<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1995
REGISTRATION NO. 33-61824
811-7688
SECURITIES AND EXCHANGE COMMISSION
==================================
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 2 x
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 x
PFL WRIGHT VARIABLE ANNUITY ACCOUNT
-----------------------------------
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
--------------------------
(Name of Depositor)
4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499
--------------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code
(319) 398-8511
Name and Address of
Agent for Service: Copy to:
Craig D. Vermie, Esquire Frederick R. Bellamy, Esquire
PFL Life Insurance Company Sutherland, Asbill & Brennan
4333 Edgewood Road, N.E. 1275 Pennsylvania Avenue, N.W.
Cedar Rapids, Iowa 52499 Washington, D.C. 20004-2404
wrtvara
<PAGE>
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant declares that a notice pursuant to Rule 24f-2 for the year ended
December 31, 1994 was filed on February 27, 1995.
______________
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of
Rule 485
X on May 1, 1995 pursuant to paragraph (b) of Rule 485
-----
_____ 60 days after filing pursuant to paragraph (a)(i) of
Rule 485
_____ on _____________ pursuant to paragraph (a)(i) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on ___________ pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
2
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
-------------------------------------------------------------
PART A
------
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C>
1. Cover Page................................. Cover Page
2. Definitions................................ Definitions
3. Synopsis................................... Summary; Historical Performance
Data
4. Condensed Financial Information Financial Statements
5. General
(a) Depositor............................ PFL Life Insurance Company
(b) Registrant........................... The Variable Account
(c) Portfolio Company.................... Wright Managed Blue Chip
Series Trust
(d) Trust Prospectus..................... Wright Managed Blue Chip
Series Trust
(e) Voting Rights........................ Voting Rights
6. Deductions and Expenses
(a) General.............................. Charges and Deductions
(b) Sales Load %......................... N/A
(c) Special Purchase Plan................ N/A
(d) Commissions.......................... Distributor of the Certificates
(e) Expenses - Registrant................ N/A
(f) Trust Expenses....................... Expenses Including Investment
Advisory Fees
(g) Organizational Expenses.............. N/A
7. Certificates
(a) Persons with Rights.................. The Certificate; Election of
Annuity Option; Determination of
Annuity Payments; Annuity
Commencement Date;
Ownership of the Certificate
Voting Rights
(b)(i) Allocation of Premium
Payments.......................... Allocation of Premiums
(ii) Transfers......................... Transfers
(iii) Exchanges......................... N/A
(c) Changes.............................. Addition, Deletion or Substitution
of Investments; Election of
Annuity Option; Annuity
Commencement Date;
Beneficiary; Ownership of the
Certificate
(d) Inquiries............................ Summary
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
9. Death Benefit............................. Death of Annuitant Prior to
Annuity Commencement Date
10.Purchase and Certificate Values
(a) Purchases............................. Certificate Application and
Issuance of Certificates;
Premiums
(b) Valuation............................. Annuity Purchase Value; The
Variable Account Value
(c) Daily Calculation..................... The Variable Account Value
(d) Underwriter........................... Distributor of the Certificates
11.Redemptions
(a) By Owners............................. Withdrawals
By Annuitant........................... N/A
(b) Check Delay........................... Payment not Honored by Bank
(c) Lapse................................. N/A
(d) Free Look............................. Summary
12. Taxes...................................... Certain Federal Income Tax
Consequences
13.Legal Proceedings........................... Legal Proceedings
14.Table of Contents for the
Statement of Additional.................... Statement of Additional
Information................................ Information
</TABLE>
PART B
------
<TABLE>
<CAPTION>
Statement of Additional
Item of Form N-4 Information Caption
- ---------------- -------------------
<S> <C>
15.Cover Page Cover Page
16.Table of Contents Table of Contents
17.General Information
and History............................... (Prospectus) PFL Life Insurance
Company
18.Services
(a) Fees and Expenses
of Registrant......................... N/A
(b) Management Services................... N/A
(c) Custodian............................. Custody of Assets
Independent Auditors.................. Independent Auditors
(d) Assets of Registrant.................. Custody of Assets
(e) Affiliated Person..................... N/A
(f) Principal Underwriter................. Distribution of the Certificates
19.Purchase of Securities
Being Offered............................. Distribution of the Certificates
Offering Sales Load....................... N/A
20.Underwriters................................ Distribution of the Certificates;
(Prospectus) Distributor of the
Certificates
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
21.Calculation of Performance
Data . . . . . . . ............................. Calculation of Yields and Total
Returns; Other Performance Data
22.Annuity Payments.................................. (Prospectus) Election of Annuity
Option; (Prospectus)
Determination of Annuity
Payments
23.Financial Statements.............................. Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
---------------------------
<TABLE>
<CAPTION>
Item of Form N-4 Part C Caption
- ---------------- --------------
<S> <C>
24.Financial Statements
and Exhibits............................. Financial Statements and
Exhibits
(a) Financial Statements................. Financial Statements
(b) Exhibits............................. Exhibits
25.Directors and Officers of Directors and Officers of
the Depositor the Depositor
26.Persons Controlled By or Under.............. Persons Controlled By or
Common Control with the................... Under Common Control with
Depositor or Registrant................... the Depositor or Registrant
27.Number of Policyowners...................... Number of Policyowners
28.Indemnification............................. Indemnification
29.Principal Underwriters...................... Principal Underwriters
30.Location of Accounts
and Records............................... Location of Accounts and
Records
31.Management Services......................... Management Services
32.Undertakings................................ Undertakings
Signature Page............................ Signatures
</TABLE>
5
<PAGE>
Prospectus May 1, 1995
- --------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<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
<PAGE>
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
<PAGE>
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
- --------------------------------------------------------------------------------
Annual Certificate Charge $30 Per Certificate
- --------------------------------------------------------------------------------
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
- --------------------------------
(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%
- ----------------------------------------------------------------------------
Deduct** (4.44%) (6.10%) (2.15%) (2.86%)
- ----------------------------------------------------------------------------
Total Trust
Annual Expenses 0.90% 0.90% 1.15% 1.85%
- --------------------------------------------------------------------------------
</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
- -------
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
- --------------------------------------------------------------------------------
</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
18
<PAGE>
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.
19
<PAGE>
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
20
<PAGE>
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.
21
<PAGE>
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
22
<PAGE>
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.
23
<PAGE>
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.
24
<PAGE>
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.
25
<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.
26
<PAGE>
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
27
<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
28
<PAGE>
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
29
<PAGE>
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.
36
<PAGE>
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.
31
<PAGE>
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
32
<PAGE>
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.
33
<PAGE>
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.
34
<PAGE>
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
<PAGE>
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>
================================================================================
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>
================================================================================
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>
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits: The following exhibits are filed herewith:
(1) (a) Resolution of the Board of Directors of PFL Life
Insurance Company authorizing establishment of
the Variable Account. Note 1.
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between
PFL Life Insurance Company, on its own behalf
and on the behalf of the Variable Account, and
Wright Investors' Services Distributors, Inc.
Note 2.
(b) Form of Broker/Dealer Supervision and Sales
Agreement by and between Wright Investors'
Services Distributors, Inc. and the
Broker/Dealer. Note 2.
(4) (a) Form of Group Contract for the PFL Wright Variable
Annuity. Note 2.
(b) Form of Individual Certificate for PFL Wright
Variable Annuity. Note 2.
(c) Form of Individual Policy for PFL Wright
Variable Annuity. Note 2.
(d) Form of Endorsement for Fixed Account. Note 2.
(5) Form of Application and Enrollment for the PFL
Wright Variable Annuity. Note 2.
(6) (a) Articles of Incorporation of PFL Life Insurance
Company. Note 3.
(b) ByLaws of PFL Life Insurance Company. Note 3.
(7) Not Applicable.
(8) (a) Participation Agreement by and between PFL Life
Insurance Company and Wright Managed Blue Chip
Series Trust. Note 2.
(b) Administrative Services Agreement by and
between PFL Life Insurance Company and Vantage
Computer Systems, Inc. Note 4.
(9) (a) Opinion and Consent of Counsel. Note 2.
(b) Consent of Counsel. Note 2.
1
<PAGE>
(10) Consent of Independent Auditors. Note 5.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Powers of Attorney (L.G. Brown, P.S. Baird, W.L.
Busler, P.E. Falconio, D.C. Kolsrud, R.J. Kontz,
R.J. McGraw). Note 4.
Note 1. Filed with initial Form N-4 Registration Statement for PFL
Wright Variable Annuity Account (File No. 33-61824) on April
29, 1992.
Note 2. Filed with Pre-Effective Amendment No. 1 to Form N-4
Registration Statement for PFL Wright Variable Annuity Account
(File No. 33-61824) on July 26,1993.
Note 3. Filed with Post Effective Amendment No. 2 to the Form N-4
Registration Statement for PFL Endeavor Annuity Account (File
No. 33-33085), on April 1, 1991.
Note 4. Filed with Post Effective Amendment No. 1 to form N-4
Registration Statement for PFL Wright Variable Annuity Account
(File No. 33-61824) on April 29, 1994.
Note 5. Filed herewith.
2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name and Principal Positions and
Business Address Offices with Depositor
================ =======================
<S> <C>
William L. Busler Director, Chairman of
4333 Edgewood Road, N.E. the Board and President
Cedar Rapids, IA 52499
Patrick S. Baird Director, Vice President
4333 Edgewood Road, N.E. and Chief Financial Officer
Cedar Rapids, IA 52499
Larry G. Brown Director, Senior Vice
4333 Edgewood Road, N.E. President, Secretary and
Cedar Rapids, IA 52499 General Counsel
Douglas C. Kolsrud Director, Vice President
4333 Edgewood Road, N.E. and Corporate Actuary
Cedar Rapids, IA 52499
Robert J. Kontz Vice President and
4333 Edgewood Road, N.E. Controller
Cedar Rapids, IA 52499
Patrick E. Falconio Director, Senior Vice
4333 Edgewood Road, N.E . President, and Chief
Cedar Rapids, IA 5249 Investment Officer
Robert J. McGraw Vice President and
4333 Edgewood Road, N.E. Treasurer
Cedar Rapids, IA 52499
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
AEGON USA, Inc. - Holding Company
Life Investors Insurance Company of America - Insurance
International Life Investors Insurance Company - Insurance
Transunion Casualty Company - Insurance
Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts
Supplemental Insurance Division, Inc. - Insurance
Creditor Resources, Inc. - Credit Insurance
AEGON USA Investment Management, Inc. - Investment Advisor
AEGON USA Realty Advisors, Inc. - Provides real estate administrative and
real estate investment services
AEGON USA Realty Management, Inc. - Real Estate Management
3
<PAGE>
AEGON USA Securities, Inc. - Broker-Dealer
AEGON USA Managed Portfolios, Inc. - Mutual Fund
USP Real Estate Investment Trust - Real Estate Investment Trust
Cedar Income Fund, Ltd. - Real Estate Investment Trust
Forty-Six Hundred Limited Partnership - Limited Partnership
First AUSA Life Insurance Company - Insurance
Bankers United Life Assurance Company - Insurance
Universal Benefits Corporation - Third party administrator
Massachusetts Fidelity Trust Company - Trust company
Money Services, Inc. - Provides financial counseling for employees and
agents of affiliated companies
Zahorik Company, Inc. - Broker-Dealer
Partel Holding, Inc. - Telemarketing
Partel Research Corp. - Telemarketing
Telequote Insurance Services, Inc. - Telemarketing
Tele-Quote Corporation - Telemarketing
Tele-Quote, Inc. - Telemarketing
Cadet Holding Corp. - Holding company
ISI Insurance Agency, Inc. - Insurance agency
Southwest Equity Life Insurance Company - Insurance
Iowa Fidelity Life Insurance Company - Insurance
The Whitestone Corporation - Insurance agency
Monumental Life Insurance Company - Insurance
United Financial Services, Inc. - General agency
Equity National Life Insurance Company - Insurance
Monumental General Insurance Group, Inc. - Holding company
Monumental General Administrators, Inc. - Provides management services to
unaffiliated third party administrator
Executive Management and Consultant Services, Inc. - Provides actuarial
consulting services
4
<PAGE>
Monumental General Mass Marketing, Inc. - Marketing arm for sale of mass
marketed insurance coverages
Cross-Country Life Insurance Company - Insurance
Bankers Financial Life Insurance Company - Insurance
Monumental General Casualty Company - Insurance
AUSA Holding Company - Holding company
JLW Financial Management Systems, Inc. - Management and Administrative
Services
ZCI, Inc. - Insurance agency
AUSA Financial Markets, Inc. - Marketing
CRC Creditor Resources Canadian Dealer Network Inc. - Insurance agency
American Forum For Fiscal Fitness, Inc. - Marketing
Western Reserve Life Assurance Co. of Ohio - Insurance
Landauer Realty Advisors, Inc. - Real estate counseling
Landauer Associates, Inc. - Real estate counseling
WRL Series Fund, Inc. - Mutual fund
Intersecurities, Inc. - Broker-dealer
Idex Investor Services, Inc. - Shareholder services
Idex Management, Inc. - Investment advisor
Idex Total Income Trust - Mutual fund
Idex Fund - Mutual fund
Idex II - Mutual fund
Idex Fund 3 - Mutual fund
AUSA Life Insurance Company, Inc. - Insurance
Diversified Investment Advisors, Inc. - Registered investment advisor
Diversified Investors Securities Corp. - Broker-dealer
Associated Mariner Financial Group, Inc. - Holding company management
services
5
<PAGE>
Mariner Financial Services, Inc. - Broker/dealer
Mariner Planning Corporation - financial planning
Associated Mariner Agency, Inc. - Insurance agency
Mariner Mortgage Corp. - Morgage origination
AMCORP, Inc. - Insurance agency
Colorado Annuity Agency, Inc. - Insurance agency
Realty Information Systems, Inc. - Information Systems for real estate
investment management.
ITEM 27. NUMBER OF POLICYOWNERS
As of December 31, 1994, there were 56 Certificate Owners.
ITEM 28. INDEMNIFICATION
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be
made.
6
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Depositor pursuant to the foregoing provisions, or otherwise, the
Depositor has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Depositor of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered), the Depositor will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
Wright Investors' Services Distributors, Inc.
1000 Lafayette Boulevard
Bridgeport, Connecticut 06604
The directors and officers of Wright Investors' Services Distributors,
Inc. are as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ------------------
<S> <C>
A. M. Moody III President
1000 Lafayette Boulevard
Bridgeport, Connecticut 06604
Peter M. Donovan Vice President and Treasurer
1000 Lafayette Boulevard
Bridgeport, Connecticut 06604
Vincent M. Simko Vice President and Secretary
1000 Lafayette Boulevard
Bridgeport, Connecticut 06604
</TABLE>
Wright Investors Service Distributors, Inc. also acts as a principal
underwriter, for the following investment companies:
7
<PAGE>
The Wright Managed Income Trust --
-------------------------------
Wright Government Obligations Fund
Wright Near Term Bond Fund
Wright Total Return Bond Fund
Wright Insured Tax-Free Bond Fund
Wright Current Income Fund
Wright U.S. Treasury Money Market Fund
The Wright Managed Equity Trust--
-------------------------------
Wright Quality Core Equities Fund
Wright Selected Blue Chip Equities Fund
Wright Junior Blue Chip Equities Fund
Wright International Blue Chip Equities Fund
The Wright EquiFund Equity Trust --
--------------------------------
Wright EquiFund -- Australasia*
Wright EquiFund -- Austria*
Wright EquiFund -- Belgian/Luxembourg
Wright EquiFund -- Canada*
Wright EquiFund -- Netherlands
Wright EquiFund -- France*
Wright EquiFund -- Germany*
Wright EquiFund -- Hong Kong
Wright EquiFund -- Ireland*
Wright EquiFund -- Italy
Wright EquiFund -- Japan
Wright EquiFund -- Mexico
Wright EquiFund -- Nordic
Wright EquiFund -- Spain
Wright EquiFund -- Switzerland
Wright EquiFund -- United States*
Wright EquiFund -- Global Fiduciary Equity Fund*
Wright EquiFund -- International Fiduciary Equity Fund*
Wright EquiFund -- Britain
. Funds marked with an * are not open.
Commissions and Other Compensation Received by Principal Underwriter.
Wright Investors' Services Distributors, Inc. receives a monthly Service
Fee*/ from PFL equal to 1/12 of 0.50% of aggregate account value on a monthly
basis. Wright Investors' Services Distributors, Inc. and/or the broker-dealers
received $12,446 from the Registrant during the last fiscal year for its
services in distributing the Certificates. No other commission or compensation
was received by Wright Investors' Services Distributors, Inc., directly or
indirectly, from the Registrant for distributing the Certificates during the
fiscal year.
____________________
*/ The Service Fee compensates Wright Investors' Services Distributors for
maintaining Variable Account records, providing Certificate Owners with
Subaccount information, establishing Certificate accounts, and providing other
similar services.
8
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are
maintained by PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499.
ITEM 31. MANAGEMENT SERVICES
All management policies are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that the
audited financial statements are no more than 16 months old for so long as
premium payments under the Certificate may be accepted.
(b) Registrant undertakes that it will include either (i) a postcard or
similar written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or (ii) a
space in the Certificate application that an applicant can check to request a
Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request to PFL at the address or phone
number listed in the Prospectus.
9
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that this Amendment to Registration Statement
meets the requirements for effectiveness pursuant to paragraph (b) of Rule 485
and has caused this Registration Statement to be signed on its behalf, in the
City of Cedar Rapids, and State of Iowa on this 26th day of April, 1995.
PFL WRIGHT
VARIABLE ANNUITY ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
William L. Busler
----------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
Patrick S. Baird Director April 26, 1995
- ----------------------
Patrick S. Baird
Larry G. Brown Director April 26, 1995
- ----------------------
Larry G. Brown
William L. Busler Director April 26, 1995
- ----------------------
William L. Busler (Principal Executive Officer)
Patrick E. Falconio Director April 26, 1995
- ----------------------
Patrick E. Falconio
Douglas C. Kolsrud Director April 26, 1995
- ----------------------
Douglas C. Kolsrud
Robert J. Kontz Controller April 26, 1995
- ----------------------
Robert J. Kontz
Robert J. McGraw Treasurer April 26, 1995
- ----------------------
Robert J. McGraw
</TABLE>
10
<PAGE>
Registration No. 33-61824
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
EXHIBITS
TO
AMENDMENT NO. 2
TO
N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL WRIGHT VARIABLE ANNUITY ACCOUNT
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.*
------- ---------------------- ----
<S> <C> <C>
(10) Consent of Independent Auditors
</TABLE>
_________________________________________________________
*Page numbers included only in manually executed original.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM N-4 OF
PFL WRIGHT VARIABLE ANNUITY ACCOUNT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 3,795,620
<INVESTMENTS-AT-VALUE> 3,654,287
<RECEIVABLES> 0
<ASSETS-OTHER> 965
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,655,252
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,483
<TOTAL-LIABILITIES> 4,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3,971,556
<SHARES-COMMON-PRIOR> 168,578
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (141,333)
<NET-ASSETS> 3,650,769
<DIVIDEND-INCOME> 43,218
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 23,938
<NET-INVESTMENT-INCOME> 19,280
<REALIZED-GAINS-CURRENT> (44,146)
<APPREC-INCREASE-CURRENT> (140,506)
<NET-CHANGE-FROM-OPS> (165,372)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,884,933
<NUMBER-OF-SHARES-REDEEMED> 81,955
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 99.10
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the captions "Independent
Auditors" and "Financial Statements", to the use of our report dated February 7,
1995 with respect to the financial statements of The PFL Wright Variable Annuity
Account and to the use of our report dated February 17, 1995 with respect to the
statutory-basis financial statements of PFL Life Insurance Company included in
Amendment No. 2 to Registration Statement (Form N-4 No. 33-61824) and related
Prospectus of The PFL Wright Variable Annuity Account for the registration of
individual variable annuity accounts.
Our audits also included the statutory-basis financial statement schedules of
PFL Life Insurance Company included in the Statement of Additional Information.
These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
with respect to which the date is February 17, 1995, the statutory-basis
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
April 19, 1995
