Annuity 529,401.396 1.126857 596,560 2,344,864.285 1.126057 2,640,451
---------- -----------
$2,864,266 $ 6,336,890
========== ===========
Dow Target 10 January Series
Subaccount:
PFL Endeavor Variable
Annuity 1,315,618.661 $1.110510 $1,461,008 1,812,584.090 $1.109715 $ 2,011,452
PFL ML Endeavor
Variable Annuity 231,978.077 1.110510 257,614 1,014,711.252 1.109715 1,126,040
Platinum Endeavor
Variable Annuity 551,571.89 1.109974 612,230 2,933,244.02 1.109180 3,253,496
---------- -----------
$2,330,852 $ 6,390,988
========== ===========
</TABLE>
-15-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
June 30, 1999 (Unaudited)
4.Contract Owners' Equity (continued)
At June 30, 1999 contract owners' equity was comprised of:
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Total Subaccount Subaccount Subaccount Subaccount
----------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Unit transactions,
accumulated net
investment income and
realized capital gains $47,880,163 $18,228,227 $12,981,937 $8,462,569 $8,207,431
Adjustment for
appreciation/
depreciation to market
value 4,363,870 1,748,370 1,362,513 738,587 514,400
----------- ----------- ----------- ---------- ----------
Total Contract Owners'
Equity $52,244,033 $19,976,596 $14,344,450 $9,201,156 $8,721,831
=========== =========== =========== ========== ==========
</TABLE>
A summary of changes in contract owners' account units follows
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Units outstanding--prior
year -- -- -- --
Units purchased--prior
year 9,327,979 7,452,618 -- --
Units redeemed and
transferred--prior year 3,385,907 2,438,951 -- --
---------- ---------- --------- ---------
Units outstanding--prior
year 12,713,886 9,891,569 -- --
Units purchased--current
year 2,224,308 2,025,909 5,869,059 5,828,221
Units redeemed and
transferred--current
year 1,893,864 859,930 2,297,739 2,031,487
---------- ---------- --------- ---------
Units outstanding--
current year 16,832,058 12,777,408 8,166,798 7,859,708
========== ========== ========= =========
</TABLE>
5.Year 2000 (Unaudited)
The term Year 2000 Issue generally refers to the improper processing of dates
and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
The Company has developed a Year 2000 Project Plan (the Plan) to address the
Year 2000 issue as it affects the Company's internal IT and non-IT systems, and
to assess Year 2000 issues relating to third parties with whom the Company has
critical relationships.
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected systems and equipment; remediation
of identified systems and equipment; internal testing and certification that
each internal system is Year 2000 compliant; and a review of existing and
revised business resumption and contingency
-16-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
June 30, 1999 (Unaudited)
5.Year 2000 (Unaudited) (continued)
plans to address potential Year 2000 issues. The Company has remediated and
tested substantially all of its mission-critical internal IT systems as of
December 31, 1998. The Company continues to remediate and test certain non-
critical internal IT systems, internal non-IT systems and will continue with a
revalidation testing program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its systems
interface with other systems not under the Company's control. The Company's
most significant interfaces and uses of third-party vendor systems are in the
bank, financial services and trust areas. The Company utilizes various banks to
handle numerous types of financial and sales transactions. Several of these
banks also provide trustee and custodial services for the Company's investment
holdings and transactions. These services are critical to a financial services
company such as the Company as its business centers around cash receipts and
disbursements to policyholders and the investment of policyholder funds. The
Company has received written confirmation from its vendor banks regarding their
status on Year 2000. The banks indicate their dedication to resolving any Year
2000 issues related to their systems and services prior to December 31, 1999.
The Company anticipates that a considerable effort will be necessary to ensure
that its corrected or new systems can properly interface with those business
partners with whom it transmits and receives data and other information
(external systems). The Company has undertaken specific testing regimes with
these third-party business partners and expects to continue working with its
business partners on any interfacing of systems. However, the timing of
external system compliance cannot currently be predicted with accuracy because
the implementation of Year 2000 readiness will vary from one company to
another.
The Company does have some exposure to date sensitive embedded technology such
as micro-controllers, but the Company views this exposure as minimal. Unlike
other industries that may be equipment intensive, like manufacturing, the
Company is a life insurance, and financial services organization providing
insurance, annuities and pension products to its customers. As such, the
primary equipment and electronic devices in use are computers and telephone
related equipment. This type of hardware can have date sensitive embedded
technology which could have Year 2000 problems. Because of this exposure, the
Company has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is in
the process of replacing any equipment that will not properly process date
sensitive data in the Year 2000 or beyond. This undertaking has been
substantially completed for all operations including the Company.
For the Company, a reasonably likely worst case scenario might include one or
more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could experience
an interruption in the ability to collect and process premiums or deposits,
process claim payments, accurately maintain policyholder information,
accurately maintain accounting records, and or perform adequate customer
service. Should the worst case scenario occur, it could, dependent upon its
duration, have a material impact on the Company's business and financial
condition. Simple failures can be repaired and returned to production within a
matter of hours with no material impact. Unanticipated failures with a longer
service disruption period could have a more serious impact. For this reason,
the Company is placing significant emphasis on risk management and Year 2000
business resumption contingency planning in 1999 by modifying its existing
business resumption and disaster recovery plans to address potential Year 2000
issues.
The actions taken by management under the Year 2000 Project Plans are intended
to significantly reduce the Company's risk of a material business interruption
based on the Year 2000 issues. It should be noted that the
-17-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
June 30, 1999 (Unaudited)
5.Year 2000 (Unaudited) (continued)
Year 2000 computer problem, and its resolution, is complex and multifaceted,
and any Company's success cannot be conclusively known until the Year 2000 is
reached. In spite of its efforts or results, the Company's ability to function
unaffected to and through the Year 2000 may be adversely affected by actions
(or failure to act) of third parties beyond our knowledge or control. It is
anticipated that there may be problems that will have to be resolved in the
ordinary course of business on and after the Year 2000. However, the Company
does not believe that the problems will have a material adverse affect on the
Company's operations or financial condition.
-18-
