<PAGE>
Prospectus May 1, 1995
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THE PFL WRIGHT VARIABLE ANNUITY
ISSUED THROUGH
PFL WRIGHT VARIABLE ANNUITY ACCOUNT
BY PFL LIFE INSURANCE COMPANY
This Prospectus describes the PFL Wright flexible premium group and
individual variable annuity contracts offered by PFL Life Insurance Company
("PFL"). The Group Contract is designed primarily for use by bank trust and
agency accounts (although it may be issued in other circumstances). A separate
Certificate under the Group Contract, or an individual policy will be issued to
the bank trust or agency account (as nominee or agent or trustee) for each
Participant on whose behalf an annuity is purchased. An individual annuity
policy and a Certificate under a Group Contract may also be issued in certain
other circumstances. The term "Certificate" refers both to an individual
certificate issued under a Group Contract and to an individual annuity policy,
and the term "Certificate Owner" refers to both the owner of an individual
annuity policy and to the owner of a Certificate issued under a Group Contract,
as the case may be.
Premium payments may be allocated to one or more Subaccounts of the PFL
Wright Variable Annuity Account (the "Variable Account") or to the Fixed Account
or both. The Variable Account has four different Subaccounts (the
"Subaccounts"). Assets of each Subaccount are invested in a corresponding
portfolio ("Portfolio") of a mutual fund, the Wright Managed Blue Chip Series
Trust (the "Trust"). The Trust currently has four Portfolios available for
investment: the Wright Near Term Bond Portfolio; the Wright Total Return Bond
Portfolio; the Wright Selected Blue Chip Portfolio; and the Wright International
Blue Chip Portfolio. The Portfolios are described in a separate prospectus that
accompanies this Prospectus.
The value of a Certificate will vary in accordance with the investment
performance of the Subaccounts of the Variable Account selected by the
Certificate Owner. Therefore, the Participant or individual policy owner bears
the entire investment risk for all amounts allocated to the Variable Account.
PFL guarantees that all amounts allocated to the Fixed Account will be returned
with at least 3% interest per year, after any Excess Interest Adjustment on
premature withdrawals or transfers out of the Fixed Account.
The Certificate is not a deposit or obligation of, or guaranteed or
endorsed by, any Bank or Depository Institution, and the Certificate is not
federally insured by the Federal Deposit Insurance Corporation or any other
agency, and involves investment risk, including possible loss of principal
amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus sets forth the information that a prospective investor
should consider before investing in a Certificate. A Statement of Additional
Information about the Certificate and the Variable Account, which has the same
date as this Prospectus, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of Additional
Information is available at no cost to any person requesting a copy by writing
PFL at the Administrative and Service Office or by calling 1-800-525-6205. The
table of contents of the Statement of Additional Information is included at the
end of this Prospectus.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR
THE WRIGHT MANAGED BLUE CHIP SERIES TRUST
Please Read this Prospectus Carefully and Retain it For Future Reference.
WVA595
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
=========================================================================================================---------------------------
<S> <C>
DEFINITIONS......................................................................................... 3
SUMMARY............................................................................................. 6
CONDENSED FINANCIAL INFORMATION..................................................................... 12
FINANCIAL STATEMENTS................................................................................ 13
PFL LIFE INSURANCE COMPANY.......................................................................... 13
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT............................................................. 14
The Variable Account............................................................................ 14
The Portfolios.................................................................................. 14
Addition, Deletion or Substitution of Investments............................................... 15
THE FIXED ACCOUNT................................................................................... 16
Guaranteed Periods.............................................................................. 17
Guaranteed Interest Rates....................................................................... 18
BANK TRUST OR AGENCY ARRANGEMENTS................................................................... 19
THE CERTIFICATES.................................................................................... 19
Issuance of Certificates........................................................................ 19
Certificate Owner............................................................................... 20
Premium Payments................................................................................ 20
Annuity Purchase Value.......................................................................... 21
Transfers....................................................................................... 22
Dollar Cost Averaging........................................................................... 22
Telephone Transactions.......................................................................... 23
DISTRIBUTIONS UNDER THE CERTIFICATES................................................................ 23
Withdrawals..................................................................................... 23
Systematic Withdrawal Plan...................................................................... 25
Annuity Payments................................................................................ 25
Annuity Payment Options......................................................................... 26
Death Benefit................................................................................... 29
Restrictions Under the Texas Optional Retirement Program........................................ 31
Restrictions Under Section 403(b) Plans......................................................... 31
CHARGES AND DEDUCTIONS.............................................................................. 32
Excess Interest Adjustment...................................................................... 32
Mortality and Expense Risk Charge............................................................... 33
Administrative Charges.......................................................................... 34
Premium Taxes................................................................................... 34
Federal, State and Local Taxes.................................................................. 34
Transfer Charge................................................................................. 34
Other Expenses.................................................................................. 35
HISTORICAL PERFORMANCE DATA......................................................................... 35
Standardized Performance Data................................................................... 35
Non-Standardized Performance Data............................................................... 36
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................................. 36
Tax Status of the Certificates.................................................................. 37
Taxation of Annuities........................................................................... 39
DISTRIBUTOR OF THE CERTIFICATES..................................................................... 43
VOTING RIGHTS....................................................................................... 43
APPENDIX A - Excess Interest Adjustment Calculations................................................ 44
APPENDIX B - Statement of Additional Information - Table of Contents................................ 46
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</TABLE>
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<PAGE>
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used in calculating the
Annuity Purchase Value in the Variable Account.
ADMINISTRATIVE AND SERVICE OFFICE - Financial Markets Division, Variable Annuity
Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499.
ANNUITANT - The person entitled to receive Annuity Payments after the Annuity
Commencement Date and during whose life any Annuity Payments involving life
contingencies will continue. The Participant or Policy Owner will normally be
the Annuitant and must be a natural person.
ANNUITY COMMENCEMENT DATE - The date upon which Annuity Payments are to
commence.
ANNUITY PAYMENT - One of a series of payments under an Annuity Payment Option.
ANNUITY PAYMENT OPTION OR PAYMENT OPTION - A method of receiving a stream of
Annuity Payments.
ANNUITY PURCHASE VALUE - The sum of the value of all Accumulation Units credited
to a Certificate in the Variable Account and the value of the Fixed Account
credited to a Certificate, which will be equal to premiums paid, minus any
partial withdrawals, including any applicable Excess Interest Adjustments on
prior withdrawals or transfers, plus accumulated gains or losses in the Variable
Account, accumulated interest in the Fixed Account, minus any applicable
charges, premium taxes, and transfer fees, if any.
ANNUITY UNIT - An accounting unit of measure used in the calculation of the
amount of the second and each subsequent Variable Annuity Payment.
BENEFICIARY - Before the Annuity Commencement Date, the person to whom the death
proceeds will be paid if the Annuitant dies. After the Annuity Commencement
Date, the person to whom the remaining portion of Annuity Payments, if any, will
be made if the Annuitant dies.
BUSINESS DAY - A day when the New York Stock Exchange is open for business and
that is a regular business day of the Administrative and Service Office.
CASH VALUE - The Annuity Purchase Value less any applicable premium taxes and
increased or decreased by any applicable Excess Interest Adjustment.
CERTIFICATE - (i) A separate certificate that is issued under a Group Contract
or (ii) an individual annuity policy.
CERTIFICATE OWNER - In the case of Certificates issued under a Group Contract,
generally the bank trust or agency account to which such Certificates are issued
(that is, the bank or its trust department, as nominee, agent, or trustee), and,
in the case of an individual annuity policy, the Policy Owner.
CODE - The Internal Revenue Code of 1986, as amended.
DATE OF ISSUE - The date the Certificate is issued, as shown on the Certificate
Data Page.
DUE PROOF OF DEATH - A certified copy of a death certificate, a certified copy
of a decree of a court of competent jurisdiction as to the finding of death, a
written statement by the attending physician, or any other proof satisfactory to
PFL will constitute Due Proof of Death.
EXPIRATION DATE - The expiration date of a Guaranteed Period.
FIXED ACCOUNT - PFL's general account, consisting of all of PFL's assets other
than those in the Variable Account or any other segregated asset account of PFL.
3
<PAGE>
FIXED ACCOUNT VALUE - The portion of the Annuity Purchase Value allocated to the
Fixed Account.
FIXED ANNUITY PAYMENTS - Payments made pursuant to an Annuity Payment Option
which do not fluctuate in amount.
GROUP CONTRACT - A group flexible premium variable annuity contract, generally
issued to a trust (e.g., the Group Contract owner) by PFL under which
Certificates are issued to bank trust or agency accounts with respect to
individual Participants in those trust or agency accounts.
GUARANTEED PERIOD AMOUNT - Any portion of Annuity Purchase Value allocated to a
specific Guaranteed Period with a specific expiration date (including interest
earned thereon).
GUARANTEED INTEREST RATE - The rate of interest credited by PFL on a compound
annual basis during a Guaranteed Period.
GUARANTEED PERIOD - The period of at least one year for which interest at the
Guaranteed Interest Rate will be credited to any amounts allocated to the Fixed
Account.
NONQUALIFIED CERTIFICATE - A Certificate other than a Qualified Certificate.
PFL - PFL Life Insurance Company, the issuer of the Group Contract and
Certificates.
PARTICIPANT - The person on whose behalf a Certificate under a Group Contract is
issued to a bank trust or agency account.
POLICY OWNER - The Owner of an individual annuity policy.
PORTFOLIOS - The portfolios of the Wright Managed Blue Chip Series Trust, a
diversified, open-end management company in which the Variable Account invests.
QUALIFIED CERTIFICATE - A Certificate that receives favorable tax treatment
under Section 401(a), 403(a), 403(b), 408(a), 408(b) or 457. NOTE: THE USE OF
BANK TRUST OR AGENCY ARRANGEMENTS MAY NOT BE SUITABLE FOR CERTAIN TYPES OF
QUALIFIED CERTIFICATES.
SUBACCOUNT - A segregated account within the Variable Account which invests in a
specified Portfolio of the Trust.
SUBACCOUNT VALUE - The sum of the value of all Accumulation Units allocated to a
Subaccount for any particular Valuation Period.
TRUST - The Wright Managed Blue Chip Series Trust, the open-end diversified
management investment company in which the Variable Account invests.
VALUATION PERIOD - The period of time from the close of the New York Stock
Exchange on one Business Day to the close of the Exchange on the next Business
Day.
VARIABLE ACCOUNT OR ACCOUNT - The PFL Wright Variable Annuity Account, a
separate account established and registered as a unit investment trust under the
Investment Company Act of 1940 to which premium payments may be allocated and
which invests in the Trust.
VARIABLE ANNUITY PAYMENTS - Payments made pursuant to an Annuity Payment Option
which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified Subaccounts within the Variable Account.
4
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WRITTEN NOTICE OR REQUEST - A written notice from the Certificate Owner that
gives PFL the information it requires and is received at the Administrative and
Service Office.
This Prospectus and the Statement of Additional Information generally
describe only the Variable Account, except when the Fixed Account is
specifically mentioned.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
Administrative and Service Office:
Financial Markets Division - Variable Annuity Dept.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
5
<PAGE>
THE PFL WRIGHT VARIABLE ANNUITY
SUMMARY
THE CERTIFICATES
The PFL Wright Variable Annuity is a flexible premium group and individual
variable annuity contract. Certificates can be purchased on a non-tax-qualified
basis ("Nonqualified Certificates") or with the proceeds from certain plans
qualifying for favorable federal income tax treatment ("Qualified
Certificates"). Certificates under the Group Contract generally are sold in
connection with bank trust or agency arrangements. Under such arrangements, the
Certificate is legally or nominally owned by the bank trust or agency account
(that is, by the bank or its trust department as nominee, agent, or trustee) for
the benefit of a bank client. Accordingly, as used herein, the term "Certificate
Owner" means the bank trust or agency account, and the term "Participant" refers
to the bank client on whose behalf the bank trust or agency account purchases
the Certificate. The Certificate Owner directs the amount and allocation of
premium payments among one or more Subaccounts of the PFL Wright Variable
Annuity Account (the "Variable Account") of PFL Life Insurance Company ("PFL"),
one or more Guaranteed Periods of the Fixed Account, or a combination of both.
The Certificate Owner also may choose to make additional premium payments,
transfers, withdrawals, and other choices under the Certificate. The terms of a
bank trust or agency arrangement may affect the tax treatment of the Certificate
to the Participant, and these arrangements may not be suitable for certain types
of Qualified Certificates. Individual annuity policies (also referred to as
"Certificates") may be issued in certain circumstances.
THE VARIABLE ACCOUNT
The Variable Account is a separate account of PFL, which invests
exclusively in shares of the Wright Managed Blue Chip Series Trust (the
"Trust"). The Trust is a mutual fund whose investment adviser is Wright
Investors' Services. The Trust currently has four Portfolios: the Wright Near
Term Bond Portfolio; the Wright Total Return Bond Portfolio; the Wright Selected
Blue Chip Portfolio; and the Wright International Blue Chip Portfolio. Each of
the four Subaccounts of the Variable Account invests solely in a corresponding
Portfolio of the Trust. Because the Annuity Purchase Value may depend on the
investment experience of the selected Subaccounts, the Participant or the Policy
Owner bears the entire investment risk with respect to premium payments and
transfers allocated to the Variable Account. (See the "Variable Account,"
p.14.)
FIXED ACCOUNT
Values under the Certificates may be accumulated on a fixed basis whereby a
premium payment is allocated to one or more Guaranteed Periods available in
connection with the Fixed Account. Each Guaranteed Period available within the
Fixed Account has a specified duration of at least one year. The Fixed Account
is the general account of PFL (See "The Fixed Account," p.16.) PFL guarantees
these amounts and specifies various interest rates (the "Guaranteed Interest
Rates") which will be earned by amounts allocated to each particular Guaranteed
Period within the Fixed Account if the amounts remain in that Guaranteed Period
for the duration of the Guaranteed Period. PFL may not change a Guaranteed
Interest Rate for the duration of the Guaranteed Period. PFL will credit
interest at a rate of not less than three percent (3%) per year, compounded
annually, to amounts allocated to any of the Guaranteed Periods within the Fixed
Account. However, Guaranteed Interest Rates applicable to subsequent Guaranteed
Periods cannot be predicted and will be determined at the sole discretion of PFL
(subject to the minimum guarantee of three percent (3%)). There is no assurance
that Guaranteed Interest Rates will ever exceed 3% per year. Amounts that are
withdrawn or transferred prior to the end of the Guaranteed Period will be
subject to an Excess Interest Adjustment. The Excess Interest Adjustment could
be positive or negative. (See "Example of Excess Interest Adjustment"
p 44).
PREMIUM PAYMENTS
Each Certificate may be purchased with an initial premium payment of at
least $5,000 for a Nonqualified Certificate and $1,000 for a Qualified
Certificate. Additional premium payments of at least $500 each may be made at
any time before the Annuity Commencement Date. The minimum initial and
subsequent premium payment is $50 for tax deferred Section 403(b) Annuities.
Currently, there is nothing deducted from premium payments, so all funds are
invested immediately.
On the Date of Issue, the initial premium payment is allocated among the
Subaccounts of the Variable Account and the Guaranteed Periods of the Fixed
Account in accordance with the allocation percentages specified by the
Certificate Owner. Any allocation must be in whole percentages, and the total
allocation must equal 100%.
6
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Allocations for additional premium payments may be changed by the Certificate
Owner sending Written Notice to the Administrative and Service Office. (See
"Premium Payments," p.20.)
WITHDRAWALS
All or a portion of the Cash Value may be withdrawn ($500 minimum) by the
Certificate Owner in exchange for a cash withdrawal payment from PFL at anytime
prior to the earlier of the Annuitant's death or the Annuity Commencement Date.
The Cash Value equals the Annuity Purchase Value less any applicable premium
taxes and, except during the 30 days prior to the expiration of a Guaranteed
Period, plus or minus any Excess Interest Adjustment. The Annuity Purchase Value
is equal to premiums paid, minus any partial withdrawals, plus or minus any
applicable Excess Interest Adjustments on prior withdrawals or transfers, plus
or minus accumulated gains or losses in the Variable Account, plus accumulated
interest in the Fixed Account, minus any applicable charges, premium taxes, and
transfer fees, if any. A withdrawal request must be made by Written Request, and
a request for a partial withdrawal must specify the Subaccounts or the
Guaranteed Period from which the withdrawal is requested. There is currently no
limit on the frequency or timing of withdrawals. (See "Withdrawals," p.23.)
Withdrawals may be taxable and subject to a penalty tax.
TRANSFERS
A Certificate Owner may transfer the Annuity Purchase Value among the
Subaccounts and, prior to the Annuity Commencement Date, to or from the Fixed
Account with certain limitations. The minimum amount which may be transferred is
the lesser of $500 or the entire portion of the Annuity Purchase Value held in
that Subaccount or Guaranteed Period. However, after a transfer out of a
particular Subaccount or Guaranteed Period, at least $500 must remain in that
Subaccount or Guaranteed Period. Transfers from a Guaranteed Period will, except
during the 30 days prior to the expiration of the Guaranteed Period, be subject
to an Excess Interest Adjustment (which could be positive or negative).
Transfers currently may be made as frequently as desired either by telephone
(subject to the provisions described below under "Telephone Transactions," p.23)
or by sending Written Notice to the Administrative and Service Office.
A charge may be imposed for any transfers in excess of 12 per Certificate
Year, but currently there is no charge for any transfers. (See "Transfers, "
p.22.)
CHARGES AND DEDUCTIONS
EXCESS INTEREST ADJUSTMENT. An Excess Interest Adjustment may be applied in
the event of any premature withdrawal or transfer of amounts allocated to a
Guaranteed Period of the Fixed Account. The Excess Interest Adjustment does not
apply during the 30 days prior to the end of a Guaranteed Period or to amounts
invested in the Variable Account.
The Excess Interest Adjustment may increase or decrease the amount payable
by PFL upon withdrawal or transfer. It is based on a comparison of PFL's
declared rates of interest at the time of withdrawal or transfer with the
rate(s) of interest applicable to the amount(s) withdrawn or transferred. The
Excess Interest Adjustment will be added to or subtracted from the gross amount
being withdrawn or transferred. The Excess Interest Adjustment will never result
in a reduction of the annual rate of interest credited to less than 3%. (See
"Excess Interest Adjustment," p.32.)
VARIABLE ACCOUNT CHARGES. PFL deducts a daily charge equal to a percentage
of the net assets in the Variable Account for the mortality and expense risks
assumed by PFL. The effective annual rate of this charge, which is guaranteed
not to increase, is 1.00% of the value of the Variable Account's net assets.
(See "Mortality and Expense Risk Charge," p.33.)
ADMINISTRATIVE CHARGES. There is also an annual Administrative Charge each
year for administrative expenses. This charge is $30 per year. Currently, there
is no fee for transfers, but in the future, a charge of $25 may be imposed for
each transfer in excess of 12 in any year. (See "Administrative Charges,"
p.34.)
TAXES. PFL may incur premium taxes relating to the Certificates. PFL will
deduct any premium taxes related to a particular Certificate from the Annuity
Purchase Value upon complete withdrawal of the Annuity Purchase Value, at
payment of the death benefit, or at the Annuity Commencement Date. (See "Premium
Taxes," p.34.)
7
<PAGE>
No charges are currently made against the Subaccounts for federal, state,
or local income taxes or the economic burdens of such taxes. PFL may deduct
charges in the future for such taxes or economic burdens from the Certificate or
from amounts held in the relevant Subaccount. (See "Federal, State and Local
Taxes," p.34.)
CHARGES AGAINST THE PORTFOLIOS. The value of the net assets of the
Subaccounts of the Variable Account will reflect the investment advisory fee and
other expenses incurred by the Portfolios.
FEE TABLE. The charges and deductions with respect to the Variable Account
are summarized in the following tables. These tables assume that the entire
Annuity Purchase Value is in the Variable Account. The following tables are
intended to assist in understanding the various costs and expenses that will be
borne, directly or indirectly. These include the expenses of the Portfolios.
(See "Charges and Deductions," p.32, and the Trust's prospectus.) In addition to
the expenses listed below, premium taxes may be applicable.
<TABLE>
<CAPTION>
Near Term Total Return Selected International
Transaction Expenses Bond Bond Blue Chip Blue Chip
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Load on $0 $0 $0 $0
Purchase Payments
Withdrawal Charge $0 $0 $0 $0
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Annual Certificate Charge $30 Per Certificate
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Transfer Fee First 12 Transfers Per Year: NO FEE
More than 12 in One Year: Currently no fee
</TABLE>
<TABLE>
<CAPTION>
Variable Account Annual Expenses
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(as a percentage of account value)
<S> <C> <C> <C> <C>
Mortality and Expense 1.00% 1.00% 1.00% 1.00%
Risk Fees
</TABLE>
<TABLE>
<CAPTION>
Wright Managed Blue Chip Series Trust Annual Expenses*
- -----------------------------------------------------
(as a percentage of average net assets)
<S> <C> <C> <C> <C>
Advisory Fees 0.45% 0.45% 0.65% 0.80%
Administration Fee 0.05% 0.05% 0.05% 0.05%
Other Expenses 4.84% 6.50% 2.60% 3.86%
Sub-total 5.34% 7.00% 3.30% 4.71%
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Deduct** (4.44%) (6.10%) (2.15%) (2.86%)
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Total Trust
Annual Expenses 0.90% 0.90% 1.15% 1.85%
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</TABLE>
* Information regarding the Portfolios has been provided by the Trust. While
PFL has no reason to doubt the accuracy of these figures, PFL does not
guarantee their accuracy and does not represent that they are true and
complete.
** During the period ended December 31, 1994, the operating expenses of each
fund were reduced by a reduction of the investment adviser fee, the
administration fee, and the allocation of expenses to the adviser.
Example
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A Certificate Owner would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets (and assuming the entire
Annuity Purchase Value is in the Variable Account):
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Near Term Bond $20 $61 $105 $227
Total Return Bond $20 $61 $105 $227
Selected Blue Chip $22 $69 $118 $253
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
International Blue Chip $29 $88 $150 $317
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</TABLE>
The example factors in the $30 annual Administrative Charge based on an
average Annuity Purchase Value per Certificate of $65,192 as of December 31,
1994, which translates that charge into an assumed charge at an annual rate of
0.046% of the Variable Account Value. The example assumes that no premium tax
has been assessed, although premium taxes may be applicable. (See "Premium
Taxes," p. 34.) The example should not be considered a representation of past or
future expenses, and actual expenses may be greater or lesser than those shown.
The figures and data for the Trust's Annual Expenses have been provided by
Wright Investors' Services, and while PFL does not dispute these figures, PFL
does not guaranty their accuracy or completeness, and therefore PFL cannot
guarantee that the examples are accurate.
DEATH BENEFIT
A Death Benefit is payable if the Annuitant dies before the Annuity
Commencement Date, and either (a) the Annuitant is the Certificate Owner, or (b)
the Certificate Owner is not a natural person. In those circumstances, upon
receipt of proof of the Annuitant's death, the Death Benefit is calculated and
is payable to the Beneficiary when PFL receives an election of the method of
settlement and return of the Certificate. The Death Benefit will be the greater
of (a) the Annuity Purchase Value on the date proof of death and election of the
method of settlement are received; or (b) the total premiums paid less any
partial withdrawals plus interest at an annual rate of 5.0%. The Death Benefit
may be paid as either a lump sum cash benefit or as an Annuity Payment Option.
(See "Death Benefit," p. 29.)
FREE LOOK RIGHT
The Certificate Owner may return the Certificate for a refund within the
period of time specified in the Certificate. The applicable period will depend
on the state in which the Certificate is issued. In most states, it is ten (10)
days after the Certificate is delivered to the Certificate Owner. The amount of
the refund will also depend on the state in which the Certificate is issued.
Ordinarily the amount of the refund will be the sum of all premium payments made
under the Certificate and the accumulated gains or losses in the Variable
Account, if any. However, some states require a return of the premium(s) paid,
or the greater of premium(s) paid or the Annuity Purchase Value. PFL will pay
the refund within seven (7) days after it receives written notice of
cancellation and the returned Certificate.
If the Certificate is issued in California (a) to an Owner who is age 60 or
more, or (b) with a premium payment of less than $10,000, then the amount
returned will be the premium and any charges deducted; otherwise, the sum of the
premium payments and the accumulated gains and losses in the Variable Account,
if any, as of the date the cancellation request is received will be returned.
FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN THE CERTIFICATE
With respect to Certificate Owners who are natural persons, there should be
no federal income tax on increases in the Annuity Purchase Value until a
distribution under the Certificate occurs (e.g., a withdrawal or Annuity
Payment) or is deemed to occur (e.g., a pledge or assignment of a Certificate).
Generally, a portion of any distribution or deemed distribution will be taxable
as ordinary income. The taxable portion of certain distributions will be subject
to withholding unless the recipient elects otherwise. In addition, a ten percent
federal penalty tax may apply to certain distributions or deemed distributions.
The penalty tax generally does not apply, inter alia, to any distribution made
on or after the taxpayer attains age 59-1/2. For Non-Qualified Certificates, PFL
believes that the same tax consequences should apply under bank trust or agency
arrangements where the Participant is a natural person, assuming the arrangement
is structured properly. (See "Certain Federal Income Tax Consequences,"
p. 36.)
INQUIRIES AND WRITTEN NOTICES AND REQUESTS
Any questions about procedures or the Certificate, or any Written Notice or
Written Request, should be sent to PFL's Administrative and Service Office,
9
<PAGE>
Financial Markets Division - Variable Annuity Dept., 4333 Edgewood Road N.E.,
Cedar Rapids, IA 52499. Telephone inquires may be made by calling 800-525-6205.
All inquiries, Written Notices and Written Requests should include the
Certificate number, the Certificate Owner's name, and the Annuitant's name.
VARIATIONS IN CERTIFICATE PROVISIONS
Certain provisions of the Certificates may vary from the descriptions in
this Prospectus in order to comply with different state laws. See the
Certificate itself for variations. Any such variations will be included in the
Certificate itself or in riders or endorsements.
* * *
NOTE: The foregoing summary is qualified in its entirety by the detailed
- ----
information in the remainder of this Prospectus and in the Statement of
Additional Information and in the prospectus for the Trust and in the
Certificate, all of which should be referred to for more detailed information.
This Prospectus generally describes only the Certificate and the Variable
Account. A separate prospectus describes the Trust.
CONDENSED FINANCIAL INFORMATION
The Accumulation Unit Values and the number of Accumulation Units
outstanding for each Subaccount from the date of inception:
WRIGHT NEAR TERM BOND SUBACCOUNT
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value at Unit Value at Accumulation Units
Beginning of Year End of Year At End of Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994(1)................... $0.996743 $0.952933 474,237.369
1993(3)................... N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
WRIGHT TOTAL RETURN BOND SUBACCOUNT
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value at Unit Value at Accumulation Units
Beginning of Year End of Year At End of Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994...................... $0.991759 $0.912223 569,877.796
1993(2) $1.000000 $0.991759 168,578.241
- ----------------------------------------------------------------------------------------------------
</TABLE>
WRIGHT SELECTED BLUE CHIP SUBACCOUNT
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value at Unit Value at Accumulation Units
Beginning of Year End of Year At End of Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994(1).................... $0.996743 $0.925964 1,567,081.382
1993(3).................... N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
WRIGHT INTERNATIONAL BLUE CHIP SUBACCOUNT
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value at Unit Value at Accumulation Units
Beginning of Year End of Year At End of Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994(1).................... $0.996743 $0.902655 1,360,360.040
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
1993(3).................... N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Period from January 6, 1994 through December 31, 1994.
(2) Period from December 6, 1993 through December 31, 1993.
(3) Did not commence business until 1994.
FINANCIAL STATEMENTS
The financial statements of the Variable Account and PFL and the
independent auditors' reports thereon are contained in the Statement of
Additional Information which is available free upon request.
PFL LIFE INSURANCE COMPANY
PFL Life Insurance Company ("PFL"), 4333 Edgewood Road N.E., Cedar Rapids,
Iowa 52499, is a stock life insurance company. It was incorporated under the
name NN Investors Life Insurance Company, Inc. under the laws of the State of
Iowa on April 19, 1961. It is principally engaged in the sale of life insurance
and annuity policies, and is licensed in the District of Columbia, Guam, and in
all states except New York. As of December 31, 1994, PFL had assets of $6.1
billion. PFL is a wholly-owned indirect subsidiary of AEGON USA, Inc., which
conducts substantially all of its operations through subsidiary companies
engaged in the insurance business or in providing non-insurance financial
services. All of the stock of AEGON USA, Inc. is indirectly owned by AEGON n.v.
of the Netherlands. AEGON n.v., a holding company, conducts its business through
subsidiary companies engaged primarily in the insurance business.
PFL may from time to time publish (in advertisements, sales literature and
reports to Certificate Owners) the ratings and other information assigned to it
by one or more independent rating organizations such as A.M. Best Company,
Standard & Poor's, and Duff & Phelps. The purpose of the ratings is to reflect
the financial strength and/or claims-paying ability of PFL, and the ratings
should not be considered as bearing on the investment performance of assets held
in the Variable Account. Each year the A.M. Best Company reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
Ratings. These ratings reflect A.M. Best Company's current opinion of the
relative financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance industry. In addition, the
claims-paying ability of PFL as measured by Standard & Poor's Insurance Ratings
Services or Duff & Phelps may be referred to in such advertisements, sales
literature, or reports. These ratings are opinions regarding an operating
insurance company's financial capacity to meet the obligations of its insurance
and annuity policies in accordance with their terms. Such ratings do not reflect
the investment performance of the Variable Account or the degree of risk
associated with an investment in the Variable Account.
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
THE VARIABLE ACCOUNT
The PFL Wright Variable Annuity Account of PFL Life Insurance Company (the
"Variable Account") was established as a separate investment account of PFL
under the laws of the State of Iowa on April 7, 1993. The Variable Account
receives and invests the Premiums under the Certificates that are allocated to
it for investment in shares of the Wright Managed Blue Chip Series Trust.
The Variable Account currently is divided into four Subaccounts. Additional
Subaccounts may be established in the future at the discretion of PFL. Each
Subaccount invests exclusively in shares of one of the Portfolios of the Trust.
Under Iowa law, the assets of the Variable Account are owned by PFL, but they
are held separately from the other assets of PFL and are not chargeable with
liabilities incurred in any other business operation of PFL (except to the
extent that assets in the Variable Account exceed the reserves and other
liabilities of the Variable Account).
11
<PAGE>
Income, gains, and losses incurred on the assets in the Subaccounts of the
Variable Account, whether or not realized, are credited to or charged against
that Subaccount without regard to other income, gains or losses of any other
account or Subaccount of PFL. Therefore, the investment performance of any
Subaccount should be entirely independent of the investment performance of PFL's
general account assets or any other segregated asset account or subaccount
maintained by PFL.
The Variable Account is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 (the "1940 Act") as
a unit investment trust and meets the definition of a separate account under
federal securities laws. However, the SEC does not supervise the management or
the investment practices or policies of the Variable Account or PFL.
THE PORTFOLIOS
The Variable Account will invest exclusively in shares of the Wright
Managed Blue Chip Series Trust (the "Trust"). The Trust is a series-type mutual
fund registered with the SEC under the 1940 Act as an open-end, diversified
management investment company.* The Trust currently issues shares of the
following four Portfolios: the Wright Near Term Bond Portfolio; the Wright Total
Return Bond Portfolio; the Wright Selected Blue Chip Portfolio; and the Wright
International Blue Chip Portfolio. The assets of each Portfolio are held
separate from the assets of the other Portfolios, and each Portfolio has its own
distinct investment objectives and policies. Each Portfolio operates as a
separate investment fund, and the income or losses of one Portfolio have no
effect on the investment performance of any other Portfolio.
Wright Investors' Services (the "Adviser"), an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, is the
Trust's investment manager. The Adviser provides investment advice to each of
the Portfolios of the Trust and otherwise performs administerial and managerial
functions for the Portfolios. The Adviser is responsible for selecting the
investments of each Portfolio consistent with the investment objectives and
policies of that Portfolio, and will conduct securities trading for the
Portfolios.
The investment objectives of each Portfolio are summarized as follows:
WRIGHT NEAR TERM BOND PORTFOLIO seeks high total return, to the extent
consistent with reasonable safety, by investing primarily in debt securities
directly issued or guaranteed by the U.S. Government. The Portfolio expects to
maintain an average weighted portfolio maturity of five years or less.
WRIGHT TOTAL RETURN BOND PORTFOLIO seeks high total return, consisting of
current income and capital appreciation, by investing primarily in obligations
issued or guaranteed by the U.S. Government and its agencies or
instrumentalities and in high-grade corporate debt securities of any maturity.
WRIGHT SELECTED BLUE CHIP PORTFOLIO seeks long-term capital appreciation
and, as a secondary objective, reasonable current income by investing primarily
in equity securities of well-established U.S. companies that meet the Adviser's
quality standards.
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO seeks long-term capital
appreciation by investing primarily in equity securities of well-established,
non-U.S. companies that meet the Adviser's quality standards.
* The registration of the Trust does not involve supervision of the management
or investment practices or policies of the Trust by the SEC.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVE.
MORE DETAILED INFORMATION, INCLUDING A DESCRIPTION OF EACH PORTFOLIO'S
INVESTMENT OBJECTIVE AND POLICIES AND A DESCRIPTION OF RISKS INVOLVED IN
INVESTING IN EACH PORTFOLIO AND OF EACH PORTFOLIO'S FEES AND EXPENSES IS
CONTAINED IN THE PROSPECTUS FOR THE TRUST, A CURRENT COPY OF WHICH IS ATTACHED
TO THIS PROSPECTUS. INFORMATION
12
<PAGE>
CONTAINED IN THE TRUST'S PROSPECTUS SHOULD BE READ CAREFULLY BEFORE INVESTING IN
A SUBACCOUNT OF THE VARIABLE ACCOUNT.
An investment in the Variable Account, or in any Portfolio, is not a
deposit or obligation of, or guaranteed or endorsed by, any bank or depository
institution, and the investment is not federally insured by the Federal Deposit
Insurance Corporation or any other agency, and involves investment risk,
including possible loss of principal amount invested.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS.
PFL cannot and does not guarantee that any of the Portfolios will always be
available for premium payments, allocations, or transfers. PFL retains the
right, subject to any applicable law, to make certain changes in the Variable
Account and its investments. PFL reserves the right to eliminate the shares of
any Portfolio held by a Subaccount and to substitute shares of another Portfolio
of the Trust, or of another registered open-end management investment company
for the shares of any Portfolio, if the shares of the Portfolio are no longer
available for investment or if, in PFL's judgment, investment in any Portfolio
would be inappropriate in view of the purposes of the Variable Account. To the
extent required by the 1940 Act, substitutions of shares attributable to a
Certificate Owner's interest in a Subaccount will not be made without prior
notice to the Certificate Owner and the prior approval of the SEC. Nothing
contained herein shall prevent the Variable Account from purchasing other
securities for other series or classes of variable annuity policies, or from
effecting an exchange between series or classes of variable annuity policies on
the basis of requests made by the Certificate Owner.
New Subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new Subaccounts may
be made available with respect to existing Certificates on a basis to be
determined by PFL. Each additional Subaccount will purchase shares in a
Portfolio of the Trust or in another mutual fund or investment vehicle. PFL may
also eliminate one or more Subaccounts if, in its sole discretion, marketing,
tax, investment or other conditions warrant such change. In the event any
Subaccount is eliminated, PFL will notify the Certificate Owners and will
request a reallocation of the amounts invested in the eliminated Subaccount. If
no such reallocation is provided by the Certificate Owner, PFL will reinvest the
amounts invested in the eliminated Subaccount in the Subaccount that invests in
the Near-Term Bond Portfolio (or in a similar portfolio of short term
instruments).
In the event of any such substitution or change, PFL may, by appropriate
endorsement make such changes in the Certificates as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to be
in the best interests of persons having voting rights under the Certificates,
the Variable Account may be (i) operated as a management company under the 1940
Act or any other form permitted by law, (ii) deregistered under the 1940 Act in
the event such registration is no longer required or (iii) combined with one or
more other separate accounts. To the extent permitted by applicable law, PFL
also may transfer the assets of the Variable Account associated with the
Certificates to another account or accounts.
THE FIXED ACCOUNT
Premiums allocated and amounts transferred to the Fixed Account become part
of the general assets of PFL, which support insurance and annuity obligations.
Interests in the Fixed Account have not been registered under the Securities Act
of 1933 (the "1933 Act"), nor is the Fixed Account registered as an investment
company under the 1940 Act. Accordingly, neither the Fixed Account nor any
interests therein are generally subject to the provisions of the 1933 or 1940
Acts, and PFL has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this Prospectus that relate to
the Fixed Account. This Prospectus is generally intended to serve as a
disclosure document only for the Certificate and the Variable Account. For
complete details regarding the Fixed Account, see the Certificate and any
applicable endorsement(s).
The initial premium payment and any subsequent premium payment(s) will be
allocated to Guaranteed Periods available in connection with the Fixed Account
to the extent elected at the time such payment is made. In addition, all or part
of the Annuity Purchase Value may be transferred to such Guaranteed Periods
available under the
13
<PAGE>
Certificate as described under "Transfers." Instead of the Participant or Policy
Owner assuming all of the investment risk as is the case for premium payments
allocated to the Variable Account, PFL guarantees it will credit a specified
minimum interest rate to amounts allocated to the Fixed Account.
Assets supporting amounts allocated to Guaranteed Periods within the Fixed
Account become part of PFL's general assets and are available to fund the claims
of all creditors of PFL. All PFL's general account assets will be available to
fund benefits under the Certificate. The Certificate does not participate in the
investment performance of the assets of the Fixed Account or PFL's general
account. Instead, a specified rate of interest, the Guaranteed Interest Rate,
declared in advance, is credited to amounts allocated to the Fixed Account.
PFL will invest the assets of its general account in those assets chosen by
PFL and allowed by applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and the percentage of
their assets that may be committed to any particular type of investment. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages, real estate and
certain other investments.
If Annuity Purchase Value is maintained within a Fixed Account for the
duration of the Guaranteed Period, PFL guarantees that it will credit interest
to that amount at the guaranteed rate specified for the Guaranteed Period.
However, in the event any amount from the Guaranteed Period is withdrawn or
transferred prior to the expiration of the Guaranteed Period for any reason, PFL
will subject that amount to an Excess Interest Adjustment which could be
positive or negative. (See "Excess Interest Adjustment," p.32.) PFL reserves the
right to defer the payment of amounts withdrawn from the Fixed Account for a
period not to exceed six (6) months from the date written request for such
withdrawal is received by PFL.
GUARANTEED PERIODS
Premium payments and transfers may be allocated to one or more Guaranteed
Periods within the Fixed Account. Each Guaranteed Period will have a duration of
at least one year and a specified Guaranteed Interest Rate. Initial premium
payments and subsequent premium payments, or portions thereof, and transfer
amounts allocated to a Fixed Account Guaranteed Period, will earn interest at
the Guaranteed Interest Rate during the particular Guaranteed Period unless
prematurely withdrawn or transferred prior to the end of the Guaranteed Period.
Initial Guaranteed Periods begin on the date a premium payment is accepted or,
in the case of a transfer, on the effective date of the transfer, and end on the
specified anniversary, depending on the Guaranteed Period selected, of the day
immediately preceding the date on which the premium payment acceptance or
transfer occurred (the "Expiration Date"). Any portion of Annuity Purchase Value
allocated to a specific Guaranteed Period with a specified Expiration Date
(including interest earned thereon) will be referred to herein as a "Guaranteed
Period Amount." Interest will be credited daily at a rate equivalent to the
compound annual rate. As a result of the timing of premium payments and renewals
and transfers of portions of the Annuity Purchase Value, which will begin new
Guaranteed Periods, amounts allocated to Guaranteed Periods of the same duration
may have different Expiration Dates. Thus each Guaranteed Period Amount will be
treated separately for purposes of determining any applicable Excess Interest
Adjustment (see "Excess Interest Adjustment," p.32.)
PFL will notify the Certificate Owner in writing at least 45 days prior to
the Expiration Date for any Guaranteed Period Amount. A new Guaranteed Period of
the same duration as the previous Guaranteed Period will commence automatically
on the Expiration Date of the previous Guaranteed Period unless PFL receives,
within the 30 day period prior to the Expiration Date of such Guaranteed Period,
a written election by the Certificate Owner to transfer the Guaranteed Period
Amount to a different Fixed Account Guaranteed Period or to a Variable Account
Subaccount from among those being offered by PFL at such time.
GUARANTEED INTEREST RATES
PFL periodically will establish an applicable Guaranteed Interest Rate for
each of the Guaranteed Periods within the Fixed Account. Current Guaranteed
Interest Rates may be changed by PFL frequently or infrequently depending on
interest rates on investments available to PFL and other factors as described
below, but once established, the rate will be guaranteed for the entire duration
of the Guaranteed Period. However, any amount withdrawn or transferred will be
subject to an Excess Interest Adjustment, except during the 30 day period prior
to the Expiration Date. (See "Excess Interest Adjustment," p.32.)
14
<PAGE>
The Guaranteed Interest Rate will not be less than 3% per year compounded
annually, regardless of any application of the Excess Interest Adjustment. PFL
has no specific formula for determining the rate of interest that it will
declare as a Guaranteed Interest Rate, as this rate will be reflective of
interest rates available on the types of debt instruments in which PFL intends
to invest amounts allocated to the Fixed Account (See "The Fixed Account,"
p.16.) In addition, PFL's management may consider other factors in determining
Guaranteed Interest Rates for a particular Guaranteed Period including but not
limited to: regulatory and tax requirements; sales commissions and
administrative expenses borne by the Company; general economic trends; and
competitive factors. There is no obligation to declare a rate in excess of 3%;
the Participant or the Policy Owner, as the case may be, assumes the risk that
declared rates will not exceed 3%. PFL has complete discretion to declare any
rate of at least 3%, regardless of market interest rates, the amounts earned by
PFL on its investments, or any other factors.
PFL'S MANAGEMENT HAS COMPLETE AND SOLE DISCRETION TO DETERMINE THE
GUARANTEED INTEREST RATES. PFL CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE
GUARANTEED INTEREST RATES, EXCEPT THAT PFL GUARANTEES THAT FUTURE GUARANTEED
INTEREST RATES WILL NOT BE BELOW 3% PER YEAR COMPOUNDED ANNUALLY.
BANK TRUST OR AGENCY ARRANGEMENTS
The Certificates are designed to be issued to trust or agency accounts
maintained by bank trust departments (although in certain circumstances they may
be issued to individuals). Under such arrangements, the Certificate is issued to
and held in the name of the bank trust or agency account (that is, the bank or
its trust department as nominee, agent, or trustee) for the benefit of the
Participant (i.e., the bank client). A bank trust or agency account is referred
to herein as a "Certificate Owner." Individual policies may also be used in
connection with such bank agency or trust arrangements. Pursuant to such
arrangements, the bank typically charges trust, management, or other fees that
may vary from bank to bank and that may also vary depending on the type of
arrangement, the amounts involved, and/or other factors.
These arrangements may have federal income tax consequences (for both
Nonqualified and Qualified Certificates) and there is no guidance, and hence
some uncertainty, as to the tax effects of certain aspects of such arrangements.
Consequently, Participants in such arrangements should obtain competent tax
advice. Moreover, bank trust or agency arrangements may not be suitable for
certain tax qualified plans because such arrangements may be incompatible with
the qualification requirements for those plans. Individual annuity policies,
where available, may be purchased directly (not through bank trust or agency
arrangements) for these plans. (See "Certain Federal Income Tax Consequences,"
p.36).
An investment or interest in a Certificate, including a Certificate issued
pursuant to a bank trust or agency arrangement or some other bank-related
arrangement, is not a deposit in the bank or an obligation of the bank, and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other agency or instrumentality of the U.S. Government.
THE CERTIFICATES
The PFL Wright Variable Annuity is a flexible premium group and individual
variable annuity contract. The rights and benefits with respect to a Certificate
are summarized below; however, the description of the Certificate contained in
this Prospectus is qualified in its entirety by the Certificate itself,
including any endorsements thereto, a copy of which is available upon request
from PFL. The Certificates may be purchased on a non-tax-qualified basis
("Nonqualified Certificate"). The Certificates may also be purchased to be used
in connection with retirement plans or individual retirement accounts that
qualify for favorable special federal income tax treatment ("Qualified
Certificates") under Sections 401, 403, 408, or 457 or other Sections of the
Internal Revenue Code.
15
<PAGE>
ISSUANCE OF A CERTIFICATE
Before it will issue a Certificate, PFL must receive a completed
Certificate application and an initial premium payment of at least $5,000 for a
Nonqualified Certificate and $1,000 for a Qualified Certificate ($50 for tax
deferred 403(b) Annuities). A Certificate ordinarily will be issued only in
respect of Annuitants Age 0 through 80. Acceptance or declination of an
application will be based on PFL's underwriting standards, and PFL reserves the
right to reject any application or premium payment based on those underwriting
standards.
If the application can be accepted in the form received, the initial
premium payment will be credited to the Annuity Purchase Value within two
Business Days after the later of receipt of the application or receipt of the
initial premium payment. If the initial premium payment cannot be credited
because the application or other issuing requirements are incomplete, the
applicant (i.e., the Certificate Owner) will be contacted within five Business
Days and given an explanation for the delay, and the initial premium payment
will be returned at that time unless the applicant consents to PFL's retaining
the initial premium payment and crediting it as soon as the necessary
requirements are fulfilled.
The date on which the initial premium payment is credited to the Annuity
Purchase Value is the Date of Issue which is used to determine Certificate Years
and Certificate Anniversaries.
CERTIFICATE OWNER
The term "Certificate Owner" refers to, (i) in the case of a Certificate
issued under bank trust or agency arrangements, the bank trust or agency account
to which such Certificate is issued, and (ii) in the case of a Certificate that
is an individual annuity policy, the Policy Owner.
PREMIUM PAYMENTS
All initial premium payment checks or drafts should be made payable to PFL
Life Insurance Company and sent to the Administrative and Service Office.
Additional premium payments should be sent to the Administrative and Service
Office. The Death Benefit will not take effect until the check or draft for the
premium payment is honored.
INITIAL PREMIUM PAYMENT. The minimum initial premium payment that PFL
currently will accept is $5,000 under a Nonqualified Certificate and $1,000
under a Qualified Certificate ($50 for tax deferred Section 403(b) Annuities).
PFL reserves the right to increase or decrease this amount for a class of
Certificates issued after some future date. The initial premium payment is the
only premium payment required to be paid under a Certificate. The maximum
premium payment that PFL will currently accept without its prior approval is $1
million.
ADDITIONAL PREMIUM PAYMENTS. While the Annuitant is living and prior to the
Annuity Commencement Date, additional premium payments may be made at any time,
and in any frequency. The minimum additional premium payment for Nonqualified
Certificates is $500 ($50 for tax deferred Section 403(b) Annuities). The
maximum total amount of premium payments that may be made for a Certificate
without PFL's prior approval is $1 million. Additional premium payments will be
credited to the Certificate and added to the Annuity Purchase Value as of the
Business Day when they are received at the Administrative and Service
Office.
ALLOCATION OF PREMIUM PAYMENTS. The Certificate Owner must allocate premium
payments to one or more of the Subaccounts or Guaranteed Periods. The initial
allocation must be specified in the Certificate application. This allocation
will be used for additional premium payments unless a change of allocation is
requested. All allocations must be made in whole percentages and must total
100%. The minimum amount that can be allocated to any Subaccount or to a
Guaranteed Period is $500. If no allocation is specified, then the premium
payment(s) cannot be accepted. All additional premium payments will be allocated
and credited to the Certificate as of the Valuation Period during which they are
received.
The allocation of future additional premium payments may be changed by
sending Written Notice to PFL's Administrative and Service Office, or by
telephone (subject to the provisions described below under "Telephone
Transactions," p.23.) The allocation change will apply to payments received
after the date the Written Notice or telephone request is received.
16
<PAGE>
PAYMENT NOT HONORED BY BANK. Any payment under the Certificate that is
derived, all or in part, from any amount paid to PFL by check or draft may be
postponed until such time as PFL determines that such instrument has been
honored.
ANNUITY PURCHASE VALUE
On the date the Certificate is issued, the Annuity Purchase Value equals
the initial premium payment. Thereafter, the Annuity Purchase Value will
increase by (1) any additional premium payments received by PFL; and (2) any
increases in the Annuity Purchase Value due to investment results of the
selected Subaccounts and interest credited to the Fixed Account. The Annuity
Purchase Value will decrease by (1) any withdrawals; (2) any decreases in the
Annuity Purchase Value due to investment results of the selected Subaccounts;
(3) the charges imposed by PFL and (4) any applicable premium taxes.
Additionally, a withdrawal or transfer of amounts from a Guaranteed Period under
the Fixed Account may result in an Excess Interest Adjustment which could
increase or decrease the Annuity Purchase Value (or withdrawal proceeds).
The Annuity Purchase Value is expected to change from Valuation Period to
Valuation Period, reflecting the investment experience of the selected
Subaccount(s) and interest credited to the selected Guaranteed Periods of the
Fixed Account, as well as the deductions for applicable charges. A Valuation
Period is the period between successive Business Days. It begins at the close of
business on each Business Day and ends at the close of business on the next
succeeding Business Day. A Business Day is each day that both the New York Stock
Exchange and PFL's Administrative and Service Office are open for business.
Holidays are generally not Business Days.
When a premium payment is allocated to or an amount is transferred to a
Subaccount of the Variable Account, it is credited to the Certificate in the
form of Accumulation Units. Each Subaccount of the Variable Account has a
distinct Accumulation Unit value (the "Unit Value"). The number of Units
credited is determined by dividing the premium payment or amount transferred by
the Unit Value of the Subaccount as of the end of the Valuation Period during
which the allocation is made. When amounts are transferred out of or withdrawn
from a Subaccount, Units are cancelled or redeemed in a similar manner.
For each Subaccount, the Unit Value for a given Business Day is based on
the net asset value of a share of the corresponding Portfolio of the Trust.
Therefore, the Unit Values will fluctuate from day to day based on the
investment experience of the corresponding Portfolio. The determination of
Subaccount Unit Values is described in detail in the Statement of Additional
Information.
When a premium payment is allocated to or an amount is transferred to the
Fixed Account, it is credited to the selected Guaranteed Period as described in
"The Fixed Account," p.16. In addition, interest at a specified interest rate is
credited to such amounts. When amounts are transferred out of or withdrawn from
a Guaranteed Period, the applicable Guaranteed Period Amount is reduced
accordingly. Unlike the Variable Account, there are no Accumulation Units in the
Fixed Account.
TRANSFERS
The Certificate Owner can transfer Annuity Purchase Value among Subaccounts
and to or from Guaranteed Periods within certain limits.
Subject to the limitations and restrictions described below, transfers from
a Subaccount or a Guaranteed Period may be made up to thirty days prior to the
Annuity Commencement Date. The minimum amount that may be transferred is the
lesser of $500 or the entire amount in the Subaccount or Guaranteed Period. If
the Annuity Purchase Value remaining in a Subaccount or Guaranteed Period after
a transfer is less than $500, PFL reserves the right, at its discretion, to
include that amount as part of the transfer.
Transfers currently may be made as often as desired, subject to the minimum
amount specified above (PFL reserves the right to otherwise limit or restrict
transfers in the future). A transfer charge may be imposed for any transfer in
excess of 12 per year; however, currently there is no charge for any transfer.
Transfers may be made by sending Written Notice to the Administrative and
Service Office or by telephone, subject to the provisions described below under
"Telephone Transactions," p.23.
17
<PAGE>
In addition, transfers from the Guaranteed Periods of the Fixed Account
will be subject to the Excess Interest Adjustment unless the transfer occurs
during the 30 days prior to the Expiration Date applicable to the Guaranteed
Period Amount. (See "Excess Interest Adjustment," p.32.)
Transfers among the Subaccounts of the Variable Account may also be made
after the Annuity Commencement Date. (See "Annuity Payment Options -Transfers,"
p.29.)
DOLLAR COST AVERAGING
Under the Dollar Cost Averaging program, if elected, the Certificate Owner
can instruct PFL to automatically transfer a specified amount from the Near Term
Bond Subaccount to any other Subaccount(s). The automatic transfers can occur
monthly or quarterly, and the amount transferred each time must be at least
$500.00. At the time the program begins, there must be sufficient Annuity
Purchase Value in the Near Term Bond Subaccount to cover at least one year's
transfers.
Dollar Cost Averaging results in the purchase of more Units when the Unit
Value is low, and fewer Units when the Unit Value is high. However, there is no
guarantee that the Dollar Cost Averaging program will result in a higher Annuity
Purchase Value or otherwise be successful.
The Dollar Cost Averaging program can be elected when purchasing the
Certificate or at a later date, and the election can specify that only a certain
number of transfers will be made, in which case the program will terminate when
that number of transfers has been made. Otherwise, the program will terminate
when the amount in the Near Term Bond Subaccount is insufficient for the next
transfer. There is no charge for this program.
TELEPHONE TRANSACTIONS
Certificate Owners (or their designated account executive) can make
transfers and/or change the allocation of subsequent premium payments by
telephone if the "Telephone Transfer/Reallocation Authorization" box in the
application has been checked or telephone transfers have been subsequently
authorized in writing. PFL and/or the Administrative and Service Office will not
be liable for following instructions communicated by telephone that it
reasonably believes to be genuine. However, PFL and/or the Administrative and
Service Office will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If PFL and/or the Administrative and
Service Office fails to do so, it may be liable for any losses due to
unauthorized or fraudulent instructions. All telephone requests will be recorded
on voice recorder equipment for the protection of the Certificate Owner. A
Certificate Owner, when making telephone requests, may be required to provide
the Participant's or Policy Owner's social security number and/or other
information for identification purposes.
Telephone requests must be received at the Administrative and Service
Office no later than 3:00 p.m. Central time in order to assure same-day pricing
of the transaction.
The telephone transaction privilege may be discontinued at any time as to
some or all Certificates, and PFL may require written confirmation of a
transaction request.
DISTRIBUTIONS UNDER THE CERTIFICATES
WITHDRAWALS
The Certificate Owner may withdraw all or a portion of the Cash Value of a
Certificate at any time during the life of the Annuitant and prior to the
Annuity Commencement Date by sending a Written Request to PFL's Administrative
and Service Office. The Cash Value is the Annuity Purchase Value less any
applicable premium taxes and plus or minus any Excess Interest Adjustment. (See
"Excess Interest Adjustment," p.32.) The Annuity Purchase Value is equal to
premiums paid, minus any partial withdrawals, plus or minus any applicable
Excess Interest Adjustments on prior withdrawals or transfers, plus or minus
accumulated gains or losses in the Variable Account, plus accumulated interest
in the Fixed Account, minus any applicable charges, premium taxes and transfer
fees, if any. There will be no Excess Interest Adjustment with respect to
withdrawals from the
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Fixed Account made within 30 days prior to the Expiration Date of the applicable
Guaranteed Period. Any Excess Interest Adjustment imposed on a withdrawal will
affect only the amount withdrawn from the Fixed Account.
The minimum amount that can be withdrawn from any Subaccount or Guaranteed
Period of the Fixed Account is $500. After the Annuity Commencement Date, the
Annuity Purchase Value can only be withdrawn if Annuity Payment Option 4-V is in
effect. (See "Annuity Payments," p.25.)
The Subaccount or Guaranteed Period from which partial withdrawal amounts
should be taken must be specified in the request. Otherwise, the withdrawal
request cannot be processed. ALL WITHDRAWALS FROM ANY GUARANTEED PERIOD, EXCEPT
THOSE EFFECTIVE WITHIN 30 DAYS PRIOR TO THE EXPIRATION DATE OF THE APPLICABLE
GUARANTEED PERIOD, WILL BE SUBJECT TO THE EXCESS INTEREST ADJUSTMENT. (See
"Excess Interest Adjustment," p.32.)
PFL will process all withdrawal requests within seven (7) calendar days
following receipt by the Service Center of Written Request, except that
. Variable Account - PFL reserves the right to defer the payment of any
----------------
withdrawal from the Variable Account as permitted by the 1940 Act.
Such delay may occur because (i) the New York stock exchange is
closed for trading; (ii) the SEC determines that a state of emergency
exists; or (iii) an order or pronouncement of the SEC permits a delay
for the protection of investors.
. Fixed Account - PFL reserves the right to defer payment of any
-------------
withdrawal from the Fixed Account for up to six (6) months.
The Participant or individual Policy Owner assumes the investment risk with
respect to all premium payments allocated or transferred to the Subaccounts.
Because withdrawals or transfers of amounts allocated to the Fixed Account may
be subject to a negative Excess Interest Adjustment, because the performance of
the Subaccounts is not guaranteed, and because all withdrawals may be subject to
premium taxes, the total Cash Value (taking any prior withdrawals into account)
may be more or less than the total premium payments made. However, the Cash
Value of amounts transferred or allocated to the Fixed Account will never be
less than the amounts originally transferred or allocated, with interest
accumulated at 3% annually less any premium taxes. Following a withdrawal of the
total Cash Value, or at any time the Annuity Purchase Value is zero, all rights
of the Certificate Owner and the Annuitant will terminate.
Withdrawals may be taxable, and a ten percent federal tax penalty generally
applies to withdrawals made before the taxpayer reaches age 59-1/2 for
Nonqualified Certificates; withdrawal restrictions and penalties may apply to
Qualified Certificates.
SYSTEMATIC WITHDRAWAL PLAN
Under the Systematic Withdrawal Plan, the Certificate Owner can instruct
PFL to make automatic withdrawal payments to it monthly, quarterly, semi-
annually or annually from a specified Subaccount. Monthly and quarterly payments
can only be sent by electronic funds transfer directly to a checking or savings
account. The minimum monthly payment is $50.00, the minimum quarterly payment is
$100.00, and the minimum semi-annual or annual payment is $250.00. If the
withdrawal is less than the minimum, it can only be sent on an annual basis. The
"Request for Systematic Withdrawal" form must specify a date for the first
payment, which must be at least 30 but not more than 90 days after the form is
submitted. Amounts withdrawn from the Fixed Account will be subject to the
Excess Interest Adjustment.
Systematic Withdrawals will not be available for 403(b) annuities under age
59-1/2.
Qualified Policies are subject to complex rules with respect to
restrictions on and taxation of distributions, including the applicability of
penalty taxes. A qualified tax adviser should be consulted before a Systematic
Withdrawal Plan is requested. (See "Certain Federal Income Tax Consequences,"
page 36.)
A ten percent federal tax penalty may be assessed on withdrawals made
before reaching age 59-1/2 for Nonqualified Certificates; different penalties
may apply to Qualified Certificates.
When using Systematic Withdrawals, no additional premium payments will be
allowed.
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ANNUITY PAYMENTS
PFL will make Annuity Payments beginning on the Annuity Commencement Date,
provided no Death Benefit has become payable and an available Annuity Payment
Option and payment schedule has been selected by Written Request. The Annuity
Payment Option and frequency of Annuity Payments may not be changed after
Annuity Payments begin. The dollar amount and frequency of the payments will
depend on numerous factors such as the Annuity Purchase Value on the Annuity
Commencement Date, the Annuity Payment Option elected, and age and possibly sex,
of the Annuitant.
ANNUITY COMMENCEMENT DATE. Unless the Annuity Commencement Date is changed,
Annuity Payments under a Certificate will begin on the Annuity Commencement Date
which is selected at the time the Certificate is applied for. The Annuity
Commencement Date may be changed from time to time by Written Notice to PFL,
provided that notice of each change is received by PFL at its Administrative and
Service Office at least thirty (30) days prior to the then current Annuity
Commencement Date. Except as otherwise permitted by PFL, a new Annuity
Commencement Date must be a date which is: (1) after the Annuitant attains age
40 and (2) at least thirty (30) days after the date notice of the change is
received by PFL. The Annuity Commencement Date may also be changed by the
Beneficiary's election of the Annuity Option after the death of the
Annuitant.
ELECTION OF PAYMENT OPTION. During the lifetime of the Annuitant and prior
to the Annuity Commencement Date, the Certificate Owner may choose an Annuity
Payment Option or change the election, but Written Notice of any election or
change of election must be received by PFL at its Administrative and Service
Office at least thirty (30) days prior to the Annuity Commencement Date. If no
election is made prior to the Annuity Commencement Date, Annuity Payments will
be made under Option 3-V, life income with variable payments for 10 years
certain. If the Annuity Purchase Value, net of any applicable premium taxes, on
the Annuity Commencement Date is less than $2,000, PFL reserves the right to pay
it in one lump sum in lieu of applying it under an Annuity Payment Option.
Prior to the Annuity Commencement Date, the Beneficiary may elect to
receive the Death Benefit (if it becomes payable) in a lump sum or under one of
the Annuity Payment Options, to the extent allowed by law and subject to the
terms of any settlement agreement. (See "Death Benefit," p.29.)
Annuity Payments will be made on either a fixed basis or a variable basis
as selected by the Certificate Owner (or the Beneficiary, after the Annuitant's
death).
Unless the Certificate Owner specifies otherwise, the payee shall be the
Annuitant, or, after the Annuitant's death, the Beneficiary. PFL may require
written proof of the age of any person who elects Annuity Payment Option 3, 3-V,
5 or 5-V.
PREMIUM TAX. PFL may be required by state law to pay premium tax on the
amount applied to an Annuity Payment Option or upon withdrawal. If so, PFL will
deduct the premium tax before applying or paying the proceeds.
SUPPLEMENTARY CERTIFICATE. Once proceeds become payable and a choice has
been made, PFL will issue a Supplementary Certificate in exchange for the
Certificate setting forth the terms of the option elected. The Supplementary
Certificate will name the payees and will describe the payment schedule.
ANNUITY PAYMENT OPTIONS
The Certificate provides five Annuity Payment Options which are described
below. Three of these are offered as either "Fixed Annuity Payment Options" or
"Variable Annuity Payment Options," and two are only available as Fixed Payment
Options. The Certificate Owner may elect a Fixed Payment Option, a Variable
Payment Option, or a combination of both. If the Participant or Policy Owner
elects a combination, he must specify the portions of the Annuity Purchase Value
(less any applicable premium taxes) to be applied to the Fixed and Variable
Options. For Variable Options, the Participant or Policy Owner must specify the
amount of the Annuity Purchase Value (less any applicable premium taxes) to be
applied to each Subaccount.
NOTE CAREFULLY: UNDER PAYMENT OPTIONS 3(1) AND 5 (INCLUDING 3(1)-V AND 5-
--------------
V), IT WOULD BE POSSIBLE FOR ONLY ONE ANNUITY PAYMENT TO BE MADE IF THE
ANNUITANT(S) WERE TO DIE BEFORE THE DUE DATE OF THE
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SECOND ANNUITY PAYMENT; ONLY TWO ANNUITY PAYMENTS IF THE ANNUITANT(S) WERE TO
DIE BEFORE THE DUE DATE OF THE THIRD ANNUITY PAYMENT; AND SO FORTH.
On the Annuity Commencement Date, the Certificate's Annuity Purchase Value
for the Valuation Period which ends immediately preceding the Annuity
Commencement Date, less any applicable premium taxes, will be applied to provide
for Annuity Payments under the selected Annuity Payment Option.
The effect of choosing a Fixed Annuity Payment Option is that the amount of
each Annuity Payment will be set on the Annuity Commencement Date and will not
change. If a Fixed Annuity Payment Option is selected, the Annuity Purchase
Value, less any applicable premium taxes, will be transferred to the general
account of PFL, and the Annuity Payments will be fixed in amount by the fixed
annuity provisions selected and the age and sex (if consideration of sex is
allowed) of the Annuitant. For further information, contact PFL at its
Administrative and Service Office.
FIXED ANNUITY PAYMENT OPTIONS. There are five Fixed Annuity Payment
Options. Options 1, 2, and 4 are based on a guaranteed interest rate of 3%.
Options 3 and 5 are based on a guaranteed interest rate of 3% using the "1983
Table a" mortality table with projection of improved mortality.
OPTION 1 - INTEREST PAYMENTS. The Certificate proceeds may be left with PFL
for any term agreed to. PFL will pay the interest in equal payments or it may be
left to accumulate. Withdrawal rights will be agreed upon by the Certificate
Owner and PFL when the option is elected.
OPTION 2 - INCOME FOR A SPECIFIED PERIOD. Level payments of the proceeds
with interest are made for the fixed period elected, at which time the funds are
exhausted.
OPTION 3 - LIFE INCOME. An election may be made between:
1. "No Period Certain" - Level payments will be made during the
lifetime of the Annuitant.
2. "10 Years Certain" - Level payments will be made for the longer of
the Annuitant's lifetime or ten years.
3. "Guaranteed Return of Certificate Proceeds" - Level payments will
be made for the longer of the Annuitant's lifetime or the number of
payments which, when added together, equals the proceeds applied to
the income option.
OPTION 4 - INCOME OF A SPECIFIED AMOUNT. Payments are made for any
specified amount until the proceeds with interest are exhausted.
OPTION 5 - JOINT AND SURVIVOR ANNUITY. Payments are made during the joint
lifetime of the payee and a joint payee of the Certificate Owner's selection.
Payments will be made as long as either person is living.
Other options may be arranged by agreement with PFL. Certain options may
not be available in some states.
Current immediate annuity rates for the same class of annuities will be
used if higher than the guaranteed rate (guaranteed rates are based upon the
tables contained in the Certificate). Current rates may be obtained from PFL.
VARIABLE ANNUITY PAYMENT OPTIONS. The dollar amount of the first Variable
Annuity Payment will be determined in accordance with the annuity payment rates
set forth in the applicable table contained in the Certificate. The tables are
based on the "1983 Table a" mortality table with projection of improved
mortality with a 5% effective annual assumed interest rate and assume a
retirement date in the year 2000. The dollar amount of every subsequent Variable
Annuity Payment will vary based on the investment performance of the Subaccounts
of the Variable Account selected by the Annuitant or Beneficiary. If the actual
investment performance exactly matched the assumed interest rate of 5% at all
times, the amount of each Variable Annuity Payment would remain equal. If actual
investment performance exceeds the 5% assumed interest rate, the amount of the
payments would increase. Conversely, if actual investment performance is worse
than the 5% assumed interest rate, the amount of the payments would decrease.
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DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first
variable payment depends upon the sex (if consideration of sex is allowed) and
adjusted age of the Annuitant (the use of adjusted age results in lower payments
than use of actual age). The adjusted age is the Annuitant's actual age nearest
birthday, at the Annuity Commencement Date, adjusted as follows:
<TABLE>
<CAPTION>
Annuity Commencement Date Adjusted Age
- --------------------------------------------------------------------------------
<S> <C>
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As Determined by PFL
- --------------------------------------------------------------------------------
</TABLE>
The following Variable Payment Options generally are available:
OPTION 3-V - LIFE INCOME. An election may be made between:
1. "No Period Certain" - Payments will be made during the lifetime of
the Annuitant.
2. "10 Years Certain" - Payments will be made for the longer of the
Annuitant's lifetime or ten years.
OPTION 4-V - INCOME OF A SPECIFIED AMOUNT. Payments are made for any
specified amount until the proceeds with accumulated gains or losses are
exhausted. At any time this option is in effect, the Annuitant can withdraw the
remaining value. The mortality and expense risk charge is applicable to this
option (and all other variable options) although PFL incurs no mortality risk
under this option once annuity payments begin. Payments under this option are
considered withdrawals for Federal Income Tax purposes.
OPTION 5-V - JOINT AND SURVIVOR ANNUITY. Payments are made as long as
either the Annuitant or the joint Annuitant is living.
DETERMINATION OF SUBSEQUENT VARIABLE PAYMENTS. All Variable Annuity
Payments other than the first are calculated using "Annuity Units" which are
credited to the Certificate. The number of Annuity Units to be credited in
respect of a particular Subaccount is determined by dividing that portion of the
first Variable Annuity Payment attributable to that Subaccount by the Annuity
Unit Value of that Subaccount for the Annuity Commencement Date. The number of
Annuity Units of each particular Subaccount credited to the Certificate then
remains fixed. The dollar value of Annuity Units in the chosen Subaccount will
increase or decrease reflecting the investment experience of the chosen
Subaccount. The dollar amount of each Variable Annuity Payment after the first
may increase, decrease or remain constant, and is equal to the sum of the
amounts determined by multiplying the number of Annuity Units of each particular
Subaccount credited to the Certificate by the Annuity Unit Value for the
particular Subaccount on the date the payment is made.
TRANSFERS. Unless restricted by a particular Subaccount, the value of the
Annuity Units may be transferred from one Subaccount to another within the
Variable Account or to the Fixed Account. The minimum amount which may be
transferred is the lesser of $10 of monthly income or the entire monthly income
of the variable Annuity Units in the Subaccount from which the transfer is being
made. The remaining Annuity Units in the Subaccount must provide at least $10 of
monthly income. If, after a transfer, the monthly income of the remaining
Annuity Units in a Subaccount would be less than $10, PFL reserves the right to
include those Annuity Units as part of the transfer. PFL reserves the right to
limit transfers between Subaccounts to once per Certificate Year. After the
Annuity Commencement Date no transfers may be made from the Fixed Account.
* * *
A portion or the entire amount of the Annuity Payments may be taxable as
ordinary income. If, at the time the Annuity Payments begin, a written election
has not been made, PFL will deduct withholding for such taxes from the taxable
portion of such Annuity Payments and remit that amount to the federal
government. (See "Certain Federal Income Tax Consequences," p.36.)
ADJUSTMENT OF ANNUITY PAYMENTS. Payments will be made at 1, 3, 6, or 12
month intervals. If the individual payments provided for would be or become less
than $30, PFL may change, at its discretion, the frequency of
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payments to such intervals as will result in payments of at least $30. If the
Annuity Purchase Value, net of any applicable premium taxes, on the Annuity
Commencement Date is less than $2,000, PFL may pay such value in one sum in lieu
of the payments otherwise provided for.
DEATH BENEFIT
Federal tax law requires that if any Certificate Owner (of a Nonqualified
Certificate) is a natural person and dies before the Annuity Commencement Date,
then the entire value of the Certificate must generally be distributed within
five years of the date of death of the Certificate Owner. If the Certificate
Owner is not a natural person, the death of the primary Annuitant triggers the
same distribution requirement. For purposes of this distribution requirement,
under certain bank agency or trust arrangements, the Participant may be treated
as the Certificate Owner. Special rules may apply to a surviving spouse. Other
rules apply to Qualified Certificates. See "Certain Federal Tax Consequences,"
below, for more information.
DEATH OF ANNUITANT PRIOR TO ANNUITY COMMENCEMENT DATE. A Death Benefit is
payable if the Annuitant dies before the Annuity Commencement Date, and either
(a) the Annuitant is the Certificate Owner, or (b) the Certificate Owner is not
a natural person. In those circumstances, upon receipt of proof of the
Annuitant's death, the Death Benefit is calculated and is payable to the
Beneficiary when PFL receives an election of the method of settlement and return
of the Certificate. The Death Benefit will be the greater of (a) the Annuity
Purchase Value on the date proof of death and election of the method of
settlement are received; or (b) the total premiums paid less any partial
withdrawals plus interest at an annual rate of 5.0%. The Death Benefit may be
paid as either a lump sum cash benefit or as an Annuity Payment Option.
Note that the Death Benefit is payable on the death of the Annuitant under
the circumstances described above, and not on the death of the Certificate
Owner, if different. The Certificate Owner, if a natural person, will become the
Annuitant if the Annuitant who is not the Certificate Owner dies before the
Annuity Commencement Date.
Due Proof of Death of the Annuitant is proof that the Annuitant died prior
to the commencement of Annuity Payments. Upon receipt of this proof and an
election of a method of settlement and return of the Certificate, the Death
Benefit generally will be paid within seven days, or as soon thereafter as PFL
has sufficient information about the Beneficiary to make the payment. The
Beneficiary may receive the amount payable in a lump sum cash benefit, or,
subject to any limitation under any state or federal law, rule, or regulation,
under one of the Annuity Payment Options described above, unless a settlement
agreement is effective at the death of the Annuitant preventing such election.
If the Beneficiary was not the Annuitant's spouse, the Death Benefit must
(1) be distributed within five years of the Annuitant's death, or (2) payments
under a Payment Option must begin within one year of the Annuitant's death and
must be made for the Beneficiary's lifetime or for a period certain (so long as
any certain period does not exceed the Beneficiary's life expectancy). Death
proceeds which are not paid to or for the benefit of a natural person must be
distributed within five years of the date of death. A Beneficiary who is the
Certificate Owner's surviving spouse may elect to continue the Certificate as
the new Annuitant and Participant or Policy Owner instead of receiving the Death
Benefit.
DEATH OF ANNUITANT ON OR AFTER ANNUITY COMMENCEMENT DATE. The Death
Benefit, if any, payable if the Annuitant dies on or after the Annuity
Commencement Date depends on the Annuity Payment Option selected. Upon the
Annuitant's death, the remaining portion of the Annuitant's interest in the
Certificate will be distributed at least as rapidly as under the method of
distribution being used as of the date of the Annuitant's death.
BENEFICIARY. The Beneficiary designation in the application will remain in
effect until changed. The Certificate Owner may change the designated
Beneficiary by sending Written Notice to PFL. The Beneficiary's consent to such
change is not required unless the Beneficiary was irrevocably designated or
consent is required by law. (If an irrevocable Beneficiary dies, the Certificate
Owner may then designate a new Beneficiary.) The change will take effect as of
the date the Certificate Owner signs the Written Notice, whether or not the
Certificate Owner (if a natural person) is living when the Notice is received by
PFL. PFL will not be liable for any payment made before the Written Notice is
received. If more than one Beneficiary is designated, and their interests have
not been specified, they will share equally.
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DEATH OF NATURAL PERSON CERTIFICATE OWNER. If the Certificate Owner is a
natural person and is not the Annuitant and that Certificate Owner dies before
the Annuity Commencement Date, the successor owner (or the Certificate Owner's
estate, if there is no successor owner) will become the new Certificate Owner.
If ownership of the Certificate is transferred (except to the Certificate
Owner's spouse) because the Certificate Owner dies before the Annuitant, the
Cash Value generally must be distributed within five years of the Certificate
Owner's death, or payments must be made for a period certain or for the
successor owner's lifetime so long as any period certain does not exceed that
successor owner's life expectancy, if the first payment begins within one year
of the Certificate Owner's death.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program (ORP) to withdraw their interest in a variable
annuity policy issued under the ORP only upon: (1) termination of employment in
the Texas public instructions of higher education; (2) retirement; or (3) death.
Accordingly, a Participant or Policy Owner in the ORP (or the Participant's or
Policy Owner's estate if the Participant or Policy Owner has died) will be
required to obtain a certificate of termination from the employer or a
certificate of death before a Certificate can be redeemed.
RESTRICTIONS UNDER SECTION 403(b) PLANS
Section 403(b) of the Internal Revenue Code provides for tax deferred
retirement savings plans for employees of certain non-profit and educational
organizations. In accordance with the requirements of Section 403(b), any
Certificate used for a 403(b) plan will prohibit distributions of elective
contributions and earnings on elective contributions except upon death of the
employee, attainment of age 59-1/2, separation from service, disability, or
financial hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.
CHARGES AND DEDUCTIONS
No deductions are made from premium payments, so that the full amount of
each premium payment is invested in the Variable Account. PFL will make certain
charges and deductions in connection with the Certificate in order to compensate
it for bearing mortality and expense risks under the Certificate and for
administering the Variable Account and the Certificates. Charges may also be
made for premium taxes, federal, state or local taxes, any economic burden
resulting from such taxes or for certain transfers or other transactions.
Charges and expenses are also deducted from the Portfolios.
EXCESS INTEREST ADJUSTMENT
Any full or partial withdrawal of a Guaranteed Period Amount which is not
effective during the 30 days prior to the Expiration Date of the applicable
Guaranteed Period will be subject to an Excess Interest Adjustment. For this
purpose, transfers and systematic withdrawals are treated as withdrawals. The
Excess Interest Adjustment will be added to or subtracted from the gross amount
being withdrawn after deductions of any applicable charges.
Generally, if PFL's Guaranteed Interest Rate declines, the Cash Value will
be increased in inverse proportion to the decline as a result of the application
of the Excess Interest Adjustment. Similarly, if PFL's Guaranteed Interest Rate
increases, the Cash Value will be correspondingly reduced. However, in no event
will the reductions in the amount withdrawn ever result in less than a 3% annual
interest rate on amounts allocated to the Fixed Account.
The Excess Interest Adjustment will reflect the relationship between PFL's
current guaranteed interest rate (defined as "C" below) for the Guaranteed
Period which is next longer than the remaining time until expiration of the
Guaranteed Period from which the withdrawal is being made and the guaranteed
interest rate applicable to the amount being withdrawn (defined as "G" below).
It also reflects the time remaining in the applicable Guaranteed Period. The
application of the Excess Interest Adjustment upon withdrawal may result in a
higher or lower payment than the Guarantee Period Amount.
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The Excess Interest Adjustment ("EIA") is determined by the application of
the following formula:
EIA = S x (G-C) x (M/12)
Where:
S is the gross withdrawal as of the effective date of the application of
the Excess Interest Adjustment, prior to the application of the Excess Interest
Adjustment and any applicable charges;
C is the guaranteed interest rate declared by PFL, as of the effective date
of the application of the Excess Interest Adjustment, for the Guaranteed Period
which is next longer than the remaining time until expiration of the Guaranteed
Period from which the withdrawal is being made. If such an option is no longer
offered, "C" will be the U.S. Treasury rate on the twenty-fifth day of the
previous calendar month for the next longer maturity (in whole years) than "M,"
plus 2%;
G is the Guaranteed Interest Rate currently being credited to the
Guaranteed Period Amount subject to the Excess Interest Adjustment; and
M is the number of months remaining in the Guaranteed Period rounded up to
the next higher whole number of months.
Notwithstanding application of the foregoing formula, the gross withdrawal
minus the Excess Interest Adjustment will not be less than the amount of the
premium payment being withdrawn, accumulated at three (3%) percent interest
compounded annually since the beginning of the Guaranteed Period. Thus, a
negative Excess Interest Adjustment could result in the loss of all previously
credited interest in excess of 3% per year, but it will not result in any loss
of principal (the premium payments) or the 3% guaranteed minimum interest.
See Appendix A for examples of the Excess Interest Adjustment calculation.
MORTALITY AND EXPENSE RISK CHARGE
PFL imposes a daily charge as compensation for bearing certain mortality
and expense risks in connection with the Certificates. This charge is equal to
an effective annual rate of 1.00% of the value of net assets in the Variable
Account. The Mortality and Expense Risk Charge is reflected in the Accumulation
Unit or Annuity Unit values for the Certificate for each Subaccount. The rate of
this charge is guaranteed not to increase.
Annuity Purchase Value and annuity payments are neither affected by changes
in actual mortality experience nor by actual expenses incurred by PFL. The
mortality risks assumed by PFL arise from its contractual obligations to make
annuity payments (determined in accordance with the annuity tables and other
provisions contained in the Certificate). Thus, Participants and Policy Owners
(i.e., the Annuitants) are assured that neither an Annuitant's own longevity nor
an unanticipated improvement in general life expectancy will adversely affect
the monthly Annuity Payments that the Annuitant will receive under the
Certificate.
PFL also bears substantial risk in connection with its Death Benefit
guarantee since PFL will pay a Death Benefit equal to the premium payments, less
withdrawals, plus interest at 5% per year, if that amount is higher than the
Annuity Purchase Value. The Death Benefit is paid without imposition of the
Excess Interest Adjustment.
The expense risk assumed by PFL is the risk that PFL's actual expenses in
administering the Certificate and the Variable Account will exceed the amount
recovered through the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover PFL's
actual costs, PFL will bear the loss; conversely, if the charge is more than
sufficient to cover costs, the excess will be profit to PFL. PFL expects a
profit from this charge. PFL's expenses for distributing the Certificates will
be borne by the general assets of PFL which may include amounts, if any, derived
from the Mortality and Expense Risk Charge.
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<PAGE>
ADMINISTRATIVE CHARGE
In order to cover the costs of administering the Certificates and the
Variable Account, PFL deducts an Administrative Charge from the Annuity Purchase
Value of each Certificate.
The annual Administrative Charge is deducted from the Annuity Purchase
Value of each Certificate on each anniversary of the issuance of the Certificate
prior to the Annuity Commencement Date to cover the cost of administering the
Certificate during the prior year. On or after the Annuity Commencement Date,
the charge is not deducted. This annual Administrative Charge is $30, and it
will not be increased. It will never exceed 2% of the Annuity Purchase Value.
PFL does not anticipate realizing any profit from this charge. The
Administrative Charge will be deducted from each Subaccount in the Variable
Account, in the same proportion that the Certificate Owner's interest in each
Subaccount before such charge bears to the Annuity Purchase Value in the
Variable Account. The Administrative Charge is not deducted from the Annuity
Purchase Value in the Fixed Account.
PREMIUM TAXES
PFL currently makes no deduction from the premium payments for any state
premium taxes PFL pays in connection with premium payments under the
Certificates. However, PFL will deduct the aggregate premium taxes paid on
behalf of a particular Certificate from the Annuity Purchase Value on (i) the
Annuity Commencement Date, (ii) the total withdrawal of a Certificate, or (iii)
payment of the Death Benefit.
FEDERAL, STATE AND LOCAL TAXES
No charges are currently made for federal, state, or local taxes or the
economic burden resulting from the application of the tax laws other than
premium taxes. However, PFL reserves the right to deduct charges in the
future from the Subaccounts and Guaranteed Periods for any taxes or other
economic burden resulting from the application of any tax laws that PFL
determines to be attributable to the Certificates.
TRANSFER CHARGE
There is no charge for the first 12 transfers among Subaccounts or to and
from the Fixed Account Guaranteed Periods in each Certificate Year. PFL reserves
the right to impose a $25 charge for the thirteenth and each subsequent transfer
request during a single Certificate Year. For the purpose of determining whether
a transfer charge is payable, initial premium payment allocations are not
considered transfers. All transfer requests made simultaneously will be treated
as a single request. No transfer charge will be imposed for any transfer which
is not at the Certificate Owner's request.
OTHER EXPENSES
Each of the Portfolios is responsible for all of its expenses. In addition,
charges will be made against each of the Portfolios for investment advisory
services provided to the Portfolio. The net assets of each Portfolio will
reflect deductions in connection with the investment advisory fee and other
expenses.
For more information concerning the investment advisory fee and other
charges against the Portfolios, see the prospectus for the Trust, a current copy
of which accompanies this Prospectus.
With respect to Certificates sold in bank trust or agency arrangements, the
bank typically charges trust, management, or other fees that may vary from bank
to bank and that may also vary depending on the type of arrangement, the amounts
involved, and/or other factors.
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HISTORICAL PERFORMANCE DATA
STANDARDIZED PERFORMANCE DATA
From time to time, PFL may advertise historical yields and total returns
for the Subaccounts of the Variable Account. These figures will be calculated
according to standardized methods prescribed by the SEC. They will be based on
historical earnings and are not intended to indicate future performance.
The yield of a Subaccount of the Variable Account for a Certificate refers
to the annualized income generated by an investment under a Certificate in the
Subaccount over a specified thirty-day period. The yield is calculated by
assuming that the income generated by the investment during that thirty-day
period is generated each thirty-day period over a 12-month period and is shown
as a percentage of the investment.
The total return of a Subaccount of the Variable Account refers to return
quotations assuming an investment under a Certificate has been held in the
Subaccount for various periods of time including, but not limited to, a period
measured from the date the Subaccount commenced operations. When a Subaccount
has been in operation for one, five, and ten years, respectively, the total
return for these periods will be provided. The total return quotations for a
Subaccount will represent the average annual compounded rates of return that
equate an initial investment of $1,000 in the Subaccount to the redemption value
of that investment as of the first day of each of the periods for which total
return quotations are provided.
The yield and total return calculations for a Subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular Certificate.
To the extent that a premium tax is applicable to a particular Certificate, the
yield and/or total return of that Certificate will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the Statement of Additional
Information, a free copy of which may be obtained from PFL.
NON-STANDARDIZED PERFORMANCE DATA
PFL may from time to time also advertise or disclose average annual total
return or other performance data in non-standard formats for a Subaccount of the
Variable Account. The non-standard performance data may make certain
assumptions.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information, a copy of which may be obtained from PFL.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a Certificate, based on the
Internal Revenue Code of 1986, as amended (the "Code"), proposed and final
Treasury Regulations thereunder, judicial authority, and current administrative
rulings and practice. This summary discusses only certain federal income tax
consequences to "United States Persons," and does not discuss state, local, or
foreign tax consequences. United States Persons means citizens or residents of
the United States, domestic corporations, domestic partnerships and trusts or
estates that are subject to United States federal income tax regardless of the
source of their income.
A Qualified Certificate may be purchased by retirement plans intended to
qualify for special tax treatment under Code sections 401, 403, 408 and 457,
although bank trust or agency arrangements may not be suitable for certain types
of Qualified Certificates. A Non-Qualified Certificate may be purchased for
deferred compensation plans and other purposes which do not qualify for such
special federal income tax treatment. The ultimate effect of federal income
taxes on the value of a Certificate, on income Payments, and on the economic
benefit of the Contract
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<PAGE>
to the Participant, or the Certificate Owner, the Annuitant, or the Beneficiary
depends upon several factors. These factors include: (1) the type of retirement
plan, if any; (2) the tax status and employment status of the individual
concerned; and (3) PFL's tax status.
In addition, certain requirements must be satisfied if a Qualified
Certificate is purchased with proceeds from a tax-qualified retirement plan in
order to continue receiving favorable tax treatment. Therefore, competent legal
counsel and tax advisers should be consulted regarding the suitability of the
Certificates, the applicable requirements and the tax treatment of the rights
and benefits of the Certificate. This summary assumes that Qualified
Certificates are purchased with proceeds from retirement plans that qualify for
the intended special federal income tax treatment.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. EACH
POTENTIAL PURCHASER IS URGED TO CONSULT HIS/HER OWN TAX ADVISER AS TO THE
CONSEQUENCES OF INVESTMENT IN A CERTIFICATE UNDER FEDERAL AND APPLICABLE
STATE, LOCAL AND FOREIGN TAX LAWS.
TAX STATUS OF THE CERTIFICATE
Diversification Requirements. Section 817(h) of the Code provides that, in
order for a variable contract which is based on a segregated asset account to
qualify as an annuity contract under the Code, the investments made by such
account must be "adequately diversified" in accordance with Treasury
regulations. The Treasury regulations issued under Section 817(h) (Treas. Reg.
1.817-5) apply a diversification requirement to each of the Subaccounts of the
Variable Account. The Variable Account, through the Trust and its Portfolios,
intends to comply with the diversification requirements of the Treasury. PFL has
entered into agreements regarding participation in the Trust that requires the
Portfolios to be operated in compliance with the Treasury regulations.
Certificate Owner Control. In certain circumstances, owners of variable
annuity contracts may be considered the owners, for Federal income tax purposes,
of the assets of the separate account used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable annuity contractowner's gross income. Several years
ago, the IRS stated in published rulings that a variable contractowner will be
considered the owner of separate account assets if the contractowner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. More recently, the Treasury Department
announced, in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor, rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular subaccounts
without being treated as owners of the underlying assets."
The ownership rights under the Certificate are similar to, but different in
certain respects from, those described by the Service in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the Certificate Owner has the choice of one or more Subaccounts in
which to allocate premiums and Certificate values, and may be able to transfer
among Subaccounts more frequently than in such rulings, or if a Subaccount is
too narrow in its investment strategy (e.g., a fund that invests only in gold or
stock of gold mining companies), or if Certificate Owners have too many
subaccount options to select. These differences could result in the Certificate
Owner being treated as the owner of the assets of the Variable Account. In
addition, PFL does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated
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it expects to issue. PFL therefore reserves the right to modify the Certificate
as necessary to attempt to prevent the Certificate Owner from being considered
the owner of a pro rata share of assets of Variable Account.
NON-NATURAL PERSONS. Pursuant to Section 72(u) of the Code, an annuity
contract held by a taxpayer other than a natural person generally will not be
treated as an annuity contract under the Code; accordingly, a Certificate Owner
who is not a natural person will recognize as ordinary income for a taxable year
the excess of (i) the sum of the net surrender value as of the close of the
taxable year and all previous distributions under the Certificate over (ii) the
sum of the premium payments paid for the taxable year and any prior taxable year
and the amounts includable in gross income for any prior taxable year with
respect to the Certificate. Notwithstanding the preceding sentence, Section
72(u) of the Code does not apply to, among other things, (i) a Certificate the
nominal owner of which is not a natural person but the beneficial owner of which
is a natural person (including a situation where the Certificate is held by a
trust or other entity as an agent for a natural person), (ii) a single-payment
annuity the Annuity Commencement Date for which is no later than one year from
the date of the single premium payment, or (iii) a qualified funding asset.
Accordingly, a Certificate owned by a grantor trust (as defined in Sections 671
through 678 of the Code) should be treated as an annuity contract under the
Code. Under certain circumstances, a trust may be a grantor trust where the
grantor of the trust retains any one or more of a number of powers over the
trust property, including but not limited to the power to revoke the trust and
revest the trust property in the grantor, the power to control beneficial
enjoyment of the trust property, or the right to receive trust income. If a
Certificate may be held by a non-natural person (including bank trust or agency
arrangements), advice on the possible application of Section 72(u) should be
sought from a competent tax advisor.
DISTRIBUTION REQUIREMENTS. The Code also requires that Nonqualified
Certificates contain specific provisions for distribution of Certificate
proceeds upon the death of certain individuals. If the Certificate Owner is a
natural person, then the death of the Certificate Owner triggers the
distribution requirement. If the Certificate Owner is not a natural person, then
the death of the primary Annuitant triggers the distribution requirement. For
this purpose, it is unclear whether, in certain circumstances, the Participant
may be treated as the Certificate Owner. In order to be treated as an annuity
contract for federal income tax purposes, the Code requires that Certificates
provide that if the death occurs on or after the Annuity Commencement Date and
before the entire interest in the Certificate has been distributed, the
remaining portion must be distributed at least as rapidly as under the method in
effect on the date of death. If the death occurs before the Annuity Commencement
Date, the entire interest in the Certificate must generally be distributed
within 5 years after the date of death or be used to purchase an immediate
annuity under which payments will begin within one year of the date of death and
will be made for the life of the Beneficiary or for a period not extending
beyond the life expectancy of the Beneficiary. If the designated Beneficiary is
the spouse of the deceased, and the death occurs before the Annuity Commencement
Date, the Certificate may be continued with the surviving spouse as the new
owner. The Certificate contains provisions intended to comply with these
requirements of the Code. No regulations interpreting these requirements of the
Code have yet been issued and thus no assurance can be given that the provisions
contained in the Certificates satisfy all such Code requirements. The provisions
contained in the Certificates will be reviewed and modified if necessary to
assure that they comply with the Code requirements when clarified by regulation
or otherwise. Other, similar rules apply to Qualified Certificates.
TAXATION OF ANNUITIES
The discussion below applies only to those Certificates owned or deemed to
be owned by natural persons and that qualify as annuity contracts for federal
income tax purposes.
IN GENERAL. Except as described above with respect to Certificate Owners
who are not natural persons, an owner of a Certificate satisfying the
diversification and distribution requirements described above should not be
taxed on increases in the Annuity Purchase Value until distribution occurs
either in the form of amounts received in partial or full withdrawal or as
Annuity Payments under the Annuity Payment Option selected or as a Death Benefit
payment. The taxable portion of any such distribution generally will be taxed as
ordinary income. For this purpose, the assignment, pledge or agreement to assign
or pledge any portion of the Annuity Purchase Value (including assignment of
Certificate Owner's right to receive Annuity Payments prior to the Annuity
Commencement Date) generally will be treated as a distribution in the amount of
such portion of the Annuity Purchase Value. Additionally, if the Certificate
Owner designates a new owner prior to the Annuity Commencement Date without
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receiving full and adequate consideration, the old owner generally will be
treated as receiving a distribution under the Certificate in an amount equal to
the excess (if any) of the Annuity Purchase Value at the time of such
designation over the "Investment in the Certificate" at such time. "Investment
in the Certificate" means (i) the aggregate amount of any premium payments by or
on behalf of the recipient or deemed recipient which was not excluded from the
gross income of the recipient or deemed recipient minus (ii) the aggregate
amount received under the Certificate which was excluded from the gross income
of the recipient or deemed recipient. Any such deemed distributions occurring
before the Annuity Commencement Date generally will be taxable only up to an
amount equal to the excess (if any) of the Annuity Purchase Value immediately
before the distribution is deemed to occur over the Investment in the
Certificate at such time.
A transfer of ownership of a Certificate, or designation of a Beneficiary
or payee who is not also the owner, may result in certain tax consequences to
the owner that are not discussed herein. Any person contemplating making, any
such transfer or assignment of rights under a Certificate should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction.
WITHDRAWALS. In the case of a partial Withdrawal under a Qualified
Certificate, under section 72(e) of the Code a ratable portion of the amount
received is taxable, generally based on the ratio of the "Investment in the
Certificate" to the individual's total accrued benefit under the retirement
plan. The "Investment in the Certificate" generally equals the amount of any
premium payments paid by or on behalf of any individual. For a Certificate
issued in connection with qualified plans, the "Investment in the Certificate"
can be zero. Special tax rules may be available for certain distributions from a
Qualified Certificate.
With respect to Nonqualified Certificates, partial withdrawals are
generally treated as taxable income to the extent that the Annuity Purchase
Value immediately before the Withdrawal exceeds the "Investment in the
Certificate" at that time. The Annuity Purchase Value immediately before a
partial Withdrawal may have to be increased by any positive Excess Interest
Adjustment which results from such a Withdrawal. There is, however, no
definitive guidance on the proper tax treatment of Excess Interest Adjustments,
and the Certificate Owner should contact a competent tax advisor with respect to
the potential tax consequence of an Excess Interest Adjustment. Full Withdrawals
are treated as taxable income to the extent that the amount received exceeds the
"Investment in the Certificate."
ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity Payment Option elected under the Certificate, in general, only the
portion of the Annuity Payment that represents the amount by which the Cash
Value exceeds the "Investment in the Certificate" will be taxed; after the
"Investment in the Certificate" is recovered, the full amount of any additional
Annuity Payments is taxable. For Variable Annuity Payments, the taxable portion
is generally determined by an equation that establishes a specific dollar amount
of each payment that is not taxed. The dollar amount is determined by dividing
the "Investment in the Certificate" by the total number of expected periodic
payments. However, the entire distribution will be taxable once the recipient
has recovered the dollar amount of his or her "Investment in the Certificate."
For Fixed Annuity Payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "Investment in the Certificate"
bears to the total expected value of the Annuity Payments for the term of the
payments; however, the remainder of each Annuity Payment is taxable. Once the
"Investment in the Certificate" has been fully recovered, the full amount of any
additional Annuity Payments is taxable. If Annuity Payments cease as a result of
an Annuitant's death before full recovery of the "Investment in the
Certificate," consult a competent tax advisor regarding deductibility of the
unrecovered amount.
Penalty Taxes. In the case of a withdrawal or a deemed distribution
(resulting from a pledge, assignment or an agreement to pledge or assign) or an
Annuity Payment, there may be imposed on the recipient a federal penalty tax
equal to 10% of the amount of the distribution (or deemed distribution) that is
includable in gross income. The penalty tax on Nonqualified Certificates
generally will not apply to any distribution: (i) made on or after the date on
which the taxpayer attains age 59-1/2; (ii) made as a result of the death of the
holder (generally the Participant or Policy Owner); (iii) attributable to the
disability of the taxpayer; or (iv) which is part of a series of substantially
equal periodic payments made (not less frequently than annually) for the life
(or life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of such taxpayer and his/her beneficiary. Other rules may apply to
Qualified Certificates.
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DEATH BENEFIT. Amounts may be distributed from a Certificate because of
the death of an Annuitant or Certificate Owner. Generally, such amounts are
includable in the income of the recipient as follows: (i) if distributed in a
lump sum, they are taxed in the same manner as a full withdrawal, as described
above, or (ii) if distributed under an annuity option, they are taxed in the
same manner as annuity payments, as described above.
WITHHOLDING. The portion of any distribution under a Certificate that is
includable in gross income will be subject to federal income tax withholding,
although generally the recipient of such distribution can elect not to have
federal income tax withheld. Election forms will be provided at the time
distributions are requested or made. Effective January 1, 1993, certain
distributions from Qualified Certificates are subject to mandatory federal
income tax withholding.
SERIAL CONTRACTS. All non-qualified deferred annuity contracts issued by
the same company (or an affiliated company) in respect of the same policyholder
during any calendar year shall be treated as one annuity contract, and
"aggregated" for purposes of determining the amount includable in gross income.
It is unclear whether all Certificates issued through the same bank trust
department, or held in the same bank trust or agency account, or held in the
same nominal name by a bank or its trust department, will be treated as having
the same policyholder, and therefore "aggregated" for this purpose.
QUALIFIED CERTIFICATES. Qualified Certificates are designed for use with
several types of retirement plans. The tax rules applicable to participants and
beneficiaries in retirement plans vary according to the type of plan and the
terms and conditions of the plan. Special favorable tax treatment may be
available for certain types of contributions and distributions. Adverse tax
consequences may result from contributions in excess of specified limits;
distributions prior to age 59-1/2 (subject to certain exceptions); distributions
that do not conform to specified commencement and minimum distribution rules;
aggregate distributions in excess of a specified annual amount, and in other
specified circumstances.
This prospectus makes no attempt to provide more than general information
about use of the Certificates with the various types of retirement plans.
Certificate Owners and participants under retirement plans as well as Annuitants
and Beneficiaries are cautioned that the rights of any person to any benefits
under Qualified Certificates may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the Certificate
issued in connection with such a plan. Some retirement plans are subject to
distribution and other requirements that are not incorporated into our
administration procedures for Qualified Certificates. Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Qualified Certificates comply with
applicable law. Purchasers of Certificates for use with any retirement plan
should consult their legal counsel and tax adviser regarding the suitability of
the Certificate.
In particular, a competent tax adviser should be consulted before a
Certificate held through a bank trust or agency arrangement is purchased in
connection with a Section 403(a), 403(b), or 408(b) arrangement. It is unclear
whether such an arrangement satisfies the tax qualification requirements and
thus is suitable for these types of plans. Individual annuity policies, where
available, may be purchased directly (not through bank trust or agency
arrangements) for these plans.
CODE SECTION 403(B) PLANS. Under Code section 403(b), payments made by
public school systems and certain tax exempt organizations to purchase annuity
contracts for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, these payments may be subject
to FICA (Social Security) taxes.
Code section 403(b)(11) restricts the distribution under Code section
403(b) annuity contracts of: (1) elective contributions made in years beginning
after December 31, 1988; (2) earnings on those contributions; and (3) earnings
in such years on amounts held as of the last year beginning before January 1,
1989. Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
INDIVIDUAL RETIREMENT ACCOUNTS. Section 408(a) of the Code permits
individuals to establish individual retirement accounts with banks or other
qualified IRA sponsors. Certificates may be purchased by the IRA trustee or
custodian to fund these IRA's.
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INDIVIDUAL RETIREMENT ANNUITIES. In order to qualify as an individual
retirement annuity under Section 408(b) of the Code, a Certificate must contain
certain provisions: (i) the Participant or Policy Owner must be the Annuitant;
(ii) the Certificate may not be transferable by the Participant or Policy Owner,
e.g., the Participant or Policy Owner may not designate a new Participant or
Policy Owner, a successor Participant or Policy Owner, or assign the Certificate
as collateral security; (iii) the total premium payments for any calendar year
may not exceed $2,000, unless the portion of such premium payments in excess of
$2,000 qualifies as a rollover amount which meets the definition of 408(d)(3) of
the Code; (iv) annuity payments or withdrawals must begin no later than April 1
of the calendar year following the calendar year in which the Annuitant attains
age 70-1/2; (v) an Annuity Payment Option with a Period Certain that will
guarantee Annuity Payments beyond the life expectancy of the Annuitant and the
Beneficiary may not be selected; and (vi) certain payments of Death Benefits
must be made in the event of the Annuitant dies prior to the distribution of the
Annuity Purchase Value. Certificates intended to qualify as individual
retirement annuities under Section 408(b) of the Code contain such provisions.
CORPORATE PENSION AND PROFIT SHARING PLANS AND H.R. 10 PLANS. Code section
401(a) permits employers to establish various types of retirement plans and
trusts for employees, and permits self-employed individuals to establish
retirement plans and trusts for themselves and their employees. These retirement
plans and trusts may permit the purchase of the Certificate by the plan trustee
to accumulate retirement savings under the plans. Section 403(a) permits the
establishment of similar plans funded with annuity contracts. Adverse tax
consequences to the plan, to the plan participant or to both may result if the
Certificate is assigned or transferred to any individual as a means to provide
benefit payments. Thus, before purchasing such a Certificate, a competent tax
adviser should be consulted.
DEFERRED COMPENSATION PLANS. Section 457 of the Code, while not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Certificates can be used with
such plans. Under such plans a participant may specify the form of investment in
which his or her participation will be made. All such investments, however, are
owned by, and are subject to, the claims of the general creditors of the
sponsoring employer. Depending on the terms of the particular plan, the employer
may be entitled to draw on deferred amounts for purposes unrelated to its
section 457 plan obligations. In general, all amounts received under a section
457 plan are taxable and are subject to federal income tax withholding as wages.
POSSIBLE CHANGES IN TAXATION. In past years, legislation has been proposed
in the U.S. Congress that would have adversely modified the federal taxation of
certain annuities. For example, one such proposal would have changed the tax
treatment of non-qualified annuities that did not have "substantial life
contingencies" by taxing income as it is credited to the annuity. Although as of
the date of this Prospectus, Congress is not actively considering any
legislation regarding the taxation of annuities, there is always the possibility
that the tax treatment of annuities could change by legislation or other means
(such as IRS regulations, revenue rulings, judicial decisions, etc.). Moreover,
it is also possible that any change could be retroactive (that is, effective
prior to the date of the change).
DISTRIBUTOR OF THE CERTIFICATES
Wright Investors' Services Distributors, Inc., an affiliate of the Adviser,
is the principal underwriter of the Certificates. PFL pays Wright Investor's
Services Distributors, Inc. a service fee of .50% of the Annuity Purchase Value
per year. Wright Investors' Services Distributors, Inc. may enter into one or
more contracts with various broker-dealers for the distribution of the
Certificates.
VOTING RIGHTS
To the extent required by law, PFL will vote Portfolio shares held by the
Variable Account at regular and special shareholder meetings of the Portfolios
in accordance with instructions received from persons having voting interests in
the Portfolios. If, however, the 1940 Act or any regulation thereunder should be
amended or if the
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present interpretation thereof should be amended or if the present
interpretation thereof should change, and as a result PFL determines that it is
permitted to vote the Portfolio's shares in its own right, it may elect to do
so.
Before the Annuity Commencement Date, the Certificate Owner holds the
voting interest in the selected Portfolios. The number of votes that the
Certificate Owner has the right to instruct will be calculated separately for
each Subaccount. The number of votes that the Certificate Owner has the right to
instruct for a particular Subaccount will be determined by dividing the
Certificate Owner's Annuity Purchase Value in the Subaccount by the net asset
value per share of the corresponding Portfolio in which the Subaccount invests.
Fractional shares will be counted.
After the Annuity Commencement Date, the person receiving Annuity Payments
has the voting interest, and the number of votes decreases as Annuity Payments
are made and as the reserves for the Certificate decrease. The person's number
of votes will be determined by dividing the reserve for the Certificate
allocated to the applicable Subaccount by the net asset value per share of the
corresponding Portfolio of the Trust. Fractional shares will be counted.
The number of votes that the Certificate Owner, or person receiving income
payments has the right to instruct will be determined as of the date established
by the Trust for determining shareholders eligible to vote at the meeting of the
Trust. PFL will solicit voting instructions by sending, to the Certificate
Owner, or to other persons entitled to vote written requests for instructions
prior to that meeting in accordance with procedures established by the Trust.
Portfolio shares as to which no timely instructions are received and shares held
by PFL in which the Certificate Owner, or other persons entitled to vote have no
beneficial interest will be voted in proportion to the voting instructions that
are received with respect to all Certificates participating in the same
Subaccount.
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APPENDIX A
================================================================================
Example of Excess Interest Adjustment ("EIA") Calculations
The Excess Interest Adjustment ("EIA") is determined by application of the
following formula:
EIA = S x (G-C) x (M/12)
Where:
S is the gross (i.e. before premium taxes, if any) amount being withdrawn
or transferred from the Guaranteed Period,
G is the guaranteed interest rate for the Guaranteed Period;
C is the current guaranteed interest rate then being offered for the next
longer option period than "M". If such an option is no longer offered, "C"
will be the U.S. Treasury rate for the next longer maturity (in whole years)
than "M" as of the 25th day of the previous calendar month, plus 2%;
M is the number of months remaining in the Guaranteed Period, rounded up
to the next higher number of months.
The Excess Interest Adjustment will not reduce a Guaranteed Period Amount's
value below the premiums paid or amount transferred into the Guaranteed Period,
less any withdrawals and transfers from that Guaranteed Period, plus interest at
the 3% guaranteed effective annual rate.
EXAMPLES OF EXCESS INTEREST ADJUSTMENT
Assume $10,000 is paid into a 3 year Guaranteed Period which guarantees a
5% interest rate. This produces a gross (i.e. before premium taxes, if any)
Annuity Purchase Value of $10,542.78 after 1 year and 1 month and $11,115.02
after 2 years and 2 months.
EXAMPLE 1: Complete withdrawal after 1 year and 1 month, assuming the
current interest rate on the 3 year option at that time is 3.5%.
EIA = $10,542.78 x (.05 - .035) x (23/12) = $303.10
EXAMPLE 2: Complete withdrawal after 1 year and 1 month, assuming the
current interest rate on the 3 year option at that time is 6.5%.
EIA = $10,542.78 x (.05 - .065) x (23/12) = - $303.10
The Excess Interest Adjustment is reduced to -$217.38 because of the 3%
guaranteed interest rate floor.
EXAMPLE 3: $11,115.02 gross withdrawal after 2 years and 2 months,
assuming the current interest rate on the 1 year option at that time is 3.0%.
EIA = $11,115.02 x (.05 - .03) x (10/12) = $185.25
EXAMPLE: 4: $11,115.02 gross withdrawal after 2 years and 2 months,
assuming the current interest rate on the 1 year option at that time is 7.0% .
EIA = $11,115.02 x (.05 - .07) x (10/12) = -$185.25
The Excess Interest Adjustment in this example is smaller than the 3%
guaranteed interest rate floor would provide, so it is not adjusted.
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APPENDIX B
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------
<S> <C>
The Certificate - General Provisions................... 2
Participants and Policy Owners..................... 2
Entire Certificate................................. 2
Deferment of Payment and Transfers................. 2
Misstatement of Age or Sex......................... 2
Reallocation of Annuity Purchase Value After
the Annuity Commencement Date.................. 3
Assignment......................................... 3
Evidence of Survival............................... 3
Non-Participating.................................. 4
Amendments......................................... 4
Section 403(b) Representations..................... 4
Statement Pursuant to Rule 6e-7:
Texas Optional Retirement Program.............. 4
Taxation of PFL........................................ 4
Investment Experience.................................. 5
State Regulation of PFL................................ 7
Administration......................................... 7
Records and Reports.................................... 7
Distribution of the Certificates....................... 7
Custody of Assets...................................... 8
Historical Performance Data............................ 8
Subaccount Yields.................................. 8
Total Returns...................................... 9
Other Performance Data............................. 9
Legal Matters.......................................... 10
Independent Auditors................................... 10
Other Information...................................... 10
Financial Statements................................... 10
</TABLE>
- --------------------------------------------------------------------------------
35
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STATEMENT OF ADDITIONAL INFORMATION
THE PFL WRIGHT VARIABLE ANNUITY
Issued through
PFL WRIGHT VARIABLE ANNUITY ACCOUNT
Offered by
PFL Life Insurance Company
4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499
This Statement of Additional information expands upon subjects discussed in
the current Prospectus for the PFL Wright Variable Annuity offered by PFL
Life Insurance Company. You may obtain a copy of the Prospectus dated
May 1, 1995 by calling 1-800-525-6205, or by writing to the Administrative
and Service Office, Financial Markets Division - Variable Annuity Dept.,
4333 Edgewood Road N.E., Cedar Rapids, IA 52499. Defined terms used in the
current Prospectus for the Certificate are incorporated in this Statement.
Part B
================================================================================
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR THE CERTIFICATES AND
PORTFOLIOS.
Dated: May 1, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
___________________________________
<S> <C>
The Certificate - General Provisions............. 2
Participants and Policy Owners................. 2
Entire Certificate............................. 2
Deferment of Payment and Transfers............. 2
Misstatement of Age or Sex..................... 2
Reallocation of Annuity Purchase Value After
the Annuity Commencement Date................ 3
Assignment..................................... 3
Evidence of Survival........................... 3
Non-Participating.............................. 4
Amendments..................................... 4
Section 403(b) Representations................. 4
Statement Pursuant to Rule 6e-7:
Texas Optional Retirement Program............ 4
Taxation of PFL................................ 4
Investment Experience (21,28).................. 5
State Regulation of PFL........................ 7
Administration................................. 7
Records and Reports............................ 7
Distribution of the Certificates (43).......... 7
Custody of Assets.............................. 8
Historical Performance Data (35)............... 8
Subaccount Yields............................ 8
Total Returns................................ 9
Other Performance Data....................... 9
Legal Matters.................................. 10
Independent Auditors........................... 10
Other Information.............................. 10
Financial Statements........................... 10
</TABLE>
(Numbers in parenthesis indicate corresponding sections
of the Prospectus).
In order to supplement the description in the Prospectus, the following provides
additional information about PFL and the Certificate which may be of interest.
1
<PAGE>
THE CERTIFICATE - GENERAL PROVISIONS
PARTICIPANTS AND POLICY OWNERS
The Certificate will be legally owned by and belong to either (a) the bank
trust or agency account to which it is issued for the benefit of the
Participant, or (b) the Policy Owner in the case of an individual annuity
policy. The Certificate will be issued only after the completion of an
application, acceptance thereof by PFL, and delivery of the initial premium
payment to PFL. While the Annuitant is living, the Certificate Owner may: (1)
assign the Certificate; (2) withdraw the Cash Value; (3) amend or modify the
Certificate with PFL's consent; (4) receive annuity payments or name a payee to
receive the payments; and (5) exercise, receive and enjoy every other right and
benefit contained in the Certificate. The exercise of these rights may be
subject to the consent of any assignee or irrevocable Beneficiary.
ENTIRE CONTRACT
The Group Contract (if applicable), the Certificate, and any endorsements
thereon, the Group Contract application and the Certificate enrollment form
constitute the entire contract between PFL and the Certificate Owner. For an
Individual Policy, the Individual Policy, any endorsements thereon, and the
application constitute the entire contract between PFL and the Policy Owner. All
statements in an application and enrollment form are representations and not
warranties.
DEFERMENT OF PAYMENT AND TRANSFERS
Payment of any amount due from the Variable Account in respect of a
withdrawal, the Death Benefit or the death of the Participant or Policy Owner
generally will occur within seven business days from the date the Written Notice
(and any other required documentation or information) is received by PFL, except
that PFL may defer such payment from the Variable Account if: (1) the New York
Stock Exchange is closed for other than usual weekends or holidays, or trading
on the Exchange is otherwise restricted; or (2) an emergency exists as defined
by the SEC, or the SEC requires that trading be restricted; or (3) the SEC
permits a delay for the protection of investors. In addition, transfers of
amounts from the Subaccounts may be deferred under these circumstances. PFL may,
when permitted by law, defer paying any partial or total withdrawal proceeds for
up to six months from the date of the partial or total withdrawal from the Fixed
Account.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, PFL will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of any underpayment made by PFL
shall be paid in full with the next payment due such person or the Beneficiary.
The dollar amount of any overpayment made by PFL due to any misstatement shall
be deducted from payments subsequently accruing to such person or Beneficiary.
Any underpayment or overpayment will include interest at 5% per year, from the
date of the wrong payment to the date of the adjustment. The age of the
Annuitant may be established at any time by the submission of proof satisfactory
to PFL.
REALLOCATION OF ANNUITY PURCHASE VALUE
AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, the Certificate Owner may reallocate
the value of a designated number of Annuity Units of a Subaccount of the
Variable Account then credited to a Certificate into an equal value of Annuity
Units of one or more other Subaccounts of the Variable Account. The minimum
amount which may be
2
<PAGE>
reallocated is the lesser of (1) $10 of monthly income or (2) the entire monthly
income of the Annuity Units in the Subaccount from which the transfer is being
made. If the monthly income of the Annuity Units remaining in an Account or
Subaccount after a reallocation is less than $10, PFL reserves the right to
include the value of those Annuity Units as part of the transfer. The
reallocation request must be in writing to PFL's Administrative and Service
Office. The reallocation will be based on the relative value of the Annuity
Units of the Subaccount(s) at the end of the Business Day during which the
transfer request is received. There is no charge assessed in connection with
such reallocation. After the Annuity Commencement Date, no reallocations may be
made from the Fixed Account to the Variable Account. PFL reserves the right to
limit the number of times a reallocation of Annuity Purchase Value may be made,
to one in any given Certificate Year.
ASSIGNMENT
During the lifetime of the Annuitant, the Certificate Owner may assign any
rights or benefits provided by the Certificate. An assignment will not be
binding on PFL until a copy has been filed at its Administrative and Service
Office. The rights and benefits of the Certificate Owner, and of the
Beneficiary, are subject to the rights of the assignee. PFL assumes no
responsibility for the validity or effect of any assignment. Any claim made
under an assignment shall be subject to proof of interest and the extent of the
assignment. An assignment may have tax consequences.
Unless the Certificate Owner so directs by filing written notice with PFL,
no Beneficiary may assign any payments under the Certificate before they are
due. To the extent permitted by law, no payments will be subject to the claims
of any Certificate Owner's, Participant's or Beneficiary's creditors.
EVIDENCE OF SURVIVAL
PFL reserves the right to require satisfactory evidence that a person is
alive if PFL's obligation to make a payment is based on that person being alive.
No payment will be made until PFL receives such evidence.
NON-PARTICIPATING
The Certificate does not participate or share in the profits or surplus
earnings of PFL. No dividends are payable on the Certificate.
AMENDMENTS
No change in the Certificate is valid unless made in writing by PFL and
approved by one of PFL's officers. No registered representative has authority to
change or waive any provision of the Certificate.
PFL reserves the right to amend the Certificates to meet the requirements
of the Internal Revenue Code, regulations or published rulings. Such a change
can be refused by giving PFL Written Notice, but a refusal may result in adverse
tax consequences.
SECTION 403(B) REPRESENTATIONS
PFL represents that it is relying on a no action letter dated November 28,
1988, to the American Council of Life Insurance (Ref. No. IP-6-88), regarding
Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in
connection with redeemability restrictions on Section 403(b) Policies, and that
paragraphs numbered (1) through (4) of that letter will be complied with.
3
<PAGE>
STATEMENT PURSUANT TO RULE 6E-7: TEXAS OPTIONAL RETIREMENT PROGRAM
PFL and the Variable Account rely on 17 C.F.R. 270.6e-7, and represent that
the provisions of that Rule have been or will be complied with.
TAXATION OF PFL
PFL at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The Variable Account is treated as part of PFL and,
accordingly, will not be taxed separately as a "regulated investment company"
under Subchapter M of the Code. PFL does not expect to incur any federal income
tax liability with respect to investment income and net capital gains arising
from the activities of the Variable Account retained as part of the reserves
under the Certificate. Based on this expectation, it is anticipated that no
charges will be made against the Variable Account for federal income taxes. If,
in future years, any federal income taxes or economic burdens attributable to
the application of tax laws are incurred by PFL with respect to the Variable
Account, PFL may make a charge to the Variable Account.
INVESTMENT EXPERIENCE
An "Investment Experience Factor" is used to determine the value of
Accumulation Units and Annuity Units, and to determine annuity payment rates.
ACCUMULATION UNITS
Upon allocation to the selected Subaccount, premium payments are converted
into Accumulation Units of the Subaccount. The number of Accumulation Units to
be credited is determined by dividing the dollar amount allocated to each
Subaccount by the value of an Accumulation Unit for that Subaccount as next
determined after the premium payment is received at the Administrative and
Service Office or, in the case of the initial premium payment, when the
Certificate application is completed, whichever is later. The value of an
Accumulation Unit was arbitrarily established at $1.00 at the inception of each
Subaccount. Thereafter, the value of an Accumulation Unit is determined as of
the close of trading on each day the New York Stock Exchange and PFL's
Administrative and Service Office are open for business.
An index (the "Investment Experience Factor") which measures the investment
performance of a Subaccount during a Valuation Period is used to determine the
value of an Accumulation Unit for the next subsequent Valuation Period. The
Investment Experience Factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may increase, decrease or remain
the same from one Valuation Period to the next. The Participant or Policy Owner
bears this investment risk. The Net Investment Performance of a Subaccount and
deduction of certain charges affects the Accumulation Unit Value.
The Investment Experience Factor for any Subaccount for any Valuation
Period is determined by dividing (a) by (b) and subtracting (c) from the result,
where:
(a) is the net result of:
(1) the net asset value per share of the shares held in the
Subaccount determined at the end of the current Valuation
Period, plus
(2) The per share amount of any dividend or capital gain
distribution made with respect to the shares held in the
Subaccount if the ex-dividend date occurs during the current
Valuation Period, plus or minus
(3) a per share charge or credit for any taxes determined by PFL
to have resulted from the investment operations of the
Subaccount and for which it has created a reserve;
4
<PAGE>
(b) is the net asset value per share of the shares held in the Subaccount
determined as of the end of the immediately preceding Valuation Period; and
(c) is the charge for mortality and expense risk during the Valuation
Period equal on an annual basis to 1.00% of the daily net asset value of the
Subaccount.
ANNUITY UNIT VALUE AND ANNUITY PAYMENT RATES
The amount of Variable Annuity Payments will vary with Annuity Unit Values.
Annuity Unit Values rise if the net investment performance of the Subaccount
exceeds the assumed interest rate of 5% annually. Conversely, Annuity Unit
Values fall if the net investment performance of the Subaccount is less than the
assumed rate. The value of a Variable Annuity Unit in each Subaccount was
established at $1.00 on the date operations began for that Subaccount. The value
of a Variable Annuity Unit on any subsequent Business Day is equal to (a)
multiplied by (b) multiplied by (c), where:
(a) is the variable Annuity Unit Value on the immediately preceding
Business Day;
(b) is the net investment factor of the valuation period; and
(c) is the investment result adjustment factor for the valuation
period.
The investment result adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5% effective
annual assumed investment return. The valuation period is the period from the
close of the immediately preceding Business Day to the close of the current
Business Day.
The net investment factor for the Certificate used to calculate the value
of a variable Annuity Unit in each Subaccount for the valuation period is
determined by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a Trust share held in the Variable
Account for that Subaccount determined at the end of the
current valuation period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the Trust for shares held in the
Variable Account for that Subaccount if the ex-dividend date
occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for by
PFL, determined by PFL to have resulted from the investment
operations of that Subaccount.
(ii) is the net asset value of a Trust share held in the Variable
Account for that Subaccount determined as of the end of the
immediately preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis,
to 1.00% of the daily net asset value of a Trust share held in the
Variable Account for that Subaccount.
The dollar amount of subsequent Variable Annuity Payments will depend upon
changes in applicable Annuity Unit Values.
The Annuity Payment rates vary according to the Annuity Payment Option
elected and the sex and adjusted age of the Annuitant at the Annuity
Commencement Date. The Certificate also contains a table for determining the
adjusted age of the Annuitant.
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
5
<PAGE>
Division may determine that the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times; and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs the administrative services for the Contracts. These services
include issuance of the Certificates, maintenance of records concerning the
Certificates, and certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the Variable Account will be
maintained by PFL. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, PFL will mail to the Certificate Owner
at least annually, reports containing such information as may be required under
that Act or by any other applicable law or regulation. The Certificate Owner
will also receive confirmation of each financial transaction and any other
reports required by law or regulation.
DISTRIBUTION OF THE CERTIFICATES
The Certificates are offered through brokers licensed under the federal
securities laws and state insurance laws. The offering of the Certificates is
continuous and PFL does not anticipate discontinuing the offering of the
Certificates. However, PFL reserves the right to discontinue the offering of the
Certificates.
Wright Investors' Services Distributors, Inc., an affiliate of the Adviser,
will be the principal underwriter of the Certificates.
CUSTODY OF ASSETS
The assets of each of the Subaccounts of the Variable Account are held by
PFL. The assets of each of the Subaccounts of the Variable Account are
segregated and held separate and apart from the assets of the other Subaccounts
and from PFL's Fixed Account assets. PFL maintains records of all purchases and
redemptions of shares of the Trust held by each of the Subaccounts. Additional
protection for the assets of the Variable Account is afforded by PFL's fidelity
bond, presently in the amount of $5,000,000, covering the acts of officers and
employees of PFL.
6
<PAGE>
HISTORICAL PERFORMANCE DATA
SUBACCOUNT YIELDS
PFL may from time to time advertise or disclose the current annualized
yield of one or more of the Subaccounts of the Variable Account for 30-day
periods. The annualized yield of a Subaccount refers to income generated by the
Subaccount over a specific 30-day period. Because the yield is annualized, the
yield generated by a Subaccount during the 30-day period is assumed to be
generated each 30-day period over a 12-month period. The yield is computed by:
(i) dividing the net investment income of the Subaccount less Subaccount
expenses for the period, by (ii) the maximum offering price per unit on the last
day of the period times the daily average number of units outstanding for the
period, (iii) compounding that yield for a 6-month period, and (iv) multiplying
that result by 2. Expenses attributable to the Subaccount include (i) the
Administrative Charge and (ii) the Mortality and Expense Risk Charge. The 30-day
yield is calculated according to the following formula:
Yield = 2 x ( ( ((NI - ES) / (U X UV)) + 1) to the sixth power - 1)
Where:
NI = Net investment income of the Subaccount for the 30-day period
attributable to the Subaccount's unit.
ES = Expenses of the Subaccount for the 30-day period.
U = The average number of units outstanding.
UV = The unit value at the close (highest) of the last day in
the 30-day period.
Because of the charges and deductions imposed by the Variable Account, the
yield for a Subaccount of the Variable Account will be lower than the yield for
its corresponding Portfolio. The yield calculations do not reflect the effect of
any premium taxes that may be applicable to a particular Certificate.
The yield on amounts held in the Subaccounts of the Variable Account
normally will fluctuate over time. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates of
return. A Subaccount's actual yield is affected by the types and quality of its
investments and its operating expenses.
TOTAL RETURNS
PFL may from time to time also advertise or disclose total returns for one
or more of the Subaccounts of the Variable Account for various periods of time.
One of the periods of time will include the period measured from the date the
Subaccount commenced operations. When a Subaccount has been in operation for 1,
5 and 10 years, respectively, the total return for these periods will be
provided. Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates of return
that would equate an initial investment of $1,000 to the redemption value of
that investment as of the last day of each of the periods. The ending date for
each period for which total return quotations are provided will be for the most
recent month end practicable, considering the type and media of the
communication, and will be stated in the communication.
Total returns will be calculated using Subaccount Unit Values which PFL
calculates on each Business Day based on the performance of the Subaccount's
underlying Portfolio, and the deductions for the Mortality and Expense Risk
Charge. The total return will then be calculated according to the following
formula:
P(1+T)to the N power = ERV
Where:
T = The average annual total return net of Subaccount recurring
charges.
ERV = The ending redeemable value of the hypothetical account at
the end of the period.
P = A hypothetical initial payment of $1,000.
N = The number of years in the period.
7
<PAGE>
OTHER PERFORMANCE DATA
PFL may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above.
PFL may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula.
CTR = (ERV / P) - 1
Where:
CTR = The cumulative total return net of Subaccount recurring charges
for the period.
ERV = The ending redeemable value of the hypothetical investment at
the end of the period.
P = A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
applicable to the issue and sale of the Certificates has been provided to PFL by
Sutherland, Asbill & Brennan, of Washington, D.C.
INDEPENDENT AUDITORS
The Financial Statements of PFL at December 31, 1994 and 1993 and for each
of the three years in the period ended December 31, 1994, and the Financial
Statements of PFL Wright Variable Annuity Account at December 31, 1994 and for
each of the two years in the period then ended, included in this Statement of
Additional Information have been audited by Ernst & Young, LLP, Independent
Auditors, Des Moines, Iowa.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Certificates discussed in this Statement of Additional Information. Not all of
the information set forth in the Registration Statement, amendments, and
exhibits thereto has been included in the Prospectus or this Statement of
Additional Information. Statements contained in the Prospectus and this
Statement of Additional Information concerning the content of the Certificates
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the Securities and Exchange Commission.
FINANCIAL STATEMENTS
The values of the interests of Participants or Policy Owners in the
Variable Account will be affected solely by the investment results of the
selected Subaccount(s). Financial Statements of PFL Wright Variable Annuity
Account are contained herein. The Financial Statements of PFL, which are
included in this Statement of Additional Information, should be considered only
as bearing on the ability of PFL to meet its obligations under the Certificates.
They should not be considered as bearing on the investment performance of the
assets held in the Variable Account.
8
<PAGE>
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THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND CONTRACT OWNERS OF
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT,
PFL LIFE INSURANCE COMPANY:
We have audited the accompanying balance sheet of The PFL Wright Variable
Annuity Account (comprising, respectively, the Wright Near Term Bond, Wright
Total Return Bond, Wright Selected Blue Chip and Wright International Blue Chip
subaccounts) as of December 31, 1994, and the related statements of operations
and changes in contract owners' equity for the periods indicated therein. These
financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of mutual fund shares owned as of December 31, 1994 by
correspondence with the mutual funds' transfer agent. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting The PFL Wright Variable Annuity Account at December 31,
1994 and the results of their operations and changes in their contract owners'
equity for the periods indicated therein in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 7, 1995
1
<PAGE>
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THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
BALANCE SHEET
December 31, 1994
<TABLE>
<CAPTION>
Wright
Near Term
Bond
Total Subaccount
-------- ----------
<S> <C> <C>
ASSETS
Cash:............................................................................. $ 965 666
Investments in mutual funds, at current market value:
Wright Managed Blue Chip Series Trust
Wright Near Term Bond Portfolio
48,407.815 shares (cost $463,145)........................................ 451,645 451,645
Wright Total Return Bond Portfolio
58,846.272 shares (cost $537,354)........................................ 520,201 __
Wright Selected Blue Chip Portfolio
155,886.764 shares (cost $1,497,704)..................................... 1,452,865 __
Wright International Blue Chip Portfolio
134,526.871 shares (cost $1,297,417)..................................... 1,229,576 __
--------- ---------
Total investments in mutual funds............................................ 3,654,287 451,645
--------- ---------
Total Assets................................................................. $ 3,655,252 452,311
========= =========
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Contract terminations payable................................................ $ 1,528 18
Accrued mortality and expense risk charge (Note 4).......................... 2,955 377
--------- ---------
Total Liabilities............................................................ 4,483 395
Contract Owners' Equity:
Deferred annuity contracts terminable by owners (Notes 2 and 5).............. 3,650,769 451,916
--------- ---------
$ 3,655,252 452,311
========= =========
</TABLE>
See accompanying Notes to Financial Statements.
2
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Wright Wright Wright
Total Selected International
Return Bond Blue Chip Blue Chip
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C>
299 __ __
__ __ __
520,201 __ __
__ 1,452,865 __
__ __ 1,229,576
--------- --------- ---------
520,201 1,452,865 1,229,576
--------- --------- ---------
520,500 1,452,865 1,229,576
========= ========= =========
219 648 643
425 1,156 997
--------- --------- ---------
644 1,804 1,640
519,856 1,451,061 1,227,936
--------- --------- ---------
520,500 1,452,865 1,229,576
========= ========= =========
</TABLE>
3
<PAGE>
================================================================================
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
Year Ended December 31, 1994 or Commencement of Operations
to December 31, 1994
<TABLE>
<CAPTION>
Wright
Near Term
Bond
Total Subaccount/1/
------------ ----------------
NET INVESTMENT INCOME (LOSS)
<S> <C> <C>
Income:
Dividends .................................................................$ 43,218 14,658
Expenses:
Administration Fee (Note 4) ............................................... 120 ___
Mortality and expense risk charge (Note 4) ................................ 23,818 4,270
------------ ------------
Net investment income (loss) .......................................... 19,280 10,388
------------ ------------
NET REALIZED AND UNREALIZED CAPITAL LOSS FROM INVESTMENTS
Net realized capital loss from sales of investments:
Proceeds from sales ....................................................... 1,130,106 511,535
Cost of investments sold .................................................. 1,174,252 524,003
------------ ------------
Net realized capital loss ...................................................... (44,146) (12,468)
------------ ------------
Net change in unrealized depreciation of investments:
Beginning of the period ................................................... (827) ___
End of the period ......................................................... (141,333) (11,500)
------------ ------------
Net change in unrealized depreciation of investments .................. (140,506) (11,500)
------------ ------------
Net realized and unrealized capital loss from investments ............. (184,652) (23,968)
------------ ------------
DECREASE FROM OPERATIONS........................................................$ (165,372) (13,580)
============ ============
</TABLE>
/1/ Period from January 6, 1994 (commencement of operations) to December 31,
1994
See accompanying Notes to Financial Statements.
4
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Wright Wright Wright
Total Selected International
Return Bond Blue Chip Blue Chip
Subaccount Subaccount/1/ Subaccount/1/
----------- ------------- -------------
<S> <C> <C>
18,594 9,294 672
74 26 20
4,238 8,409 6,901
--------- ---------- ----------
14,282 859 (6,249)
--------- ---------- ----------
420,240 85,864 112,467
443,360 90,772 116,117
--------- ---------- ----------
(23,120) (4,908) (3,650)
--------- ---------- ----------
(827) __ __
(17,153) (44,839) (67,841)
--------- ---------- ----------
(16,326) (44,839) (67,841)
--------- ---------- ----------
(39,446) (49,747) (71,491)
--------- ---------- ----------
(25,164) (48,888) (77,740)
========= ========== ==========
</TABLE>
5
<PAGE>
================================================================================
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1994 and 1993 or Commencement
of Operations to December 31, 1994 and 1993
<TABLE>
<CAPTION>
WRIGHT
NEAR TERM
BOND
TOTAL SUBACCOUNT
-------------------- ------------------
1994 1993 1994/1/
---- ---- -------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss).................................................... $ 19,280 16 10,388
Net realized capital loss....................................................... (44,146) __ (12,468)
Net change in unrealized depreciation........................................... (140,506) (827) (11,500)
--------- -------- ---------
Decrease from operations........................................................ (165,372) (811) (13,580)
--------- -------- ---------
CONTRACT TRANSACTIONS
Net contract purchase payments.................................................. 3,722,425 168,000 775,759
Transfers between funds......................................................... __ __ (295,597)
Transfers (to) from General Account............................................. (13,566) __ (14,666)
Contract terminations, withdrawals, and other deductions........................ (59,907) __ __
--------- ------- ---------
Increase from contract transactions............................................. 3,648,952 168,000 465,496
--------- ------- ---------
Net increase in contract owners' equity......................................... 3,483,580 167,189 451,916
CONTRACT OWNERS' EQUITY
Beginning of the period......................................................... 167,189 __ __
--------- -------- ---------
End of the period............................................................... $ 3,650,769 167,189 451,916
========= ======== =========
</TABLE>
/1/ Period from January 6, 1994 (commencement of operations) to December 31,
1994
/2/ Period from December 6, 1993 (commencement of operations) to December 31,
1993
See accompanying Notes to Financial Statements
6
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Wright Wright Wright
Total Selected International
Return Bond Blue Chip Blue Chip
Subaccount Subaccount Subaccount
------------------- --------------- ----------------
1994 1993/2/ 1994/1/ 1994/1/
---- ---- ---- ----
<S> <C> <C> <C>
14,282 16 859 (6,249)
(23,120) __ (4,908) (3,650)
(16,326) (827) (44,839) (67,841)
--------- -------- ---------- ----------
(25,164) (811) (48,888) (77,740)
--------- -------- ---------- ----------
609,386 168,000 1,297,693 1,039,587
(212,796) __ 225,164 283,229
__ __ 627 473
(18,759) __ (23,535) (17,613)
--------- --------- ---------- ----------
377,831 168,000 1,499,949 1,305,676
--------- --------- ---------- ----------
352,667 167,189 1,451,061 1,227,936
167,189 __ __ __
--------- --------- ---------- ----------
519,856 167,189 1,451,061 1,227,936
========= ========= ========== ==========
</TABLE>
7
<PAGE>
================================================================================
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The PFL Wright Variable Annuity Account ("Variable Account")
is a segregated investment account of PFL Life Insurance Company ("PFL Life"),
an indirect, wholly-owned subsidiary of AEGON USA, Inc. ("AUSA"), a holding
company. AUSA is an indirect, wholly-owned subsidiary of AEGON nv, a holding
company organized under the laws of The Netherlands.
The Wright Total Return Bond subaccount as part of the Variable Account
commenced operations on December 6, 1993. The Wright Near Term Bond, Wright
Selected Blue Chip and Wright International Blue Chip subaccounts, as part of
the Variable Account, commenced operations on January 6, 1994.
The Variable Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940.
Investments - Net purchase payments received by the Variable Account are
invested in the portfolios of the Wright Managed Blue Chip Series Trust as
selected by the contract owner. Investments are stated at the closing net asset
values per share on December 31, 1994.
Realized capital gains and losses from sale of shares in the mutual funds
are determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the mutual funds are credited or charged to contract
owners' equity.
Dividend Income - Dividends received from the mutual funds investments are
reinvested to purchase additional mutual fund shares.
2. CONTRACT OWNERS' EQUITY
A summary of deferred annuity contracts terminable by owners at December 31,
1994 follows:
<TABLE>
<CAPTION>
ACCUMULATION
ACCUMULATION UNIT TOTAL
Subaccount UNITS OWNED VALUE CONTRACT VALUE
---------- ------------- ------------- --------------
<S> <C> <C> <C>
Wright Near Term Bond................... 474,237.369 $0.952933 $ 451,916
Wright Total Return Bond................ 569,877.796 0.912223 519,856
Wright Selected Blue Chip............... 1,567,081.382 0.925964 1,451,061
Wright International Blue Chip.......... 1,360,360.040 0.902655 1,227,936
------------
$3,650,769
============
</TABLE>
8
<PAGE>
================================================================================
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
WRIGHT WRIGHT WRIGHT WRIGHT
NEAR TERM TOTAL SELECTED INTERNATIONAL
BOND RETURN BOND BLUE CHIP BLUE CHIP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Units outstanding at beginning of period................ _ _ _ _
Units purchased......................................... _ 168,578 _ _
Units redeemed and transferred......................... _ _ _ _
-------- --------- ---------- ----------
Units outstanding at 12/31/93........................... _ 168,578 _ _
-------- --------- ---------- ----------
Units purchased......................................... 796,040 646,394 1,355,142 1,087,357
Units redeemed and transferred.......................... (321,803) (245,094) 211,939 273,003
-------- --------- ---------- ----------
Units outstanding at 12/31/94........................... 474,237 569,878 1,567,081 1,360,360
======== ========= =========== ==========
</TABLE>
3. TAXES
Operations of the Variable 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 Variable Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Variable 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 Variable Account, to the extent applied to
increase reserves under the variable annuity contracts, is not taxable to PFL
Life.
4. ADMINISTRATIVE, MORTALITY AND EXPENSE RISK CHARGE
Administrative charges include an annual charge of $30 per contract which
will commence on the first policy anniversary of each contract owner's account.
Charges for administrative fees to the variable annuity contracts are an
expense of the Variable Account.
PFL Life deducts a daily charge equal to an annual rate of 1.00% of the
value of the contract owner's individual account as a charge for assuming
certain mortality and expense risks.
9
<PAGE>
================================================================================
5. NET ASSETS
At December 31, 1994 contract owners' equity was comprised of:
<TABLE>
<CAPTION>
WRIGHT WRIGHT WRIGHT WRIGHT
NEAR TERM TOTAL SELECTED INTERNATIONAL
BOND RETURN BOND BLUE CHIP BLUE CHIP
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit transactions, accumulated
net investment income and
realized capital gains..................... $ 3,792,102 463,416 537,009 1,495,900 1,295,777
Adjustment for depreciation
to market value............................ (141,333) (11,500) (17,153) (44,839) (67,841)
---------- --------- --------- --------- ---------
Total Contract Owners' Equity................ $ 3,650,769 451,916 519,856 1,451,061 1,227,936
========== ========= ========= ========= =========
</TABLE>
6. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 OR COMMENCEMENT OF
OPERATIONS TO DECEMBER 31
---------------------------------------------------------
1994 1993
-------------------------- --------------------------
PURCHASES SALES PURCHASES SALES
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Wright Managed Blue Chip Series Trust -
Wright Near Term Bond Portfolio........................ $ 987,147 511,535 _ _
Wright Total Return Bond Portfolio..................... 812,481 420,240 168,114 _
Wright Selected Blue Chip Portfolio.................... 1,588,476 85,864 _ _
Wright International Blue Chip Portfolio 1,413,534 112,467 _ _
---------- --------- --------- ---------
$4,801,638 1,130,106 168,114 _
========== ========= ========= =========
</TABLE>
10
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1994 and 1993, and the related statutory-
basis statements of operations, capital and surplus and cash flows for each of
the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The Company presents its financial statements in conformity with the
accounting practices prescribed or permitted by the Insurance Division of the
Commerce Department of the State of Iowa. The variances between such practices
and generally accepted accounting principles are described in Note 1. The
effects of these variances have not been determined but we believe they are
material.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of PFL Life
Insurance Company at December 31, 1994 and 1993, or the results of its
operations or its cash flows for each of the three years in the period ended
December 31, 1994.
1
<PAGE>
[LOGO OF ERNST & YOUNG LLP APPEARS HERE]
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities and capital
and surplus of PFL Life Insurance Company at December 31, 1994 and 1993, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1994 in conformity with accounting practices
prescribed or permitted by the Insurance Division of the Commerce Department of
the State of Iowa.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 17, 1995
2
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
---------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments........................ $ 34,062 $ 18,135
Bonds (Note 2)......................................... 4,094,407 3,511,009
Stocks (Note 2):
Preferred............................................ 12,667 14,002
Common (cost: 1994--$15,812; 1993--$14,653).......... 16,754 18,651
Affiliated entities (cost: 1994--$13,155; 1993--
$14,705)............................................ 26,530 48,226
Mortgage loans on real estate (Note 2)................. 527,410 415,829
Real estate, at cost less accumulated depreciation and
encumbrances ($12,318 in 1994; $12,728 in 1993):
Home office properties............................... 21,226 12,791
Properties acquired in satisfaction of debt.......... 10,381 13,222
Investment properties................................ 45,859 45,682
Policy loans........................................... 51,798 48,596
Other invested assets.................................. 4,593 5,289
---------- ----------
Total cash and invested assets......................... 4,845,687 4,151,432
Premiums deferred and uncollected........................ 18,386 18,877
Accrued investment income................................ 61,969 56,852
Receivable from affiliates............................... 31,843 31,478
Federal income taxes recoverable (Note 4)................ 10,274 --
Other assets (Note 8).................................... 29,441 32,569
Separate account assets.................................. 1,120,391 907,255
---------- ----------
Total admitted assets.................................. $6,117,991 $5,198,463
========== ==========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
---------- ----------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 557,624 $ 475,503
Annuity.............................................. 3,763,714 3,183,571
Accident and health.................................. 99,240 81,635
Policy and contract claim reserves:
Life................................................. 7,493 8,540
Accident and health.................................. 66,407 61,643
Other policyholders' funds............................. 5,494 3,207
Remittances and items not allocated.................... 35,415 19,238
Federal income taxes payable (Note 4).................. -- 5,824
Asset valuation reserve (Note 1)....................... 37,975 44,015
Interest maintenance reserve (Note 1).................. 22,826 36,487
Other liabilities (Note 8)............................. 73,071 56,774
Separate account liabilities........................... 1,120,391 907,255
---------- ----------
Total liabilities...................................... 5,789,650 4,883,692
Commitments and contingencies (Notes 3 and 8)
Capital and surplus (Note 6):
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding................................ 2,660 2,660
Paid-in surplus........................................ 114,129 99,129
Unassigned surplus..................................... 211,552 212,982
---------- ----------
Total capital and surplus.............................. 328,341 314,771
---------- ----------
Total liabilities and capital and surplus.............. $6,117,991 $5,198,463
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life................................... $ 148,954 $ 98,670 $ 93,360
Annuity................................ 1,067,406 740,787 492,426
Accident and health.................... 230,889 266,789 263,540
Net investment income (Note 2)........... 343,880 322,393 315,416
Amortization of interest maintenance
reserve (Note 1)........................ 2,871 2,674 481
Commissions and expense allowances on
reinsurance ceded....................... 94,635 62,584 53,688
---------- ---------- ----------
1,888,635 1,493,897 1,218,911
Benefits and expenses:
Death, surrender and other life insurance
and annuity benefits.................... 499,120 298,457 212,371
Accident and health benefits............. 107,882 132,044 135,400
Increase in aggregate reserves for
policies and contracts:
Life................................... 82,062 26,703 29,441
Annuity................................ 580,564 254,593 375,219
Accident and health.................... 22,144 19,216 16,552
Commissions.............................. 215,635 198,251 181,644
General insurance expenses............... 52,166 53,367 51,480
Taxes, licenses and fees................. 15,368 10,781 10,606
Transfer to separate account............. 243,806 414,819 131,512
Other expenses........................... 1,014 814 2,875
---------- ---------- ----------
1,819,761 1,409,045 1,147,100
---------- ---------- ----------
Gain from operations before federal income
taxes and net realized capital losses on
investments............................... 68,874 84,852 71,811
Federal income tax expense (Note 4)........ 23,858 31,667 24,052
---------- ---------- ----------
Gain from operations before net realized
capital losses on investments............. 45,016 53,185 47,759
Net realized capital losses on investments
(net of related federal income taxes and
transfer to interest maintenance reserve)
(Note 2).................................. (3,624) (451) (1,407)
---------- ---------- ----------
Net income................................. $ 41,392 $ 52,734 $ 46,352
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL AND SURPLUS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Common stock, at beginning and end of year....... $ 2,660 $ 2,660 $ 2,660
Paid-in surplus:
Beginning of year.............................. 99,129 99,129 99,129
Capital contribution (Note 7).................. 15,000 -- --
-------- -------- --------
End of year...................................... 114,129 99,129 99,129
Unassigned surplus:
Beginning of year.............................. 212,982 213,665 213,038
Net income..................................... 41,392 52,734 46,352
Net change in unrealized capital gains/losses.. (25,350) 1,719 254
Change in non-admitted assets.................. (248) (5) 44
Change in asset valuation reserve.............. 6,040 (10,773) (7,354)
Surplus effect of mergers (Note 1)............. -- -- 6,364
Surplus effect of sale of division (Note 1).... -- (862) --
Surplus effect of ceding commissions associated
with the sale of a division (Note 1).......... 184 -- --
Cancellation of coinsurance agreements (Note
1)............................................ -- (288) 877
Amendment of reinsurance agreement (Note 1).... 391 -- --
Dividends to stockholder (Note 6).............. (20,900) (46,000) (31,200)
Prior period adjustment (Notes 4 and 8)........ (3,444) 452 (13,791)
Change in liability for reinsurance in
unauthorized companies........................ 505 2,340 (919)
-------- -------- --------
End of year...................................... 211,552 212,982 213,665
-------- -------- --------
Total capital and surplus........................ $328,341 $314,771 $315,454
======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
SOURCES OF CASH
Net cash provided by operations:
Premiums and other considerations, net
of reinsurance........................ $ 1,547,797 $ 1,169,096 $ 898,953
Net investment income.................. 339,856 326,480 318,076
----------- ----------- ----------
1,887,653 1,495,576 1,217,029
Life and accident and health claims.... (137,602) (159,968) (158,039)
Surrender benefits and other fund with-
drawals............................... (392,064) (217,998) (144,230)
Other benefits to policyholders........ (73,237) (50,180) (42,699)
Commissions, other expenses and other
taxes................................. (288,151) (264,124) (244,208)
Net transfers to separate accounts..... (243,806) (414,819) (131,512)
Dividends to policyholders............. (1,155) (1,200) (1,374)
Federal income taxes, excluding tax on
capital gains and IRS settlements..... (39,864) (32,548) (2,728)
Increase in policy loans............... (3,202) (677) (3,497)
----------- ----------- ----------
(1,179,081) (1,141,514) (728,287)
----------- ----------- ----------
Net cash provided by operations.......... 708,572 354,062 488,742
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............. 1,430,339 1,532,807 1,418,990
Common stocks.......................... 12,941 11,121 11,132
Mortgage loans on real estate.......... 43,495 47,460 25,480
Real estate............................ 9,536 8,286 1,112
Other proceeds......................... 189 1,407 2,691
----------- ----------- ----------
Total cash from investments.............. 1,496,500 1,601,081 1,459,405
Capital contribution (Note 7)............ 15,000 --
Cash received as the result of coinsur-
ance cancellations (Note 1)............. -- 114 23,471
Cash received in connection with mergers
(Note 1)................................ -- -- 675
Dividend from subsidiary (Note 7)........ 10,000 -- --
Cash received from ceding commissions as-
sociated with the sale of a division
(Note 1)................................ 284 -- --
Other cash provided...................... 45,799 12,457 30,849
----------- ----------- ----------
Total sources of cash.................... 2,276,155 1,967,714 2,003,142
</TABLE>
7
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and preferred stocks............. 2,043,615 1,846,839 1,697,452
Common stocks.......................... 11,228 18,832 10,471
Mortgage loans on real estate.......... 160,068 94,557 73,508
Real estate............................ 14,801 8,587 2,961
Other invested assets.................. 664 347 720
----------- ----------- ----------
Total investments acquired............... 2,230,376 1,969,162 1,785,112
Dividends to stockholder (Note 6)........ 20,900 46,000 31,200
Cash transferred as the result of sale of
division (Note 1)....................... -- 8,773 -
Other cash applied....................... 8,952 46,504 88,948
----------- ----------- ----------
Total applications of cash............... 2,260,228 2,070,439 1,905,260
----------- ----------- ----------
Net change in cash and short-term invest-
ments................................... 15,927 (102,725) 97,882
Cash and short-term investments at begin-
ning of year............................ 18,135 120,860 22,978
----------- ----------- ----------
Cash and short-term investments at end of
year.................................... $ 34,062 $ 18,135 $ 120,860
=========== =========== ==========
</TABLE>
See accompanying notes.
8
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PFL Life Insurance Company (the Company) is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company (AUSA),
which is an indirect wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. The financial statements presented
herein are prepared on the statutory accounting principles basis for the
Company only; as such, the accounts of the Company's wholly-owned subsidiary,
Equity National Life Insurance Company (Equity National), are not consolidated
with those of the Company.
In connection with the sale of certain affiliated companies by AUSA, the
Company has assumed various blocks of business from these former affiliates
through mergers. In addition, the Company has cancelled or entered into several
coinsurance agreements with affiliates and non-affiliates. The following is a
description of those transactions:
. On January 1, 1994, the Company revised a reinsurance agreement with
a non-affiliate (primarily group health business). As a result, the
Company transferred $3,881 in assets and $4,080 in liabilities. The
difference between the assets and liabilities of $199, plus a tax
credit of $192, was credited directly to unassigned surplus.
. During 1993, the Company sold the Oakbrook Division (primarily group
health business). The initial transfer of risk occurred through an
indemnity reinsurance agreement. The policies will then be assumed by
the reinsurer by novation as state regulatory and policyholder
approvals are received. In addition, the Company will receive from
the third party administrator a ceding commission of one percent of
the premiums collected between January 1, 1994 and December 31, 1996.
As a result of the sale, in 1993, the Company transferred $12,094 in
assets including $8,773 in cash and short-term investments and
$10,570 in liabilities to the assuming company. The difference
between the assets and liabilities transferred, net of a tax effect
of $662, was charged directly to unassigned surplus. The income
statement for 1993 includes revenues of $53,558 and net income of
$2,839 earned by the division prior to its sale. During 1994, the
Company received $284 for ceding commissions; the commissions net of
the related tax effect of $100 was credited directly to unassigned
surplus.
9
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
. During 1993, the Company cancelled several coinsurance agreements
with affiliated and non-affiliated companies. As a result of the
cancellations with affiliates, the Company received $1,006 in assets,
and $1,051 in liabilities. As a result of the cancellations with non-
affiliates, the Company received $6,736 in assets, including $114 in
cash and short-term investments, and $7,131 in liabilities. The
difference between the assets and liabilities, net of a tax effect of
$152, was charged directly to surplus.
. During 1992, the Company cancelled several coinsurance agreements
with affiliates. As a result of the cancellations, the Company
transferred $8,199 in assets, including $358 in cash and short-term
investments, and $10,986 in liabilities to affiliates. Also in 1992,
the Company entered into a reinsurance agreement with an affiliate
and received $23,474 in assets including $23,471 in cash and short-
term investments, and $24,934 in liabilities. The net effect of these
transactions, net of the related tax effect, was credited directly to
unassigned surplus.
. In 1991, the majority of the assets, liabilities and capital and
surplus of Pacific Fidelity Life Insurance Company (PFL) and National
Old Line Insurance Company, Inc. (NOL) (affiliated companies) were
merged into the Company. In 1992, the remaining assets, liabilities
and capital and surplus of $36,984, $30,620 and $6,364, respectively,
were merged into the Company. Revenues and net income of this
remaining merged business are not significant to current or prior
years' operations.
Basis of Presentation
The accompanying statutory-basis financial statements have been prepared in
accordance with accounting practices prescribed or permitted by the Insurance
Division of the Commerce Department of the State of Iowa, which are designed
primarily to reflect the Company's ability to meet obligations to policyholders.
Statutory insurance accounting principles differ in many respects from generally
accepted accounting principles (GAAP) followed by other business enterprises in
determining financial position, and results of operations. The effects of such
variances from GAAP have not been determined. Accordingly, the accompanying
statutory-basis financial statements are not intended to present financial
position, results of operations and cash flows in conformity with GAAP. Pursuant
to statutory requirements: (a) bonds are generally carried at amortized cost
rather than segregating the portfolio into held-to-maturity (carried at
amortized cost), available-for-sale (carried at fair value), and trading
(carried at fair value) classifications; (b) premium income on life policies is
recognized over the premium paying period of the policies and premium income on
accident and health policies is recognized over the
10
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
coverage period of the policies, whereas the related acquisition costs such
as commissions and other costs related to acquiring new business are charged to
current operations as incurred; (c) aggregate policy reserves are based on
statutory mortality and interest requirements without consideration of
withdrawals, which may differ from reserves determined using estimates of
mortality, interest and withdrawals; (d) deferred federal income taxes are not
provided for timing differences between the financial statements and the tax
returns; (e) certain assets designated as "non-admitted assets" have been
excluded from the balance sheet by a charge to surplus; (f) the asset valuation
reserve (AVR), which is in the nature of a contingency reserve for possible
losses on investments, is recorded as a liability through a charge to surplus;
(g) net realized capital gains and losses attributable to changes in the level
of market interest rates are deferred and amortized over the remaining life of
the bonds and mortgage loans disposed of rather than being recognized in the
statement of operations in the year of disposition; (h) gross premiums for all
insurance products are considered revenues rather than reporting only various
policy charges and fees for certain long-duration contracts; (i) pension
expense is recorded as amounts are paid; and (j) reinsurance reserve credits
are recorded as a reduction to aggregate policy reserves rather than being
recorded as reinsurance recoverable assets. All pertinent financial statement
disclosures otherwise required under generally accepted accounting principles
are presented herein using the corresponding statutory-basis amounts.
The National Association of Insurance Commissioners (NAIC) currently is in
the process of recodifying statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1996, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.
Fair Values of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments", requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
11
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents, short-term investments: The carrying amounts
reported in the balance sheet for these instruments approximate their fair
values.
Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities other than insurance subsidiaries are
based on quoted market prices and are recognized in the balance sheet. Fair
value for the Company's insurance subsidiary is the statutory net book
value of that subsidiary.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of Statement
of Financial Accounting Standards No. 107:
12
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1994 1993
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds (Note 2).................. $4,094,407 $3,952,849 $3,511,009 $3,691,415
Preferred stocks (Note 2)....... 12,667 12,905 14,002 14,622
Common stocks................... 16,754 16,754 18,651 18,651
Affiliated common stock......... 26,530 26,530 48,226 48,226
Mortgage loans on real estate
(Note 2)....................... 527,410 499,350 415,829 432,363
Policy loans.................... 51,798 51,798 48,596 48,596
Cash and short-term investments. 34,062 34,062 18,135 18,135
Separate account assets......... 1,120,391 1,120,391 907,255 907,255
LIABILITIES
Investment contract liabilities
(including separate accounts).. 4,898,221 4,587,228 4,102,845 4,103,903
</TABLE>
Cash and Short-Term Investments
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be short-term investments. Short-term investments are recorded at
amortized cost, which approximates market.
Investments
Mortgage loans on real estate and policy loans are recorded at unpaid
balances. Bonds are valued primarily at amortized cost using the effective
interest method. Preferred stocks are valued primarily at cost. Common stocks,
which include shares of mutual funds (money market and other), are valued at
market with market value for the Company's investment in an insurance
subsidiary equal to the statutory net book value of the subsidiary. Realized
gains and losses on the sale of securities are recognized using the specific
identification method.
Depreciation on real estate is provided over the estimated useful lives of
the assets using the straight-line method.
13
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958, and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are calculated
using interest rates ranging from 2.00 to 6.00 percent and are computed
principally on the Net Level Valuation and the Commissioners' Reserve Valuation
Methods. Reserves for universal life policies are based on account balances
adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with and without life
contingencies are equal to the present value of future payments assuming
interest rates ranging from 2.50 to 11.25 percent and mortality rates, where
appropriate, from a variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal additional reserves plus net
unearned premiums and the present value of amounts not yet due on both reported
and unreported claims.
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Account
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate account are valued at market.
Income and gains and losses with respect to the assets in the separate account
accrue to the benefit of the policyholders.
14
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Asset Valuation Reserve and Interest Maintenance Reserve
As prescribed by the NAIC, the Company is required to record an Asset
Valuation Reserve (AVR). The AVR is computed in accordance with a prescribed
formula and represents a provision for possible fluctuations in the value of
bonds, equity securities, mortgage loans, real estate, and other invested
assets. Changes to the AVR are charged or credited directly to unassigned
surplus.
Also, as prescribed by the NAIC, the Company reports an Interest Maintenance
Reserve (IMR) that represents the net accumulated unamortized realized capital
gains and losses attributable to changes in the general level of interest rates
on sales of fixed income investments, principally bonds and mortgage loans.
During 1994, 1993 and 1992, net realized capital gains (losses) of $(10,790),
$21,403 and $18,166, respectively, were credited to the IMR rather than being
recognized in the statements of operations. Such gains or losses are amortized
into income on a straight-line basis over the remaining period to maturity
based on groupings of individual securities sold in five-year bands;
amortization of these net gains aggregated $2,871, $2,674 and $481 for the
years ended December 31, 1994, 1993 and 1992, respectively.
Reclassifications
Certain reclassifications have been made to the 1993 and 1992 financial
statements to conform to the 1994 presentation.
2. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Bonds:
United States Government and
agencies..................... $ 104,798 $ 395 $ (1,958) $ 103,235
State, municipal and other
government................... 51,650 390 (2,739) 49,301
Public utilities.............. 164,975 1,860 (5,710) 161,125
Industrial and miscellaneous.. 1,891,899 27,082 (69,137) 1,849,844
Mortgage-backed securities.... 1,881,085 9,074 (100,815) 1,789,344
---------- -------- --------- ----------
4,094,407 38,801 (180,359) 3,952,849
Preferred stocks.............. 12,667 778 (540) 12,905
---------- -------- --------- ----------
$4,107,074 $ 39,579 $(180,899) $3,965,754
========== ======== ========= ==========
</TABLE>
15
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
2. INVESTMENTS (continued)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
Bonds:
United States Government and
agencies..................... $ 89,357 $ 5,207 $ (347) $ 94,217
State, municipal and other
government................... 65,767 3,125 (308) 68,584
Public utilities.............. 223,954 15,903 (923) 238,934
Industrial and miscellaneous.. 1,668,026 126,858 (10,693) 1,784,191
Mortgage-backed securities.... 1,463,905 49,624 (8,040) 1,505,489
---------- -------- --------- ----------
3,511,009 200,717 (20,311) 3,691,415
Preferred stocks.............. 14,002 620 -- 14,622
---------- -------- --------- ----------
$3,525,011 $201,337 $ (20,311) $3,706,037
========== ======== ========= ==========
</TABLE>
The carrying value of bonds at December 31, 1994 and 1993 included $9,655 and
$5,876, respectively, in writedowns on certain debt securities which are valued
at estimated fair value.
The carrying value and estimated fair value of bonds at December 31, 1994, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 48,345 $ 48,022
Due after one year through five years................. 949,309 922,700
Due after five years through ten years................ 973,031 944,929
Due after ten years................................... 242,637 247,854
---------- ----------
2,213,322 2,163,505
Mortgage-backed securities............................ 1,881,085 1,789,344
---------- ----------
$4,094,407 $3,952,849
========== ==========
</TABLE>
16
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
2. INVESTMENTS (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes....................... $294,145 $286,013 $278,475
Dividends on equity investments................... 12,091 3,990 7,553
Interest on mortgage loans........................ 42,385 37,587 34,655
Rental income on real estate...................... 9,360 8,753 7,624
Interest on policy loans.......................... 3,182 2,943 2,813
Other investment income........................... 282 555 541
-------- -------- --------
Gross investment income........................... 361,445 339,841 331,661
Investment expenses............................... 17,565 17,448 16,245
-------- -------- --------
Net investment income............................. $343,880 $322,393 $315,416
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds................................. $1,430,339 $1,532,807 $1,418,990
========== ========== ==========
Gross realized gains..................... $ 15,411 $ 42,020 $ 47,854
Gross realized losses.................... (33,044) (9,071) (17,537)
---------- ---------- ----------
Net realized gains (losses).............. $ (17,633) $ 32,949 $ 30,317
========== ========== ==========
</TABLE>
At December 31, 1994, investments with an aggregate carrying value of
$4,713,391 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
17
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
2. INVESTMENTS (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
YEAR ENDED DECEMBER 31
----------------------------
1994 1993 1992
--------- ------- --------
<S> <C> <C> <C>
Debt securities............................... $ (17,633) $32,949 $ 30,317
Short-term investments........................ (309) 679 --
Equity securities............................. 1,322 (348) 979
Mortgage loans on real estate................. (2,186) 199 (1,705)
Real estate................................... (2,858) (41) (1,343)
Other invested assets......................... 14 33 40
--------- ------- --------
(21,650) 33,471 28,288
Tax effect.................................... 7,236 (12,519) (11,529)
Transfer to interest maintenance reserve...... 10,790 (21,403) (18,166)
--------- ------- --------
Net realized losses........................... $ (3,624) $ (451) $ (1,407)
========= ======= ========
<CAPTION>
CHANGE IN UNREALIZED
YEAR ENDED DECEMBER 31
----------------------------
1994 1993 1992
--------- ------- --------
<S> <C> <C> <C>
Debt securities............................... $(322,346) $28,210 $(48,889)
Equity securities............................. (23,202) 3,449 1,289
--------- ------- --------
Change in unrealized appreciation (deprecia-
tion)........................................ $(345,548) $31,659 $(47,600)
========= ======= ========
</TABLE>
Gross unrealized gains and gross unrealized losses on common stocks were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Unrealized gains.................................. $20,244 $42,045 $39,161
Unrealized losses................................. (5,927) (4,526) (5,091)
------- ------- -------
Net unrealized gains.............................. $14,317 $37,519 $34,070
======= ======= =======
</TABLE>
18
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
2. INVESTMENTS (continued)
The carrying values and fair values of the Company's investments in mortgage
loans are as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Commercial mortgages................. $520,625 $492,292 $407,115 $422,446
Residential mortgages................ 6,785 7,058 8,714 9,917
-------- -------- -------- --------
$527,410 $499,350 $415,829 $432,363
======== ======== ======== ========
</TABLE>
During 1994, 1993 and 1992, mortgage loans of $799, $101 and $11,022,
respectively, were foreclosed and transferred to real estate. At December 31,
1994 and 1993, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $5,204 and $5,375, respectively. At December 31, 1994, the
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
- ----------------------------
<S> <C>
South Atlantic.......... 26%
Mountain................ 16
W. South Central........ 15
Pacific................. 14
E. North Central........ 14
E. South Central........ 6
W. North Central........ 5
Middle Atlantic......... 2
New England............. 2
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION
- --------------------------
<S> <C>
Retail.................. 33%
Apartment............... 23
Office.................. 20
Industrial.............. 18
Hotel/Motel............. 3
Other................... 3
</TABLE>
At December 31, 1994, the Company had the following investments (excluding U.
S. Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve:
<TABLE>
<CAPTION>
CARRYING
DESCRIPTION OF SECURITY OR ISSUER VALUE
--------------------------------- --------
<S> <C>
Bonds:
Standard Credit Card Trust........................................ $60,426
G E Capital....................................................... 53,028
Residential Funding............................................... 41,609
</TABLE>
19
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
3. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and ceded
amounts:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,857,446 $1,472,409 $1,311,871
Reinsurance assumed...................... 1,832 3,040 23,052
Reinsurance ceded........................ (412,029) (369,203) (485,597)
---------- ---------- ----------
Net premiums earned...................... $1,447,249 $1,106,246 $ 849,326
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $148,414,
$97,409 and $80,795 during 1994, 1993 and 1992, respectively. At December 31,
1994 and 1993, estimated amounts recoverable from reinsurers that have been
deducted from policy and contract claim reserves totaled $62,882 and $57,821,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1994 and 1993 of
$2,977,954 and $2,857,448, respectively.
At December 31, 1994, amounts recoverable from unauthorized reinsurers of
$43,055 (1993--$55,112) and reserve credits for reinsurance ceded of $59,131
(1993--$54,481) were associated with a single reinsurer and its affiliates. The
Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $64,038 at December 31, 1994 that can be drawn on for
amounts that remain unpaid for more than 120 days.
4. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
20
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
4. INCOME TAXES (continued)
The following is a reconciliation of the expected federal tax on income
before realized capital gains (losses), based on statutory rates, to the actual
tax expense:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax........................... $24,106 $29,698 $24,415
Tax reserve adjustment............................ 1,150 1,433 1,073
Excess tax depreciation........................... (406) (248) (273)
Deferred acquisition costs--tax basis............. 7,378 5,200 3,334
Amortization of in-force.......................... -- -- (414)
Prior year over accrual........................... (644) (330) (2,009)
Dividend received deduction....................... (3,513) (1,202) (2,304)
Charitable contribution........................... (3,935) -- --
Other items--net.................................. (278) (2,884) 230
------- ------- -------
Federal income tax expense........................ $23,858 $31,667 $24,052
======= ======= =======
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($20,387 at December 31, 1994). To the extent dividends are paid from
the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1986.
During 1993, there was a prior period adjustments of $452, which consisted of
an adjustment to the tax accrual. The 1992 amount consisted of an IRS
settlement of $10,882 less asset capitalization relating to the NOL merger of
$5,387. An examination is underway for years 1987 through 1992.
5. PARTICIPATING INSURANCE
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies,
provided that a dividend distribution, which is determined annually based on
mortality and persistency experience of the participating policies, is
authorized by the Company. Participating insurance constituted approximately
1.2% and 1.3% of ordinary life insurance in force at December 31, 1994 and
1993, respectively.
21
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
6. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
The Company paid dividends to its parent of $20,900, $46,000 and $31,200 in
1994, 1993 and 1992, respectively.
7. RELATED PARTY TRANSACTIONS
The Company is allocated administrative and benefit expenses from the parent
for employee related costs, as all employees are considered employees of the
parent, not employees of the Company.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1994,
1993 and 1992, the Company paid $11,820, $11,689 and $9,566, respectively, for
these services, which approximates their costs to the affiliates.
The Company's allocated share of pension expense for 1994, 1993 and 1992, was
$1,135, $782 and $547, respectively. Total net assets available for benefits of
the pension plan exceeded the actuarial present value of accumulated plan
benefits at December 31, 1994. Amounts for the Company relating to plan assets
and actuarial liabilities are not determinable.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.90% at December 31, 1994. During 1994,
1993 and 1992, the Company paid net interest of $363, $283 and $255,
respectively, to affiliates.
During 1994, the Company received a capital contribution of $15,000 in cash
from its parent and received a dividend of $10,000 from its subsidiary, Equity
National, which was included in net investment income.
22
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (continued)
(DOLLARS IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. Potential future obligations for unknown insolvencies
are not determinable by the Company. The future obligation has been based on
the most recent information available from the National Organization of Life
and Health Insurance Guaranty Associations (NOLHGA). The Company has
established a reserve of $18,344 and $15,874 and an offsetting premium tax
benefit of $10,556 and $11,477 at December 31, 1994 and 1993, respectively, for
its estimated share of future guaranty fund assessments related to several
major insurer insolvencies. During 1994, 1993 and 1992, $3,444, $0 and $8,296,
respectively, were charged to surplus as prior period adjustments to provide
for this net reserve plus certain assessments paid that related to several
major insurer insolvencies prior to 1992.
23
<PAGE>
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1994
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
------------------ ---------- ---------- ---------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities.............. $1,509,285 $1,444,834 $1,506,080
States, municipalities and political
subdivisions.......................... 9,522 9,091 9,389
Foreign governments.................... 48,341 45,181 47,645
Public utilities....................... 166,777 161,124 164,974
All other corporate bonds.............. 2,384,012 2,292,619 2,366,319
Redeemable preferred stock............... 12,912 12,905 12,667
---------- ---------- ----------
Total fixed maturities................... 4,130,849 3,965,754 4,107,074(2)
EQUITY SECURITIES
Common stocks:
Banks, trust and insurance............. 4,252 4,027 4,027
Industrial, miscellaneous and all
other................................. 24,715 39,257 39,257
---------- ---------- ----------
Total equity securities.................. 28,967 43,284 43,284
Mortgage loans on real estate............ 527,410 527,410
Real estate.............................. 67,085 67,085
Real estate acquired in satisfaction of
debt.................................... 10,381 10,381
Policy loans............................. 51,798 51,798
Other long-term investments.............. 4,593 4,593
Cash and short-term investments.......... 34,062 34,062
---------- ----------
Total investments........................ $4,855,145 $4,845,687
========== ==========
</TABLE>
- --------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
(2) Amount differs from cost as certain bonds have been adjusted to reflect
other than temporary decline in value charged to surplus, as prescribed by
the NAIC.
24
<PAGE>
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE V
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
------------- -------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Individual life.............................. $ 555,841 $ -- $ 7,298
Individual health............................ 16,649 6,487 8,643
Group life and health........................ 60,207 17,680 57,959
Annuity...................................... 3,763,714 -- --
---------- ------- -------
$4,396,411 $24,167 $73,900
========== ======= =======
YEAR ENDED DECEMBER 31, 1993
Individual life.............................. $ 414,663 $ -- $ 8,424
Individual health............................ 11,714 4,623 6,494
Group life and health........................ 108,355 17,783 55,265
Annuity...................................... 3,183,571 -- --
---------- ------- -------
$3,718,303 $22,406 $70,183
========== ======= =======
YEAR ENDED DECEMBER 31, 1992
Individual life.............................. $ 447,444 $ -- $ 6,166
Individual health............................ 9,081 3,088 4,740
Group life and health........................ 36,051 15,904 64,767
Annuity...................................... 2,920,639 -- --
---------- ------- -------
$3,413,215 $18,992 $75,673
========== ======= =======
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NET BENEFITS, CLAIMS OTHER
PREMIUM INVESTMENT LOSSES AND OPERATING PREMIUMS
REVENUE INCOME SETTLEMENT EXPENSES EXPENSES WRITTEN
------- ---------- ------------------- --------- ----------
<S> <C> <C> <C> <C>
$ 146,328 $ 43,025 $ 124,736 $ 42,309 $ --
38,811 3,983 22,323 22,707 38,797
194,704 10,531 108,400 143,645 192,034
1,067,406 286,341 1,036,313 319,328 1,067,404
- ---------- -------- ---------- -------- ----------
$1,447,249 $343,880 $1,291,772 $527,989 $1,298,235
========== ======== ========== ======== ==========
$ 95,716 $ 36,471 $ 71,638 $ 56,462 $ --
28,388 1,024 16,663 15,987 28,434
241,356 13,465 135,764 148,254 239,575
740,786 271,433 506,949 457,328 740,900
- ---------- -------- ---------- -------- ----------
$1,106,246 $322,393 $ 731,014 $678,031 $1,008,909
========== ======== ========== ======== ==========
$ 90,437 $ 40,273 $ 66,422 $ 62,486 $ --
19,550 2,091 11,303 10,684 19,693
246,913 12,635 141,575 145,629 246,234
492,426 260,417 549,683 27,806 360,323
- ---------- -------- ---------- -------- ----------
$ 849,326 $315,416 $ 768,983 $246,605 $ 626,250
========== ======== ========== ======== ==========
</TABLE>
26
<PAGE>
PFL LIFE INSURANCE COMPANY
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE VI
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994
Life insurance in force.. $4,713,817 $468,811 $112,054 $4,357,060 2.6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 148,702 $ 3,639 $ 1,265 $ 146,328 .9%
Individual health...... 50,303 11,492 -- 38,811 --
Group life and health.. 412,200 217,496 -- 194,704 --
Annuity................ 1,246,241 179,402 567 1,067,406 .05%
---------- -------- -------- ---------- ---
$1,857,446 $412,029 $ 1,832 $1,447,249 .1%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1993
Life insurance in force.. $4,773,533 $387,843 $192,203 $4,577,893 4.2%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 95,982 $ 2,640 $ 2,373 $ 95,715 2.5%
Individual health...... 37,709 9,321 -- 28,388 --
Group life and health.. 401,906 160,550 -- 241,356 --
Annuity................ 936,812 196,692 667 740,787 .1%
---------- -------- -------- ---------- ---
$1,472,409 $369,203 $ 3,040 $1,106,246 .3%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1992
Life insurance in force.. $4,714,489 $392,343 $405,036 $4,727,182 8.6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 88,285 $ 2,220 $ 4,372 $ 90,437 4.8%
Individual health...... 25,110 5,560 -- 19,550 --
Group life and health.. 372,315 142,944 17,542 246,913 7.1%
Annuity................ 826,161 334,873 1,138 492,426 .3%
---------- -------- -------- ---------- ---
$1,311,871 $485,597 $ 23,052 $ 849,326 3.2%
========== ======== ======== ========== ===
</TABLE>
27
<PAGE>
PROSPECTUS
THE WRIGHT MANAGED BLUE CHIP SERIES TRUST
24 FEDERAL STREET, BOSTON, MA 02110
The Wright Managed Blue Chip Series Trust (the "Trust") is a diversified,
open-end management investment company, that is designed to be the funding
vehicle for various insurance contracts to be offered by PFL Life Insurance
Company and other participating insurance companies. Shares of the Trust will be
offered exclusively to the separate accounts of such insurance companies. Six
managed investment portfolios of the Trust (the "Portfolios") and their
investment objectives are described below. INVESTMENTS IN THE PORTFOLIOS ARE NOT
GUARANTEED OR INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF
THE PORTFOLIOS ARE NOT OBLIGATIONS OR DEPOSITS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION. THERE IS NO ASSURANCE THAT THE
WRIGHT MANAGED MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE. SHARES OF THE PORTFOLIOS INVOLVE INVESTMENT
RISKS, INCLUDING FLUCTUATIONS IN VALUE AND THE POSSIBLE LOSS OF SOME OR ALL OF
THE PRINCIPAL INVESTMENT.
WRIGHT NEAR TERM BOND PORTFOLIO (WNTBP) seeks high total return, to the
extent consistent with reasonable safety, by investing primarily in debt
securities directly issued or guaranteed by the U.S. Government. The Portfolio
expects to maintain an average weighted portfolio maturity of five years or
less.
WRIGHT TOTAL RETURN BOND PORTFOLIO (WTRBP) seeks high total return,
consisting of current income and capital appreciation, by investing primarily in
obligations issued or guaranteed by the U.S. Government and its agencies or
instrumentalities and in high-grade corporate debt securities of any maturity.
WRIGHT SELECTED BLUE CHIP PORTFOLIO (WSBCP) seeks long-term capital
appreciation and, as a secondary objective, reasonable current income by
investing primarily in equity securities of well-established U.S. companies that
meet the investment adviser's quality standards.
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO (WIBCP) seeks long-term capital
appreciation by investing primarily in equity securities of well-established,
non-U.S. companies that meet the investment adviser's quality standards.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus sets forth concisely the information about the Trust and
the Portfolios that a prospective investor should know before investing. Please
read the Prospectus and retain it for future reference. Additional information
contained in a Statement of Additional Information dated May 1, 1995 has been
filed with the Securities and Exchange Commission and is available upon request
without charge from Wright Investors' Service Distributors, Inc., 1000 Lafayette
Boulevard, Bridgeport, Connecticut 06604 (Telephone: 800-888-9471). The
Statement of Additional Information is incorporated by reference into this
Prospectus.
The date of this Prospectus is May 1, 1995.
<PAGE>
THE WRIGHT MANAGED BLUE CHIP SERIES TRUST
24 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Wright Investors' Service
1000 Lafayette Boulevard
Bridgeport, Connecticut 06604
ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, Massachusetts 02110
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
TABLE OF CONTENTS
----------------------------------------------------------------------------
PAGE
EXPENSE TABLE...................................... 3
FINANCIAL HIGHLIGHTS............................... 5
THE TRUST.......................................... 7
INVESTMENT OBJECTIVES AND POLICIES................. 8
Wright Near Term Bond Portfolio (WNTBP)........... 8
Wright Total Return Bond Portfolio (WTRBP)........ 9
Wright Selected Blue Chip Portfolio (WSBCP)....... 9
Wright International Blue Chip Portfolio (WIBCP).. 10
OTHER INVESTMENT POLICIES.......................... 11
SPECIAL INVESTMENT CONSIDERATIONS.................. 12
MANAGEMENT OF THE TRUST............................ 15
The Investment Adviser............................ 15
The Administrator................................. 18
NET ASSET VALUE.................................... 19
DIVIDENDS, DISTRIBUTIONS
AND TAXES......................................... 20
PURCHASE AND REDEMPTION
OF SHARES......................................... 20
PERFORMANCE INFORMATION............................ 21
ORGANIZATION AND
CAPITALIZATION OF THE TRUST....................... 22
ADDITIONAL INFORMATION............................. 23
Custodian and Transfer Agent...................... 23
Independent Auditors.............................. 23
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY WHERE
SUCH OFFER WOULD BE UNLAWFUL.
<PAGE>
SHAREHOLDER AND FUND EXPENSES -- WRIGHT MANAGED BLUE CHIP SERIES TRUST
The following table of fees and expenses is provided to assist investors in
understanding the various costs and expenses which may be borne directly or
indirectly by an investment in each Portfolio of the Trust. The percentages
shown below representing total operating expenses are based on actual expenses
for the fiscal year ended December 31, 1994.
<TABLE>
<CAPTION>
Wright Wright Wright Wright
Near Term Selected Total Return International
Bond Blue Chip Bond Blue Chip
Portfolio Portfolio Portfolio Portfolio
(WNTBP) (WSBCP) (WTRBP) (WIBCP)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None None None
Annualized Fund Operating Expenses
(as a percentage of average daily
net assets)
Investment Adviser Fee
(after fee reduction)[1] 0.00% 0.00% 0.00% 0.00%
Other Expenses (after expense
reduction, including administration
fee of .05%)[2] 0.90% 1.15% 0.90% 1.85%
Total Operating Expenses[3] 0.90% 1.15% 0.90% 1.85%
- -----------------------------------------------------------------------------------
<FN>
(1) After reduction by Investment Adviser. If no reductions were made,
investment advisory fees would have been as follows: WSBCP - 0.65%; WNTBP -
0.45%; WTRBP - 0.45%; and WIBCP - 0.80% of each Portfolio's average daily
net assets.
(2) After reduction by Administrator. If no reductions were made, administration
fees would have been 0.05% of each Portfolio's average daily net assets.
After allocation of expenses of each Portfolio's average daily net assets by
the Investment Adviser. If such allocations were not made, Other Expenses
would have amounted to: WSBCP - 2.60%; WNTBP - 4.84%; WTRBP - 6.50%; and
WIBCP - 3.80%.
(3) If no fee reductions or expense allocations were made, the Total Operating
Expenses would have been: WSBCP - 3.30%; WNTBP - 5.34%; WTRBP - 7.00%
and WIBCP - 4.65%.
</FN>
</TABLE>
<PAGE>
EXAMPLE OF FUND EXPENSES
The following is an illustration of the total transaction and operating
expenses that an investor in each Portfolio would bear over different periods of
time, assuming an investment of $1,000, a 5% annual return on the investment and
redemption at the end of each period.
<TABLE>
<CAPTION>
Wright Wright Wright Wright
Near Term Total Return Selected International
Bond Bond Blue Chip Blue Chip
Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------
<C> <C> <C> <C> <C>
1 Year $ 9 $ 9 $ 12 $ 19
3 Years $ 29 $ 29 $ 37 $ 58
5 Years $ 50 $ 50 $ 63 $100
10 Years $111 $111 $140 $217
- -----------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL PAST
EXPENSES OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN DEPENDING UPON A VARIETY OF FACTORS INCLUDING THE ACTUAL PERFORMANCE OF
EACH PORTFOLIO.
<PAGE>
FINANCIAL HIGHLIGHTS
The following information, which is on a per share basis for a share outstanding
throughout each period, should be read in conjunction with the audited financial
statements included in the Statement of Additional Information, all of which has
been so included in reliance upon the report of Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and auditing,
which report is contained in the Portfolios' Statement of Additional
Information. Further information regarding the performance of each Portfolio is
contained in the Portfolio's annual report to shareholders which may be obtained
without charge by contacting Wright Investors' Service Distributors, Inc. at
800-888-9471.
<TABLE>
<CAPTION>
WRIGHT For the Period
TOTAL RETURN Year Ended from 12/7/93 (start of
BOND PORTFOLIO December 31, 1994 business) to 12/31/93[2]
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year............... $ 9.930 $ 10.000
--------- ---------
Income from Investment Operations:
Net investment income[1]...................... $ 0.398 $ 0.019
Net realized and unrealized loss
on investments.............................. (1.090) (0.070)
------ ------
Total (loss) from investment operations..... $ (0.692) $ (0.051)
--------- ---------
Less Distributions to Shareholders:
From net investment income.................... $ (0.398) $ (0.019)
--------- ---------
Net asset value, end of year..................... $ 8.840 $ 9.930
========= =========
Total Return[3].................................. (7.1%) (0.5%)
Ratios/Supplemental Data:
Net assets, end of year (000 omitted)......... $ 520 $ 167
Ratio of net expenses to average net assets... 0.90% 0.70%[4]
Ratio of net investment income to average
net assets.................................. 4.49% 2.50%[4]
Portfolio Turnover Rate....................... 23% 0%
<FN>
[1]During the year ended December 31, 1994, the operating expenses of the Fund
were reduced either by a reduction of the investment adviser fee, the
administrator fee, and the allocation of expenses to the Adviser, or a
combination of these. Had such actions not been undertaken, the net
investment income per share and the ratios would have been as follows:
Net investment loss per share................. $ (0.111)
========
Ratios (As a percentage of average net assets):
Expenses.................................... 7.00%
====
Net investment loss......................... (1.61%)
=====
[2]Calculations based on average shares outstanding methodology.
[3]Total investment return is calculated assuming a purchase at the net asset
value on the first day and a sale at the net asset value on the last day of
each period reported. Dividends and distributions, if any, are assumed to be
invested at the net asset value on the payable date. The total investment
return does not reflect expenses that apply to the separate account or
related policies. If these charges had been included, the total return would
be reduced.
[4]Annualized.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding For the Period from January 6, 1994 (Start of business)
to December 31, 1994
<TABLE>
<CAPTION>
Near Term Selected International
Bond Blue Chip Blue Chip
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period............. $ 10.000 $ 10.000 $ 10.000
-------- -------- --------
Income from Investment Operations:
Net investment income[1]...................... $ 0.324 $ 0.092 $ 0.031
Net realized and unrealized loss
on investments.............................. (0.670) (0.712) (0.886)
------ ------ ------
Total (loss) from investment operations..... $ (0.346) $ (0.620) $ (0.855)
-------- -------- --------
Less Distributions to Shareholders:
From net investment income.................... $ (0.324) $ (0.060) $ (0.005)
-------- --------- --------
Net asset value, end of period................... $ 9.330 $ 9.320 $ 9.140
======== ======== ========
Total Return[3].................................. (3.2%) (6.2%) (8.1%)
Ratios/Supplemental Data:
Net assets, end of year (000 omitted)......... $ 451 $ 1,452 $ 1,229
Ratio of net expenses to average net assets... 0.90%[2] 1.15%[2] 1.80%[2]
Ratio of net investment income to average
net assets.................................. 3.43%[2] 1.16%[2] 0.19%[2]
Portfolio Turnover Rate....................... 52% 74% 0%
<FN>
[1]During the period ended December 31, 1994, the operating expenses of the Funds
were reduced by a reduction of the investment adviser fee, the administrator
fee, and the allocation of expenses to the Adviser or a combination of these.
Had such actions not been undertaken, the net investment income per share and
the ratios would have been as follows:
Net investment loss per share................ $ (0.095) $ (0.078) $ (0.434)
========== ========= =========
Ratios (As a percentage of average net assets):
Expenses.................................... 5.34%[2] 3.30%[2] 4.65%[2]
========== ========= =========
Net investment loss......................... (1.01%)[2] (0.99%)[2] (2.66%)[2]
========== ========= =========
[2] Annualized.
[3] Total investment return is calculated assuming a purchase at the net asset
value on the first day and a sale at the net asset value on the last day of
each period reported. Dividends and distributions, if any, are assumed to be
invested at the net asset value on the payable date for WNTBP and on the
record date for WSBCP and WIBCP. The total investment return does not reflect
expenses that apply to the separate account or related policies. If these
charges had been included, the total return would be reduced.
</FN>
</TABLE>
<PAGE>
THE TRUST
The Wright Managed Blue Chip Series Trust (the "Trust") is an open-end
management investment company. The Trust consists of six separate portfolios
(each a "Portfolio"), each of which represents a separate pool of assets and has
different investment objectives and policies. Each Portfolio is a diversified
Portfolio. Additional portfolios may be established in the future.
The Trust is designed to be the funding vehicle for variable insurance
contracts (the "Contracts") to be offered by PFL Life Insurance Company ("PFL")
and other participating insurance companies. Shares of each Portfolio will be
offered exclusively to the separate accounts (the "Accounts") of PFL and other
participating insurance companies. References to PFL also include such other
participating insurance companies. The terms and conditions of the Contracts and
any limitations upon the Portfolios in which the Accounts may invest are set
forth in a separate prospectus. The Trust reserves the right to limit in the
future the types of Accounts that may invest in any Portfolio.
PFL is the record holder of each share of beneficial interest in each
Portfolio of the Trust. Within the limitations set forth in the appropriate
Contract, Contractholders may direct through PFL the allocation of amounts
available for investment under their Contracts among the Trust's Portfolios.
Instructions for any such allocation, or the purchase or redemption of the
shares of any Portfolio, must be made through PFL as the record holder of the
Trust's shares. The rights of PFL as the record holder of shares of a Portfolio
are different from the rights of a Contractholder. The term "shareholder" in
this Prospectus refers to PFL and not to the Contractholder.
Wright Investors' Service ("Wright") acts as investment adviser to each
Portfolio. Eaton Vance Management ("Eaton Vance") acts as administrator to the
Trust.
None of the Portfolios alone constitutes a complete investment program.
- -------------------------------------------------------------------------------
The Prospectuses of the Portfolios are combined in this Prospectus. Each
Portfolio offers only its own shares, yet it is possible that a Portfolio might
become liable for a misstatement in the Prospectus of another Portfolio. The
Trustees have considered this in approving the use of a combined Prospectus.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Portfolio are described
below. Such investment objectives and the policies are not fundamental policies
and may be changed by the Trustees without the approval of shareholders. If any
changes were made, a Portfolio might have investment objectives different from
the objectives which a Contractholder considered appropriate at the time of
selecting the Portfolio as the underlying investment for the Contract. There can
be no assurance that any of the Portfolios will be able to achieve its
investment objectives.
WRIGHT NEAR TERM BOND PORTFOLIO
The investment objective of Wright Near Term Bond Portfolio ("WNTBP") is
high total return, to the extent consistent with reasonable safety. WNTBP seeks
to achieve this objective by investing at least 80% of its net assets, under
normal market conditions, in securities issued by the U.S.
<PAGE>
Government or issued by its agencies and instrumentalities and guaranteed
by the U.S. Government and in repurchase agreements with respect to such
securities. It is expected that WNTBP's portfolio will have an average weighted
maturity of five years or less. WNTBP is designed to appeal to an investor
seeking a level of income that is higher and less variable than that available
from short-term U.S. Government obligations and limited fluctuation of capital
compared to investments in long-term U.S. Government obligations.
WRIGHT TOTAL RETURN BOND PORTFOLIO
The investment objective of Wright Total Return Bond Portfolio ("WTRBP") is
high total return, consisting of current income and capital appreciation. WTRBP
seeks to achieve this objective by investing at least 80% of its net assets,
under normal market conditions, in obligations issued or guaranteed by the U.S.
Government and its agencies or instrumentalities and in high-grade corporate
debt securities. The average weighted maturity of WTRBP's portfolio may vary
depending upon the investment adviser's judgment as to the then current phase of
the interest rate cycle. WTRBP invests in obligations of the U.S. Government,
its agencies and instrumentalities, certificates of deposit of federally insured
banks and corporate obligations rated, at the time of purchase, "A" or better by
S&P or Moody's or if not rated, determined to be of comparable quality by the
investment adviser. Such investments also meet Wright Quality Rating Standards.
WRIGHT SELECTED BLUE CHIP PORTFOLIO
The investment objective of Wright Selected Blue Chip Portfolio ("WSBCP")
is long-term capital appreciation and, as a secondary objective, reasonable
current income. Under normal market conditions, WSBCP invests at least 80% of
its net assets in selected equity securities, including common stocks, preferred
stocks and convertible securities. Securities selected for WSBCP are drawn from
an investment list prepared by the investment adviser and known as The Approved
Wright Investment List (the "AWIL").
APPROVED WRIGHT INVESTMENT LIST. The investment adviser maintains a
proprietary database on approximately 3,000 U.S. companies. The investment
adviser reviews such companies to identify those which, on the basis of at least
five years of audited financial statements, meet the
<PAGE>
minimum standards of prudence (e.g. the value of its assets and
shareholders' equity exceeds certain minimum standards and the company's
operations have been profitable during the last three years) and thus are
suitable for consideration by fiduciary investors. Companies which meet these
requirements may be large or small, have their securities traded on exchanges or
in the over-the-counter market, and include companies not currently paying
dividends on their shares.
These companies are then subjected to extensive analysis and evaluation in
order to identify those which meet the investment adviser's 32 fundamental
standards of investment quality. Only those companies which meet or exceed all
of these standards are eligible for selection by the Wright Investment Committee
for inclusion in the AWIL. See the Appendix to the Statement of Additional
Information for a more detailed description of the investment adviser's
standards for investment quality and the AWIL. All companies on the AWIL are, in
the opinion of the investment adviser, soundly financed "True Blue Chips" with
established records of earnings, profitability and equity growth and active,
liquid markets for their publicly held equity securities. The AWIL normally
includes 250 to 300 companies.
The equity securities in which WSBCP invests are limited to those companies
on the AWIL whose current operations reflect characteristics which have been
identified by the investment adviser as being likely to provide comparatively
superior total investment return over the intermediate term. WSBCP purchases
securities which meet WSBCP's investment criteria and increases the amount of
current investments in companies the market values of which are below their
target values. Portfolio securities are generally considered for sale if the
value of such securities exceeds 2 1/2 times their normal weighting in the
portfolio, or if such securities are no longer included in the AWIL or no longer
meet WSBCP's investment criteria.
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO
The investment objective of Wright International Blue Chip Portfolio
("WIBCP") is long-term capital appreciation. Under normal market conditions,
WIBCP invests at least 80% of its net assets in equity securities, including
common stocks, preferred stocks and convertible securities. Securities selected
for WIBCP are limited to those included on an investment list prepared by the
investment adviser and known as the International Approved Wright Investment
List (the "International AWIL").
THE INTERNATIONAL APPROVED WRIGHT INVESTMENT LIST. The investment adviser
maintains a proprietary database on approximately 8,000 non-U.S. companies from
over 36 countries. The investment adviser reviews such companies to identify
those which, on the basis of at least five years of audited financial
statements, meet the minimum standards of prudence (e.g. the value of a
company's assets and shareholders' equity exceeds certain minimum standards and
the company's operations have been profitable during the last three years) and
thus are suitable for consideration by fiduciary investors. Companies which meet
these requirements may be large or small, have their securities traded on
exchanges or in the over-the-counter market, and include companies not currently
paying dividends.
<PAGE>
These companies are then subjected to extensive analysis and evaluation in
order to identify those which meet the investment adviser's 32 fundamental
standards of investment quality. Only those companies which meet or exceed all
of these standards are eligible for selection for inclusion in the International
AWIL. See the Appendix to the Statement of Additional Information for a more
detailed description of the investment adviser's standards for investment
quality and the International AWIL. All companies on the International AWIL are,
in the opinion of the investment adviser, soundly financed "True Blue Chips"
with established records of earnings, profitability and equity growth and
active, liquid markets for their publicly held equity securities.
WIBCP intends to maintain investments in a minimum of three foreign
countries. WIBCP purchases securities which meet WIBCP's investment criteria and
increases the amount of current investments in companies the market values of
which are below their target values. Portfolio securities are generally
considered for sale if they are no longer included in the International AWIL or
no longer meet WIBCP's investment criteria. WIBCP may purchase equity securities
traded on foreign securities exchanges, or it may purchase American Depositary
Receipts (ADRs) traded in the United States. Purchases of shares of WIBCP are
suitable for investors wishing to diversify their portfolios by investing in
non-U.S. companies or for investors who simply wish to participate in non-U.S.
investments. Although the net asset value of WIBCP's shares will be stated in
U.S. dollars, fluctuations in foreign currency exchange rates may affect the
value of an investment in WIBCP.
WIBCP is intended to provide investors with the opportunity to invest in a
portfolio of securities of non-U.S. companies located throughout the world. In
making the allocation of assets among the various countries and geographic
regions, the investment adviser ordinarily considers such factors as prospects
for relative economic growth between foreign countries; expected levels of
inflation and interest rates; government policies influencing business
conditions; the range of individual investment opportunities available to
international investors; and other pertinent financial, tax, social, political
and national factors -- all in relation to the prevailing prices of the
securities in each country or region.
OTHER INVESTMENT POLICIES
The Trust has adopted on behalf of each Portfolio certain fundamental
investment restrictions which are enumerated in detail in the Statement of
Additional Information and which may be changed only by the vote of a majority
of the affected Portfolio's outstanding voting securities, as defined in the
Investment Company Act of 1940. Among other restrictions, each Portfolio may not
borrow money in excess of 1/3 of the current market value of such Portfolio's
net assets (excluding the amount borrowed), and only for certain temporary or
emergency purposes, invest more than 5% of such Portfolio's total assets taken
at current market value in the securities of any one issuer, purchase more than
10% of the voting securities of any one issuer or invest 25% or more of the
Portfolio's total assets in the securities of issuers in the same industry.
There is, however, no limitation in respect to investments in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
<PAGE>
SPECIAL INVESTMENT CONSIDERATIONS
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
in order to earn income on temporarily uninvested cash. A repurchase agreement
is an agreement under which the seller of a security agrees to repurchase and
the relevant Portfolio agrees to resell, such security at a specified time and
price. A Portfolio may enter into repurchase agreements only with large,
well-capitalized banks or government securities dealers that meet specified
credit standards. In addition, such repurchase agreements will provide that the
value of the collateral underlying the repurchase agreement will always be at
least equal to the repurchase price, including any accrued interest earned under
the repurchase agreement. In the event of a default or bankruptcy by a seller
under a repurchase agreement, the Portfolio will seek to liquidate such
collateral. However, the exercise of the right to liquidate such collateral
could involve certain costs, delays and restrictions and is not ultimately
assured. To the extent that proceeds from any sale upon a default of the
obligation to repurchase are less than the repurchase price, the Portfolio could
suffer a loss.
DEFENSIVE INVESTMENTS. During periods of unusual market conditions, when
the investment adviser believes that investing for temporary defensive purposes
is appropriate, all or a portion of the assets of any Portfolio may be held in
cash or invested in short-term obligations, including but not limited to
short-term obligations issued or guaranteed as to interest and principal by the
U.S. Government or any agency or instrumentality thereof (including repurchase
agreements collateralized by such securities); commercial paper which at the
date of investment is rated A-1 by S&P or P-1 by Moody's, or, if not rated, is
determined by the investment adviser to be of comparable quality; short-term
corporate obligations and other debt instruments which at the date of investment
are rated AA or better by S&P or Aa or better by Moody's or, if unrated, are
determined by the investment adviser to be of comparable quality; and
certificates of deposit, bankers' acceptances and time deposits of domestic and
foreign banks the debt obligations of which satisfy the foregoing rating
criteria. Each Portfolio may invest in instruments and obligations of banks that
have other relationships with the Trust, Wright, Eaton Vance or Investors Bank &
Trust Company, an affiliate of Eaton Vance. No preference will be shown towards
investing in banks which have such relationships.
FOREIGN INVESTMENTS. All or a substantial portion of WIBCP's assets will be
invested in securities of foreign companies. Investing in securities of foreign
companies may involve certain considerations in addition to those arising when
investing in domestic securities. These considerations include the possibility
of currency exchange rate fluctuations and revaluation of currencies, the
existence of less publicly available information about issuers, different
accounting, auditing and financial reporting standards, less stringent
securities regulation, non-negotiable brokerage commissions, different tax
provisions, political or social instability, war or expropriation. Moreover,
foreign stock and bond markets generally are not as developed and efficient as
those in the United States and, therefore, the volume and liquidity in those
markets may be less, and the volatility of prices may be greater, than in U.S.
markets. Settlement of transactions on foreign markets may be delayed beyond
what is customary in U.S.markets. These considerations generally are of greater
concern in developing countries.
<PAGE>
Because investment in foreign issuers will usually involve currencies of
foreign countries, and because WIBCP may be exposed to currency fluctuations
independent of its securities exposure, the value of the assets of the WIBCP as
measured in U.S. dollars will be affected by changes in foreign currency
exchange rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. WIBCP may enter into contracts
to purchase foreign currencies to protect against an anticipated rise in the
U.S. dollar price of securities it intends to purchase. WIBCP may enter into
contracts to sell foreign currencies to protect against the decline in value of
portfolio securities denominated or quoted in a foreign currency, or a decline
in the value of anticipated dividends from such securities, due to a decline in
the value of foreign currencies against the U.S. dollar. Contracts to sell
foreign currency could limit any potential gain which might be realized by WIBCP
if the value of the hedged currency increased. Forward contracts are subject to
the risk that the counterparty to such contract will default on its obligations.
Each Portfolio's transactions in foreign currency exchange contracts may be
limited by the requirements of the Internal Revenue Code for qualification as a
regulated investment company.
LENDING PORTFOLIO SECURITIES. Each Portfolio may seek to increase its total
return by lending portfolio securities to broker-dealers or other institutional
borrowers. Under present regulatory policies of the Securities and Exchange
Commission, such loans are required to be continuously secured by collateral in
cash, cash-equivalents and U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
During the existence of a loan, the Portfolio will continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and will also receive a fee, or all or a portion of the interest on
investment of the collateral, if any. However, the Portfolio may at the same
time pay a transaction fee to such borrowers. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the securities
loaned if the borrower of the securities fails financially. However, the loans
will be made only to organizations deemed by the investment adviser to be of
good standing and when, in the judgment of the investment adviser, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Such loans are required to be secured continuously by
collateral in cash, cash equivalents and U.S. Government securities with a value
at least equal to the market value of the securities loaned. If the investment
adviser decides to make securities loans on behalf of a Portfolio, it is
intended that the value of the securities loaned would not exceed 30% of such
Portfolio's total assets.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Portfolio may purchase
when-issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. A Portfolio
entering into such a transaction is required to maintain in a segregated account
with such Portfolio's custodian until the settlement date cash or high-grade
liquid debt obligations in an amount sufficient to meet the purchase price.
Alternatively, the Portfolio may enter into offsetting contracts for the forward
sale of other securities that it owns. Securities purchased or sold on a
when-issued or forward commitment
<PAGE>
basis involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date or if the value of the security to be sold
increases prior to the settlement date. Although a Portfolio would generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring securities for its portfolio, the Portfolio may dispose
of a when-issued security or forward commitment prior to settlement if the
investment adviser deems it appropriate to do so.
MORTGAGE-RELATED SECURITIES. WTRBP may invest in mortgage-related
securities, including collateralized mortgage obligations ("CMOs") and other
derivative mortgage-related securities. These securities will either be issued
by the U.S. Government or one of its agencies or instrumentalities or, if
privately issued, supported by mortgage collateral that is insured, guaranteed
or otherwise backed by the U.S. Government or its agencies or instrumentalities.
THE PORTFOLIO DOES NOT INVEST IN THE RESIDUAL CLASSES OF CMOS, STRIPPED
MORTGAGE-RELATED SECURITIES, LEVERAGED FLOATING RATE INSTRUMENTS OR INDEXED
SECURITIES.
Mortgage-related securities represent participation interests in pools of
adjustable and fixed mortgage loans. Unlike conventional debt obligations,
mortgage-related securities provide monthly payments derived from the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. The mortgage loans underlying
mortgage-related securities are generally subject to a greater rate of principal
prepayments in a declining interest rate environment and to a lesser rate of
principal prepayments in an increasing interest rate environment. Under certain
interest and prepayment rate scenarios, the Portfolio may fail to recover the
full amount of its investment in mortgage-related securities purchased at a
premium, notwithstanding any direct or indirect governmental or agency
guarantee. The Portfolio may realize a gain on mortgage-related securities
purchased at a discount. Since faster than expected prepayments must usually be
invested in lower yielding securities, mortgage-related securities are less
effective than conventional bonds in "locking in" a specified interest rate.
Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many mortgage-related securities. Extending the
average life of a mortgage-related security increases the risk of depreciation
due to future increases in market interest rates.
The Portfolio's investments in mortgage-related securities may include
conventional mortgage passthrough securities and certain classes of multiple
class CMOs. Senior CMO classes will typically have priority over residual CMO
classes as to the receipt of principal and/or interest payments on the
underlying mortgages. The CMO classes in which the Portfolio may invest include
sequential and parallel pay CMOs, including planned amortization class ("PAC")
and target amortization class ("TAC") securities.
Different types of mortgage-related securities are subject to different
combinations of prepayment, extension, interest rate and/or other market risks.
Conventional mortgage passthrough securities and sequential pay CMOs are subject
to all of these risks, but are typically not leveraged. PACs, TACs and other
senior classes of sequential and parallel pay CMOs involve less exposure to
prepayment, extension and interest rate risk than other mortgage-related
securities, provided that prepayment rates remain within expected prepayment
ranges or "collars."
<PAGE>
MANAGEMENT OF THE TRUST
The Board of Trustees, in addition to reviewing the actions of the
investment adviser and administrator, decides upon general matters of policy for
each Portfolio. The investment adviser and administrator conduct and supervise
the daily operations of the Portfolios.
THE INVESTMENT ADVISER
The Trust has engaged Wright Investors' Service ("Wright"), 1000 Lafayette
Boulevard, Bridgeport, Connecticut, to act as the investment adviser for each
Portfolio of the Trust. Under the general supervision of the Trustees, Wright
furnishes the Portfolios with investment advice and management services.
Wright is a leading independent international investment management and
advisory firm with more than 30 years' experience. Its staff of over 175 people
includes a highly respected team of 70 economists, investment experts and
research analysts. Wright manages assets for bank trust departments,
corporations, unions, municipalities, eleemosynary institutions, professional
associations, institutional investors, fiduciary organizations, family trusts
and individuals. Wright is also the investment adviser to The Wright Managed
Equity Trust, The Wright Managed Income Trust, and The Wright EquiFund Equity
Trust. Wright operates one of the world's largest and most complete databases of
financial information on 12,000 domestic and international corporations. At the
end of 1994, Wright Managed approximately $4 billion of assets.
An Investment Committee of six senior officers, all of whom are experienced
analysts, exercises disciplined direction and control over all investment
selections, policies and procedures for each Portfolio of the Trust. The
Committee, following highly disciplined buy-and-sell rules, makes all decisions
for the selection, purchase and sale of all securities. The members of the
Committee are as follows:
JOHN WINTHROP WRIGHT, Chairman of the Investment Committee, Chairman and
Chief Executive Officer of Wright Investors' Service. AB Amherst College. Before
founding Wright Investors' Service in 1960, Mr. Wright was treasurer, St. John's
College; Commander, USNR; Executive Vice President, Standard Air Services;
President, Wright Power Saw & Tool Corp.; Senior Partner, Andris Trubee & Co.
(financial consultants); and Chairman, Rototiller, Inc. Mr. Wright has
frequently been interviewed on radio and television in the United States and
Europe and his published investment and financial writings are widely quoted.
His testimony has often been requested by various House and Senate Committees of
the Congress on matters concerning monetary policy and taxes. He participated in
the 1974 White House Financial Summit on Inflation and the 1980 Congressional
Economic Conference. He is a director of the Center for Financial Studies and a
member of the Board of Visitors of the School of Business at
<PAGE>
Fairfield University, a fellow of the University of Bridgeport Business
School and a Trustee of the Institutes for the Development of Human Potential in
Philadelphia. He is also a member of the New York Society of Security Analysts.
JUDITH R. CORCHARD, Vice Chairman of the Investment Committee, Executive
Vice President-Investment Management of Wright Investors' Service. Ms. Corchard
attended the University of Connecticut and joined Wright Investors' in 1960. She
is a member of the New York Society of Security Analysts and the Hartford
Society of Financial Analysts.
PETER M. DONOVAN, CFA, President of Wright Investors' Service. Mr. Donovan
received a BA Economics, Goddard College and joined Wright Investors' Service
from Jones, Kreeger & Co., Washington, DC in 1966. Mr. Donovan is the president
of The Wright Managed Income Trust, The Wright Managed Equity Trust, The Wright
Managed Blue Chip Series Trust, and The Wright EquiFund Equity Trust. He is also
director of EquiFund - Wright National Equity Fund, a Luxembourg SICAV. He is a
member of the New York Society of Security Analysts and the Hartford Society of
Financial Analysts.
JATIN J. MEHTA, CFA, Executive Counselor and Director of Education of
Wright Investors' Service. Mr. Mehta received a BS Civil Engineering, University
of Bombay, India and an MBA from the University of Bridgeport. Before joining
Wright in 1969, Mr. Mehta was an executive of the Industrial Credit Investment
Corporation of India, a development bank promoted by the World Bank for
financial assistance to private industry. He is a Trustee of The Wright Managed
Blue Chip Series Trust. He is a member of the New York Society of Security
Analysts and the Hartford Society of Financial Analysts.
HARIVADAN K. KAPADIA, CFA, Senior Vice President - Investment Analysis and
Information of Wright Investors' Service. Mr. Kapadia received a BA (hon.)
Economics and Statistics and MA Economics, University of Baroda, India and an
MBA from the University of Bridgeport. Before joining Wright in 1969, Mr.
Kapadia was Assistant Lecturer at the College of Engineering and Technology in
Surat, India and Lecturer, B.J. at the College of Commerce & Economics, VVNagar,
India. He has published the textbooks: "Elements of Statistics," "Statistics,"
"Descriptive Economics," and "Elements of Economics." He was appointed Adjunct
Professor at the Graduate School of Business, Fairfield University in 1981. He
is a member of the New York Society of Security Analysts and the Hartford
Society of Financial Analysts.
MICHAEL F. FLAMENT, CFA, Senior Vice President - Investment and Economic
Analysis of Wright Investors' Service. Mr. Flament received a BS Mathematics,
Fairfield University; MA Mathematics, University of Massachusetts and an MBA
Finance, University of Bridgeport. He is a member of the New York Society of
Security Analysts and the Hartford Society of Financial Analysts.
<PAGE>
Under Wright's Investment Advisory Contract with the Trust, Wright receives
monthly advisory fees at the annual rates (as a percentage of average daily net
assets) set forth in the following table:
<TABLE>
<CAPTION>
ANNUAL % ADVISORY FEE RATES
-----------------------------------------------
Under $500 Million Over
PORTFOLIOS $500 Million to $1 Billion $1 Billion
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wright Near Term Bond Portfolio (WNTBP) 0.45% 0.40% 0.35%
Wright Total Return Bond Portfolio (WTRBP) 0.45% 0.40% 0.35%
Wright Selected Blue Chip Portfolio (WSBCP) 0.65% 0.60% 0.55%
Wright International Blue Chip Portfolio (WIBCP) 0.80% 0.75% 0.70%
- -----------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the net assets of each Portfolio and the
advisory fee rate paid for the fiscal year ended December 31, 1994.
<TABLE>
<CAPTION>
Net Assets Advisory Fee Rate
as of for the Fiscal Year
PORTFOLIOS 12/31/94 Ended 12/31/94
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
wright Near Term Bond Portfolio (WNTBP)* $451,488 0.45%[1]
Wright Total Return Bond Portfolio (WTRBP) $520,383 0.45%[2]
Wright Selected Blue Chip Portfolio (WSBCP)* $1,452,465 0.65%[3]
Wright International Blue Chip Portfolio (WIBCP)* $1,228,946 0.80%[4]
- -------------------------------------------------------------------------------------------------------
<FN>
[*] Start of business, January 6, 1994.
[1] To enhance the net income of WNTBP, Wright made a reduction of its advisory fee in the full amount of such fee and Wright was
allocated $16,824 of expenses related to the operation of such Portfolio.
[2] To enhance the net income of WTRBP, Wright made a reduction of its advisory fee in the full amount of such fee and Wright was
allocated $23,275 of expenses related to the operation of such Portfolio.
[3] To enhance the net income of WSBCP, Wright made a reduction of its advisory fee in the full amount of such fee and Wright was
allocated $12,240 of expenses related to the operation of such Portfolio.
[4] To enhance the net income of WIBCP, Wright made a reduction of its advisory fee in the full amount of such fee and Wright was
allocated $13,935 of expenses related to the operation of such Portfolio.
</FN>
</TABLE>
Pursuant to the Investment Advisory Contract, Wright also furnishes office
space and all necessary office facilities, equipment and personnel for servicing
the investments of each Portfolio. Each Portfolio is responsible for the payment
of all expenses relating to its operations other than those expressly stated to
be payable by Wright under its Investment Advisory Contract.
<PAGE>
Wright places the security transactions for each Portfolio, which in some
cases may be effected in block transactions which include other accounts managed
by Wright. Wright provides similar services directly for bank trust departments.
Wright seeks to execute the portfolio security transactions on the most
favorable terms and in the most effective manner possible. Subject to the
foregoing, Wright may consider sales of shares of a Portfolio or of other
investment companies for which it acts as investment adviser as a factor in the
selection of broker-dealer firms to execute such transactions.
Wright is also the Investment Adviser to the Funds in The Wright Managed
Equity Trust, The Wright Managed Income Trust and The Wright EquiFund Equity
Trust (the "Wright Funds").
THE ADMINISTRATOR
The Trust engages Eaton Vance as its administrator under an Administration
Agreement. Under the Administration Agreement, Eaton Vance is responsible for
managing the legal and business affairs of each Portfolio, subject to the
supervision of the Trustees. Eaton Vance's services include recordkeeping,
preparation and filing of documents required to comply with federal and state
securities laws, supervising the activities of each Portfolio's custodian and
transfer agent, providing assistance in connection with the Trustees' and
shareholders' meetings and other administrative services necessary to conduct
each Portfolio's business. Eaton Vance will not provide any investment
management or advisory services to the Portfolios. For its services under the
Administration Agreement, Eaton Vance receives monthly administration fees from
each Portfolio. The annual rates payable by each Portfolio (as a percentage of
average daily net assets of such Portfolio) are set forth in the following
table:
<TABLE>
<CAPTION>
ANNUAL % -- ADMINISTRATION FEE RATES
Under $100 Million to $250 Million to Over
$100 Million $250 Million $500 Million $500 Million
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.05% 0.04% 0.03% 0.02%
- ---------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the administration fee rates payable by each
Portfolio for the fiscal year ended December 31, 1994. As of December 31, 1994,
the Wright Managed Money Market Portfolio and Wright Government Obligations
Portfolio had not commenced operations.
<TABLE>
<CAPTION>
Administrative Fee Rate
PORTFOLIOS for the Fiscal Year Ended 12/31/94[1]
- ----------------------------------------------------------------------------------------------------
<S> <C>
Wright Near Term Bond Portfolio (WNTBP)* 0.05%
Wright Total Return Bond Portfolio (WTRBP) 0.05%
Wright Selected Blue Chip Portfolio (WSBCP)* 0.05%
Wright International Blue Chip Portfolio (WIBCP)* 0.05%
- ----------------------------------------------------------------------------------------------------
[*] Start of business, January 6, 1994.
[1] Eaton Vance made a reduction of the administration fee in the full amount for each Portfolio.
</TABLE>
<PAGE>
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing mutual
funds since 1931. In addition to acting as the administrator of the Portfolios,
Eaton Vance acts as investment adviser to investment companies and various
individual and institutional clients with total assets under management of
approximately $15 billion. Eaton Vance is a wholly owned subsidiary of Eaton
Vance Corp. ("EVC"), a publicly held holding company. EVC, through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, real estate investment consulting
and management, oil and gas operations and the development of precious metals
properties.
OTHER MANAGEMENT ISSUES
The Trust will be responsible for all of its expenses not assumed by Wright
under its Investment Advisory Contract or by Eaton Vance under its
Administration Agreement, including, without limitation, the fees and expenses
of its custodian and transfer agent, including those incurred for determining
each Portfolio's net asset value and keeping each Portfolio's books; the cost of
share certificates; membership dues in investment company organizations;
brokerage commissions and fees; fees and expenses of registering its shares;
expenses of reports to shareholders, proxy statements, and other expenses of
shareholders' meetings; insurance premiums; printing and mailing expenses;
interest, taxes and corporate fees; legal and accounting expenses; expenses of
Trustees not affiliated with Eaton Vance or Wright; and investment advisory and
administration fees. The Trust will also bear expenses incurred in connection
with litigation in which the Trust is a party and the legal obligation the Trust
may have to indemnify its officers and Trustees with respect thereto.
NET ASSET VALUE
The net asset value per share of each Portfolio is determined at the close
of regular trading on the New York Stock Exchange (normally 4:00 P.M., New York
time) on each day that the Exchange is open for trading. The determination of
net asset value per share is made by subtracting from the value of the assets of
a Portfolio the amount of its liabilities, and dividing the remainder by the
number of outstanding shares of a Portfolio. The New York Stock Exchange is
closed on the following holidays: New Year's Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The assets of the Portfolios are valued on the basis of their market values
or, in the absence of a market value with respect to any portfolio securities,
at the value determined by or under the direction of the Trustees, including the
employment of an independent pricing services.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio is treated as a separate entity for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code"). Each
Portfolio has qualified and elected or intends to qualify and elect to be
treated as a "regulated investment company" for federal income tax purposes
under the Code and intends to continue to qualify as such. In order to so
qualify, each Portfolio must meet certain requirements with respect to the
sources of its income, the diversification of its assets, and the distribution
of its income to shareholders. By so qualifying, a Portfolio will not be subject
to federal income taxes to the extent that its net investment income and net
realized capital gains are distributed to shareholders in accordance with
applicable timing requirements.
It is the intention of each Portfolio to distribute substantially all its
net investment income. Dividends from investment income of WSBCP and WIBCP are
expected to be declared annually. Dividends from investment income of the Money
Market Portfolio, WNTBP, WGOP, and WTRBP will be declared daily and paid
monthly. However, the Trustees may decide to declare dividends at other
intervals. Dividends will be distributed in the form of additional full and
fractional shares of the Portfolio and not in cash, but shareholders may redeem
such shares for cash, as described below.
All net realized long- or short-term capital gains of each Portfolio after
reduction by capital losses, including any available capital loss carryforwards,
if any, will be declared and distributed at least annually either during or
after the close of the Portfolio's fiscal year and will be reinvested in
additional full and fractional shares of the Portfolio. A Portfolio may be
subject to foreign withholding or other foreign taxes, with respect to income
(possibly including, in some cases, capital gains) derived from securities of
foreign issuers. U.S. income tax treaties with certain countries may eliminate
these taxes or reduce the rates of these withholding taxes. The Trust intends to
provide the documentation necessary to achieve the lower treaty rate of
withholding whenever applicable or to seek a refund of amounts withheld in
excess of the treaty rate.
For a discussion of the tax treatment of Contractholders with respect to
their Contracts, including the tax treatment of investment earnings of and
withdrawals from the segregated accounts underlying such Contracts, reference
should be made to the prospectus for the Contracts accompanying this Prospectus.
PURCHASE AND REDEMPTION OF SHARES
The shares of each Portfolio are not offered to the public generally but
may be purchased only by PFL for its Accounts on behalf of Contractholders.
Within the limitations set forth in the appropriate Contract, Contractholders
may direct PFL to purchase or redeem shares of any Portfolio on such
Contractholders' behalf. Instructions for any such purchase or redemption of the
shares of any Portfolio must be made through PFL and should not be directed to
the Trust. The terms and conditions of the Contracts and any limitations upon
the Portfolios in which the Accounts may invest are set forth in a separate
prospectus.
<PAGE>
Subject to the foregoing, each Portfolio sells its shares to PFL without a
sales charge at the net asset value per share of such Portfolio next determined
after the purchase order is received. Each Portfolio reserves the right to
reject any order for the purchase of its shares or to limit or suspend, without
notice, the offering of its shares.
Shares of the Portfolios may be redeemed on any day on which the Trust is
open for business. Each Portfolio redeems its shares at the net asset value per
share of such Portfolio next determined after the redemption request is received
from PFL. Proceeds of any redemption are delivered to PFL within seven days
after receipt of the redemption request. The right to redeem shares of a
Portfolio and to receive payment therefor may be suspended at times (a) when the
securities markets are closed, other than customary weekend and holiday
closings, (b) when trading is restricted for any reason, (c) when an emergency
exists as a result of which disposal by such Portfolio of securities owned by it
is not reasonably practicable or it is not reasonably practicable for such
Portfolio fairly to determine the value of its net assets, or (d) when the
Securities and Exchange Commission by order permits a suspension of the right of
redemption or a postponement of the date of payment or redemption.
Although the Portfolios normally intend to redeem shares in cash, each
Portfolio reserves the right to redeem securities in kind if deemed advisable by
the Trustees. The value of any portfolio securities distributed upon redemption
will be determined in the manner as described under "Net Asset Value." However,
a Portfolio will redeem shares in cash to the extent that the amount of a
Portfolio's shares to be redeemed for the benefit of any Contractholder within a
90-day period does not exceed the lesser of $250,000 or 1% of the aggregate net
asset value of the Portfolio at the beginning of such period. If portfolio
securities are distributed in lieu of cash, the shareholder will normally incur
transaction costs upon the disposition of any such securities.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise the "yield" and/or "total
return" of the Portfolios and may compare the performance of the Portfolios with
that of other mutual funds with similar investment objectives as listed in
rankings prepared by Lipper Analytical Services, Inc., or similar independent
services monitoring mutual fund performance, and with appropriate securities or
other relevant indices. The yield of each Portfolio is computed by dividing its
net investment income per share earned during a recent 30-day period by the
maximum offering price (i.e. net asset value) per share on the last day of the
period and annualizing the resulting figure. The "total return" of a Portfolio
refers to the average annual compounded rate of return over the stated period
that would equate an initial investment in that Portfolio at the beginning of
the period to its ending redeemable value, assuming reinvestment of all dividend
and distributions and deduction of all recurring charges.
<PAGE>
The methods used to calculate "total return" and "yield" are described further
in the "Statement of Additional Information."
The performance of each Portfolio will vary from time to time in response
to fluctuations in market conditions, interest rates, the composition of the
Portfolio's investments and expenses. Consequently, a Portfolio's performance
figures should not be considered representative of the performance of the
Portfolio for any future period. If the expenses of a Portfolio are reduced by
Wright or Eaton Vance, the Portfolio's performance would be higher.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established in April 1993 as a business trust under
Massachusetts law. The Trust's shares of beneficial interest have no par value.
Shares of the Trust may be issued in series or Portfolios. The Trust currently
has six Portfolios. Each Portfolio's shares may be issued in an unlimited number
by the Trustees. Each share of a Portfolio represents an equal proportionate
beneficial interest in that Portfolio and, when issued and outstanding, the
shares are fully paid and non-assessable by the Trust. Shareholders are entitled
to one vote for each full share held. Fractional shares may be voted in
proportion to the amount of the net asset value of a Portfolio which they
represent. Voting rights are not cumulative, which means that the holders of
more than 50% of the shares voting for the election of Trustees can elect 100%
of the Trustees. Shares have no preemptive or conversion rights and are freely
transferable. Upon liquidation of a Portfolio, shareholders are entitled to
share pro rata in the net assets of such Portfolio.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have been elected by
shareholders. In such an event, the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees will continue to hold office and may
appoint successor Trustees. The Trustees will only be liable for their own
willful misfeasance, bad faith, gross negligence, or reckless disregard of their
duties.
The Trust's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The by-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communicating
with shareholders about such a meeting.
The rights, if any, of Contractholders to vote the shares of a Portfolio
beneficially owned by such Contractholder are governed by the relevant Contract.
For information on such voting rights, see the prospectus describing the
Contracts.
<PAGE>
ADDITIONAL INFORMATION
CUSTODIAN AND TRANSFER AGENT
Investors Bank and Trust Company, located at 24 Federal Street, Boston,
Massachusetts 02110, acts as the Trust's custodian and transfer agent.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, located at 125 Summer Street, Boston, Massachusetts
02110, serves as the Trust's independent auditors.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE WRIGHT MANAGED BLUE CHIP SERIES TRUST
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus dated May 1, 1995 for Wright Near Term
Bond Portfolio, Wright Total Return Bond Portfolio, Wright Selected Blue Chip
Portfolio, and Wright International Blue Chip Portfolio of The Wright Managed
Blue Chip Series Trust (the "Trust"), which may be obtained from Wright
Investors' Service Distributors, Inc., 1000 Lafayette Boulevard, Bridgeport,
Connecticut 06604 (Telephone: 800-888-9471). Unless otherwise defined herein,
capitalized terms have the meanings given to them in the Prospectus.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
GENERAL INFORMATION.................... 2
INVESTMENT OBJECTIVES AND POLICIES..... 3
Description of Investments........... 3
INVESTMENT RESTRICTIONS................ 9
PERFORMANCE INFORMATION................ 11
Total Return......................... 11
Yield................................ 12
PORTFOLIO TRANSACTIONS................. 14
MANAGEMENT OF THE TRUST................ 15
Officers and Trustees................ 15
The Investment Adviser............... 18
The Administrator.................... 20
Other Management Issues.............. 21
Custodian............................ 22
Independent Certified Public
Accountants.......................... 23
Legal Matters........................ 23
NET ASSET VALUE........................ 23
TAXES.................................. 25
Federal Income Taxes................. 25
Foreign Taxes........................ 26
FINANCIAL STATEMENTS................... 27
APPENDIX............................... 33
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION OR IN
THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS STATEMENT OF ADDITIONAL
INFORMATION DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY STATE
OR OTHER JURISDICTION OF THE UNITED STATES OR ANY COUNTRY WHERE SUCH OFFER WOULD
BE UNLAWFUL.
The date of this Statement of Additional Information is May 1, 1995.
* As ot the date of this Statement of Additional Information, this Portfolio
had not commenced operation.
<PAGE>
GENERAL INFORMATION
The Wright Managed Blue Chip Series Trust (the "Trust") is a no-load,
open-end management investment company. The Trust consists of six separate
portfolios (each a "Portfolio"), each of which represents a separate pool of
assets and has different investment objectives and policies. Each Portfolio is a
diversified Portfolio. Additional portfolios may be established in the future.
The Trust is designed to be the funding vehicle for variable insurance
contracts (the "Contracts") to be offered by PFL Life Insurance Company ("PFL")
and other participating insurance companies. Shares of the Trust are offered
exclusively to the separate accounts (the "Accounts") of PFL and other insurance
companies. References to PFL also include such other participating insurance
companies. The terms and conditions of the Contracts and any limitations upon
the Portfolios in which the Accounts may be invested are set forth in a separate
prospectus and statement of additional information. The Trust reserves the right
to limit in the future the types of Accounts that may invest in any Portfolio.
The Trust did not have the initial capitalization required by Section 14(a)
of the Investment Company Act of 1940 (the "1940 Act") in reliance upon Rule
14a-2 under the 1940 Act and PFL Life acting as a "promoter" of the Trust.
PFL is the record holder of each share of beneficial interest in each
Portfolio of the Trust. Within the limitations set forth in the appropriate
Contract, Contractholders may direct through PFL the allocation of amounts
available for investment under their Contracts among the Trust's Portfolios.
Instructions for any such allocation, or the purchase or redemption of the
shares of any Portfolio, must be made through PFL as the record holder of the
Trust's shares. The rights of PFL as the record holder of shares of a Portfolio
are different from the rights of a Contractholder. The term "shareholder" in
this Statement of Additional Information refers to PFL and not to the
Contractholder.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have been elected by the
Trust's shareholders. In such an event, the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Subject to the foregoing
circumstances, the Trustees will continue to hold office and may appoint
successor or new Trustees except that, pursuant to provisions of the 1940 Act,
which are set forth in the By-laws of the Trust, the shareholders can remove one
or more of its Trustees.
The Trust's Declaration of Trust may be amended with the affirmative vote
of a majority of the outstanding shares of the Trust or, if only the interests
of a particular Portfolio are affected, a majority of such Portfolio's
outstanding shares. The Trustees are authorized to make amendments to the
Declaration of Trust that do not have a material adverse effect on the interests
of shareholders. The Trust may be terminated (i) upon the sale of the Trust's
assets to another investment company, if approved by the holders of two-thirds
of the outstanding shares of the Trust, except that if the Trustees recommend
such sale of assets, the approval by the vote of a majority of the Trust's
outstanding shares will be sufficient, or (ii) upon liquidation and distribution
of the assets of the Trust, if approved by a majority of its Trustees or by the
vote of a
<PAGE>
majority of the Trust's outstanding shares. If not so terminated, the
Trust may continue indefinitely.
The rights, if any, of Contractholders to vote the shares of a Portfolio
beneficially owned by such Contractholders are governed by the relevant
Contract. For information on such voting rights, see the prospectus describing
such Contract.
The Trust's Declaration of Trust further provides that the Trustees will
not be liable for errors of judgment or mistakes of fact or law; however,
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
The Trust is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Trust's Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Trust property or the
acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Trust property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations. The Trust has been advised by counsel that the risk of any
shareholder incurring any liability for the obligations of a Trust is extremely
remote.
The Trust has retained Wright Investors' Service of Bridgeport, Connecticut
("Wright") as investment adviser to each Portfolio. The Trust has retained Eaton
Vance Management ("Eaton Vance") as administrator of the Trust's business
affairs.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each of the Portfolios are
described in the Prospectus. The following is a description of certain of the
Trust's investment policies and the portfolio securities in which certain
Portfolios may invest.
DESCRIPTION OF INVESTMENTS
U.S. GOVERNMENT, AGENCY AND INSTRUMENTALITY OBLIGATIONS -- U.S. Government
obligations are issued by the Treasury and include bills, certificates of
indebtedness, notes, and bonds. Agencies and instrumentalities of the U.S.
Government are established under the authority of an act of Congress and
include, but are not limited to, the Government National Mortgage Association
("GNMA"), the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers
Home Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks, and the Federal National Mortgage Association. Except for
U.S. Government
<PAGE>
obligations, the securities issued or guaranteed by U.S.
agencies and instrumentalities may or may not be backed by the full faith and
credit of the United States. If the obligation is not backed by the full faith
and credit of the United States, the Portfolio must look principally to the
agency or instrumentally issuing or guaranteeing the obligation for its
repayment and may not be able to assert a claim against the United States itself
in the event that the agency or instrumentality does not meet its obligations.
The U.S.
Government does not guarantee the yield or value of any Portfolio's investments
or shares.
MORTGAGE-RELATED SECURITIES -- GNMA Certificates are mortgage-backed
securities representing part ownership of a pool of mortgage loans. These loans
- -- issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations -- are either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgages
is assembled and, after being approved by GNMA, is offered to investors through
securities dealers. Once such pool is approved by GNMA, the timely payment of
interest and principal on the Certificates representing interests in such pool
is guaranteed by the full faith and credit of the U.S. Government. As
mortgage-backed securities, GNMA Certificates differ from bonds in that the
principal is paid back by the borrower over the term of the loan rather than
returned in a lump sum at maturity. GNMA Certificates are called "pass-through"
securities because a pro-rata share of both regular interest and principal
payments, as well as unscheduled early prepayments, on the underlying mortgage
pool is passed through monthly to the holder of the Certificate. As indicated
below, since the unscheduled prepayment rate of the underlying mortgage pool
covered by a "pass-through" security cannot be predicted with accuracy, the
average life of a particular issue of GNMA Certificates cannot be accurately
predicted.
The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the U.S. Government created by Congress for the purpose of
increasing the availability of mortgage credit for residential housing, issues
participation certificates ("PCs") representing undivided interests in FHLMC's
mortgage portfolio. While FHLMC guarantees the timely payment of interest and
ultimate collection of the principal of its PCs, its PCs are not backed by the
full faith and credit of the U.S. Government. FHLMC PCs differ from GNMA
Certificates in that the mortgages underlying the PCs are mostly "conventional"
mortgages rather than mortgages insured or guaranteed by a federal agency or
instrumentality. However, in several other respects, such as the monthly
pass-through of interest and principal (including unscheduled prepayments) and
the unpredictability of future unscheduled prepayments on the underlying
mortgage pools, FHLMC PCs are similar to GNMA Certificates.
The Federal National Mortgage Association ("FNMA"), a federally chartered
corporation owned entirely by private stockholders, purchases both conventional
and federally insured or guaranteed residential mortgages from various entities,
including savings and loan associations, savings banks, credit unions and
mortgage bankers, and packages pools of such mortgages in the form of
pass-through securities generally called FNMA Mortgage-Backed Certificates,
which are guaranteed as to timely payment of principal and interest by FNMA but
are not backed by the full faith and credit of the U.S. Government. Like GNMA
Certificates and FHLMC PCs, these pass-through securities are subject to the
unpredictability of unscheduled prepayments on the underlying mortgage pools.
<PAGE>
The mortgage-related securities in which the Portfolios may invest include
GNMA, FHLMC and FNMA securities representing interests in pools of 30 year, 15
year, adjustable rate, variable rate, graduated rate and other types of
mortgages. While it is not possible to accurately predict the life of a
particular issue of a mortgage-backed "pass-through" security held by a
Portfolio, the actual life of any such security is likely to be substantially
less than the original average maturity of the mortgage pool underlying the
security. This is because unscheduled early prepayments of principal on the
security owned by the Portfolio will result from the prepayment, refinancing or
foreclosure of the underlying mortgage loans in the mortgage pool. The
prepayment assumptions for pools of 30 and 15-year mortgages are generally
considered to be 12 years and seven years, respectively, but may be considerably
shorter during periods of declining interest rates. Mortgagors may speed up the
rate at which they prepay their mortgages when interest rates decline
sufficiently to encourage refinancing. A Portfolio, when the monthly payments
(which may include unscheduled prepayments) on such a security are passed
through to it, may be able to reinvest such payments only at a lower rate of
interest. Because of the regular scheduled payments of principal and the early
unscheduled prepayments of principal, the mortgage-backed "pass-through"
security is less effective than other types of obligations as a means of
"locking-in" attractive long-term interest rates. As a result, this type of
security may have less potential for capital appreciation during periods of
declining interest rates than other U.S. Government securities of comparable
maturities, although many issues of mortgage-backed "pass-through" securities
may have a comparable risk of decline in market value during periods of rising
interest rates. If such a security has been purchased by a Portfolio at a
premium above its par value, both a scheduled payment of principal and an
unscheduled prepayment of principal, which would be made at par, will accelerate
the realization of a loss equal to that portion of the premium applicable to the
payment or prepayment and will reduce the Portfolio's total return. If such a
security has been purchased by a Portfolio at a discount from its par value,
both a scheduled payment of principal and an unscheduled prepayment of principal
will increase current and total returns and will accelerate the recognition of
income.
Collateralized Mortgage Obligations ("CMOs") are debt securities issued by
FHLMC and by financial institutions and other mortgage lenders which are
generally fully collateralized by a pool of mortgages held under an indenture.
CMOs are issued with a number of classes or series which have different
maturities and are retired in sequence and are the general obligations of the
issuers thereof. CMOs are designed to be retired as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its maturity. Thus the early retirement of a
particular class or series of a CMO held by a Portfolio would affect the
Portfolio's current and total returns in the manner indicated above. Currently,
the investment adviser will consider privately issued CMOs or other
mortgage-backed securities as possible investments for a Portfolio only when the
mortgage collateral is insured, guaranteed or otherwise backed by the U.S.
Government or one or more of its agencies or instrumentalities (e.g., insured by
the Federal Housing Administration or Farmers Home Administration or guaranteed
by the Administrator of Veterans Affairs or consisting in whole or in part of
U.S. Government securities). WGOP may not invest in mortgage-related securities.
<PAGE>
CORPORATE OBLIGATIONS -- As described in the Prospectus, each Portfolio may
invest, subject to certain limitations, in corporate debt obligations. Such
obligations must be rated in the two highest rating categories by a nationally
recognized statistical rating organization for money market instruments in any
portfolio, "A" by Moody's and S&P, in the case of WTRBP, and "AA" by Moody's or
"Aa" by S&P, in the case of WNTBP, WIBCP and WSBCP.
FOREIGN SECURITIES -- WIBCP may invest in foreign securities. Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not associated with domestic
investments. For example, there is generally less publicly available information
about foreign companies, particularly those not subject to the disclosure and
reporting requirements of the U.S. securities laws. Foreign issuers are
generally not bound by uniform accounting, auditing and financial reporting
requirements comparable to those applicable to domestic issuers. Investments in
foreign securities also involve the risk of possible adverse changes in exchange
control regulations, expropriation or confiscatory taxation, limitation on
removal of funds or other assets of WIBCP, political or financial instability or
diplomatic and other developments which could affect such investments. Further,
economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the U.S.
It is anticipated that in most cases, the best available market for foreign
securities will be on exchanges or in over-the-counter markets located outside
the U.S. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S. Securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the U.S. and may be non-negotiable. In general, there is
less overall governmental supervision and regulation of securities exchanges,
brokers and listed companies than in the U.S.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS -- WIBCP may engage in foreign
currency exchange transactions. Investments in securities of foreign companies
whose principal business activities are located outside of the United States
will frequently involve currencies of foreign countries. In addition, assets of
WIBCP may temporarily be held in bank deposits in foreign currencies during the
completion of investment programs. Therefore, the value of WIBCP's assets, as
measured in U.S. dollars, may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Although WIBCP
values its assets daily in U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. WIBCP may
conduct its foreign currency exchange transactions on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market. WIBCP will
convert currency on a spot basis from time to time and will incur costs in
connection with such currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to WIBCP at one rate, while offering a lesser rate of exchange should WIBCP
desire to resell that currency to the dealer. WIBCP does not intend to speculate
in foreign currency exchange rates.
<PAGE>
As an alternative to spot transactions, WIBCP may enter into contracts to
purchase or sell foreign currencies at a future date ("forward contracts") or
purchase currency call or put options. A forward contract involves an obligation
to purchase or sell a specific currency at a future date and price fixed by
agreement between the parties at the time of entering into the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. Although a forward
contract generally involves no deposit requirement and no commissions are
charged at any stage for trades, WIBCP will use segregated accounts for forward
purchase transactions. WIBCP intends to enter into such contracts only on net
terms. The purchase of a put or call option is an alternative to the purchase or
sale of forward contracts and will be used if the option premiums are less then
those in the forward contract market.
WIBCP may enter into forward contracts or purchase currency options only
under two circumstances. First, when WIBCP enters into a contract for the
purchase or sale of a security dominated in a foreign currency, it may desire to
"lock in" the U.S. dollar price of the security. This is accomplished by
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars, of the amount of foreign currency involved in the underlying
security transaction ("transaction hedging"). Such forward contract transactions
will enable WIBCP to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date of payment for the security.
Second, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, WIBCP may enter into a forward contract to sell, for a fixed amount of
U.S. dollars, the amount of foreign currency approximating the value of some or
all of the securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible. The future value of such securities in foreign
currencies will change as a consequence of fluctuations in the market value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of currency exchange rates and the
implementation of a short-term hedging strategy are highly uncertain.
WIBCP's custodian will place cash or liquid, high-grade debt securities in
a segregated account. The amount of such segregated assets will be at least
equal to the value of WIBCP's total assets committed to the consummation of
forward contracts involving the purchase of forward currency. If the value of
the securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the amount will equal the amount of WIBCP's commitments with respect to such
contracts.
At the maturity of a forward contract, WIBCP may elect to sell the
portfolio security and make delivery of the foreign currency. Alternatively,
WIBCP may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an identical offsetting contract from
the same currency trader.
<PAGE>
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward contract. Accordingly, it may be
necessary for WIBCP to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if WIBCP intends to sell the security
and the market value of the security is less than the amount of foreign currency
that WIBCP is obligated to deliver. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
that WIBCP is obligated to deliver.
If WIBCP retains the portfolio security and engages in an offsetting
transaction, WIBCP will incur a gain or a loss (as described below) to the
extent that there has been a change in forward contract prices. If WIBCP engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward contract prices decline
during the period between the date WIBCP enters into a forward contract for the
sale of the foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, WIBCP will realize a gain to the
extent that the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward contract prices increase,
WIBCP will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
WIBCP will not speculate in forward contracts and will limit its dealings
in such contracts to the transactions described above. Of course, WIBCP is not
required to enter into such transactions with respect to portfolio securities
quoted or denominated in a foreign currency and will not do so unless deemed
appropriate by its investment adviser. This method of protecting the value of
WIBCP's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which WIBCP can achieve at some future time.
Additionally, although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, they also tend to limit any
potential gain which might be realized if the value of such currency increases.
LENDING PORTFOLIO SECURITIES -- A Portfolio may seek to increase its income
by lending its securities to broker-dealers or other institutional borrowers.
Under present regulatory policies of the Securities and Exchange Commission,
such loans are required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities held by the Portfolio's custodian and
maintained on a current basis in an amount at least equal to the market value of
the securities loaned, which will be marked to market daily. Cash equivalents
include certificates of deposit, commercial paper and other short-term money
market instruments. A Portfolio would have the right to call a loan and obtain
the securities loaned at any time on up to five business days' notice. A
Portfolio would not have the right to vote any securities having voting rights
during the existence of a loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment.
BORROWINGS -- Each Portfolio may borrow money in an amount equal to 1/3 of
its net assets for temporary or emergency purposes or for the clearance of
transactions. A Portfolio will not purchase additional securities while such
borrowings exceed 5% of such Portfolio's total assets.
<PAGE>
REPURCHASE AGREEMENTS -- Each Portfolio may enter into repurchase
agreements in order to earn income. A repurchase agreement is an agreement under
which the seller of a security agrees to repurchase and the relevant Portfolio
agrees to resell such security at a specified time and price. A Portfolio may
enter into repurchase agreements only with large, well-capitalized banks or
government securities dealers that meet specified credit standards. In addition,
such repurchase agreements will provide that the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned under the repurchase
agreement. In the event of a default or bankruptcy by a seller under a
repurchase agreement, the Portfolio will seek to liquidate such collateral.
However, the exercise of the right to liquidate such collateral could involve
certain costs, delays and restrictions and is not ultimately assured. To the
extent that proceeds from any sale upon a default of the obligation to
repurchase are less than the repurchase price, the Portfolio could suffer a
loss.
FORWARD COMMITMENTS AND WHEN ISSUED SECURITIES -- Each Portfolio may
purchase when-issued securities and make contracts to purchase or sell
securities for a fixed price at a future date beyond customary settlement time.
A Portfolio entering into such a transaction is required to maintain in a
segregated account with such Portfolio's custodian until the settlement date,
cash or high-grade liquid debt obligations in an amount sufficient to meet the
purchase price. Alternatively, the Portfolio may enter into offsetting contracts
for the forward sale of other securities that it owns. Securities purchased or
sold on a when-issued or forward commitment basis involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date or
if the value of the security to be sold increases prior to the settlement date.
Although a Portfolio would generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring securities for its
portfolio, the Portfolio may dispose of a when-issued security or forward
commitment prior to settlement at a gain or loss if the investment adviser deems
it appropriate to do so.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust on
behalf of each Portfolio and may be changed only by the vote of a majority of a
Portfolio's outstanding voting securities, as defined in the 1940 Act.
Accordingly, each Portfolio may not:
(1) Borrow money in excess of 1/3 of the current market value of the net
assets of such Portfolio (excluding the amount borrowed) and then only
if such borrowing is incurred as a temporary measure for extraordinary
or emergency purposes or to facilitate the orderly sale of portfolio
securities to accommodate redemption requests; or issue any securities
other than its shares of beneficial interest except as appropriate to
evidence indebtedness which such Portfolio is permitted to incur;
(2) Pledge, mortgage or hypothecate its assets, except to secure permitted
borrowings. For purposes of this restriction, collateral arrangements
with respect to options, futures
<PAGE>
contracts and options on future contracts shall not be deemed to be
a mortgage, pledge or hypothecation);
(3) Invest more than 5% of its total assets taken at current market value
in the securities of any one issuer or purchase more than 10% of the
voting securities of any one issuer;
(4) Purchase or retain securities of any issuer if 5% of the issuer's
securities are owned by those officers and Trustees of the Trust or its
investment adviser who own individually more than 1/2 of 1% of the
issuer's securities;
(5) Purchase securities on margin or make short sales, except that such
Portfolio may make sales against the box;
(6) Buy or sell real estate, commodities, or commodity contracts unless
acquired as a result of ownership of securities; except that the
Portfolio may purchase and sell futures contracts on securities,
indices, currency and other financial instruments and options on
futures contracts;
(7) Purchase any securities which would cause more than 25% of the market
value of such Portfolio's total assets at the time of such purchase to
be invested in the securities of issuers having their principal
business activities in the same industry, provided that there is no
limitation in respect to investments in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities;
(8) Underwrite securities issued by other persons except insofar as the
Trust may technically be deemed an underwriter under the Securities Act
of 1933 in selling a portfolio security;
(9) Make loans, except (i) through the loan of a portfolio security, (ii)
by entering into repurchase agreements and (iii) to the extent that the
purchase of debt instruments for the Portfolio in accordance with the
Portfolio's investment objective and policies may be deemed to be
loans;
(10) Purchase from or sell to any of its Trustees and officers, its
administrator, investment adviser, or principal underwriter, if any, or
the officers and directors of said administrator, investment adviser or
principal underwriter, portfolio securities; or
(11) Issue senior securities, except as permitted under (1).
In addition to the foregoing fundamental investment restrictions, each
Portfolio has adopted the following nonfundamental policies which reflect the
intentions of the Trustees under current circumstances. Unlike the fundamental
investment restrictions, these policies may be changed at any time by the
Trustees without shareholder approval. Each Portfolio will not: purchase oil,
gas or other mineral leases or purchase partnership interests in oil, gas or
other mineral exploration
<PAGE>
or development programs; purchase warrants of any issuer if, as a result,
more than 2% of the value of its total assets would be invested in warrants
which are not listed on the New York or American Stock Exchanges and more than
5% of the value of its total assets would be invested in warrants, such warrants
in each case to be valued at the lesser of cost or market, but assigning no
value to warrants acquired by such Portfolio in units or attached to securities;
or enter into repurchase agreements maturing in more than seven days or invest
in illiquid or restricted securities if, as a result, more than 15% of the
Portfolio's net assets would be invested in such repurchase agreements and
securities.
If a percentage restriction contained in the Portfolio's investment
restrictions or policies is adhered to at the time of investment, a later
increase or decrease in the percentage resulting from a change in the value of
portfolio securities or the Portfolio's net assets will not be considered a
violation of such restrictions.
PERFORMANCE INFORMATION
Each Portfolio may from time to time report its yield and total return in
advertisements, reports to shareholders and other sales material. Total return
and yield will be computed as described below.
TOTAL RETURN
The average annual total return of each Portfolio is determined for a
particular period by calculating the actual dollar amount of investment return
on a $1,000 investment in the Portfolio made at the maximum public offering
price (i.e. net asset value) at the beginning of the period, and then
calculating the annual compounded rate of return which would produce that
amount. Total return for a period of one year is equal to the actual return of
the Portfolio during that period. This calculation assumes that all dividends
and distributions are reinvested at net asset value on the reinvestment dates
during the period. The formula can be expressed as follows:
1
Ending Value --
-------------- n
Average Annual Total Return =[ ( Starting Value ) - 1 ] x 100
where Starting Value equals $1,000 and n = number of years.
In addition, each Portfolio may provide total return information for other
designated periods, such as for the most recent six months or most recent 12
months. This total return information is computed as described above except that
no annualization is made.
<PAGE>
The average annual total return of each Portfolio for the one-year period
ended December 31, 1994 and from inception to December 31, 1994 are shown in the
table below:
<TABLE>
<CAPTION>
One Year Inception To Inception
Ended 12/31/94 12/31/94 Date
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wright Near Term Bond Portfolio -- (3.2)% 1/6/94
Wright Selected Blue Chip Portfolio -- (6.2)% 1/6/94
Wright Total Return Portfolio (7.1)% (7.1)% 12/7/93
Wright International Blue Chip Portfolio -- (8.1)% 1/6/94
- ----------------------------------------------------------------------------------------------------
</TABLE>
1 During the periods ended December 31, 1994, the operating expenses of the
Portfolios were reduced either by a reduction of the investment adviser fee,
the administrator fee, and the allocation of expenses to the Adviser, or a
combination of these. Had such actions not been undertaken, the Portfolios
would have had lower returns.
2 The total investment return does not reflect expenses that apply to the
separate account or policies. If these charges had been
included, the total return would be reduced.
YIELD
The yield of each Portfolio is computed by dividing its net investment
income per share earned during a recent 30-day period by the maximum offering
price (i.e. net asset value) per share on the last day of the period and
annualizing the resulting figure. Net investment income per share is equal to
the dividends and interest earned on a Portfolio's assets during the period,
with the resulting number being divided by the average daily number of shares
outstanding and entitled to receive dividends during the period. The formula is
as follows:
6
Yield = 2 [ ( a-b + 1) - 1 ]
----
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (after reductions).
c = the average daily number of accumulation units outstanding during
the period.
d = the maximum offering price per accumulation unit on the last day of
the period.
NOTE: "a" is calculated for stocks by dividing the stated dividend rate for
each security held during the period by 360. "a" is estimated for debt
securities other than mortgage certificates by dividing the year-end market
value times the yield to maturity by 360. "a" for mortgage securities, such as
GNMAs, is the actual income earned. Neither discount nor premium has been
amortized.
<PAGE>
For the 30-day period ended December 31, 1994, the yield of each of the
following Portfolios was:
30-Day Period Ended
December 31, 1994
---------------------------------------------------------------
Wright Near Term Bond Portfolio 6.49%
Wright Selected Blue Chip Portfolio 1.29%
Wright Total Return Bond Portfolio 6.89%
---------------------------------------------------------------
Total return, yield and effective yield are based on historical earnings
and are not intended to indicate future performance. Total return and yield will
vary based on changes in market conditions and the level of expenses.
A Portfolio's yield or total return may be compared to the Consumer Price
Index and various domestic securities indices. A Portfolio's yield or total
return and comparisons with these indices may be used in advertisements and in
information furnished to present or prospective shareholders.
From time to time, evaluations of a Portfolio's performance made by
independent sources may be used in advertisements and in information furnished
to present or prospective shareholders. These include the rankings prepared by
Lipper Analytical Services, Inc., an independent
<PAGE>
service which monitors the performance of mutual funds. The Lipper
performance analysis includes the reinvestment of dividends and capital gain
distributions, but does not take sales charges into consideration and is
prepared without regard to tax consequences.
PORTFOLIO TRANSACTIONS
The investment adviser places the security transactions for each Portfolio,
which in some cases may be effected in block transactions which include other
accounts managed by the investment adviser. The investment adviser provides
similar services directly for bank trust departments and other investment
companies. In some instances, allocation of the securities to be purchased or
sold, and the expenses in connection with such transaction, is made in a manner
the investment adviser considers to be most equitable and consistent with its
fiduciary obligations to the Trust and such other clients. Such allocation may
adversely affect the size of the position obtainable by a Portfolio.
The investment adviser seeks to execute portfolio security transactions on
the most favorable terms and in the most effective manner possible. In seeking
best execution, the investment adviser will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the markets for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the
reputation, experience and financial condition of the broker-dealer and the
value and quality of service rendered by the broker-dealer in other
transactions, and the reasonableness of the brokerage commission or markup, if
any.
It is expected that on frequent occasions there will be many broker-dealer
firms which will meet the foregoing criteria for a particular transaction. In
selecting among such firms, the Portfolios may give consideration to those firms
which supply brokerage and research services, quotations and statistical and
other information to the investment adviser for use in servicing their accounts
or firms which purchase its investment services. The term "brokerage and
research services" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts; and
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement). Such services and information may be useful
and of value to the investment adviser in servicing all or less than all of its
accounts and the services and information furnished by a particular firm may not
necessarily be used in connection with the account which paid brokerage
commissions to such firm. The advisory fee paid by the Portfolios to the
investment adviser is not reduced as a consequence of its receipt of such
services and information. While such services and information are not expected
to reduce the investment adviser's normal research activities and expenses, the
investment adviser would, through use of such services and information, avoid
the additional expenses which would be incurred if it attempted to develop
comparable services and information through its own staff.
<PAGE>
Under the Investment Advisory Contract, the investment adviser has the
authority to pay commissions on portfolio transactions for brokerage and
research services exceeding that which other brokers or dealers might charge
provided certain conditions are met. The Investment Advisory Contract expressly
authorizes the selection of a broker or dealer which charges a Portfolio a
commission which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if it is determined in
good faith that such commission was reasonable in relation to the value of the
brokerage and research services which have been provided.
Subject to the requirement that the investment adviser shall use its best
efforts to seek to execute each Portfolio's security transactions at
advantageous prices and at reasonably competitive commission rates, the
investment adviser, as indicated above, is authorized to consider as a factor in
the selection of any broker-dealer firm with whom a Portfolio's orders may be
placed the fact that such firm has sold or is selling shares of the Portfolio or
of other investment companies sponsored by the investment adviser.
During the fiscal year ended December 31, 1994 and for the period from the
start of business, December 7, 1993 to the fiscal year ended December 31, 1993,
the Wright Total Return Bond Portfolio paid no brokerage commissions on
portfolio transactions.
During the period from the start of business, January 6, 1994 to the fiscal
year ended December 31, 1994, the Portfolios paid the following aggregate
brokerage commissions on portfolio transactions:
1994
- -----------------------------------------------------------------------------
Wright Near Term Bond Portfolio $--
Wright Selected Blue Chip Portfolio $4,952
Wright International Blue Chip Portfolio $2,812
- -----------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES
The officers and Trustees of the Trust are listed below. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. Those Trustees who are "interested
persons," as defined in the 1940 Act, of the Trust, Wright, Eaton Vance, Eaton
Vance's wholly-owned subsidiary, Boston Management and Research ("BMR"), or
Eaton Vance's parent company, Eaton Vance Corp. ("EVC"), or Eaton Vance's
Trustee, Eaton Vance, Inc. ("EV"), by virtue of their affiliation with the
Trust, Wright, Eaton Vance, EVC or EV, are indicated by an asterisk (*).
<PAGE>
PETER M. DONOVAN (52), PRESIDENT AND TRUSTEE*
President and Director of Wright Investors' Service Vice President,
Treasurer and a Director of Wright Investors' Service Distributors, Inc.
Address: 1000 Lafayette Boulevard, Bridgeport, CT 06604
H. DAY BRIGHAM, JR. (68), VICE PRESIDENT, SECRETARY AND TRUSTEE*
Vice President of Eaton Vance, EVC and EV and Director, EV and EVC
Director, Trustee and officer of various investment companies in the Eaton Vance
group of funds Director, Investors Bank & Trust Company
Address: 24 Federal Street, Boston, MA 02110
WINTHROP S. EMMET (84), TRUSTEE
Attorney at Law, Stockbridge, MA
Trust Officer, First National City Bank, New York, NY (1963-1971)
Address: Box 327, West Center Road, West Stockbridge, MA 01266
JATIN J. MEHTA, CFA (55), TRUSTEE*
Executive Counselor and Director of Education of Wright Investors' Service
Executive of the Industrial Credit Investment Corporation of India, a World Bank
agency in India for financial assistance to private industry. Member of the New
York Society of Security Analysts and the Hartford Society of Financial
Analysts.
Address: 1000 Lafayette Boulevard, Bridgeport, CT 06604
A.M. MOODY III (58), VICE PRESIDENT & TRUSTEE*
Senior Vice President, Wright Investors' Service
President, Wright Investors' Service Distributors, Inc.
Address: 1000 Lafayette Boulevard, Bridgeport, CT 06604
LLOYD F. PIERCE (76), TRUSTEE
Retired Vice Chairman (prior to 1984 - President), People's Bank, Bridgeport, CT
Member, Board of Trustees, People's Bank, Bridgeport, CT Board of Directors,
Southern Connecticut Gas Company Chairman, Board of Directors, COSINE
Address: 125 Gull Circle North, Daytona Beach, FL 32119
GEORGE R. PREFER (60), TRUSTEE
Retired President and Chief Executive Officer, Muller Data Corp., New York,
NY (President 1983-1986 and 1989-1990); President and Chief Executive Officer,
InvestData Corporation, A Mellon Financial Services Company (1986-1989)
Address: 7738 Silver Bell Drive, Sarasota, FL 34241
<PAGE>
RAYMOND VAN HOUTTE (70), TRUSTEE
President Emeritus and Counselor of The Tompkins County Trust Co., Ithaca,
NY (since January 1989); President and Chief Executive Officer, The Tompkins
County Trust Company (1973-1988); President, New York State Bankers Association
(1987-1988); Director, McGraw Housing Company, Inc., Deanco, Inc., Evaporated
Metal Products and Tompkins County Area Development, Inc.
Address: One Strawberry Lane, Ithaca, NY 14850
JUDITH R. CORCHARD (56), VICE PRESIDENT
Executive Vice President, Investment Management: Senior Investment Officer;
Vice Chairman of the Investment Committee and Director Wright Investors'
Service.
Address: 1000 Lafayette Boulevard, Bridgeport, CT 06604
JAMES L. O'CONNOR (50), TREASURER
Vice President of Eaton Vance and EV.
Officer of various investment companies in the Eaton Vance group of funds.
Address: 24 Federal Street, Boston, MA 02110
JANET E. SANDERS (59), ASSISTANT SECRETARY AND ASSISTANT TREASURER
Vice President of Eaton Vance and EV.
Officer of various investment companies in the Eaton Vance group of funds
Address: 24 Federal Street, Boston, MA 02110
WILLIAM J. AUSTIN, JR. (43), ASSISTANT TREASURER
Assistant Vice President of Eaton Vance and EV.
Officer of various investment companies in the Eaton Vance group of funds.
Address: 24 Federal Street, Boston, MA 02110
RICHARD E. HOUGHTON (64), ASSISTANT SECRETARY
Vice President of Eaton Vance and EV.
Officer of various investment companies in the Eaton Vance group of funds.
Address: 24 Federal Street, Boston, MA 02110
JOHN P. RYNNE (52), ASSISTANT SECRETARY
Vice President and Comptroller of Eaton Vance and EV and Comptroller of EVC.
Address: 24 Federal Street, Boston, MA 02110
All of the Trustees and officers (except Mr. Mehta) hold identical
positions with The Wright Managed Equity Trust, The Wright Managed Income Trust
and The Wright EquiFund Equity Trust. The Trustees (Messrs. Emmet, Pierce,
Prefer and Van Houtte) who are not affiliated persons of the Trust receive from
the Trust a fee for each meeting attended and are reimbursed for the expenses
they incur in attending meetings. They also received additional payments from
other invesmtent companies for which Wright provides investment advisory
services. The Trustees who are interested persons of the Trust receive no
compensation from the Trust. For Trustee compensation for the fiscal year ended
December 31, 1994, see the following table.
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE - FISCAL YEAR ENDED DECEMBER 31, 1994
Registrant - The Wright Managed Blue Chip Series Trust
Registered Investment Companies - 4
- -----------------------------------------------------------------------------------------------------------
Aggregate Compensation Pension Estimated Total
From The Wright Managed Benefits Annual Compensation
Trustees Blue Chip Series Trust Accrued Benefits Paid(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Winthrop S. Emmet $1,100 None None $5,000
Leland Miles $1,100 None None $5,000
Lloyd F. Pierce $1,100 None None $5,000
George R. Prefer $1,100 None None $5,000
Raymond Van Houtte $1,100 None None $5,000
- -----------------------------------------------------------------------------------------------------------
<FN>
(1) Total compensation paid is from the The Wright Managed Blue Chip Series
Trust (4 Funds) and the other boards in the Wright Fund complex (19 Funds)
for a total of 23 Funds.
</FN>
</TABLE>
Messrs. Emmet, Pierce, Prefer and Van Houtte are members of the Special
Nominating Committee of the Trustees. The Special Nominating Committee's
function is selecting and nominating individuals to fill vacancies, as and when
they occur, in the ranks of those Trustees who are not "interested persons" of
the Trust, Eaton Vance or Wright. The Trust does not have a designated audit
committee since the full board performs the functions of such committee.
THE INVESTMENT ADVISER
The Trust has engaged Wright to act as each Portfolio's investment adviser
pursuant to an Investment Advisory Contract dated August 10, 1993 (the
"Investment Advisory Contract"). Wright, located at 1000 Lafayette Boulevard,
Bridgeport, Connecticut, was founded in 1960 and currently provides investment
services to clients throughout the United States and abroad. John Winthrop
Wright may be considered a controlling person of Wright by virtue of his
position as Chairman of the Board of Directors of Wright, and by reason of his
ownership of more than a majority of the outstanding shares of Wright. An
affiliate of the investment adviser receives an annual service fee of .50% of
the annuity purchase value from PFL for acting as principal underwriter of the
Contracts.
The Investment Advisory Contract provides that Wright will carry out the
investment and reinvestment of the assets of the Portfolios, will furnish
continuously an investment program with respect to the Portfolios, will
determine which securities should be purchased, sold or exchanged, and will
implement such determinations. Wright will furnish to the Portfolios investment
advice and management services, office space, equipment and clerical personnel,
and investment advisory, statistical and research facilities. In addition,
Wright has arranged for certain members of the Eaton Vance and Wright
organizations to serve without salary as officers or Trustees of the Trust. In
return for these services, each Portfolio is obligated to pay a monthly advisory
fee calculated at the rates set forth in the following table.
<PAGE>
<TABLE>
<CAPTION>
ANNUAL % ADVISORY FEE RATES
-----------------------------------------
Under $500 Million
$500 to Over
PORTFOLIOS Million $1 Billion $1 Billion
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wright Near Term Bond Portfolio (WNTBP) 0.45% 0.40% 0.35%
Wright Total Return Bond Portfolio (WTRBP) 0.45% 0.40% 0.35%
Wright Selected Blue Chip Portfolio (WSBCP) 0.65% 0.60% 0.55%
Wright International Blue Chip Portfolio (WIBCP) 0.80% 0.75% 0.70%
- ---------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the net assets of each Portfolio that was
offering its shares as at December 31, 1994, and the advisory fee earned from
each such Portfolio during the fiscal years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
Aggregate Fee Earned Fee Rate Fee Earned Fee Rate
Net for the Fiscal for the Fiscal for the Fiscal for the Fiscal
Assets Year Ended Year Ended Year Ended Year Ended
PORTFOLIOS 12/31/94 12/31/93 12/31/93 12/31/94 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wright Near Term Bond Portfolio (WNTBP)** $ 451,488 -- -- $1,921(1) 0.45%
Wright Total Return Bond Portfolio (WTRBP)* $ 520,383 $41 0.45% $1,861(2) 0.45%
Wright Selected Blue Chip Portfolio (WSBCP)** $1,452,465 -- -- $5,488(3) 0.65%
Wright International Blue Chip Portfolio (WIBCP)** $1,228,946 -- -- $5,535(4) 0.80%
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* Start of business, December 7, 1993.
** Start of business, January 6, 1994.
(1) To enhance the net income of WNTBP, Wright made a reduction of its advisory
fee in the full amount of such fee and Wright was allocated $16,824 of
expenses related to the operation of such Portfolio.
(2) To enhance the net income of WTRBP, Wright made a reduction of its advisory
fee in the full amount of such fee and Wright was allocated $23,275 of
expenses related to the operation of such Portfolio.
(3) To enhance the net income of WSBCP, Wright made a reduction of its advisory
fee in the full amount of such fee and Wright was allocated $12,240 of
expenses related to the operation of such Portfolio.
(4) To enhance the net income of WIBCP, Wright made a reduction of its advisory
fee in the full amount of such fee and Wright was allocated $13,935 of
expenses related to the operation of such Portfolio.
</FN>
</TABLE>
<PAGE>
THE ADMINISTRATOR
The Trust has engaged Eaton Vance to act as the administrator for each
Portfolio pursuant to an Administration Agreement dated August 10, 1993. Eaton
Vance or its affiliates act as investment adviser to investment companies and
various individual and institutional clients with assets under management of
approximately $15 billion. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp. ("EVC"), a publicly held holding company.
Under the Administration Agreement, Eaton Vance is responsible for managing
the business affairs of each Portfolio, subject to the supervision of the
Trustees. Eaton Vance's services include recordkeeping, preparation and filing
of documents required to comply with federal and state securities laws,
supervising the activities of the Trust's custodian and transfer agent,
providing assistance in connection with the Trustees' and shareholders' meetings
and other administrative services necessary to conduct each Portfolio's
business. Eaton Vance will not provide any investment management or advisory
services to the Portfolios. For its services under the Administration Agreement,
Eaton Vance receives monthly administration fees based on the net assets of each
Portfolio at the annual rates set forth in the following table.
<TABLE>
<CAPTION>
ANNUAL % -- ADMINISTRATION FEE RATES
$100 Million $250 Million
Under to to Over
$100 Million $250 Million $500 Million $500 Million
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.05% 0.04% 0.03% 0.02%
- ------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the administration fees from each Portfolio
for the fiscal years ended December 31, 1994 and 1993. As of December 31, 1994,
the Wright Managed Money Market Portfolio and Wright Government Obligations
Portfolio had not commenced operations.
<TABLE>
<CAPTION>
Administration Fee Administration Fee
Earned for the Fiscal YearEarned for the Fiscal Year
PORTFOLIOS Ended 12/31/94(1) Ended 12/31/93(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wright Near Term Bond Portfolio (WNTBP)** $214 --
Wright Total Return Bond Portfolio (WTRBP)* $207 $5
Wright Selected Blue Chip Portfolio (WSBCP)** $422 --
Wright International Blue Chip Portfolio (WIBCP)** $346 --
- -------------------------------------------------------------------------------------------------------
* Start of business, December 7, 1993; ** Start of business, January 6, 1994.
(1) Eaton Vance made a reduction of the administration fee in the full amount
for each Portfolio.
</TABLE>
<PAGE>
Eaton Vance and EV are both wholly owned subsidiaries of EVC. BMR is a
wholly-owned subsidiary of Eaton Vance. Eaton Vance and BMR are both
Massachusetts business trusts, and EV is the Trustee of Eaton Vance and BMR. The
Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner,
James B. Hawkes, and Benjamin A. Rowland, Jr. The Directors of EVC consist of
the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is
chairman, and Mr. Gardner is president and chief executive officer of EVC, Eaton
Vance, BMR and EV. All of the issued and outstanding shares of Eaton Vance and
of EV are owned by EVC. All of the issued and outstanding shares of BMR are
owned by Eaton Vance. All shares of the outstanding Voting Common Stock of EVC
are deposited in a Voting Trust which expires December 31, 1996, the Voting
Trustees of which are Messrs. Brigham, Clay, Gardner, Hawkes, and Rowland. The
Voting Trustees have unrestricted voting rights for the election of Directors of
EVC. All of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of Eaton Vance and BMR who are also
officers and Directors of EVC and EV. As of March 31, 1995, Messrs. Clay,
Gardner and Hawkes each owned 24% of such voting trust receipts. Messrs. Rowland
and Brigham owned 15% and 13%, respectively, of such voting trust receipts.
Messrs. Brigham and Rynne, who are officers or Trustees of the Trust, are
members of the Eaton Vance, EV, BMR and EVC organizations. Messrs. Austin,
Houghton, and O'Connor and Ms. Sanders, who are officers of the Trust, are also
members of the Eaton Vance, BMR and EV organizations. Eaton Vance will receive
the fees paid under the Administration Agreements.
Eaton Vance owns all of the stock of Energex Corporation which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which engages in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, which provides custodial, trustee and other fiduciary
services to investors, including individuals, employee benefit plans,
corporations, investment companies, savings banks and other institutions. In
addition, Eaton Vance owns all the stock of Northeast Properties, Inc., which is
engaged in real estate investment and consulting and management. EVC owns all of
the stock of Fulcrum Management, Inc. and MinVen, Inc., which are engaged in the
development of precious metal properties. EVC, EV, Eaton Vance and BMR may also
enter into other businesses.
OTHER MANAGEMENT ISSUES
The Trust will be responsible for all of its expenses not assumed by Wright
under its Investment Advisory Contract or by Eaton Vance under its
Administration Agreement, including, without limitation, the fees and expenses
of its custodian and transfer agent, including those incurred for determining
each Portfolio's net asset value and keeping each Portfolio's books; the cost of
share certificates; membership dues in investment company organizations;
brokerage commissions and fees; fees and expenses of registering its shares;
expenses of reports to shareholders, proxy statements, and other expenses of
shareholders' meetings; insurance premiums; printing and mailing expenses;
interest, taxes and corporate fees; legal and accounting expenses; expenses of
Trustees not affiliated with Eaton Vance or Wright; and investment advisory and
administration fees. The Trust will also bear expenses incurred in connection
with litigation in which the Trust is a party and the legal obligation the Trust
may have to indemnify its officers and Trustees with respect thereto.
<PAGE>
The Trust's Investment Advisory Contract and Administration Agreement will
remain in effect until February 28, 1996. The Trust's Investment Advisory
Contract may be continued with respect to a Portfolio from year to year
thereafter so long as such continuance after February 28, 1996 is approved at
least annually (i) by the vote of a majority of the Trustees who are not
"interested persons" of the Trust, Eaton Vance or Wright cast in person at a
meeting specifically called for the purpose of voting on such approval and (ii)
by the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of that Portfolio. The Trust's Administration Agreement may
be continued from year to year after February 28, 1996 so long as such
continuance is approved annually by the vote of a majority of the Trustees. Each
agreement may be terminated as to a Portfolio at any time without penalty on
sixty (60) days' written notice by the Board of Trustees or Directors of either
party, or by vote of the majority of the outstanding shares of that Portfolio,
and each agreement will terminate automatically in the event of its assignment.
Each agreement provides that, in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations or duties to the Trust
under such agreement on the part of Eaton Vance or Wright, Eaton Vance or Wright
will not be liable to the Trust for any loss incurred. The Trust's Investment
Advisory Contract and Administration Agreement were most recently approved by
its Trustees, including the "non-interested Trustees," at a meeting held on
January 25, 1995.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston, Massachusetts
(a 77.3% owned subsidiary of EVC) acts as custodian for each of the Portfolios.
IBT, directly or through subcustodians, has the custody of all cash and
securities of the Portfolios, maintains the Portfolios' general ledgers and
computes daily the net asset value per share of each Portfolio. In such capacity
it attends to details in connection with the sale, exchange, substitution,
transfer or other dealings with the Portfolios' investments, receives and
disburses all funds and performs various other ministerial duties upon receipt
of proper instructions from the Portfolios. A portion of the custody fee for
each Portfolio is based upon the Trust's aggregate assets, the fees so
determined being then allocated among the Portfolios relative to their size.
These fees are then reduced by a credit for a Portfolio's cash balances at IBT
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to such
Portfolio's average daily collected balances for the week. In addition, each
Portfolio pays a fee based on the number of portfolio transactions and a fee for
bookkeeping and valuation services. During the fiscal year ended December 31,
1994, the Portfolios paid IBT the following amounts under these arrangements:
Wright Near Term Bond Portfolio........................$15,485
Wright Total Return Bond Portfolio.....................$16,030
Wright Selected Blue Chip Portfolio....................$16,415
Wright International Blue Chip Portfolio...............$21,308
EVC and its affiliates and its officers and employees from time to time
have transactions with various banks, including the Portfolios' custodian, IBT.
Those transactions with IBT
<PAGE>
which have occurred to date have included loans to certain of Eaton Vance's
officers and employees. It is Eaton Vance's opinion that the terms and
conditions of such transactions were not and will not be influenced by existing
or potential custodian or other relationships between the Portfolios and IBT.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts are the Trust's
independent certified public accountants, providing audit services, tax return
preparation, and assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission.
LEGAL MATTERS
Certain legal matters are passed on for the Trust by Hale and Dorr, 60
State Street, Boston, Massachusetts 02109.
NET ASSET VALUE
The net asset value per share of each Portfolio is determined as of the
close of regular trading of the New York Stock Exchange (currently 4:00 p.m.,
New York City time), Monday through Friday, exclusive of national business
holidays. The Trust will be closed on the following national business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas. Portfolio securities for which the
primary market is on a domestic or foreign exchange or which are traded
over-the-counter and quoted on the NASDAQ System will be valued at the last sale
price on the day of valuation or, if there was no sale that day, at the last
reported bid price, using prices as of the close of trading. Portfolio
securities not quoted on the NASDAQ System that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be the over-the-counter market, will be valued at the most
recently quoted bid price provided by the principal market makers.
With respect to WIBCP, foreign securities traded outside the United States
are generally valued as of the time their trading is completed, which is usually
different from the close of the New York Stock Exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the New York Stock Exchange that will not be reflected in the
computation of WIBCP's net asset value. If events materially affecting the value
<PAGE>
of such securities occur during such period, these securities will be valued at
their fair value according to procedures decided upon in good faith by the
Trustees. All securities and other assets of WIBCP initially quoted or
denominated in foreign currencies will be converted to U.S. dollar values at the
mean of the bid and offer prices of such currencies against U.S. dollars last
quoted on a valuation date by any recognized dealer.
In the case of any securities which are not actively traded, reliable
market quotations may not be considered to be readily available. These
investments are stated at fair value as determined under the direction of the
Trustees. Such fair value is expected to be determined by utilizing information
furnished by a pricing service which determines valuations for normal,
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships between
securities which are generally recognized by institutional traders.
If any securities held by a Portfolio are restricted as to resale, their
fair value will be determined following procedures approved by the Trustees. The
Trustees periodically review such procedures. The fair value of such securities
is generally determined to be the amount which the Portfolio could reasonably
expect to realize from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Portfolio in connection with such disposition). In addition,
specific factors are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of the same class
(both at the time of purchase and at the time of valuation), the size of the
holding, the prices of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the issuer.
Notwithstanding the foregoing, short-term debt securities with maturities
of 60 days or less will be valued at amortized cost.
<PAGE>
TAXES
FEDERAL INCOME TAXES
In order to qualify as a regulated investment company as described in the
Prospectus, a Portfolio must, among other things, (1) derive at least 90% of its
gross income in each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stocks
or securities or foreign currencies, or other income (including but not limited
to gains from forward contracts) derived with respect to its business of
investing in such stocks or securities; (2) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of stocks or
securities held less than three months; and (3) diversify its holdings in
compliance with the diversification requirements of Subchapter M of the Code so
that, at the end of each quarter of the Portfolio's taxable year, (a) at least
50% of the market value of the Portfolio's total assets is represented by cash,
U.S. Government securities and other securities limited in respect of any one
issuer to not more than 5% of the value of the Portfolio's total assets and to
not more than 10% of the voting securities of such issuer, and (b) not more than
25% of the value of its total assets is invested in securities of any one issuer
(other than government securities) or certain other issuers controlled by the
Portfolio.
As a regulated investment company, a Portfolio will not be subject to
federal income tax on net investment income and net capital gains (short- and
long-term), if any, that it distributes to its shareholders if at least 90% of
its investment company taxable income (i.e., all of its net taxable income other
than the excess, if any, of net long-term capital gain over net short-term
capital loss ("net capital gain") for the taxable year is distributed in
accordance with applicable timing requirements, but will be subject to tax at
regular corporate rates on any investment company taxable income or net capital
gain that is not so distributed. In general, dividends will be treated as paid
when actually distributed, except that dividends declared in October, November
or December and made payable to shareholders of record in such a month will be
treated as having been paid by the Portfolio (and received by shareholders) on
December 31, if the dividend is paid in the following January. Each Portfolio
intends to satisfy the distribution requirement in each taxable year.
<PAGE>
Each Portfolio will not be subject to Federal excise tax or the related
distribution requirements for any taxable year in which all of its shares are
held by segregated asset accounts of life insurance companies held in connection
with variable contracts or are attributable to certain "seed money" in
accordance with Section 4982(f) of the Code.
Investment by a Portfolio in the stock of a "passive foreign investment
company" may cause the Portfolio to recognize income prior to the receipt of
distributions from such a company or to become subject to tax upon the receipt
of certain excess distributions from, or upon disposition of its stock of, such
a company, although an election may in some cases be available that would
ameliorate some of these adverse tax consequences.
Each Portfolio intends to comply with the diversification requirements
imposed by Section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements imposed
on a Portfolio by the Investment Company Act and Subchapter M of the Code, place
certain limitations on the assets of each separate account and, because Section
817(h) and those regulations treat the assets of the Portfolio as assets of the
related separate account, the assets of a Portfolio, that may be invested in
securities of a single issuer. Specifically, the regulations provide that,
except as permitted by the "safe harbor" described below, as of the end of each
calendar quarter or within 30 days thereafter no more than 55% of the total
assets of a Portfolio may be represented by any one investment, no more than 70%
by any two investments, no more than 80% by any three investments and no more
than 90% by any four investments. For this purpose, all securities of the same
issuer are considered a single investment, and while each U.S. Government agency
and instrumentality is considered a separate issuer, a particular foreign
government and its agencies, instrumentalities and political subdivisions are
considered the same issuer. Section 817(h) provides, as a safe harbor, that a
separate account will be treated as being adequately diversified if the
diversification requirements under Subchapter M are satisfied and no more than
55% of the value of the account's total assets are cash and cash items
(including receivables), U.S. Government securities and securities of other
regulated investment companies. Failure by a Portfolio to both quality as a
regulated investment company and satisfy the Section 817(h) requirements would
generally result in treatment of the variable contract holders other than as
described in the applicable variable contract prospectus, including inclusion in
ordinary income of income accrued under the contracts for the current and all
prior taxable years. Any such failure may also result in adverse tax
consequences for the insurance company issuing the contracts.
The Trust may therefore find it necessary to take action to ensure that a
Contract continues to qualify as a Contract under federal tax laws. The Trust,
for example, may be required to alter the investment objectives of a Portfolio
or substitute the shares of one Portfolio for those of another. No such change
of investment objectives or substitution of securities will take place without
notice to the shareholders of the affected Portfolio.
The Portfolios are not subject to Massachusetts corporate excise or
franchise tax. Provided that a Portfolio qualifies as a regulated investment
company under the Code, it will also not be required to pay any Massachusetts
income tax.
<PAGE>
FINANCIAL STATEMENTS
===============================================================================
<PAGE>
<TABLE>
WRIGHT NEAR TERM BOND PORTFOLIO (WNTBP)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
================================================================================================================
Face Coupon Maturity Market Current Yield To
Amount Description Rate Date Price Value Yield1 Maturity[1]
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
$ 50,000 U.S. Treasury Notes 5.500% 4/30/96 $ 97.484 $ 48,742 5.64% 7.51%
25,000 U.S. Treasury Notes 7.625% 4/30/96 100.172 25,043 7.61% 7.47%
175,000 U.S. Treasury Notes 6.375% 6/30/97 96.922 169,614 6.58% 7.75%
100,000 U.S. Treasury Notes 5.625% 8/31/97 94.844 94,844 5.93% 7.80%
50,000 U.S. Treasury Notes 5.125% 11/30/98 90.969 45,485 5.63% 7.85%
40,000 U.S. Treasury Notes 5.125% 12/31/98 90.812 36,324 5.64% 7.85%
----------
Total Investments (identified cost, $438,296)-- 93.0% $420,052 6.20% 7.74%
===== =====
Other Assets, less Liabilities-- 7.0% 31,436
----------
Net Assets-- 100.0% $451,488
==========
Average Maturity -- 2.6 Years
<FN>
[1] Unaudited.
</FN>
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT NEAR TERM BOND PORTFOLIO
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- ---------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments --
Identified cost.......................... $ 438,296
Unrealized depreciation.................. (18,244)
----------
Total value (Note 1A).................. $ 420,052
Cash....................................... 14,052
Interest receivable........................ 9,574
Deferred organizational costs (Note 1D).... 7,030
Receivable from investment adviser......... 7,825
----------
Total Assets............................. $ 458,533
----------
LIABILITIES:
Trustees fee payable....................... $ 312
Custodian fee payable...................... 4,600
Accrued expenses........................... 2,133
----------
Total Liabilities........................ $ 7,045
----------
NET ASSETS.................................... $ 451,488
==========
NET ASSETS CONSIST OF:
Paid-in Capital............................... $ 475,604
Accumulated net realized loss on investment
transactions............................... (5,872)
Unrealized depreciation of investments........ (18,244)
Net assets applicable to outstanding shares $ 451,488
==========
SHARES OF BENEFICIAL INTEREST
OUTSTANDING................................ 48,408
==========
NET ASSET VALUE, OFFERING PRICE,
AND REDEMPTION PRICE PER SHARE
OF BENEFICIAL INTEREST..................... $ 9.33
==========
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
For the Period from January 6, 1994 (Start of Business)
to December 31, 1994
- ---------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Income --
Interest................................... $ 18,513
-----------
Expenses --
Investment adviser fee (Note 3)............ $ 1,921
Administrator fee (Note 3)................. 214
Compensation of trustees not affiliated with
the investment adviser or administrator.. 1,742
Custodian fee.............................. 15,485
Amortization of organization expense
(Note 1D)................................ 1,720
Transfer and dividend disbursing agent fees 625
Audit...................................... 306
Registration costs......................... 241
Miscellaneous.............................. 560
-----------
Total expenses......................... $ 22,814
-----------
Deduct --
Reduction of investment adviser fee........ $ 1,921
Reduction of administrator fee............. 214
Allocation of expense to the adviser....... 16,824
-----------
Total deducted......................... $ 18,959
-----------
Net expenses........................... $ 3,855
-----------
Net investment income................ $ 14,658
-----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investment transactions.. $ (5,872)
Change in unrealized depreciation of investments (18,244)
-----------
Net realized and unrealized loss on
investments.............................. $ (24,116)
----------
Net decrease in net assets from operations. $ (9,458)
==========
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT NEAR TERM BOND PORTFOLIO
============================================================================================================
For the Period from
January 6, 1994
(start of business) to
STATEMENT OF CHANGES IN NET ASSETS December 31, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income........................................ $ 14,658
Net realized loss on investment transactions................. (5,872)
Change in unrealized depreciation of investments............. (18,244)
-----------
Decrease in net assets from operations..................... $ (9,458)
Distributions to shareholders from net investment income (Note 2) (14,658)
Net increase from fund share transactions (Note 4)............. 475,604
-----------
Net increase in net assets................................. $ 451,488
NET ASSETS:
At beginning of period......................................... --
-----------
At end of period............................................... $ 451,488
===========
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT TOTAL RETURN BOND PORTFOLIO (WTRBP)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
==============================================================================================================
Face Coupon Maturity Market Current Yield To
Amount Description Rate Date Price Value Yield[1] Maturity[1]
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
$ 100,000 U.S. Treasury Notes 6.375% 1/15/99 $ 94.937 $ 94,937 6.71% 7.86%
200,000 U.S. Treasury Notes 5.500% 4/15/00 89.953 179,906 6.11% 7.85%
100,000 U.S. Treasury Notes 7.500% 11/15/01 98.172 98,172 7.64% 7.85%
150,000 U.S. Treasury Notes 5.750% 8/15/03 86.906 130,359 6.62% 7.87%
----------
Total Investments (identified cost, $542,689)-- 96.7% $ 503,374 6.65% 7.86%
===== =====
Other Assets, less Liabilities-- 3.3% 17,009
----------
Net Assets-- 100.0% $ 520,383
==========
Average Maturity -- 6.2 Years[1]
<FN>
[1] Unaudited.
</FN>
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT TOTAL RETURN BOND PORTFOLIO
============================================================================================================
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments --
Identified cost.................... $ 542,689
Unrealized depreciation............ (39,315)
----------
Total value (Note 1A)............ $ 503,374
Cash................................. 2,468
Interest receivable.................. 9,533
Deferred organizational costs (Note 1D) 6,891
Receivable from investment adviser... 5,230
----------
Total Assets....................... $ 527,496
----------
LIABILITIES:
Payable for fund shares redeemed..... $ 340
Trustee fee payable.................. 312
Custodian fee payable................ 4,335
Accrued expenses..................... 2,126
----------
Total Liabilities.................. $ 7,113
----------
NET ASSETS.............................. $ 520,383
==========
NET ASSETS CONSIST OF:
Paid-in Capital......................... $ 560,475
Accumulated net realized loss on investment
transactions......................... (777)
Unrealized depreciation of investments.. (39,315)
----------
Net assets applicable to outstanding shares $ 520,383
==========
SHARES OF BENEFICIAL INTEREST
OUTSTANDING.......................... 58,846
==========
NET ASSET VALUE, OFFERING PRICE,
AND REDEMPTION PRICE PER SHARE
OF BENEFICIAL INTEREST............... $ 8.84
==========
</TABLE>
<TABLE>
============================================================================================================
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Income --
Interest............................. $ 22,332
----------
Expenses --
Investment adviser fee (Note 3)...... $ 1,861
Administrator fee (Note 3)........... 207
Amortization of organization expense
(Note 1D).......................... 1,859
Compensation of trustees not affiliated with
the investment adviser or administrator 1,742
Custodian fee........................ 16,030
Transfer and dividend disbursing agent fees 625
Registration costs................... 285
Legal................................ 312
Audit services....................... 5,000
Miscellaneous........................ 1,159
----------
Total expenses................... $ 29,080
----------
Deduct --
Reduction of investment adviser fee.. $ 1,861
Reduction of administrator fee....... 207
Allocation of expense to the adviser. 23,275
----------
Total deducted................... $ 25,343
----------
Net expenses..................... $ 3,737
----------
Net investment income.......... $ 18,595
----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investment transactions $ (777)
Change in unrealized depreciation of investments (38,541)
----------
Net realized and unrealized loss on investments$ (39,318)
----------
Net decrease in net assets from operations $ (20,723)
==========
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT TOTAL RETURN BOND PORTFOLIO
============================================================================================================
For the Period from
Year December 7, 1993
Ended (start of business) to
STATEMENT OF CHANGES IN NET ASSETS December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income........................................ $ 18,595 $ 233
Net realized loss on investment transactions................. (777) --
Change in unrealized depreciation of investments............. (38,541) (774)
----------- -----------
Decrease in net assets from operations..................... $ (20,723) $ (541)
Distributions to shareholders from net investment income (Note 2) (18,595) (233)
Net increase from fund share transactions (Note 4)............. 392,475 168,000
----------- -----------
Net increase in net assets................................. $ 353,157 $ 167,226
NET ASSETS:
At beginning of year........................................... 167,226 --
----------- -----------
At end of year................................................. $ 520,383 $ 167,226
=========== ===========
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT SELECTED BLUE CHIP PORTFOLIO (WSBCP)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
================================================================================
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
EQUITY INTERESTS -- 98.2%
APPAREL -- 5.5%
Fruit of the Loom, Inc*...... 600 $ 16,200
Justin Industries............ 1,200 14,250
Nike Inc..................... 200 14,925
Reebok International Ltd..... 500 19,750
VF Corp...................... 300 14,588
-------------
$ 79,713
-------------
AUTOMOTIVE -- 1.7%
Modine Manufacturing Co...... 500 $ 14,375
Myers Industries............. 600 10,500
-------------
$ 24,875
-------------
BEVERAGES -- 1.0%
Brown-Forman Corp............ 500 $ 15,250
-------------
CHEMICALS -- 2.1%
Clorox Company............... 300 $ 17,663
Sherwin-Williams Company..... 400 13,250
-------------
$ 30,913
-------------
CONSTRUCTION -- 1.1%
Clayton Homes*............... 1,000 $ 15,750
-------------
DIVERSIFIED -- 5.5%
General Electric Company..... 400 $ 20,400
National Service Industries.. 500 12,813
Rockwell International Corp.. 400 14,300
Standex International Corp... 600 18,825
Teleflex Inc................. 400 14,200
-------------
$ 80,538
-------------
</TABLE>
<TABLE>
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
DRUGS, COSMETICS & HEALTH CARE-- 7.4%
Alberto Culver Company....... 700 $ 17,150
Becton Dickinson & Co........ 400 19,200
Bristol-Myers Squibb Co...... 300 17,363
Johnson & Johnson............ 200 10,950
Medex Inc.................... 1,100 14,850
Merck & Company.............. 400 15,250
Upjohn Company (The)......... 400 12,300
-------------
$ 107,063
-------------
ELECTRICAL -- 1.6%
Emerson Electric Co.......... 200 $ 12,500
Juno Lighting, Inc........... 600 10,650
-------------
$ 23,150
-------------
ELECTRONICS -- 7.1%
Compaq Computer Corp*........ 300 $ 11,850
EG&G, Inc.................... 800 11,300
E-Systems Inc................ 400 16,650
Hewlett-Packard Co........... 200 19,975
Intel Corporation............ 200 12,775
Methode Electronics.......... 700 11,900
Raytheon Company............. 300 19,163
-------------
$ 103,613
-------------
FINANCIAL -- 13.8%
AFLAC Incorporated........... 400 $ 12,800
Amer International Group..... 200 19,600
Amsouth Bancorp.............. 500 12,875
Bancorp Hawaii, Inc.......... 500 12,688
Commerce Bancshares.......... 420 11,340
Edwards (A.G.) Inc........... 800 14,400
Fifth Third Bancorp.......... 200 9,600
First Colony Corp............ 700 15,663
First Hawaiian, Inc*......... 500 11,875
First Virginia Banks, Inc.... 400 12,800
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT SELECTED BLUE CHIP PORTFOLIO (WSBCP)
PORTFOLIO OF INVESTMENTS - continued
DECEMBER 31, 1994
================================================================================
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL - continued
Keycorp...................... 400 $ 10,000
Raymond James Financial...... 1,000 14,000
Southern National Corp....... 700 13,387
Southtrust Corp.............. 900 16,200
West One Bancorp............. 500 13,250
-------------
$ 200,478
-------------
FOOD -- 5.6%
Archer Daniels Midland Co.... 900 $ 18,563
Dean Foods Company........... 400 11,600
Hormel (George A.) & Co...... 800 19,800
Pioneer Hi-Bred Int'l........ 500 17,250
Universal Foods Corp......... 500 13,750
-------------
$ 80,963
-------------
MACHINERY & EQUIPMENT -- 2.2%
Briggs & Stratton Corp....... 600 $ 19,650
Pitney Bowes, Inc............ 400 12,700
-------------
$ 32,350
-------------
METAL PRODUCTS MANUFACTURERS-- 4.4%
CLARCOR...................... 800 $ 17,000
Crown Cork & Seal Company*... 400 15,100
Kaydon Corporation........... 800 19,200
Watts Industries Inc......... 600 12,675
-------------
$ 63,975
-------------
OIL, GAS, COAL & RELATED SERVICES-- 0.8%
Exxon Corporation............ 200 $ 12,150
-------------
PAPER -- 1.1%
Kimberly-Clark Corporation... 300 $ 15,150
-------------
</TABLE>
<TABLE>
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
PRINTING & PUBLISHING -- 7.1%
Banta Corporation............ 400 $ 12,100
Ennis Business Forms......... 1,100 13,750
Gannett Company, Inc......... 300 15,975
Harland (John H.) Co......... 700 14,000
Lee Enterprises.............. 500 17,250
Reynolds & Reynolds.......... 600 15,000
Wallace Computer Services.... 500 14,500
-------------
$ 102,575
-------------
RECREATION -- 2.9%
Carnival Corporation......... 600 $ 12,750
International Dairy Queen*... 800 13,600
Luby's Cafeterias Inc........ 700 15,663
-------------
$ 42,013
-------------
RETAILERS -- 7.9%
Casey's General Stores Inc... 1,400 $ 21,000
Dress Barn (The)*............ 1,400 15,050
Giant Food Inc............... 600 13,050
Hannaford Brothers........... 600 15,225
Lands' End, Inc.............. 700 9,625
May Department Stores........ 500 16,875
Melville Corporation......... 400 12,350
Ross Stores, Inc............. 1,000 11,250
-------------
$ 114,425
-------------
TRANSPORTATION -- 3.4%
Air Express International.... 1,050 $ 21,000
Arnold Industries............ 700 14,525
Intertrans Corporation....... 1,100 14,300
-------------
$ 49,825
-------------
UTILITIES - COMMUNICATION-- 2.2%
Ameritech Corporation........ 400 $ 16,150
Lincoln Telecommunications... 900 15,300
-------------
$ 31,450
-------------
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT SELECTED BLUE CHIP PORTFOLIO (WSBCP)
PORTFOLIO OF INVESTMENTS - continued
DECEMBER 31, 1994
================================================================================
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES-ELECTRIC POWER-- 5.3%
Central & SouthWest.......... 600 $ 13,575
DQE Inc...................... 600 17,775
Duke Power Company........... 400 15,250
Nipsco Industries............ 500 14,875
Wisconsin Energy............. 600 15,525
-------------
$ 77,000
-------------
UTILITIES - NATURAL GAS -- 0.9%
Southwestern Energy Corp..... 900 $ 13,388
-------------
MISCELLANEOUS -- 7.6%
Dionex Corporation*.......... 400 $ 15,100
Genuine Parts Company........ 400 14,400
Handleman Company............ 1,400 15,925
Marshall Industries*......... 800 21,400
Medicine Shoppe Int'l........ 500 13,375
Pioneer Standard Electronics. 900 14,170
Stanhome Inc................. 500 15,813
-------------
$ 110,183
-------------
TOTAL EQUITY INTERESTS -- 98.2%
(identified cost, $1,452,694) $ 1,426,790
OTHER ASSETS
LESS LIABILITIES-- 1.8% 25,675
-------------
NET ASSETS-- 100.0% $ 1,452,465
=============
</TABLE>
* Non-income-producing security.
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT SELECTED BLUE CHIP PORTFOLIO
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- - --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments --
Identified cost.................... $1,452,694
Unrealized depreciation............ (25,904)
-----------
Total value (Note 1A)............ $1,426,790
Cash................................. 18,789
Dividends receivable................. 4,115
Deferred organizational costs (Note 1D) 7,035
Receivable from investment adviser... 3,220
-----------
Total Assets....................... $1,459,949
-----------
LIABILITIES:
Payable for fund shares redeemed..... $ 330
Trustee fee payable.................. 312
Custodian fee payable................ 4,312
Accrued expenses..................... 2,530
-----------
Total Liabilities.................. $ 7,484
-----------
NET ASSETS.............................. $1,452,465
===========
NET ASSETS CONSIST OF:
Paid-in Capital......................... $1,498,107
Accumulated net realized loss on investment
transactions......................... (24,751)
Undistributed net investment income..... 5,013
Unrealized depreciation of investments.. (25,904)
-----------
Net assets applicable to outstanding shares $1,452,465
===========
SHARES OF BENEFICIAL INTEREST
OUTSTANDING.......................... 155,887
===========
NET ASSET VALUE, OFFERING PRICE,
AND REDEMPTION PRICE PER SHARE
OF BENEFICIAL INTEREST............... $ 9.32
===========
</TABLE>
<TABLE>
================================================================================
STATEMENT OF OPERATIONS
For the Period from January 6, 1994 (Start of Business)
to December 31, 1994
- ---------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Income --
Dividend............................. $ 19,514
-----------
Expenses --
Investment adviser fee (Note 3)...... $ 5,488
Administrator fee (Note 3) 422
Amortization of organization expense
(Note 1D).......................... 1,715
Compensation of trustees not affiliated with
the investment adviser or administrator 1,742
Custodian fee........................ 16,415
Legal................................ 312
Transfer and dividend disbursing agent fees 625
Registration costs................... 565
Miscellaneous........................ 574
-----------
Total expenses................... $ 27,858
-----------
Deduct --
Reduction of investment adviser fee.. $ 5,488
Reduction of administrator fee....... 422
Allocation of expense to the adviser. 12,240
-----------
Total deducted................... $ 18,150
-----------
Net expenses..................... $ 9,708
-----------
Net investment income.......... $ 9,806
-----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investment transactions $ (24,751)
Change in unrealized depreciation of investments (25,904)
-----------
Net realized and unrealized loss on investments $ (50,655)
-----------
Net decrease in net assets from operations $ (40,849)
===========
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT SELECTED BLUE CHIP PORTFOLIO
============================================================================================================
For the Period from
January 6, 1994
(start of business) to
STATEMENT OF CHANGES IN NET ASSETS December 31, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income........................................ $ 9,806
Net realized loss on investment transactions................. (24,751)
Change in unrealized depreciation of investments............. (25,904)
-----------
Decrease in net assets from operations..................... $ (40,849)
Distributions to shareholders from net investment income....... (9,294)
Undistributed net investment income included in price of shares
sold and redeemed............................................ 4,501
Net increase from fund share transactions (exclusive of amounts
allocated to net investment income) (Note 4)................. 1,498,107
-----------
Net increase in net assets................................. $1,452,465
NET ASSETS:
At beginning of period......................................... --
-----------
At end of period............................................... $1,452,465
===========
UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS......................................... $ 5,013
===========
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO (WIBCP)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
================================================================================
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
EQUITY INTERESTS -- 95.2%
AUSTRALIA -- 7.9%
Broken Hill Proprietary (ADR) 500 $ 30,812
Email Ltd. (ADR)*............ 3,600 20,384
F.H. Faulding (ADR).......... 1,200 26,807
Pacific Dunlop Ltd. (ADR).... 1,800 19,350
-------------
$ 97,353
-------------
CANADA -- 3.0%
Corel Systems Corp*.......... 2,700 $ 37,294
-------------
DENMARK-- 4.4%
ISS Int'l. Service Systems*.. 1,000 $ 27,145
Jens Villadsens Fabriker*.... 100 26,322
-------------
$ 53,467
-------------
FRANCE -- 7.9%
Alcatel Alstrom
Cie Generale d'Electric (ADR) 1,300 $ 22,100
Groupe Danome (ADR)*......... 700 19,649
L'Oreal (ADR)................ 660 26,935
LVMH Moet-Hennessy
Louis Vuitton.............. 900 28,350
-------------
$ 97,034
-------------
GERMANY -- 2.4%
Bayerische Motoren Werke*.... 60 $ 29,839
-------------
HONG KONG -- 9.0%
Hang Lung Devel. Co. (ADR)... 2,700 $ 19,193
Hong Kong Aircraft Engineering* 5,600 18,672
Hong Kong & China Gas Co. (ADR) 16,032 25,900
Hong Kong Electric Hold. (ADR) 10,000 27,335
Swire Pacific Limited (ADR).. 3,100 19,312
-------------
$ 110,412
-------------
</TABLE>
<TABLE>
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
IRELAND -- 2.6%
Greencore PLC*............... 5,000 $ 31,722
-------------
ITALY -- 1.8%
Sirti SpA*................... 3,500 $ 22,632
-------------
JAPAN -- 7.5%
Ito-Yokado Co., Ltd.......... 100 $ 21,400
Komatsu Seiren Co*........... 2,000 27,669
Nintendo Corp. Ltd. (ADR)*... 2,800 18,768
Seven Eleven Japan........... 300 24,085
-------------
$ 91,922
-------------
MALAYSIA -- 7.0%
Amalgamated Industrial Steel* 20,500 $ 31,146
Genting Berhad (ADR)......... 3,300 28,301
Perlis Plantations Berhad (ADR) 8,000 26,316
-------------
$ 85,763
-------------
MEXICO -- 4.6%
Cifra SA..................... 9,400 $ 19,277
Kimberly Clark de Mexico..... 700 16,544
Telefonos de Mexico.......... 500 20,500
-------------
$ 56,321
-------------
NETHERLANDS --10.4%
Elsevier (ADR)............... 1,250 $ 25,781
Koninklijke Ahold (ADR)*..... 800 24,500
NV Verenigd Bezit VNU*....... 250 25,968
Unilever NV.................. 200 23,300
Wolters Kluwer (ADR)*........ 380 28,117
-------------
$ 127,666
-------------
SINGAPORE -- 1.5%
Singapore Press Holdings*.... 1,000 $ 18,176
-------------
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO (WIBCP)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
================================================================================
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
SPAIN -- 1.7%
Empresa Nacional de Electricidad
(ADR)...................... 500 $ 20,250
-------------
SWEDEN -- 4.9%
Astra AB..................... 1,260 $ 32,144
H & M Hennes & Mauritz AB*... 550 28,211
-------------
$ 60,355
-------------
SWITZERLAND -- 4.8%
Nestles (ADR)................ 700 $ 33,351
Sandoz (ADR)................. 1,000 26,057
-------------
$ 59,408
-------------
UNITED KINGDOM -- 13.8%
Cable & Wireless (ADR)....... 1,030 $ 18,025
Christian Salvesen (ADR)*.... 1,130 24,043
Grand Metropolitan........... 1,000 25,000
Halma*....................... 7,400 24,691
Marks & Spencer (ADR)........ 700 26,152
Tesco (ADR).................. 6,700 26,101
Wolseley*.................... 2,100 25,855
-------------
$ 169,867
-------------
</TABLE>
<TABLE>
Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
TOTAL EQUITY INTERESTS -- 95.2%
(identified cost, $1,242,232) $ 1,169,481
OTHER ASSETS
LESS LIABILITIES-- 4.8% 59,465
-------------
NET ASSETS-- 100.0% $ 1,228,946
=============
</TABLE>
* Non-income-producing security.
ADR - American Depositary Receipt
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO (WIBCP)
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- ---------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments --
Identified cost.................... $1,242,232
Unrealized depreciation............ (72,751)
-----------
Total value (Note 1A)............ $1,169,481
Cash................................. 54,028
Dividends receivable................. 2,449
Deferred organizational costs (Note 1D) 7,031
Receivable from investment adviser... 4,935
Receivable for foreign taxes withheld 95
-----------
Total assets....................... $1,238,019
-----------
LIABILITIES:
Payable for fund shares redeemed..... $ 330
Trustees fee payable................. 312
Custodian fee payable................ 5,998
Accrued expenses..................... 2,433
-----------
Total liabilities.................. $ 9,073
-----------
NET ASSETS.............................. $1,228,946
===========
NET ASSETS CONSIST OF:
Paid-in Capital......................... $1,298,164
Undistributed net investment income..... 3,533
Unrealized depreciation of investments.. (72,751)
-----------
Net assets applicable to outstanding shares $1,228,946
===========
SHARES OF BENEFICIAL INTEREST
OUTSTANDING.......................... 134,527
===========
NET ASSET VALUE, OFFERING PRICE,
AND REDEMPTION PRICE PER SHARE
OF BENEFICIAL INTEREST............... $ 9.14
===========
</TABLE>
<TABLE>
================================================================================
STATEMENT OF OPERATIONS
For the Period from January 6, 1994 (Start of Business)
to December 31, 1994
- ---------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Income --
Dividend............................. $ 14,581
Less: Foreign taxes.................. (489)
-----------
Gross income....................... $ 14,092
-----------
Expenses --
Investment adviser fee (Note 3)...... $ 5,535
Administrator fee (Note 3) 346
Amortization of organization expense
(Note 1D).......................... 1,720
Compensation of trustees not affiliated with
the investment adviser or administrator 1,742
Custodian fee........................ 21,308
Legal................................ 484
Transfer and dividend disbursing agent fees 625
Registration costs................... 467
Miscellaneous........................ 382
-----------
Total expenses................... $ 32,609
-----------
Deduct --
Reduction of investment adviser fee.. $ 5,535
Reduction of administrator fee....... 346
Allocation of expense to the adviser. 13,935
-----------
Total deducted................... $ 19,816
-----------
Net expenses..................... $ 12,793
-----------
Net investment income.......... $ 1,299
-----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Change in unrealized depreciation of investments $ (72,751)
-----------
Net decrease in net assets from operations $ (71,452)
===========
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO
============================================================================================================
For the Period from
January 6, 1994
(start of business) to
STATEMENT OF CHANGES IN NET ASSETS December 31, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income........................................ $ 1,299
Change in unrealized depreciation of investments............. (72,751)
-----------
Decrease in net assets from operations..................... $ (71,452)
Undistributed net investment income included in price of shares
sold and redeemed............................................ 2,907
Distributions to shareholders from net investment income....... (673)
Net increase from fund share transactions (exclusive of amounts
allocated to net investment income) (Note 4)................. 1,298,164
-----------
Net increase in net assets................................. $1,228,946
NET ASSETS:
At beginning of period......................................... --
-----------
At end of period............................................... $1,228,946
===========
UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS......................................... $ 3,533
===========
</TABLE>
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
WRIGHT MANAGED BLUE CHIP SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
=============================================================================
(1) SIGNIFICANT ACCOUNTING POLICIES
The Wright Managed Blue Chip Series Trust (the "Trust") is registered
under
the Investment Company Act of 1940, as amended, as an open-end,
management
investment company. The Trust presently consists of four diversified
separate
portfolios: Wright Near Term Bond Portfolio (WNTBP), Wright Total
Return Bond
Portfolio (WTRBP), Wright Selected Blue Chip Portfolio (WSBCP), and
Wright
International Blue Chip Portfolio (WIBCP) (the "Portfolios"). The shares
of the
Portfolios are sold only to variable accounts established by PFL Life
Insurance
Company and other participating insurance companies. The following is
a summary
of significant accounting policies consistently followed by the Trust
in the
preparation of its financial statements. The policies are in conformity
with
generally accepted accounting principles.
A. Investment Valuations -- Securities, other than fixed-income
investments listed on securities exchanges or in the NASDAQ National
Market are valued at closing sale prices. Unlisted or listed
securities
for which closing sale prices are not available are valued
at the last
reported bid price. Fixed income investments (other than
short-term
obligations) including listed investments, and investments
for which
price quotations are available, will normally be valued on
the basis of
market valuations furnished by a pricing service.
Investments for which
valuations are not readily available will be
appraised at their fair
value as determined in good faith by or at the
direction of the
Trustees. Short-term obligations maturing in sixty
days or less are
valued at amortized cost, which approximates value.
B. Foreign Currency Translation -- Investment security valuations, other
assets, and liabilities initially expressed in foreign currencies are
translated each business day into U.S. dollars based upon current
exchange rates. Purchases and sales of foreign investment securities
and income and expenses are translated into U.S. dollars based upon
currency exchange rates prevailing on the respective dates of such
transactions. The Trust does not isolate that portion of the results
of
operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market
prices
of securities held. Such fluctuations are included with the
net
realized and unrealized gain or loss from investments.
C. Taxes -- The Trust's policy is to comply with the provisions of the
Internal Revenue Code (the Code) available to regulated investment
companies and distribute to shareholders each year all of its taxable
income, including any net realized gain on investments. Accordingly,
no
provision for federal income tax is necessary. Withholding taxes
on
foreign dividends have been provided for in accordance with the
Trust's
understanding of the applicable country's tax rules
- -----------------------------------------------------------------------------
<PAGE>
WRIGHT MANAGED BLUE CHIP SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - continued
==============================================================================
and rates. At December 31, 1994, the Trust, for federal income tax
purposes, had a capital loss carryover of $5,872 for WNTBP, $777 for
WTRBP, and $24,751 for WSBCP, which will reduce taxable income arising
from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the
distribution to shareholders which would otherwise be necessary to
relieve the respective Fund of any liability for federal income or
excise tax. Pursuant to the Code, such capital loss carryovers will
expire December 31, 2002.
D. Deferred Organization Expenses -- Costs incurred by the Portfolios in
connection with their organization are being amortized on a straight
line basis over five years.
E. Equalization -- The Portfolios follow the accounting practice known as
equalization by which a portion of the proceeds from sales and costs
of redemptions of Fund shares, equivalent on a per-share basis to the
amount of undistributed net investment income on the date of the
transaction, is credited or charged to undistributed net investment
income. As a result, undistributed net investment income per share is
unaffected by sales or redemptions of Portfolio shares.
F. Other -- Investment transactions are accounted for on a trade date
basis. Interest income is determined on the basis of interest accrued
and discount earned, adjusted for amortization of premium or accretion
of discount on long-term debt securities when required for federal
income tax purposes. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. However, if the ex-dividend date
has passed, certain dividends from foreign securities are recorded as
the Portfolios are informed of the ex-dividend date.
(2) DISTRIBUTIONS
Dividends from investment income of WSBCP and WIBCP are expected to be
declared annually. Dividends from investment income of WNTBP and WTRBP will be
declared daily and paid monthly. However, the Trustees may decide to declare
dividends at other intervals. All net realized long or short term capital gains
of each Portfolio, if any, will be declared and distributed at least annually.
All distributions will be distributed in the form of additional full and
fractional shares of the Portfolios and not in cash. The Trust requires that
differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
overdistributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
- ---------------------------------------------------------------------------
<PAGE>
WRIGHT MANAGED BLUE CHIP SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - continued
=============================================================================
(3) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has engaged Wright Investors' Service (Wright) to perform
investment management, investment advisory, and other services. For its
services, Wright is compensated based upon a percentage of average monthly net
assets which rate is adjusted as average monthly net assets exceed certain
levels. The Trust also has engaged Eaton Vance Management (Eaton Vance) to act
as administrator of the Trust. Under the Administration Agreement, Eaton Vance
is responsible for managing the business affairs of the Trust and is
compensated
based upon a percentage of average monthly net assets which rate is
reduced as
average monthly net assets exceed certain levels. For the period
from
commencement of operations to December 31, 1994, the effective annual rate
for
advisory and administration charges for each Portfolio was as follows:
<TABLE>
Series Investment Advisory Administration
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
WNTBP 0.45% 0.05%
WTRBP 0.45% 0.05%
WSBCP 0.65% 0.05%
WIBCP 0.80% 0.05%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
To enhance the net income of the portfolios, Wright and Eaton Vance
reduced
their fees and Wright was allocated a portion of each portfolio's
expenses as follows:
<TABLE>
WNTBP WTRBP WSBCP WIBCP
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reduction of Investment Adviser fees $ 1,921 $ 1,861 $ 5,488 $ 5,535
Allocation of expense to the Investment Adviser 16,824 23,275 12,240 13,935
Reduction of Administrator fees 214 207 422 346
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Trust has engaged Investors Bank & Trust Company (IBT), an affiliate
of
Eaton Vance, to serve as custodian and transfer agent of the Trust. Pursuant
to
the agreement, IBT receives a fee reduced by credits which are determined
based
on the average daily cash balances the Trust maintains with IBT. Certain
of the
Trustees and officers of the Trust are directors/trustees and/or
officers of the
above organizations.
- -----------------------------------------------------------------------------
<PAGE>
WRIGHT MANAGED BLUE CHIP SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - continued
==============================================================================
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Portfolio shares were as follows:
<TABLE>
Period from Dec. 7, 1993
Year Ended (start of business) to
December 31, 1994 December 31, 1993
--------------------------------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WRIGHT NEAR TERM BOND PORTFOLIO[1]--
Sales.................................. 97,510 $ 945,206
Issued to shareholders in payment
of distributions declared............ 1,542 14,658
Redemptions............................ (50,644) (484,260)
---------- --------------
Net increase....................... 48,408 $ 475,604
========== ==============
WRIGHT TOTAL RETURN BOND PORTFOLIO --
Sales.................................. 81,960 $ 762,268 16,835 $ 168,000
Issued to shareholders in payment
of distributions declared............ 2,069 18,830 -- --
Redemptions............................ (42,018) (388,623) -- --
---------- -------------- --------- ------------
Net increase....................... 42,011 $ 392,475 16,835 $ 168,000
========== ============== ========= ============
WRIGHT SELECTED BLUE CHIP PORTFOLIO[1]--
Sales.................................. 160,250 $ 1,538,743
Issued to shareholders in payment
of distributions declared............ 1,018 9,263
Redemptions............................ (5,381) (49,899)
---------- --------------
Net increase....................... 155,887 $1,498,107
========== ==============
</TABLE>
- -----------------------------------------------------------------------------
<PAGE>
<TABLE>
WRIGHT MANAGED BLUE CHIP SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - continued
=======================================================================================================================
Year Ended
December 31, 1994
------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO[1] --
Sales.................................. 143,858 $1,388,264
Issued to shareholders in payment
of distributions declared............ 74 671
Redemptions............................ (9,405) (90,772)
-------- -----------
Net increase....................... 134,527 $1,298,164
======== ===========
<FN>
[1] Period from January 6, 1994 (start of business) to December 31, 1994.
</FN>
</TABLE>
(5) INVESTMENT TRANSACTIONS
Purchases and sales and maturities of investments, other than short-term
obligations, for the year ended December 31, 1994, were as follows:
<TABLE>
Year Ended December 31, 1994
--------------------------------------------------------------------------------------
WRIGHT WRIGHT WRIGHT WRIGHT
NEAR TERM TOTAL RETURN SELECTED INTERNATIONAL
BOND PORTOFLIO BOND PORTFOLIO BLUE CHIP PORTFOLIO BLUE CHIP PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases --
Non-U.S. Gov't Obligations.... $ -- $ -- $ 2,061,933 $ 1,242,232
============= ============= ============== ==============
U.S. Gov't Obligations........ $ 598,158 $ 462,894 $ -- $ --
============= ============= ============== ==============
Sales --
Non-U.S. Gov't Obligations.... $ -- $ -- $ 584,488 $ --
============= ============= ============== ==============
U.S. Gov't Obligations........ $ 153,990 $ 80,230 $ -- $ --
============= ============= ============== ==============
</TABLE>
- -----------------------------------------------------------------------------
<PAGE>
WRIGHT MANAGED BLUE CHIP SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - continued
=============================================================================
(6) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES
The cost and unrealized appreciation (depreciation) in value of the
investments owned at December 31, 1994, as computed on a federal income tax
basis, are as follows:
<TABLE>
WRIGHT WRIGHT WRIGHT WRIGHT
NEAR TERM TOTAL RETURN SELECTED INTERNATIONAL
BOND PORTFOLIO BOND PORTFOLIO BLUE CHIP PORTFOLIO BLUE CHIP PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Cost................... $ 438,296 $ 542,689 $ 1,452,694 $ 1,242,232
============= ============= ============= ==============
Gross unrealized appreciation.... $ -- $ -- $ 51,535 $ 90,517
Gross unrealized depreciation.... (18,244) (39,315) (77,439) (163,268)
------------- ------------- ------------- -------------
Net unrealized depreciation... $ (18,244) $ (39,315) $ (25,904) $ (72,751)
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(7) LINE OF CREDIT
The Trust participates with other funds managed by Wright in a line of
credit with a bank which allows the funds to borrow up to $20,000,000
collectively. The line of credit consists of a $5,000,000 committed facility
and
a $15,000,000 uncommitted facility. Interest is charged to each Portfolio
based
on its borrowings, at a rate equal to the bank's base rate. In addition,
the
Portfolios pay a facility fee computed at a rate of 1/4 of 1% on the
unused
portion of the $5,000,000 facility. The Portfolios did not have any
borrowings
under the line of credit during the year ended December 31, 1994.
- -----------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITORS' REPORT
==============================================================================
To the Trustees and Shareholders of
The Wright Managed Blue Chip Series Trust:
We have audited the accompanying statements of assets and liabilities,
including
the portfolios of investments, of The Wright Managed Blue Chip Series
Trust (the
Trust) (comprising, respectively, of the Wright Near Term Bond
Portfolio, Wright
Total Return Bond Portfolio, Wright Selected Blue Chip
Portfolio and Wright
International Blue Chip Portfolio series) as of December
31, 1994 and the
related statements of operations for the period then ended and
changes in net
assets and the financial highlights for the periods ended
December 31, 1994 and
1993. These financial statements and financial highlights
are the responsibility
of the Trust's management. Our responsibility is to
express an opinion on these
financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable basis
for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the above
respective
Portfolios constituting The Wright Managed Blue Chip Series Trust as
of December
31, 1994, the results of its operations, the changes in its net
assets, and its
financial highlights for the respective stated periods in
conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 3, 1995
- -----------------------------------------------------------------------------
<PAGE>
APPENDIX
--------------------
WRIGHT QUALITY RATINGS
Wright Quality Ratings provide a means by which Wright evaluates certain
fundamental criteria for the measurement of the quality of an issuer's
securities.
Each rating is based on 32 individual measures of quality which can be
grouped into four components: (1) Investment Acceptance, (2) Financial Strength,
(3) Profitability and Stability, and (4) Growth. The total rating is three
letters and a numeral. The three letters measure (1) Investment Acceptance, (2)
Financial Strength, and (3) Profitability and Stability. Each letter reflects a
composite measurement of eight individual standards which are summarized as A:
Outstanding, B: Excellent, C: Good, D: Fair, L: Limited, and N: Not Rated. The
numeral rating reflects Growth and is a composite of eight individual standards
ranging from 0 to 20.
EQUITY SECURITIES
INVESTMENT ACCEPTANCE reflects the acceptability of a security by and its
marketability among investors, and the liquidity of the market for such
securities.
FINANCIAL STRENGTH represents the amount, adequacy and liquidity of the
corporation's resources in relation to current and potential requirements. Its
principal components are aggregate equity and total capital, the ratio of
invested equity capital to debt, the adequacy of net working capital, its fixed
charges coverage ratio and other appropriate criteria.
PROFITABILITY AND STABILITY measures the record of a corporation's
management in terms of (1) the rate and consistency of the net return on
shareholders' equity capital investment at corporate book value, and (2) the
profits or losses of the corporation during generally adverse economic periods,
including its ability to withstand adverse financial developments.
GROWTH measures the growth per common share of the corporation's equity
capital, earnings, and dividends, rather than the corporation's overall growth
of revenues and income.
These ratings are determined by specific quantitative formulae. A
distinguishing characteristic of these ratings is that The Wright Investment
Committee must review and accept each rating. The Committee may reduce a
computed rating of any company, but may not increase it.
<PAGE>
DEBT SECURITIES
Wright ratings for commercial paper, corporate bonds and bank certificates
of deposit consist of the two central positions of the four position
alphanumeric corporate equity rating. The two central positions represent those
factors which are particularly relevant to fixed income and reserve investments.
The first letter rating of the Wright four-part alphanumeric corporate
rating is not included in the ratings of fixed income securities since it
primarily reflects the adequacy of the floating supply of the company's common
shares for the investment of substantial funds. The numeric growth rating is not
included because this element is identified only with equity investments.
A-1 AND P-1 COMMERCIAL PAPER RATINGS
BY STANDARD & POOR'S AND MOODY'S
A Standard & Poor's Commercial Paper Rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
`A': Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety. The
`A-1' designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
Issuers (or related supporting institutions) rated P-1 by Moody's have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
<PAGE>
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of such information.
BOND RATINGS
In addition to Wright quality ratings, bonds or bond insurers may be
expected to have credit risk ratings assigned by the two major rating companies,
Moody's and Standard & Poor's. Moody's uses a nine-symbol system with Aaa being
the highest rating and C the lowest. Standard & Poor's uses a 10-symbol system
that ranges from AAA to D. Bonds within the top four categories of Moody's (Aaa,
Aa, A, and Baa) and of Standard & Poor's (AAA, AA, A, and BBB) are considered to
be of investment-grade quality. Only the top three grades are acceptable for the
taxable Income Funds and only the top two grades are acceptable for the tax-free
Income Funds. Note that both Standard & Poor's and Moody's currently give their
highest rating to issuers insured by the American Municipal Bond Assurance
Corporation (AMBAC) or by the Municipal Bond Investors Assurance Corporation
(MBIA).
Bonds rated A by Standard & Poor's have a strong capacity to pay principal
and interest, although they are somewhat more susceptible to the adverse effects
of change in circumstances and economic conditions than debt in higher-rated
categories. The rating of AA is accorded to issues where the capacity to pay
principal and interest is very strong and they differ from AAA issues only in
small degree. The AAA rating indicates an extremely strong capacity to pay
principal and interest.
Bonds rated A by Moody's are judged by Moody's to possess many favorable
investment attributes and are considered as upper medium grade obligations.
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater degree or there may be other elements present which make the long-term
risks appear somewhat larger. Bonds rated Aaa by Moody's are judged to be of the
best quality. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issuers.
