<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1997.
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. 4 x
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 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) 297-8121
Name and Address of
Agent for Service: Copy to:
Frank A. Camp, Esquire Frederick R. Bellamy, Esquire
PFL Life Insurance Company Sutherland, Asbill & Brennan, L.L.P.
4333 Edgewood Road, N.E. 1275 Pennsylvania Avenue, N.W.
Cedar Rapids, Iowa 52499 Washington, D.C. 20004-2404
wrtvara
<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
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<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, 1997
- -------------------------------------------------------------------------------
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 individ-
ual variable annuity contracts offered by PFL Life Insurance Company ("PFL").
The Group Contract is designed primarily for use by bank trust and agency ac-
counts (although it may be issued in other circumstances). A separate Certifi-
cate 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 Partic-
ipant 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 Ac-
count 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 in-
vestment: the Wright Near Term Bond Portfolio; the Wright Total Return Bond
Portfolio; the Wright Selected Blue Chip Portfolio; and the Wright Interna-
tional Blue Chip Portfolio. The Portfolios are described in a separate pro-
spectus that accompanies this Prospectus.
The value of a Certificate will vary in accordance with the investment per-
formance of the Subaccounts of the Variable Account selected by the Certifi-
cate 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 INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.
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 Com-
mission 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.
1
<PAGE>
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DEFINITIONS................................................................ 3
SUMMARY.................................................................... 6
CONDENSED FINANCIAL INFORMATION............................................ 12
FINANCIAL STATEMENTS....................................................... 13
PFL LIFE INSURANCE COMPANY................................................. 13
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT.................................... 13
The Variable Account...................................................... 13
The Portfolios............................................................ 14
Addition, Deletion, or Substitution of Investments........................ 15
THE FIXED ACCOUNT.......................................................... 16
Guaranteed Periods........................................................ 17
Guaranteed Interest Rates................................................. 18
Excess Interest Adjustment................................................ 18
BANK TRUST OR AGENCY ARRANGEMENTS.......................................... 19
THE CERTIFICATES........................................................... 20
Issuance of a Certificate................................................. 20
Certificate Owner......................................................... 21
Premium Payments.......................................................... 21
Annuity Purchase Value.................................................... 22
Transfers................................................................. 22
Dollar Cost Averaging..................................................... 23
Telephone Transactions.................................................... 24
DISTRIBUTIONS UNDER THE CERTIFICATES....................................... 24
Withdrawals............................................................... 24
Systematic Withdrawal Plan................................................ 25
Annuity Payments.......................................................... 26
Annuity Payment Options................................................... 27
Death Benefit............................................................. 30
Restrictions Under the Texas Optional Retirement Program.................. 32
Restrictions Under Section 403(b) Plans................................... 32
Restrictions Under Other Qualified Certificates........................... 32
CHARGES AND DEDUCTIONS..................................................... 32
Mortality and Expense Risk Charge......................................... 33
Administrative Charge..................................................... 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 Certificate............................................. 37
Taxation of Annuities..................................................... 38
DISTRIBUTOR OF THE CERTIFICATES............................................ 43
VOTING RIGHTS.............................................................. 43
LEGAL PROCEEDINGS.......................................................... 44
APPENDIX A - Excess Interest Adjustment Calculations....................... 45
APPENDIX B - Statement of Additional Information - Table of Contents....... 47
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used in calculating the An-
nuity Purchase Value in the Variable Account.
ADMINISTRATIVE AND SERVICE OFFICE - Financial Markets Division, Variable Annu-
ity Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
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 com-
mence.
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 cred-
ited to a Certificate in the Variable Account and the value of the Fixed Ac-
count 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 appli-
cable 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 Commence-
ment 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.
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 is-
sued (that is, the bank or its trust department, as nominee, agent, or trust-
ee), and, in the case of an individual annuity policy, the Policy Owner.
CODE - The Internal Revenue Code of 1986, as amended.
3
<PAGE>
DATE OF ISSUE - The date the Certificate is issued, as shown on the Certifi-
cate 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 sat-
isfactory 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.
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, gener-
ally 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 indi-
vidual 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 in-
terest earned thereon).
GUARANTEED INTEREST RATE - The rate of interest credited by PFL on a com-
pound 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 Cer-
tificates.
PARTICIPANT - The person on whose behalf a Certificate under a Group Con-
tract 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 in-
vests.
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.
4
<PAGE>
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 Ex-
change 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 sepa-
rate 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 Op-
tion which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified Subaccounts within the Variable Ac-
count.
WRITTEN NOTICE OR WRITTEN REQUEST - A written notice from the Certificate
Owner that gives PFL the information it requires and is received at the Admin-
istrative and Service Office.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION GENERALLY DE-
SCRIBE ONLY THE VARIABLE ACCOUNT, EXCEPT WHEN THE FIXED ACCOUNT IS SPECIFI-
CALLY 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 CONNEC-
TION 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 52499-0001
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-quali-
fied basis ("Nonqualified Certificates") or with the proceeds from certain
plans qualifying for favorable federal income tax treatment ("Qualified Cer-
tificates"). Certificates under the Group Contract generally are sold in con-
nection 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 "Cer-
tificate Owner" means the bank trust or agency account, and the term "Partici-
pant" refers to the bank client on whose behalf the bank trust or agency ac-
count 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 Com-
pany ("PFL"), one or more Guaranteed Periods of the Fixed Account, or a combi-
nation of both. The Certificate Owner also may choose to make additional pre-
mium payments, transfers, withdrawals, and other choices under the Certifi-
cate. 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 annu-
ity 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' Service.
The Trust currently has four Portfolios: the Wright Near Term Bond Portfolio;
the Wright Total Return Bond Portfolio; the Wright Selected Blue Chip Portfo-
lio; and the Wright International Blue Chip Portfolio. Each of the four
Subaccounts of the Variable Account invests solely in a corresponding Portfo-
lio of the Trust. Because the Annuity Purchase Value may depend on the invest-
ment 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.
13.)
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,"
6
<PAGE>
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 Peri-
ods 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 "Excess Interest Ad-
justment" p. 18.)
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 Certif-
icate. 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 im-
mediately.
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 Certif-
icate Owner. Any allocation must be in whole percentages, and the total allo-
cation must equal 100%. 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. 21.)
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 any-
time 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. 24.) Withdrawals may be taxable and subject to a 10% penalty
tax and withdrawals from the Fixed Account may be subject to an Excess
7
<PAGE>
Interest Adjustment. Withdrawals with respect to Qualified Certificates may be
restricted or penalized by the terms of the applicable retirement plan or ap-
plicable law.
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, ex-
cept during the 30 days prior to the expiration of the Guaranteed Period, be
subject to an Excess Interest Adjustment (which could be positive or nega-
tive). Transfers currently may be made as frequently as desired either by tel-
ephone (subject to the provisions described below under "Telephone Transac-
tions," p. 24) 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 de-
clared 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. 18.)
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 im-
posed for each transfer in excess of 12 in any year. (See "Administrative
Charge," 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 pay-
ment of the death benefit, or at the Annuity Commencement Date. (See "Premium
Taxes," p. 34.)
8
<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 Lo-
cal 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 are based on the actual expenses of
the Portfolios for the fiscal year ended December 31, 1996. (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>
Wright Wright Wright Wright
Near Term Total Return Selected International
Bond Bond Blue Chip Blue Chip
Transaction Expenses (WNTB) (WTRB) (WSBC) (WIBC)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Load on Purchase
Payments.............. $0 $0 $0 $0
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
Variable Account Annual Expenses
(as a percentage of account value)
Mortality and Expense... 1.00% 1.00% 1.00% 1.00%
Risk Fees
Wright Managed Blue Chip Series Trust Annual Expenses*
(as a percentage of average net assets)
Investment Adviser Fee
(after
reduction)(1)....... 0.00% 0.00% 0.00% 0.00%
Other Expenses (after
expense reduction,
including
administration fee
of .05%)(2)......... 1.48% 1.26% 1.27% 2.31%
---- ---- ---- ----
Total Operating
Expenses (after
reductions)(3)...... 1.48% 1.26% 1.27% 2.31%
- ----------------------------------------------------------------------------------
</TABLE>
(1) After reduction by Investment Adviser. If no reductions were made,
investment advisory fees would have been as follows: WNTB--0.45%; WTRB--
0.45%; WSBC--0.65%; and WIBC--0.80% of each Portfolio's average daily net
assets.
(2) After reductions by Administrator. If no reductions were made,
administration fees would have been 0.05% of each Portfolio's average
daily net assets. The Investment Adviser was allocated a portion of the
expenses of each Portfolio.
9
<PAGE>
If such allocations were not made, Other Expenses net of administration
fees would have amounted to the following percentage of average daily net
assets: WNTB--8.85%; WTRB--4.89%; WSBC--1.27%; and WIBC--3.52%.
(3) If no fee reductions or expense allocations were made, the Total Operating
Expenses would have been the following percentage of average daily net
assets; WNTB--9.35%; WTRB--5.39%; WSBC--1.97%; and WIBC--4.37%. These fee
reductions will continue in effect to the extent necessary to keep the
total operating expenses (without regard to custodian fee credits) of
WNTB, WTRB, WSBC and WIBC from exceeding 0.90%, 0.90%, 1.15% and 1.85%
respectively. In addition, during the year ended December 31, 1996,
custodian fees were reduced by credits resulting from cash balances
maintained with Investment Bank & Trust Company. If these credits were
reflected in the above table, the Total Operating Expenses shown above
would have been: WNTB--0.89%; WTRBP--0.90%; WSBCP--1.06%; and WIBCP--
1.85%.
* 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.
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 Pur-
chase 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............................ $25 $ 78 $133 $284
Total Return Bond......................... $23 $ 71 $122 $262
Selected Blue Chip........................ $23 $ 72 $123 $263
International Blue Chip................... $34 $103 $174 $363
---------------------------------------------------------------------------
</TABLE>
The example factors in the $30 annual Administrative Charge based on an av-
erage Annuity Purchase Value per Certificate of $119,442 as of December 31,
1996 which translates that charge into an assumed charge at an annual rate of
0.0251% 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' Service, 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. The assumed 5% annual return is
purely hypothetical; actual returns will be higher or lower.
DEATH BENEFIT
A Death Benefit is payable if the Annuitant dies before the Annuity Com-
mencement 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 elec-
tion 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. 30.)
10
<PAGE>
FREE LOOK RIGHT
The Certificate Owner may return the Certificate for a refund within the pe-
riod 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 premi-
um(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.
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 dis-
tribution 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). Gener-
ally, 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 (although withholding is
mandatory for certain qualified plans. In addition, a ten percent federal pen-
alty tax may apply to certain distributions or deemed distributions. The pen-
alty 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 be-
lieves that the same tax consequences should apply under bank trust or agency
arrangements where the Participant is a natural person, assuming the arrange-
ment 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,
Financial Markets Division--Variable Annuity Dept., 4333 Edgewood Road N.E.,
Cedar Rapids, IA 52499-0001. 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 Certifi-
cate itself for variations. Any such variations will be included in the Cer-
tificate itself or in riders or endorsements.
NOTE: The foregoing summary is qualified in its entirety by the detailed in-
formation in the remainder of this Prospectus and in the Statement of Addi-
tional Information and in the prospectus for the Trust and in the Certificate,
all of which should be referred to for more detailed information. This Pro-
spectus generally describes only the Certificate and the Variable Account. A
separate prospectus describes the Trust.
11
<PAGE>
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>
1996 $1.046259 $1.064323 612,818.637
1995 $0.952933 $1.046259 312,204.941
1994(/1/) $0.996743 $0.952933 474,237.369
1993(/3/) N/A
- -------------------------------------------------------------
WRIGHT TOTAL RETURN BOND SUBACCOUNT
<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>
1996 $1.055619 $1.055881 747,745.354
1995 $0.912223 $1.055619 509,157.449
1994 $0.991759 $0.912223 569,877.796
1993(/2/) $1.000000 $0.991759 168,578.241
- -------------------------------------------------------------
WRIGHT SELECTED BLUE CHIP SUBACCOUNT
<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>
1996 $1.157532 $1.407283 1,894,095.151
1995 $0.925964 $1.157532 1,934,519.692
1994(/1/) $0.996743 $0.925964 1,567,081.382
1993(/3/) N/A
- -------------------------------------------------------------
WRIGHT INTERNATIONAL BLUE CHIP SUBACCOUNT
<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>
1996 $0.988643 $1.149046 1,268,170.893
1995 $0.902655 $0.988643 1,380,932.622
1994(/1/) $0.996743 $0.902655 1,360,360.040
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.
12
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Variable Account and PFL and the independent
auditors' reports thereon are contained in the Statement of Additional Infor-
mation which is available free upon request.
PFL LIFE INSURANCE COMPANY
PFL Life Insurance Company ("PFL"), 4333 Edgewood Road N.E., Cedar Rapids,
Iowa 52499-0001, 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 in-
surance and annuity policies, and is licensed in the District of Columbia,
Guam, and in all states except New York. As of December 31, 1996, PFL had as-
sets of approximately $7.9 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-in-
surance 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, con-
ducts its business through subsidiary companies engaged primarily in the in-
surance 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 or safety 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 adver-
tisements, 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 rat-
ings 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 re-
ceives and invests the premiums under the
13
<PAGE>
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 charge-
able 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). Income, gains, and losses incurred
on the assets in the Subaccounts of the Variable Account, whether or not real-
ized, 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 in-
dependent 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 Commis-
sion ("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 manage-
ment investment company. The registration of the Trust does not involve super-
vision of the management or investment practices or policies of the Trust by
the SEC. 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 invest-
ment performance of any other Portfolio.
Wright Investors' Service (the "Adviser"), an investment adviser registered
with the SEC under the Investment Advisers Act of 1940, is the Trust's invest-
ment 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 con-
sistent with reasonable safety, by investing primarily in debt securities di-
rectly issued or guaranteed by the
14
<PAGE>
U.S. Government. The Portfolio expects to maintain an average weighted portfo-
lio 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 instrumentali-
ties 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 primar-
ily in equity securities of well-established U.S. companies that meet the Ad-
viser's quality standards.
WRIGHT INTERNATIONAL BLUE CHIP PORTFOLIO seeks long-term capital apprecia-
tion by investing primarily in equity securities of well-established, non-U.S.
companies that meet the Adviser's quality standards.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVE.
MORE DETAILED INFORMATION, INCLUDING A DESCRIPTION OF EACH PORTFOLIO'S INVEST-
MENT 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 PRO-
SPECTUS. INFORMATION CONTAINED IN THE TRUST'S PROSPECTUS SHOULD BE READ CARE-
FULLY 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 insti-
tution, and the investment is not federally insured by the Federal Deposit In-
surance Corporation or any other agency, and involves investment risk, includ-
ing 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 Portfo-
lio of the Trust, or of another registered open-end management investment com-
pany 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 Ac-
count. To the extent required by the 1940 Act, substitutions of shares attrib-
utable 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 purchas-
ing 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.
15
<PAGE>
New Subaccounts may be established when, in the sole discretion of PFL, mar-
keting, tax, investment or other conditions warrant. Any new Subaccounts may
be made available with respect to existing Certificates on a basis to be de-
termined by PFL. Each additional Subaccount will purchase shares in a Portfo-
lio 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 re-
quest 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 in-
vests 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 en-
dorsement make such changes in the Certificates as may be necessary or appro-
priate 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 in-
vestment 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 ap-
plicable 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 Peri-
ods available under the 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
16
<PAGE>
not participate in the investment performance of the assets of the Fixed Ac-
count or PFL's general account. Instead, a specified rate of interest, the
Guaranteed Interest Rate, declared in advance, is credited to amounts allo-
cated 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 dura-
tion of the Guaranteed Period, PFL guarantees that it will credit interest to
that amount at the guaranteed rate specified for the Guaranteed Period. Howev-
er, in the event any amount from the Guaranteed Period is withdrawn or trans-
ferred prior to the expiration of the Guaranteed Period for any reason, PFL
will subject that amount to an Excess Interest Adjustment which could be posi-
tive or negative. (See "Excess Interest Adjustment," p. 18.) 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 Peri-
od. 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 equiva-
lent to the compound annual rate. As a result of the timing of premium pay-
ments and renewals and transfers of portions of the Annuity Purchase Value,
which will begin new Guaranteed Periods, amounts allocated to Guaranteed Peri-
ods of the same duration may have different Expiration Dates. Thus each Guar-
anteed Period Amount will be treated separately for purposes of determining
any applicable Excess Interest Adjustment (see "Excess Interest Adjustment,"
p. 18.)
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 automati-
cally on the Expiration Date of the previous Guaranteed Period unless PFL re-
ceives, within the 30 day period prior to the Expiration Date of
17
<PAGE>
such Guaranteed Period, a written election by the Certificate Owner to trans-
fer the Guaranteed Period Amount to a different Fixed Account Guaranteed Pe-
riod 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 dura-
tion of the Guaranteed Period. However, any amount withdrawn or transferred
will be subject to an Excess Interest Adjustment, except during the 30 day pe-
riod prior to the Expiration Date. (See "Excess Interest Adjustment," p. 18.)
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 de-
clare as a Guaranteed Interest Rate, as this rate will be reflective of inter-
est 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 administra-
tive expenses borne by the Company; general economic trends; and competitive
factors. There is no obligation to declare a rate in excess of 3%; the Partic-
ipant 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 GUARAN-
TEED INTEREST RATES. PFL CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE GUAR-
ANTEED INTEREST RATES, EXCEPT THAT PFL GUARANTEES THAT FUTURE GUARANTEED IN-
TEREST RATES WILL NOT BE BELOW 3% PER YEAR COMPOUNDED ANNUALLY.
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 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
18
<PAGE>
reductions in the amount withdrawn due to the application of the Excess Inter-
est Adjustment 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 Pe-
riod 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.
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 Pe-
riod 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 neg-
ative 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.
BANK TRUST OR AGENCY ARRANGEMENTS
The Certificates are designed to be issued to trust or agency accounts main-
tained 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
19
<PAGE>
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." Indi-
vidual 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 Non-
qualified 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 ar-
rangement, 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 Certifi-
cate are summarized below; however, the description of the Certificate con-
tained in this Prospectus is qualified in its entirety by the Certificate it-
self, including any endorsements thereto, a copy of which is available upon
request from PFL. The Certificates may be purchased on a non-tax-qualified ba-
sis ("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.
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 Nonquali-
fied 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 latter 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.,
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<PAGE>
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 pre-
mium payment and crediting it as soon as the necessary requirements are ful-
filled.
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 is-
sued 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 premium payment checks or drafts should be made payable to PFL Life In-
surance Company and 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 cur-
rently 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 Certifi-
cates 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 mil-
lion.
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 Non-
qualified Certificates is $500 ($50 for tax deferred Section 403(b) Annui-
ties). 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 Guar-
anteed Period is $500. If no allocation is specified, then the premium pay-
ment(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 send-
ing Written Notice to PFL's Administrative and Service Office, or by telephone
(subject to the provisions described below under "Telephone Transactions," p.
24.) The allocation change will apply to payments received after the date the
Written Notice or telephone request is received.
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<PAGE>
PAYMENT NOT HONORED BY BANK. Any payment under the Certificate that is de-
rived, 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 hon-
ored.
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 Ac-
count may result in an Excess Interest Adjustment which could increase or de-
crease 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 busi-
ness. 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 dis-
tinct 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 canceled 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. There-
fore, 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 with-
drawn from a Guaranteed Period, the applicable Guaranteed Period Amount is re-
duced accordingly. Unlike the Variable Account, there are no Accumulation
Units in the Fixed Account.
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<PAGE>
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 af-
ter 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 un-
der "Telephone Transactions," p. 24.
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. 18.)
Transfers among the Subaccounts of the Variable Account may also be made af-
ter the Annuity Commencement Date. (See "Annuity Payment Options -- Trans-
fers," p. 27.)
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 Annu-
ity 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 Certif-
icate 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 ter-
minate when the amount in the Near Term Bond Subaccount is insufficient for
the next transfer. There is no charge for this program.
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<PAGE>
TELEPHONE TRANSACTIONS
Certificate Owners (or their designated account executive) can make trans-
fers 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 be-
lieves to be genuine. However, PFL and/or the Administrative and Service Of-
fice will employ reasonable procedures to confirm that instructions communi-
cated 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 re-
corder equipment for the protection of the Certificate Owner. A Certificate
Owner, when making telephone requests, may be required to provide the Partici-
pant'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 trans-
action 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 An-
nuity Commencement Date by sending a Written Request to PFL's Administrative
and Service Office. The Cash Value is the Annuity Purchase Value less any ap-
plicable premium taxes and plus or minus any Excess Interest Adjustment. (See
"Excess Interest Adjustment," p. 18.) The Annuity Purchase Value is equal to
premiums paid, minus any partial withdrawals, plus or minus any applicable Ex-
cess Interest Adjustments on prior withdrawals or transfers, plus or minus ac-
cumulated 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 Fixed Account made within 30 days prior to the Expiration
Date of the applicable Guaranteed Period. Any Excess Interest Adjustment im-
posed on a withdrawal will affect only the amount withdrawn from the Fixed Ac-
count.
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. 26.)
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.
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<PAGE>
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. 18.)
PFL will process all withdrawal requests within seven (7) calendar days fol-
lowing 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 sub-
ject 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 in-
terest accumulated at 3% annually less any premium taxes. Following a with-
drawal 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 Non-
qualified 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 Ex-
cess Interest Adjustment.
Systematic Withdrawals will not be available for 403(b) annuities under age
59 1/2.
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Qualified Policies are subject to complex rules with respect to restrictions
on and taxation of distributions, including the applicability of penalty tax-
es. 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 ap-
ply to Qualified Certificates.
When using Systematic Withdrawals, no additional premium payments will be
allowed.
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 An-
nuity Payments begin. The dollar amount and frequency of the payments will de-
pend 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 Com-
mencement 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 re-
ceived 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 (i) under Option 3, life income with level payments for 10 years cer-
tain, using the existing Annuity Purchase Value of the Fixed Account, or (ii)
under Option 3-V, life income with variable payments for 10 years certain, us-
ing the existing Annuity Purchase Value of the Variable Account, or (iii) in a
combination of (i) and (ii). If the Annuity Purchase Value, net of any appli-
cable 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
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the extent allowed by law and subject to the terms of any settlement agree-
ment. (See "Death Benefit," p. 30.)
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 An-
nuitant, 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 Cer-
tificate setting forth the terms of the option elected. The Supplementary Cer-
tificate 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 Pay-
ment Options. The Certificate Owner may elect a Fixed Payment Option, a Vari-
able Payment Option, or a combination of both. If the Participant or Policy
Owner elects a combination, he must specify the portions of the Annuity Pur-
chase 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 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 Com-
mencement 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
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<PAGE>
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 Certifi-
cate 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 ta-
bles are based on the "1983 Table a" mortality table with projection of im-
proved mortality with a 5% effective annual assumed interest rate and assume a
retirement date in the year 2000. The dollar amount of every subsequent Vari-
able Annuity Payment will vary based on the investment performance of the
Subaccounts of the Variable Account
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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 perfor-
mance exceeds the 5% assumed interest rate, the amount of the payments would
increase. Conversely, if actual investment performance is less than the 5% as-
sumed interest rate, the amount of the payments would decrease.
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first vari-
able payment depends upon the sex (if consideration of sex is allowed) and ad-
justed 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 near-
est 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>
This adjustment assumes an increase in life expectancy, and therefore re-
sults in lower payments than without such an adjustment.
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 speci-
fied 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
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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 particu-
lar Subaccount credited to the Certificate by the Annuity Unit Value for the
particular Subaccount on the date the payment is made.
TRANSFERS. 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 or-
dinary 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 govern-
ment. (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 payments to
such intervals as will result in payments of at least $30. If the Annuity Pur-
chase 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 Cer-
tificate 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 surviv-
ing 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
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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 Ben-
eficiary may receive the amount payable in a lump sum cash benefit, or, sub-
ject 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 Certifi-
cate 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 Benefi-
ciary 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 Certifi-
cate 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 re-
ceived 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 in-
terests have not been specified, they will share equally.
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DEATH OF NATURAL PERSON CERTIFICATE OWNER. If the Certificate Owner is a
natural person and is not the Annuitant and that Certificate Owner dies before
the Annuity Commencement Date, the successor owner (or the Certificate Owner's
estate, if there is no successor owner) will become the new Certificate Owner.
If ownership of the Certificate is transferred (except to the Certificate Own-
er's spouse) because the Certificate Owner dies before the Annuitant, the Cash
Value generally must be distributed within five years of the Certificate Own-
er'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 vari-
able annuity policy issued under the ORP only upon: (1) termination of employ-
ment in the Texas public instructions of higher education; (2) retirement; or
(3) death. Accordingly, a Participant or Policy Owner in the ORP (or the Par-
ticipant'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 em-
ployer or a certificate of death before a Certificate can be redeemed.
RESTRICTIONS UNDER SECTION 403(B) PLAN
Section 403(b) of the Internal Revenue Code provides for tax deferred re-
tirement savings plans for employees of certain non-profit and educational or-
ganizations. In accordance with the requirements of Section 403(b), any Cer-
tificate used for a 403(b) plan will prohibit distributions of elective con-
tributions and earnings on elective contributions except upon death of the em-
ployee, attainment of age 59 1/2, separation from service, disability, or fi-
nancial hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.
RESTRICTIONS UNDER OTHER QUALIFIED CERTIFICATES
Other restrictions on surrenders or with respect to the election, commence-
ment or distribution of benefits may apply under Qualified Certificates or un-
der the terms of the plans in respect of which the Certificates are issued.
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 cer-
tain 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 transac-
tions. Charges and expenses are also deducted from the Portfolios.
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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 Ac-
count. 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 af-
fect the monthly Annuity Payments that the Annuitant will receive under the
Certificate.
PFL also bears substantial risk in connection with its Death Benefit guaran-
tee 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 ac-
tual 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, de-
rived from the Mortality and Expense Risk Charge.
ADMINISTRATIVE CHARGE
In order to cover the costs of administering the Certificates and the Vari-
able 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.
The Administrative Charge will be deducted from each Subaccount in the Vari-
able 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.
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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 Certifi-
cates. 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) pay-
ment of the Death Benefit.
FEDERAL, STATE AND LOCAL TAXES
No charges are currently made for federal, state or local taxes or the eco-
nomic 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 at-
tributable 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 re-
serves the right to impose a $25 charge for the thirteenth and each subsequent
transfer request during a single Certificate Year. For the purpose of deter-
mining whether a transfer charge is payable, initial premium payment alloca-
tions 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 re-
flect deductions in connection with the investment advisory fee and other ex-
penses.
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.
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 ac-
cording to standardized methods prescribed by the SEC. They will be based on
historical earnings and are not intended to indicate future performance.
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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 as-
suming that the income generated by the investment during that thirty-day pe-
riod 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 Certifi-
cate. To the extent that a premium tax is applicable to a particular Certifi-
cate, 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 the PFL Ad-
ministrative and Service Office.
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 as-
sumptions.
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 Addi-
tional Information, a copy of which may be obtained from the PFL Administra-
tive and Service Office.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general dis-
cussion of certain of the expected federal income tax consequences of invest-
ment 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 conse-
quences to "United States Persons," and does not discuss state, local, or for-
eign 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.
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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 in-
come taxes on the value of a Certificate, on income Payments, and on the eco-
nomic benefit of the Certificate 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 em-
ployment status of the individual concerned; and (3) PFL's tax status.
In addition, certain requirements must be satisfied if a Qualified Certifi-
cate 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 Certifi-
cates 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 CON-
SEQUENCES 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 regula-
tions. 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 an-
nuity 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. The IRS
has stated in published rulings that a variable contractowner will be consid-
ered the owner of separate account assets if the contractowner possesses inci-
dents of ownership in those assets, such as the ability to exercise investment
control over the assets. The Treasury Department has also announced, in con-
nection with the issuance of regulations concerning investment diversifica-
tion, that those regulations "do not provide guidance concerning the circum-
stances in which investor control of the investments of a segregated asset ac-
count may cause the investor, rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement
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<PAGE>
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 Ac-
count. 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 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 con-
tract 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 tax-
able 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 Certif-
icate 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 Certifi-
cate 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) in which the grantor is a
natural person, 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 Certifi-
cates 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 re-
quirement. 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
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treated as an annuity contract for federal income tax purposes, the Code re-
quires that Certificates provide that if the death occurs on or after the An-
nuity Commencement Date and before the entire interest in the Certificate has
been distributed, the remaining portion must be distributed at least as rap-
idly 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 oc-
curs before the Annuity Commencement Date, the Certificate may be continued
with the surviving spouse as the new owner. The Certificate contains provi-
sions 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 sat-
isfy 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 diversifica-
tion and distribution requirements described above should not be taxed on in-
creases 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 Cer-
tificate Owner's right to receive Annuity Payments prior to the Annuity Com-
mencement 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
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 des-
ignation 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 Certifi-
cate at such time.
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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 compe-
tent tax adviser with respect to the potential tax effects of such a transac-
tion.
WITHDRAWALS. In the case of a partial Withdrawal under a Qualified Certifi-
cate, 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 Certifi-
cate" 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 (including
Systematic 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 imme-
diately 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 Adjust-
ment. 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 addi-
tional 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 deter-
mined 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 "Invest-
ment in the Certificate" bears to the total expected value of the Annuity Pay-
ments 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 recov-
ery 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 (including Systematic Withdraw-
als) 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 distri-
bution (or deemed distribution) that is includable in gross income. The pen-
alty tax on Nonqualified Certificates generally will not apply to any distri-
bution: (i) made on
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or after the date on which the taxpayer attains age 59 1/2; (ii) made as a re-
sult 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 tax penalties may apply to Qualified Certificates.
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. For these purposes, the
"Investment in the Certificate" is not affected by the Certificate Owner's or
Annuitant's death. That is, the "Investment in the Certificate" remains the
amount of any purchase payments paid which were not excluded from gross in-
come.
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 dis-
tributions are requested or made. Certain distributions from Qualified Certif-
icates 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 "aggre-
gated" for purposes of determining the amount includable in gross income. It
is unclear whether all Certificates issued through the same bank trust depart-
ment, 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; dis-
tributions 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. Cer-
tificate 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
40
<PAGE>
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 Quali-
fied Certificates comply with applicable law. Purchasers of Certificates for
use with any retirement plan should consult their legal counsel and tax ad-
viser regarding the suitability of the Certificate.
In particular, a competent tax adviser should be consulted before a Certifi-
cate held through a bank trust or agency arrangement is purchased in connec-
tion 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 ar-
rangements) for these plans.
CODE SECTION 403(B) PLANS. Under Code section 403(b), payments made by pub-
lic school systems and certain tax exempt organizations to purchase annuity
contracts for their employees are excludable from the gross income of the em-
ployee, 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 individu-
als 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.
INDIVIDUAL RETIREMENT ANNUITIES. In order to qualify as an individual re-
tirement 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 Own-
er, 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 Cer-
tificate as collateral security; (iii) the total premium payments for any cal-
endar 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.
41
<PAGE>
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 re-
tirement 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) per-
mits 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 compe-
tent 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 govern-
ments, local governments, political sub-divisions, agencies, instrumentalities
and certain affiliates of such entities and tax exempt organizations which en-
joy 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 em-
ployer. Depending on the terms of the particular plan, the employer may be en-
titled 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 leg-
islation 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.). More-
over, it is also possible that any change could be retroactive (that is, ef-
fective prior to the date of the change).
DISTRIBUTOR OF THE CERTIFICATES
Wright Investors' Service Distributors, Inc., an affiliate of the Adviser,
is the principal underwriter of the Certificates. PFL pays Wright Investor's
Service Distributors, Inc. a service fee of .50% of the Annuity Purchase Value
per year. Wright Investors' Service Distributors, Inc. may enter into one or
more contracts with various broker-dealers for the distribution of the Certif-
icates.
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
42
<PAGE>
regulation thereunder should be amended or if the 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 Port-
folio'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 Cer-
tificate Owner's Annuity Purchase Value in the Subaccount by the net asset
value per share of the corresponding Portfolio in which the Subaccount in-
vests. 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 allo-
cated 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 estab-
lished by the Trust for determining shareholders eligible to vote at the meet-
ing of the Trust. PFL will solicit voting instructions by sending, to the Cer-
tificate Owner, or to other persons entitled to vote written requests for in-
structions 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 enti-
tled to vote have no beneficial interest will be voted in proportion to the
voting instructions that are received with respect to all Certificates partic-
ipating in the same Subaccount.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or
to which the assets of the Account are subject. PFL is not involved in any
litigation that is of material importance in relation to its total assets or
that relates to the Variable Account.
43
<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 Peri-
od, less any withdrawals and transfers from that Guaranteed Period, plus in-
terest 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) Annu-
ity 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 cur-
rent 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 cur-
rent 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
44
<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 52499-0001
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, 1997
by calling 1-800-525-6205, or by writing to the Administrative and Service Of-
fice, Financial Markets Division - Variable Annuity Dept., 4333 Edgewood Road
N.E., Cedar Rapids, IA 52499-0001. Defined terms used in the current Prospec-
tus for the Certificate are incorporated in this Statement of Additional In-
formation.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR THE CERTIFICATES AND PORT-
FOLIOS.
Dated: May 1, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Certificate -- General
Provisions (p. 2)......... 2
Participants and Policy
Owners................... 2
Entire Contract........... 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......... 3
Amendments................ 4
Section 403(b)
Representations.......... 4
Statement Pursuant to Rule
6e-7:
Texas Optional Retirement
Program.................. 4
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Taxation of PFL (p. 4).... 4
Investment Experience (p.
4)....................... 4
State Regulation of PFL... 7
Administration............ 7
Records and Reports....... 7
Distribution of the
Certificates (p. 7)...... 7
Custody of Assets ........ 8
Historical Performance
Data (p. 8).............. 8
Subaccount Yields........ 8
Total Returns............ 9
Other Performance Data... 9
Legal Matters............. 10
Independent Auditors...... 10
Other Information......... 10
Financial Statements (p.
10)...................... 10
</TABLE>
(Numbers in parenthesis indicate corresponding sections of the Prospectus).
In order to supplement the description in the Prospectus, the following pro-
vides additional information about PFL and the Certificate which may be of in-
terest.
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 Partici-
pant, 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, ac-
ceptance thereof by PFL, and delivery of the initial premium payment to PFL.
While the Annuitant is living, the Certificate Owner may: (1) assign the Cer-
tificate; (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 bene-
fit 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 with-
drawal, the Death Benefit or the death of the Participant or Policy Owner gen-
erally will occur within seven business days from the date the Written Notice
(and any other required documentation or information) is received by PFL, ex-
cept 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 pro-
ceeds 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 pur-
chased 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 Ben-
eficiary. The dollar amount of any overpayment made by PFL due to any mis-
statement 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.
2
<PAGE>
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 Vari-
able 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 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 Administra-
tive 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 dur-
ing 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 Pur-
chase 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 Benefi-
ciary, are subject to the rights of the assignee. PFL assumes no responsibil-
ity for the validity or effect of any assignment. Any claim made under an as-
signment shall be subject to proof of interest and the extent of the assign-
ment. 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.
3
<PAGE>
AMENDMENTS
No change in the Certificate is valid unless made in writing by PFL and ap-
proved 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.
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 in-
come 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 at-
tributable 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 Accumu-
lation Units and Annuity Units, and to determine annuity payment rates.
4
<PAGE>
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 Cer-
tificate application is completed, whichever is later. The value of an Accumu-
lation 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 Admin-
istrative 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 Val-
ue.
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;
(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
5
<PAGE>
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 deter-
mined 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 credit or charge 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 Commence-
ment Date. The Certificate also contains a table for determining the adjusted
age of the Annuitant.
6
<PAGE>
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to reg-
ulation 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 examina-
tion to determine PFL's contract liabilities and reserves so that the 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 Insur-
ance Commissioners. In addition, PFL is subject to regulation under the insur-
ance 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 regu-
lations 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 re-
ports required by law or regulation.
DISTRIBUTION OF THE CERTIFICATES
The Certificates are offered through brokers licensed under the federal se-
curities laws and state insurance laws. The offering of the Certificates is
continuous and PFL does not anticipate discontinuing the offering of the Cer-
tificates. 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. The amount paid to
Wright Investors' Services Distributors, Inc. for this service was $7,818,
$19,055 and $23,626 for 1994, 1995 and 1996 respectively.
7
<PAGE>
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 segre-
gated 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 fidel-
ity bond, presently in the amount of $5,000,000, covering the acts of officers
and employees of PFL.
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 gen-
erated 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 ex-
penses 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) multiply-
ing 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 ef-
fect 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.
8
<PAGE>
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 opera-
tion 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 re-
demption 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 cal-
culates on each Business Day based on the performance of the Subaccount's un-
derlying 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.
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 conjunc-
tion 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.
9
<PAGE>
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 L.L.P., of Washington, D.C.
INDEPENDENT AUDITORS
The Financial Statements of PFL at December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996, and the Financial
Statements of PFL Wright Variable Annuity Account at December 31, 1996 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, 801 Grand Avenue, Suite 3400, Des Moines, Iowa, 50309-2764.
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 ex-
hibits thereto has been included in the Prospectus or this Statement of Addi-
tional 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.
10
<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, 1996, and the related statement of opera-
tions for the year then ended and the statements of changes in contract own-
ers' equity for each of the two years in the period then ended. These finan-
cial 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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. Our proce-
dures included confirmation of mutual fund shares owned as of December 31,
1996 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
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, 1996 and the results of their operations for the year then ended and the
changes in their contract owners' equity for each of the two years in the pe-
riod then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
January 31, 1997
11
<PAGE>
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
WRIGHT
NEAR TERM
BOND
TOTAL SUBACCOUNT
---------- ----------
<S> <C> <C>
ASSETS:
Cash.................................................... $ 30 30
Investments in mutual funds, at current market value
(Note 2):
Wright Managed Blue Chip Series Trust
Wright Near Term Bond Portfolio....................... 652,207 652,207
Wright Total Return Bond Portfolio.................... 789,905 --
Wright Selected Blue Chip Portfolio................... 2,668,203 --
Wright International Blue Chip Portfolio.............. 1,457,340 --
---------- -------
Total investments in mutual funds...................... 5,567,655 652,207
---------- -------
Total Assets............................................ $5,567,685 652,237
========== =======
LIABILITIES AND CONTRACT OWNERS' EQUITY
LIABILITIES:
Contract terminations payable......................... $ 3,203 --
---------- -------
Total Liabilities..................................... 3,203 --
CONTRACT OWNERS' EQUITY:
Deferred annuity contracts terminable by owners
(Notes 3 and 6)..................................... 5,564,482 652,237
---------- -------
$5,567,685 652,237
========== =======
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE>
<TABLE>
<CAPTION>
WRIGHT WRIGHT WRIGHT
TOTAL SELECTED INTERNATIONAL
RETURN BOND BLUE CHIP BLUE CHIP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------- ---------- -------------
<S> <C> <C>
-- -- --
-- -- --
789,905 --
-- 2,668,203 --
-- -- 1,457,340
------- --------- ---------
789,905 2,668,203 1,457,340
------- --------- ---------
789,905 2,668,203 1,457,340
======= ========= =========
375 2,675 153
------- --------- ---------
375 2,675 153
789,530 2,665,528 1,457,187
------- --------- ---------
789,905 2,668,203 1,457,340
======= ========= =========
</TABLE>
13
<PAGE>
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
WRIGHT
NEAR TERM
BOND
TOTAL SUBACCOUNT
---------- ----------
<S> <C> <C>
NET INVESTMENT INCOME (LOSS)
Income:
Dividends.............................................. $ 50,184 17,742
Expenses (Note 5):
Administration fee..................................... 1,470 128
Mortality and expense risk charge...................... 48,546 3,973
---------- -------
Net Investment income (loss)......................... 168 13,641
---------- -------
NET REALIZED AND UNREALIZED CAPITAL GAIN (LOSS) FROM
INVESTMENTS
Net realized capital gain from sales of investments:
Proceeds from sales.................................... 2,032,083 257,547
Cost of investments sold............................... 1,717,286 255,550
---------- -------
Net realized capital gain from sales of investments...... 314,797 1,997
Net change in unrealized appreciation/depreciation of
investments:
Beginning of the period................................ 343,168 7,443
End of the period...................................... 760,507 (2,476)
---------- -------
Net change in unrealized appreciation/depreciation of
investments........................................ 417,339 (9,919)
---------- -------
Net realized and unrealized capital gain (loss) from
investments........................................ 732,136 (7,922)
---------- -------
INCREASE FROM OPERATIONS................................. $ 732,304 5,719
========== =======
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
WRIGHT WRIGHT WRIGHT
TOTAL SELECTED INTERNATIONAL
RETURN BOND BLUE CHIP BLUE CHIP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------- ---------- -------------
<S> <C> <C>
30,373 2,069 --
240 741 361
6,553 25,384 12,636
-------- ------- -------
23,580 (24,056) (12,997)
-------- ------- -------
272,022 890,962 611,552
264,605 643,034 554,097
-------- ------- -------
7,417 247,928 57,455
27,893 260,715 47,117
3,238 560,002 199,743
-------- ------- -------
(24,655) 299,287 152,626
-------- ------- -------
(17,238) 547,215 210,081
-------- ------- -------
6,342 523,159 197,084
======== ======= =======
</TABLE>
15
<PAGE>
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
WRIGHT
NEAR TERM
BOND
TOTAL SUBACCOUNT
--------------------- -----------------
1996 1995 1996 1995
---------- --------- ------- --------
<S> <C> <C> <C> <C>
Operations
Net investment income (loss)....... $ 168 75,566 13,641 12,335
Net realized capital gain.......... 314,797 36,780 1,997 1,244
Net change in unrealized
appreciation/ depreciation of
investments...................... 417,339 484,501 (9,919) 18,943
---------- --------- ------- --------
Increase from operations........... 732,304 596,847 5,719 32,522
---------- --------- ------- --------
Contract Transactions
Net contract purchase payments..... 431,901 1,071,758 27,285 77,059
Transfer payments from (to) other
subaccounts or general account... 167,183 (114,120) 292,586 (135,719)
Contract terminations, withdrawals,
and other deductions............. (235,547) (736,613) -- (99,131)
---------- --------- ------- --------
Increase (decrease) from contract
transactions..................... 363,537 221,025 319,871 (157,791)
---------- --------- ------- --------
Net increase (decrease) in contract
owners' equity................... 1,095,841 817,872 325,590 (125,269)
---------- --------- ------- --------
Contract Owners' Equity
Beginning of the period............ 4,468,641 3,650,769 326,647 451,916
---------- --------- ------- --------
End of the period.................. $5,564,482 4,468,641 652,237 326,647
========== ========= ======= ========
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
WRIGHT WRIGHT WRIGHT
TOTAL SELECTED INTERNATIONAL
RETURN BOND BLUE CHIP BLUE CHIP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------- -------------------------- --------------------------
1996 1995 1996 1995 1996 1995
- ------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
23,580 17,626 (24,056) 51,446 (12,997) (5,841)
7,417 6,744 247,928 23,057 57,455 5,735
(24,655) 45,046 299,287 305,554 152,626 114,958
- ------- -------- --------- --------- --------- ---------
6,342 69,416 523,159 380,057 197,084 114,852
- ------- -------- --------- --------- --------- ---------
30,592 166,975 248,378 513,090 125,646 314,634
259,650 (173,228) (211,360) 237,738 (173,693) (42,911)
(44,530) (45,543) (133,918) (342,677) (57,099) (249,262)
- ------- -------- --------- --------- --------- ---------
245,712 (51,796) (96,900) 408,151 (105,146) 22,461
- ------- -------- --------- --------- --------- ---------
252,054 17,620 426,259 788,208 91,938 137,313
- ------- -------- --------- --------- --------- ---------
537,476 519,856 2,239,269 1,451,061 1,365,249 1,227,936
- ------- -------- --------- --------- --------- ---------
789,530 537,476 2,665,528 2,239,269 1,457,187 1,365,249
======= ======== ========= ========= ========= =========
</TABLE>
17
<PAGE>
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 Variable Account is registered with the Securities and Exchange Commis-
sion as a Unit Investment Trust pursuant to provisions of the Investment Com-
pany Act of 1940.
Investments--Net purchase payments received by the Variable Account are in-
vested in the portfolios of the Wright Managed Blue Chip Series Trust as se-
lected by the contract owner. Investments are stated at the closing net asset
values per share on December 31, 1996.
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 con-
tract owners' equity.
Dividend Income--Dividends received from the mutual funds investments are
reinvested to purchase additional mutual fund shares.
2. INVESTMENTS
A summary of the mutual fund investments at December 31, 1996 follows:
<TABLE>
<CAPTION>
NUMBER NET ASSETS
OF SHARES VALUE
HELD PER SHARE MARKET VALUE COST
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Wright Managed Blue Chip Series
Trust
Wright Near Term Bond Portfo-
lio......................... 67,237.791 $ 9.70 $ 652,207 $ 654,683
Wright Total Return Bond Port-
folio....................... 83,411.344 9.47 789,905 786,667
Wright Selected Blue Chip
Portfolio................... 190,585.928 14.00 2,668,203 2,108,201
Wright International Blue Chip
Portfolio................... 123,398.782 11.81 1,457,340 1,257,597
---------- ----------
$5,567,655 $4,807,148
========== ==========
</TABLE>
18
<PAGE>
THE PFL WROGHT VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. CONTRACT OWNERS EQUITY
A summary of deferred annuity contracts terminable by owners at December 31,
1996 follows:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION TOTAL
SUBACCOUNT UNITS OWNED UNIT VALUE CONTRACT VALUE
---------- ------------- ------------ --------------
<S> <C> <C> <C>
Wright Near Term Bond................ 612,818.637 $1.064323 $ 652,237
Wright Total Return Bond............. 747,745.354 1.055881 789,530
Wright Selected Blue Chip............ 1,894,095.151 1.407283 2,665,528
Wright International Blue Chip....... 1,268,170.893 1.149046 1,457,187
----------
$5,564,482
==========
</TABLE>
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 1/1/95..... 474,237 569,878 1,567,081 1,360,360
Units purchased.............. 75,750 160,589 465,414 324,834
Units redeemed and
transferred................ (237,782) (221,310) (97,975) (304,261)
-------- -------- --------- ---------
Units outstanding 12/31/95... 312,205 509,157 1,934,520 1,380,933
Units purchased.............. 26,015 29,341 197,752 118,733
Units redeemed and
transferred................ 274,599 209,247 (238,177) (231,495)
-------- -------- --------- ---------
Units outstanding 12/31/96... 612,819 747,745 1,894,095 1,268,171
======== ======== ========= =========
</TABLE>
4. 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 ac-
counted for separately from other operations of PFL Life for purposes of fed-
eral income taxation. The Variable Account is not separately taxable as a reg-
ulated 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.
19
<PAGE>
THE PFL WRIGHT VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. ADMINSTRACTIVE, 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 ac-
count. 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 cer-
tain mortality and expense risks.
6. CONTRACT OWNERS EQUITY
At December 31, 1996 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... $4,803,975 654,713 786,292 2,105,526 1,257,444
Adjustment for
appreciation/depreciation
to market value.......... 760,507 (2,476) 3,238 560,002 199,743
---------- ------- ------- --------- ---------
Total Contract Owners'
Equity................... $5,564,482 652,237 789,530 2,665,528 1,457,187
========== ======= ======= ========= =========
</TABLE>
7. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
1996 1995
-------------------- -------------------
PURCHASES SALES PURCHASES SALES
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Wright Managed Blue Chip Series Trust
Wright Near Term Bond Portfolio..... $ 591,039 257,547 157,665 302,860
Wright Total Return Bond Portfolio.. 541,699 272,022 206,065 240,590
Wright Selected Blue Chip
Portfolio......................... 772,445 890,962 882,068 424,039
Wright International Blue Chip
Portfolio......................... 493,519 611,552 462,087 447,064
---------- --------- --------- ---------
$2,398,702 2,032,083 1,707,885 1,414,553
========== ========= ========= =========
</TABLE>
20
<PAGE>
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, 1996 and 1995, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules 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.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1996 and
1995, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1996.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Des Moines, Iowa Ernst & Young LLP
February 21, 1997
21
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 204,872 $ 114,704 $ 148,954
Annuity............................... 725,966 921,452 1,067,406
Accident and health................... 227,862 232,738 230,889
Net investment income................... 428,337 392,685 343,880
Amortization of interest maintenance
reserve................................ 2,434 4,341 2,871
Commissions and expense allowances on
reinsurance ceded...................... 73,931 77,071 94,635
---------- ---------- ----------
1,663,402 1,742,991 1,888,635
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health
benefits............................. 147,024 146,346 141,632
Surrender benefits.................... 512,810 498,626 392,064
Other benefits........................ 101,288 88,607 73,306
Increase in aggregate reserves for
policies and contracts:
Life................................ 140,126 50,071 82,062
Annuity............................. 188,002 528,330 569,341
Accident and health................. 26,790 17,694 22,144
Other............................... 19,969 16,017 11,223
---------- ---------- ----------
1,136,009 1,345,691 1,291,772
Insurance expenses:
Commissions........................... 177,466 200,706 215,635
General insurance expenses............ 57,282 57,623 52,166
Taxes, licenses and fees.............. 13,889 15,700 15,368
Transfer to separate account.......... 171,785 42,981 243,806
Other expenses........................ 526 760 1,014
---------- ---------- ----------
420,948 317,770 527,989
---------- ---------- ----------
1,556,957 1,663,461 1,819,761
---------- ---------- ----------
Gain from operations before federal income
taxes and net realized capital losses on
investments.............................. 106,445 79,530 68,874
Federal income tax expense................ 41,177 33,335 23,858
---------- ---------- ----------
Gain from operations before net realized
capital losses on investments............ 65,268 46,195 45,016
Net realized capital losses on investments
(net of related federal income taxes and
amounts transferred to interest
maintenance reserve)..................... (3,503) (18,096) (3,624)
---------- ---------- ----------
Net income................................ $ 61,765 $ 28,099 $ 41,392
========== ========== ==========
</TABLE>
See accompanying notes.
22
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments........................ $ 50,737 $ 79,852
Bonds.................................................. 4,773,433 4,613,334
Stocks:
Preferred............................................ 3,097 9,336
Common (cost: 1996--$23,212; 1995--$19,061).......... 32,038 24,866
Affiliated entities (cost: 1996--$14,893; 1995--
$14,661)............................................ 6,934 6,794
Mortgage loans on real estate.......................... 911,705 680,414
Real estate, at cost less accumulated depreciation
($11,338 in 1996; $12,493 in 1995):
Home office properties............................... 10,372 20,403
Properties acquired in satisfaction of debt.......... 12,260 2,648
Investment properties................................ 35,922 40,453
Policy loans........................................... 54,214 52,675
Other invested assets.................................. 16,343 13,557
---------- ----------
Total cash and invested assets......................... 5,907,055 5,544,332
Premiums deferred and uncollected........................ 16,345 17,026
Accrued investment income................................ 70,401 68,065
Receivable from affiliates............................... 53,900 79,913
Federal income taxes recoverable......................... 4,018 9,776
Transfers from separate accounts......................... 38,528 --
Other assets............................................. 31,215 32,803
Separate account assets.................................. 1,844,515 1,418,157
---------- ----------
Total admitted assets.................................. $7,965,977 $7,170,072
========== ==========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 736,100 $ 596,039
Annuity.............................................. 4,408,419 4,220,274
Accident and health.................................. 139,269 114,884
Policy and contract claim reserves:
Life................................................. 7,369 6,225
Accident and health.................................. 66,988 70,517
Other policyholders' funds............................. 126,672 105,371
Remittances and items not allocated.................... 64,064 123,710
Asset valuation reserve................................ 54,851 43,921
Interest maintenance reserve........................... 23,745 26,376
Other liabilities...................................... 70,663 67,070
Payable to affiliates.................................. 4,975 --
Separate account liabilities........................... 1,844,515 1,418,157
---------- ----------
Total liabilities...................................... 7,547,630 6,792,544
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding................................ 2,660 2,660
Paid-in surplus........................................ 154,129 154,129
Unassigned surplus..................................... 261,558 220,739
---------- ----------
Total capital and surplus.............................. 418,347 377,528
---------- ----------
Total liabilities and capital and surplus.............. $7,965,977 $7,170,072
========== ==========
</TABLE>
See accompanying notes.
23
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.............. $2,660 $ 99,129 $212,982 $314,771
Capital contribution.................. -- 15,000 -- 15,000
Net income for 1994................... -- -- 41,392 41,392
Net unrealized capital losses......... -- -- (25,350) (25,350)
Increase in non-admitted assets....... -- -- (248) (248)
Decrease in asset valuation reserve... -- -- 6,040 6,040
Dividend to stockholder............... -- -- (20,900) (20,900)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 184 184
Amendment of reinsurance agreement.... -- -- 391 391
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 505 505
Prior period adjustment............... -- -- (3,444) (3,444)
------ -------- -------- --------
Balance at December 31, 1994............ 2,660 114,129 211,552 328,341
Capital contribution.................. -- 40,000 -- 40,000
Net income for 1995................... -- -- 28,099 28,099
Net unrealized capital losses......... -- -- (7,574) (7,574)
Decrease in non-admitted assets....... -- -- 50 50
Increase in asset valuation reserve... -- -- (5,946) (5,946)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 35 35
Cancellation of reinsurance
agreement............................ -- -- 585 585
Amendment of reinsurance agreement.... -- -- 419 419
Transfer of subsidiary investment to
stockholder.......................... -- -- (3,250) (3,250)
Change in reserve valuation
methodology.......................... -- -- (501) (501)
Increase in liability for reinsurance
in unauthorized companies............ -- -- (2,730) (2,730)
------ -------- -------- --------
Balance at December 31, 1995............ 2,660 154,129 220,739 377,528
Net income for 1996................... -- -- 61,765 61,765
Net unrealized capital gains.......... -- -- 2,351 2,351
Increase in non-admitted assets....... -- -- (148) (148)
Increase in asset valuation reserve... -- -- (10,930) (10,930)
Dividend to stockholder............... -- -- (20,000) (20,000)
Prior period adjustment............... -- -- 5,025 5,025
Surplus effect of sale of a division.. -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 29 29
Amendment of reinsurance agreement.... -- -- 421 421
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 2,690 2,690
------ -------- -------- --------
Balance at December 31, 1996............ $2,660 $154,129 $261,558 $418,347
====== ======== ======== ========
</TABLE>
See accompanying notes.
24
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of
reinsurance.............................. $1,240,748 $1,353,407 $1,548,030
Net investment income..................... 431,456 398,051 339,856
---------- ---------- ----------
1,672,204 1,751,458 1,887,886
Life and accident and health claims....... (147,556) (140,798) (137,602)
Surrender benefits and other fund
withdrawals.............................. (512,810) (498,626) (392,064)
Other benefits to policyholders........... (101,254) (88,519) (73,237)
Commissions, other expenses and other
taxes.................................... (248,321) (278,241) (288,384)
Net transfers to separate accounts........ (210,312) (42,981) (243,806)
Dividends to policyholders................ (844) (940) (1,155)
Federal income taxes, excluding tax on
capital gains and IRS settlements........ (35,551) (32,905) (39,864)
---------- ---------- ----------
Net cash provided by operations........... 415,556 668,448 711,774
Proceeds from investments sold, matured or
repaid:
Bonds and preferred stocks.............. 2,112,831 1,757,229 1,430,339
Common stocks........................... 27,214 20,338 12,941
Mortgage loans on real estate........... 74,351 36,550 43,495
Real estate............................. 18,077 23,203 9,536
Other proceeds.......................... 22,567 381 189
---------- ---------- ----------
Total cash from investments............... 2,255,040 1,837,701 1,496,500
Capital contribution...................... -- 40,000 15,000
Dividend from subsidiary.................. -- -- 10,000
Cash received from ceding commissions
associated with the sale of a division... 45 55 284
Increase in remittances and items not
allocated................................ -- 88,295 16,177
Other sources............................. 19,381 12,758 24,855
---------- ---------- ----------
Total sources of cash..................... 2,690,022 2,647,257 2,274,590
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and preferred stocks.............. $2,270,105 $2,294,195 $2,043,615
Common stocks........................... 29,799 23,284 11,228
Mortgage loans on real estate........... 324,381 192,292 160,068
Net increase in policy loans............ 1,539 877 3,202
Real estate............................. 222 10,188 14,801
Other invested assets................... 5,169 2,670 664
---------- ---------- ----------
Total investments acquired................ 2,631,215 2,523,506 2,233,578
Dividends to stockholder.................. 20,000 -- 20,900
Cash paid associated with the sale of a
division................................. 539 -- --
Repayment of intercompany notes and
receivables, net......................... -- 48,070 365
Cash paid in conjunction with an amendment
of a reinsurance agreement............... 5,812 -- --
Decrease in remittances and items not
allocated................................ 59,646 -- --
Cash paid in conjunction with sales of a
division................................. 123 -- --
Other applications, net................... 1,802 29,887 3,820
---------- ---------- ----------
Total applications of cash................ 2,719,137 2,601,463 2,258,663
---------- ---------- ----------
Net change in cash and short-term
investments.............................. (29,115) 45,790 15,927
Cash and short-term investments at
beginning of year........................ 79,852 34,062 18,135
---------- ---------- ----------
Cash and short-term investments at end of
year..................................... $ 50,737 $ 79,852 $ 34,062
========== ========== ==========
</TABLE>
See accompanying notes.
25
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
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 ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. Effective June 1, 1995, the
Company transferred the common stock of its wholly-owned subsidiary, Equity
National Life Insurance Company ("Equity National"), to its stockholder, First
AUSA. Equity National was then merged with Life Investors Insurance Company of
America, a subsidiary of First AUSA. 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 subsidiary, Equity National, are
not consolidated with those of the Company.
In connection with the sale of certain affiliated companies, the Company has
assumed various blocks of business from these former affiliates through
mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale, the
Company transferred $123 in assets, substantially all of which was cash,
and $70 of liabilities. The difference between the assets and liabilities
of $(53) plus a tax credit of $19 was charged directly to unassigned
surplus.
Effective December 31, 1995, the Company canceled a coinsurance agreement
with its parent, First AUSA. As a result of the cancellation, the Company
transferred $825 of assets and $1,712 of liabilities. The difference
between the assets and liabilities, net of a tax effect of $302 was
credited directly to unassigned surplus.
On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to increase the reinsurance ceded by 2 1/2% each year
(primarily group health business). As a result, the Company transferred
$3,881 in assets and $4,080 in liabilities during 1994. The difference
between the assets and liabilities of $199, plus a tax credit of $192, was
credited directly to unassigned surplus. During 1995, the Company
transferred $4,303 in assets and liabilities of $4,467. The difference
between the assets and liabilities of $164, plus a tax credit of $255, was
credited directly to unassigned surplus. During 1996, the Company
transferred $5,991 in assets, including $5,812 of cash and short-term
investments and liabilities of $6,146. The difference between the assets
and liabilities of $155, plus a tax credit of $266 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
26
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
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 1994, the Company received
$284 for ceding commissions; the commissions net of the related tax effect
of $100 was credited directly to unassigned surplus. During 1995, the
Company received $55 for ceding commissions; the commissions net of the
related tax effect of $20 was credited directly to unassigned surplus.
During 1996, the Company received $45 for ceding commissions; the
commissions net of the related tax effect of $(16) was charged directly to
unassigned surplus. During 1996, the Company paid $539 in association with
this sale; the proceeds, net of a tax credit of $189, were charged directly
to unassigned surplus.
Nature of Business
The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through an independent insurance agency of The Insurance Center, the
Company's agents, and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant
of these differences are as follows: (a) bonds are generally reported at
amortized cost rather than segregating the portfolio into held-to-maturity
(reported at amortized cost), available-for-sale (reported at fair value), and
trading (reported at fair value) classifications; (b) acquisition costs of
acquiring new business are charged to current operations as incurred rather
than deferred and amortized over the life of the policies; (c) policy reserves
on traditional life products are based on statutory mortality rates and
interest which may differ from reserves based on reasonable assumptions of
expected mortality, interest, and withdrawals which include a provision for
possible unfavorable deviation from such assumptions; (d) policy reserves on
certain investment products use discounting methodologies utilizing statutory
interest rates rather than full account values; (e) reinsurance amounts are
netted against the corresponding asset or liability rather than shown as gross
amounts on the balance sheet; (f) deferred income taxes are not provided for
the difference between the financial statement and income tax bases of assets
and liabilities; (g) net realized gains or losses attributed to changes in the
level of interest
27
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
rates in the market are deferred and amortized over the remaining life of the
bond or mortgage loan, rather than recognized as gains or losses in the
statement of operations when the sale is completed; (h) declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (carried as
a liability) changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; and (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus. The effects
of these variances have not been determined by the Company.
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
1997, 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.
Cash and Cash Equivalents
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 cash equivalents.
Investments
Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the security. The Company reviews
its prepayment assumptions on mortgage and other asset backed securities at
regular intervals and adjusts amortization rates prospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of affiliated and unaffiliated companies,
which may include shares of mutual funds (money market and other), are carried
at market. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as
required or permitted by Iowa Insurance Laws.
28
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses, net of amounts
attributed to changes in the general level of interest rates. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve (IMR), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1996, 1995 and 1994,
the Company excluded investment income due and accrued of $1,541, $2,272 and
$4,622, respectively, with respect to such practices.
The Company entered into an interest-rate cap agreement on Five Year
Constant Maturities Treasury futures to hedge the exposure of increasing
interest rates. The cash flows from the interest rate cap will help offset
losses that might occur from disintermediation resulting from a rise in
interest rates. The Company paid a one-time premium to receive the difference
between the reference rate and the strike rate after a two-year delay. The
cost is included in interest expense ratably during the life of the agreement.
Income received as a result of the cap agreement will be recognized in
investment income as earned. Unamortized cost of the agreements is included in
other assets.
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 Premium 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.
29
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal 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. The Company received
variable contract premiums of $227,864, $133,386 and $308,305 in 1996, 1995
and 1994, respectively. All variable account contracts are subject to
discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. SFAS No.
119, Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments, requires additional disclosure about derivatives. 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 of Financial Accounting Standards No. 107 and No. 119
exclude certain financial instruments and all nonfinancial instruments from
their disclosure requirements and allow companies to forego the disclosures
when those estimates can only be made at excessive cost. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
30
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
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. 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.
Interest rate cap: Estimated fair value of the interest rate cap is based
upon the latest quoted market price.
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 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds.......................... $4,773,433 $4,867,770 $4,613,334 $4,824,635
Preferred stocks............... 3,097 7,133 9,336 12,275
Common stocks.................. 32,038 32,038 24,866 24,866
Affiliated common and preferred
stock......................... 6,934 6,934 6,794 6,794
Mortgage loans on real estate.. 911,705 922,010 680,414 714,399
Policy loans................... 54,214 54,214 52,675 52,675
Cash and short-term
investments................... 50,737 50,737 79,852 79,852
Interest rate cap.............. 6,797 6,975 7,971 7,250
Separate account assets........ 1,844,515 1,844,515 1,418,157 1,418,157
LIABILITIES
Investment contract
liabilities................... 4,532,568 4,398,630 4,323,188 4,310,505
Separate account annuities..... 1,803,057 1,803,057 1,417,842 1,417,842
</TABLE>
31
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. 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, 1996
Bonds:
United States Government and
agencies.................... $ 136,450 $ 3,301 $ 180 $ 139,571
State, municipal and other
government.................. 59,644 1,906 177 61,373
Public utilities............. 147,918 5,616 1,020 152,514
Industrial and
miscellaneous............... 1,958,681 64,710 8,105 2,015,286
Mortgage-backed securities... 2,470,740 43,896 15,610 2,499,026
---------- -------- ------- ----------
4,773,433 119,429 25,092 4,867,770
Preferred stocks............... 3,097 4,036 -- 7,133
---------- -------- ------- ----------
$4,776,530 $123,465 $25,092 $4,874,903
========== ======== ======= ==========
DECEMBER 31, 1995
Bonds:
United States Government and
agencies.................... $ 117,054 $ 5,808 $ 135 $ 122,727
State, municipal and other
government.................. 46,236 3,109 2 49,343
Public utilities............. 156,342 9,578 1,092 164,828
Industrial and
miscellaneous............... 1,781,149 112,074 7,146 1,886,077
Mortgage-backed securities... 2,512,553 93,420 4,313 2,601,660
---------- -------- ------- ----------
4,613,334 223,989 12,688 4,824,635
Preferred stocks............... 9,336 3,348 409 12,275
---------- -------- ------- ----------
$4,622,670 $227,337 $13,097 $4,836,910
========== ======== ======= ==========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1996,
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 FAIR
VALUE VALUE
---------- --------------
<S> <C> <C>
Due in one year or less............................ $ 202,775 $ 204,980
Due after one year through five years.............. 896,912 921,711
Due after five years through ten years............. 954,555 977,421
Due after ten years................................ 248,451 264,632
---------- ----------
2,302,693 2,368,744
Mortgage and other asset-backed securities......... 2,470,740 2,499,026
---------- ----------
$4,773,433 $4,867,770
========== ==========
</TABLE>
32
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes...................... $364,356 $342,182 $294,145
Dividends on equity investments.................. 1,436 1,822 12,091
Interest on mortgage loans....................... 69,418 52,702 42,385
Rental income on real estate..................... 9,526 10,443 9,360
Interest on policy loans......................... 3,273 3,112 3,182
Other investment income.......................... 1,799 1,803 282
-------- -------- --------
Gross investment income.......................... 449,808 412,064 361,445
Investment expenses.............................. 21,471 19,379 17,565
-------- -------- --------
Net investment income............................ $428,337 $392,685 $343,880
======== ======== ========
</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
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds................................ $2,112,831 $1,757,229 $1,430,339
========== ========== ==========
Gross realized gains.................... $ 19,876 $ 19,721 $ 15,411
Gross realized losses................... (19,634) (34,399) (33,044)
---------- ---------- ----------
Net realized gains (losses)............. $ 242 $ (14,678) $ (17,633)
========== ========== ==========
</TABLE>
At December 31, 1996, investments with an aggregate carrying value of
$5,825,802 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.
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
---------------------------
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Debt securities................................ $ 242 $(14,678) $(17,633)
Short-term investments......................... (197) 24 (309)
Equity securities.............................. 1,798 504 1,322
Mortgage loans on real estate.................. (5,530) (1,053) (2,186)
Real estate.................................... 1,210 (1,908) (2,858)
Other invested assets.......................... 12 (970) 14
------- -------- --------
(2,465) (18,081) (21,650)
Tax effect..................................... (1,235) 7,878 7,236
Transfer to interest maintenance reserve....... 197 (7,891) 10,790
------- -------- --------
Net realized losses............................ $(3,503) $(18,096) $ (3,624)
======= ======== ========
</TABLE>
33
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Debt securities............................ $(115,867) $355,560 $(322,346)
Equity securities.......................... 2,929 (16,379) (23,202)
--------- -------- ---------
Change in unrealized appreciation
(depreciation)............................ $(112,938) $339,181 $(345,548)
========= ======== =========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Unrealized gains.................................. $ 9,590 $ 6,833 $20,244
Unrealized losses................................. (8,723) (8,895) (5,927)
------- ------- -------
Net unrealized gains (losses)..................... $ 867 $(2,062) $14,317
======= ======= =======
</TABLE>
During 1996, the Company issued mortgage loans with interest rates ranging
from 6.83% to 8.75%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 85%. Mortgage loans
with a carrying value of $4,027 were non-income producing for the previous
twelve months. Accrued interest of $852 related to these mortgage loans was
excluded from investment income. The Company requires all mortgage loans to
carry fire insurance equal to the value of the underlying property.
During 1996, 1995 and 1994, mortgage loans of $13,163, $1,644 and $799,
respectively, were foreclosed and transferred to real estate. At December 31,
1996 and 1995, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $5,432 and $6,168, respectively. The mortgage loan
portfolio is diversified by geographic region and specific collateral property
type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
- -------------------------------------
DECEMBER 31
------------
1996 1995
----- -----
<S> <C> <C>
South Atlantic.......... 26% 26%
Mountain................ 10 12
W. South Central........ 12 14
Pacific................. 13 17
E. North Central........ 15 13
E. South Central........ 9 5
W. North Central........ 6 6
Middle Atlantic......... 6 3
New England............. 3 4
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION
- -------------------------------------
DECEMBER 31
------------
1996 1995
----- -----
<S> <C> <C>
Retail.................. 37% 31%
Apartment............... 14 20
Office.................. 34 29
Industrial.............. 3 4
Other................... 12 16
</TABLE>
34
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
At December 31, 1996, 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>
DESCRIPTION OF SECURITY OR ISSUER CARRYING VALUE
--------------------------------- --------------
<S> <C>
Bonds:
Citibank.................................................... 70,661
</TABLE>
4. 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>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,457,450 $1,591,531 $1,857,446
Reinsurance assumed...................... 1,796 2,356 1,832
Reinsurance ceded........................ (300,546) (324,993) (412,029)
---------- ---------- ----------
Net premiums earned...................... $1,158,700 $1,268,894 $1,447,249
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $168,155,
$167,287 and $148,414 during 1996, 1995 and 1994, respectively. At December
31, 1996 and 1995, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $63,226 and
$65,503, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1996 and
1995 of $2,737,441 and $2,920,034, respectively.
At December 31, 1996, amounts recoverable from unauthorized reinsurers of
$73,434 (1995--$70,516) and reserve credits for reinsurance ceded of $55,035
(1995--$48,992) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $120,477 at December 31, 1996 that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. 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.
35
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital losses for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $37,256 $27,835 $24,106
Tax reserve adjustment........................... 2,211 2,405 1,150
Excess tax depreciation.......................... (384) (365) (406)
Deferred acquisition costs--tax basis............ 5,583 4,581 7,378
Prior year over accrual.......................... (499) (306) (644)
Dividend received deduction...................... (454) (56) (3,513)
Charitable contribution.......................... -- -- (3,935)
Other items--net................................. (2,536) (759) (278)
------- ------- -------
Federal income tax expense....................... $41,177 $33,335 $23,858
======= ======= =======
</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, 1996). 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 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984-1986 and related
interest of $1,686, net of a tax effect of $590. An examination is underway
for years 1988 through 1995.
6. POLICY AND CONTRACT ATTRIBUTES
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 1.0% and 1.2% of ordinary life insurance in force at December
31, 1996 and 1995, respectively.
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics are summarized as
follows:
36
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1996 1995
------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment....... $ 20,800 0% $ 699 --%
Subject to discretionary withdrawal
at book value less surrender
charge............................. 794,881 9 733,796 8%
Subject to discretionary withdrawal
at market value.................... 1,803,057 20 1,390,156 16%
Subject to discretionary withdrawal
at book value (minimal or no
charges or adjustments)............ 6,284,876 69 6,395,719 74%
Not subject to discretionary
withdrawal provision............... 174,416 2 139,330 2%
---------- --- ---------- ---
9,078,030 100 8,659,700 100%
Less reinsurance ceded.............. 2,677,432 2,866,160
---------- ----------
Total policy reserves on annuities
and deposit fund liabilities....... $6,400,598 $5,793,540
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts................. $227,864 $133,386 $308,305
Transfers from separate accounts............... 75,172 104,219 76,133
-------- -------- --------
Net transfers to separate accounts............... 152,692 29,167 232,172
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees...................................... 19,093 13,814 11,634
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $171,785 $ 42,981 $243,806
======== ======== ========
</TABLE>
37
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1996 and 1995, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
------- ------- -------
<S> <C> <C> <C>
DECEMBER 31, 1996
Life and annuity:
Ordinary direct first year business............. $ 2,657 $ 1,865 $ 792
Ordinary direct renewal business................ 23,307 7,180 16,127
Group life direct business...................... 1,788 1,195 593
Reinsurance ceded............................... (1,706) (438) (1,268)
------- ------- -------
26,046 9,802 16,244
Accident and health:
Direct.......................................... 104 -- 104
Reinsurance ceded............................... (3) -- (3)
------- ------- -------
Total accident and health......................... 101 -- 101
------- ------- -------
$26,147 $ 9,802 $16,345
======= ======= =======
DECEMBER 31, 1995
Life and annuity:
Ordinary direct first year business............. $ 3,151 $ 2,223 $ 928
Ordinary direct renewal business................ 24,250 7,792 16,458
Group life direct business...................... 1,537 779 758
Reinsurance ceded............................... (1,362) (141) (1,221)
------- ------- -------
27,576 10,653 16,923
Accident and health:
Direct.......................................... 1,296 -- 1,296
Reinsurance ceded............................... (1,193) -- (1,193)
------- ------- -------
Total accident and health......................... 103 -- 103
------- ------- -------
$27,679 $10,653 $17,026
======= ======= =======
</TABLE>
At December 31, 1996 and 1995, the Company had insurance in force
aggregating $69,251 and $87,010, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $1,252 and $1,417 to cover
these deficiencies at December 31, 1996 and 1995, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $501
was made for the year ended December 31, 1995, related to the change in
reserve methodology.
38
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. 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 $20,000 and $20,900 in 1996 and
1994, respectively. No dividends were paid in 1995.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $1,056, $942 and $966 for the
years ended December 31, 1996, 1995 and 1994, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $297, $465 and $411 for
the years ended December 31, 1996, 1995 and 1994, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $184, $164 and $169 for the years ended December 31, 1996,
1995 and 1994, respectively.
39
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1996,
1995 and 1994, the Company paid $17,028, $14,214 and $11,820, respectively,
for these services, which approximates their costs to the affiliates.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.5% at December 31, 1996. During 1996,
1995 and 1994, the Company paid net interest of $174, $71 and $23,
respectively, to affiliates.
During 1995 and 1994, the Company received capital contributions of $40,000
and $15,000, respectively, in cash from its parent and during 1994 received a
dividend of $10,000 from its subsidiary, Equity National, which was included
in net investment income.
During 1995, the Company sold real estate with a book value of approximately
$13,270 to an affiliated entity in exchange for a short-term note receivable.
No gain was recognized on this sale. This note accrued interest at 5.65% and
matured during 1996.
During the year ended December 31, 1995, the Company restructured demand
notes and accrued interest of $13,250 and $745, respectively, related to an
affiliate. The Company received 9,750 shares of preferred stock from the
affiliate for satisfaction of debt. The Company realized a loss of $8,695
related to this transaction. At December 31, 1996 and 1995, the preferred
stock related to this affiliate was deemed to have no value and an unrealized
loss of $4,555 was recognized in 1995.
10. 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 $21,774 and $21,747 and an
offsetting premium tax benefit of $8,752 and $9,457 at December 31, 1996 and
1995, respectively, for its estimated share of future guaranty fund
assessments related to several major insurer insolvencies. During 1994, $3,444
was 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. The guaranty fund expense was $2,617, $5,859 and
$4,054 for December 31, 1996, 1995 and 1994, respectively.
40
<PAGE>
SCHEDULE I
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET (2)
------------------ ---------- ---------- -----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and
government agencies and
authorities......................... $1,533,581 $1,554,339 $1,533,510
States, municipalities and political
subdivisions........................ 4,918 5,360 4,919
Foreign governments.................. 55,633 56,013 54,725
Public utilities..................... 150,346 152,514 147,918
All other corporate bonds............ 3,046,090 3,099,544 3,032,361
Redeemable preferred stock............. 3,097 7,133 3,097
---------- ---------- ----------
Total fixed maturities................. 4,793,665 4,874,903 4,776,530
EQUITY SECURITIES
Common stocks:
Banks, trust and insurance........... 7,120 9,777 9,777
Industrial, miscellaneous and all
other............................... 16,092 22,261 22,261
---------- ---------- ----------
Total equity securities................ 23,212 32,038 32,038
Mortgage loans on real estate.......... 911,705 911,705
Real estate............................ 46,294 46,294
Real estate acquired in satisfaction of
debt.................................. 12,260 12,260
Policy loans........................... 54,214 54,214
Other long-term investments............ 9,546 9,546
Cash and short-term investments........ 50,737 50,737
---------- ----------
Total investments...................... $5,901,633 $5,893,324
========== ==========
</TABLE>
- --------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
(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.
41
<PAGE>
SCHEDULE III
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
------------- -------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Individual life.............................. $ 734,350 $ -- $ 7,240
Individual health............................ 39,219 8,680 13,631
Group life and health........................ 78,418 14,702 53,486
Annuity...................................... 4,408,419 -- --
---------- ------- -------
$5,260,406 $23,382 $74,357
========== ======= =======
YEAR ENDED DECEMBER 31, 1995
Individual life.............................. $ 594,274 $ -- $ 6,066
Individual health............................ 24,225 7,768 11,863
Group life and health........................ 67,994 16,662 58,813
Annuity...................................... 4,220,274 -- --
---------- ------- -------
$4,906,767 $24,430 $76,742
========== ======= =======
YEAR ENDED DECEMBER 31, 1994
Individual life.............................. $ 544,087 $ -- $ 7,298
Individual health............................ 16,649 6,487 8,643
Group life and health........................ 60,207 17,680 57,959
Annuity...................................... 3,693,388 -- --
---------- ------- -------
$4,314,331 $24,167 $73,900
========== ======= =======
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
NET INVESTMENT BENEFITS, CLAIMS LOSSES OTHER OPERATING
PREMIUM REVENUE INCOME* AND SETTLEMENT EXPENSES EXPENSES* PREMIUMS WRITTEN
- --------------- -------------- ----------------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 202,082 $ 66,538 $ 197,526 $ 38,067 --
55,871 5,263 32,903 29,511 $ 55,678
174,781 12,877 105,459 122,953 171,320
725,966 343,659 800,121 230,417 --
- ---------- -------- ---------- --------
$1,158,700 $428,337 $1,136,009 $420,948
========== ======== ========== ========
$111,918 $ 49,929 $ 97,065 $ 37,933 --
47,692 4,091 25,793 26,033 $ 47,690
187,832 11,665 106,065 139,640 184,545
921,452 327,000 1,116,768 114,164 --
- ---------- -------- ---------- --------
$1,268,894 $392,685 $1,345,691 $317,770
========== ======== ========== ========
$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 --
- ---------- -------- ---------- --------
$1,447,249 $343,880 $1,291,772 $527,989
========== ======== ========== ========
</TABLE>
- --------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
43
<PAGE>
SCHEDULE IV
PFL LIFE INSURANCE COMPANY
REINSURANCE
(DOLLARS IN THOUSANDS)
<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,
1996
Life insurance in force.. $4,863,416 $477,112 $ 30,685 $4,416,989 .7%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health...... 68,699 12,828 -- 55,871 --
Group life and health.. 390,296 215,515 -- 174,781 --
Annuity................ 794,311 68,345 -- 725,966 --
---------- -------- -------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1995
Life insurance in force.. $4,594,434 $468,811 $ 22,936 $4,148,559 .6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 113,934 $ 3,841 $ 1,825 $ 111,918 1.6%
Individual health...... 60,309 12,617 -- 47,692 --
Group life and health.. 408,097 220,265 -- 187,832 --
Annuity................ 1,009,191 88,270 531 921,452 .05%
---------- -------- -------- ---------- ---
$1,591,531 $324,993 $ 2,356 $1,268,894 .2%
========== ======== ======== ========== ===
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%
========== ======== ======== ========== ===
</TABLE>
44
<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)(a) Consent of Independent Auditors. Note 6.
(10)(b) Opinion and Consent of Actuary. Note 6.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Powers of Attorney (P.S. Baird, W.L. Busler,
P.E. Falconio, D.C. Kolsrud, R.J. Kontz,
Note 4. (Craig D. Vermie) Note 5.
(Brenda K. Clancy) Note 6.
Note 1. Filed with initial Form N-4 Registration Statement for PFL
Wright Variable Annuity Account (File No. 33-61824) on April
29, 1993.
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 with Post-Effective Amendment No. 4 to Form N-4
Registration Statement for PFL Wright Variable Annuity Account
(File No. 33-61824) on April 19, 1996.
Note 6. 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, Senior Vice President
4333 Edgewood Road, N.E. and Chief Financial Officer
Cedar Rapids, IA 52499
Craig D. Vermie Director, Vice President,
4333 Edgewood Road, N.E. Secretary and Corporate
Cedar Rapids, IA 52499 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
Brenda K. Clancy Vice President, Treasurer
4333 Edgewood Road, N.E. and Chief Financial Officer
Cedar Rapids, IA 52499
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
<TABLE>
<S> <C> <C> <C> <C> <C>
---------------------------
VERENIGING AEGON
NETHERLANDS MEMBERSHIP
ASSOCIATION
---------------------------
+
53.00%
---------------------------
AEGON N.V.
NETHERLANDS CORPORATION
----------------------------
+
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + + +
100% 100% 100% 100%
---------------------- ------------------------ ------------------------ -----------------------------
AEGON Netherland N.V. AEGON INTERNATIONAL N.V. AEGON NEWAK HOLDING S.V. GRONINGER FINANCIERINGEN B.V.
Netherlands Corporation Netherlands Corporation Netherlands Corporation Netherlands Corporation
---------------------- ------------------------ ------------------------ -----------------------------
+
DE
-------------------
VOTING TRUST
Trustees: K.J. Storm
Donald J. Sheperd
H.B. Van Wild
Dennis Hersch
-------------------
+
DE 100%
-------------------
AEGON U.S. HOLDING
CORPORATION
-------------------
+ +
++++++++++++++++++++++++++++++++++++ +
+ IA 100%(1)
+ -------------------
+ AEGON USA, INC.
+ -------------------
+ +
+ +++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + +
+ MD 100% MD
+ ----------------- ------------
+ FIRST AUSA LIFE AUSA HOLDING
+ INSURANCE COMPANY COMPANY
+ ----------------- ------------
+ + +
+ + ++++++++++++++++++++++++++++++++++++++++++++++
+ + + ++
+ + MD 100% IA 100% DE
+ + -------------------- ------------- ++ ----------------------
+ + MONUMENTAL GENERAL AUSA FINACIAL +++ DIVERSIFIED INVESTMENT
+ + INSURANCE GROUP, INC ++ MARKETS, INC. ++ ADVISORS, INC.
+ + -------------------- + ------------- ++ ----------------------
NJ 100% + NY + MD 100% + ++
- ----------------- + ------------------- + ----------------- + ++
SHORT HILLS + AUSA LIFE INSURANCE +++ MONUMENTAL LIFE + IA 100% ++ DE 100%
MANAGEMENT COMPANY+ COMPANY, INC + INSURANCE COMPANY++ MD 100% + ----------- ++ ---------------------
- ----------------- + ------------------- + ----------------- + ------------------- + UNIVERSAL ++ DIVERSIFIED INVESTORS
+ + + MONUMENTAL GENERAL + BENEFITS +++++++ SECURITIES CORP.
+ + + ADMINISTRATORS, INC.+ CORPORATION ++ --------------------
+ + MD 100% + ------------------- + ++
NY + ----------------- + ----------------- + + ----------- ++
- ---------------- + LIFE INVESTORS + MONUMENTAL GENERAL+ + + ++ IA 100%
CORPA REINSURANCE + INSURANCE COMPANY + CASUALTY COMPANY + + IA 100% ++ ----------------
COMPANY ++ ++ OF AMERICA ++ ----------------- + MD 100% + ---------- ++++++++ AEGON USA
- ---------------- ++ ----------------- + MD 100% + ----------------- + INVESTORS ++ +++ SECURITIES, INC.
++ + --------------- + EXECUTIVE MANAGE- + WARRANTY ++ + ----------------
IN 100% ++ ------------------- + UNITED FINACIAL + MENT AND CONSULT- + OF AMERICA, ++ +
- ---------------- +++BANKERS UNITED LIFE + SERVICES, INC. +++ ANT SERVICES, INC.+ + INC. ++ +
AEGON MANAGEMENT ++ ASSURANCE COMPANY +++ --------------- + ----------------- + ---------- ++ + MD
COMPANY + ------------------- + + MD 100% + IA 100% ++ + -----------------
- ---------------- + + AZ (*) + ------------------ + ------------- ++ +++ AEGON USA MANAGED
+ ----------------- + ---------------- + MONUMENTAL GENERAL+ + MASSACHUSETTS ++ PORTFOLIOS INC.
DE 100% + PFL LIFE ++++ BANKERS FINACIAL + MASS MARKETING INC. FIDELTY TRUST +++ -----------------
- ----------------- + INSURANCE COMPANY + LIFE INSURANCE +++ ------------------- COMPANY ++
RCC NORTH AMERICA + ----------------- + COMPANY + ------------ ++
INC. ++ AZ 100% VOTING + ---------------- + DE 100% ++ IA 100%
- ----------------- + CHAIRMAN MD 100% + ------------------ ++ ------------------
---------------------+ -------------- + MONEY SERVICES, INC.++++ AMERICAN FORUM FOR
SOUTHWEST EQUITY LIFE+ THE WHITESTONE + ------------------- ++ FISCAL FITNESS, INC.
INSURANCE COMPANY+++ CORPORATION +++++ CA 100% -------------------
---------------------+ -------------- ------------------- ++ IN 100%
AZ 100% Voting Chairman (2) + IA 100% ZAHORIK COMPANY INC+++ --------------
----------------------- + ------------------ --------------------++ SUPPLEMENTAL
IOWA FIDELITY LIFE +++ CADET HOLDING CORP + ++ INSURANCE
INSURANCE COMPANY + ------------------ AL 100% ++ DIVISION INC.
----------------------- + ---------- +++++++ --------------
OH 100% + ZCI, INC. ++ MI 100%
--------------------- --------- +++++++ ------------------
WESTERN RESERVE LIFE + +++++++++++++++++++++++++++++++++++++ CREDITOR RESOURCES
++++ ASSURANCE CO. OF OHIO+++ DE + ++ INC.
+ --------------------- --------------- + ++ ------------------
+ --------------- INTERSECURITIES+++++++++++++ ++ +
++++++++ WRL SERIES FUND ++++++ INC. +++++ + ++ CN 100%
INC. + --------------- + + ++ -------------------
--------------- + + + ++ CRC CREDITOR
MA + CA 100% + + MN 100% RESOURCES CANADIAN
--------- + ---------------- + + ------------------------ ++ DEALER NETWORK, INC.
IDEX FUND++++++ ISI INSURANCE + + AUSA INSTITUTIONAL ++++++++++ -------------------
--------- + AGENCY INC. AND+++++ + MARKETING PARTNERS, INC. ++
+ ITS SUBSIDIARIES + + ------------------------ ++ IA 100%
MA + ---------------- + + MN 100% ++ --------------------
----------- + MN 100% + + ---------------- ++++ AEGON USA INVEST-
IDEX II +++++++ ------------------- + + COLORADO ANNUITY+++++++++++++++ MENT MANAGEMENT, INC.
SERIES FUND + ASSOCIATED MARINER ++ + AGENCY INC. + ---------------------
----------- + FINANCIAL GROUP, INC.+++ + ---------------- + IA 100%(12)
MA + ------------------- + + + -----------------
----------- + MI 100% + +++++ AEGON USA REALTY
IDEX FUND 3 +++++ ----------------- + + ++++ ADVISORS, INC.
----------- + MARINER FINANCIAL+++++ + + -----------------
+ SERVICES, INC. + + + DE 100%
+ ----------------- + + + -----------
+ + + +++++++ QUANTRA
+ MI 100% + + + CORPORATION
+ ------------------ + + + -----------
+ MARINER'S PLANNING + + + +
+ CORPORATION + + + DE 100%
+ ------------------ + + + ----------------
+ + + + QUANTRA SOFTWARE
+ MI 100%(10) + + + CORPORATION
+ ------------------- + + + ----------------
+ ASSOCIATED MARINER + + + IA 100%
+ AGENCY INC. AND ITS++++ + + ---------------
+ SUBSIDIARIES + + ++++LANDAUER REALTY
+ ------------------- + + + ADVISORS, INC.
+ MI 100% + + + ---------------
+ ---------------- + + + DE 100%
+ MARINER MORTGAGE + + + ----------------
+ CORP. ++++++ + ++++++ LANDAUER
+ ---------------- + + ASSOCIATES, INC.
+ + + ----------------
+ FL 100% + + IA 100%
+ -------------- + + ----------------
+ IDEX INVESTOR +++++++++++++ ++++++ AEGON USA REALTY
+++++SERVICES, INC. + + MANAGEMENT, INC
+ -------------- + + ----------------
+ DE 50%(7) + + IA 100%(11)
+ --------------- + + ------------------
+ IDEX MANAGEMENT,+++++++++++ +++++ REALTY INFORMATION
++++ INC. SYSTEMS, INC.
--------------- ------------------
IA (4)
----------------
USP REAL ESTATE++++
INVESTMENT TRUST +
---------------- +
(5) +
----------------- +
CEDAR INCOME FUND+++
LTD.
-----------------
</TABLE>
See Footnotes Page 2
Effective January 1, 1997
Page 2
Footnotes
(1) 150,000 shares of Class B Non-Voting Common Stock owned by Ennia
Reinsurance Antilles N.V.
(2) Ordinary common stock is allowed 60% of total cumulative vote.
Participating common stock is allowed 40% of total cumulative vote.
(3) Denotes relationships as advisor, administrator, sponsor, underwriter or
general partner.
(4) First AUSA Life Insurance Company owns 12.89%. PFL Life Insurance Company
owns 13.11%. Bankers United Life Assurance Company owns 4.86%.
(5) PFL Life Insurance Company owns 16.73%. Bankers United Life Assurance
Company owns 3.77%. Life Investors Insurance Company of America owns
3.38%. AEGON USA Realty Advisors, Inc. owns 1.97%. First AUSA Life
Insurance Company owns .18%.
(6) Class B Common stock is allocated 75% of total cumulative vote. Class A
Common stock is allocated 25% of total cumulative vote.
(7) 50% of Idex Management, Inc. is owned by Janus Capital Corporation, a
Colorado corporation.
(8) RCC Group: FGH Realty Credit Corp., FGH USA, Inc., RCC North America,
Inc., FGH USA Realty, Inc., FGH Eastern Region, Inc., FGH Appraisal
Services, Inc., FGH Western Region, Inc., ALH Properties, Inc., First FGP,
Inc., Second FGP, Inc., Third FGP, Inc., Fourth FGP, Inc., Fifth FGP, Inc.,
Sixth FGP, Inc., Seventh FGP, Inc., FGP Midwood, Inc., FGP Parsippany,
Inc., ALH Properties Two, Inc., ALH Properties Three, Inc., ALH Properties
Four, Inc., ALH Properties Five, Inc., ALH Properties Six, Inc., ALH
Properties Seven, Inc., ALH Properties Eight, Inc., ALH Properties Nine,
Inc., ALH Properties Ten, Inc., ALH Properties Eleven, Inc., ALH Properties
Twelve, Inc., ALH Properties Thirteen, Inc., ALH Properties Fourteen, Inc.,
ALH Properties Fifteen, Inc., ALH Properties Sixteen, Inc., ALH Properties
Seventeen, Inc., FGP Keene, Inc., FGP Broadway, Inc., FGP West Street,
Inc., FGP West Street Two, Inc., FGP 90 West Street, Inc., FGP Branford,
Inc., FGP Franklin, Inc., FGP Bala, Inc., FGP Twenty-One, Inc., FGP Twenty-
Two, Inc., FGP Twenty-Five, Inc., FGP Schenectady, Inc., FGP Country
Estates, Inc., FGP Eleventh Street, Inc., FGP 109th Street, Inc., FGP
Seventy-Second Street, Inc., FGP Gaithersburg, Inc., FGP West 32nd Street,
Inc., FGP Beekman, Inc., Dutch Hotel Management, Inc., FGP Landmark, Inc.,
FGP Islandia, Inc., FGP Bridgeport, Inc., FGP Varick, Inc., The RCC Group,
Inc., FGP Union Gardens, Inc., FGP Burkewood, Inc., FGP Stamford, Inc., FGP
Meadow Lane, Inc., FGP Main Street, Inc., FGP Property Services, Inc., FGP
Merrick, Inc., FGP West 14th Street, Inc., FGP 106 Fulton, Inc., FGP Bush
Terminal, Inc., FGP Northern Boulevard, Inc., FGP Seventh Avenue, Inc., FGP
Parsons, Inc., FGP City Hall, Inc., FGP West 88th Street, Inc., FGP
Lincoln, Inc., FGP Emerson, Inc., FGP Brooke, Inc., FGP 86th Street, Inc.,
FGP Edison, Inc., FGP Rider Avenue, Inc., FGP Remsen, Inc., FGP Rockbeach,
Inc., FGP Carter Drive, Inc., FGP Centereach, Inc., FGP Colonial Plaza,
Inc., FGP Coram, Inc., FGP Herald Center, Inc., Eighty Six Yorkville, Inc.
(9) Subsidiaries of ISI Insurance Agency, Inc. are: ISI Insurance Agency of
Ohio, Inc., ISI Insurance Agency of Massachusetts, Inc., and ISI Insurance
Agency of Texas, Inc.
(10) Subsidiaries of Associated Mariner Agency, Inc. are Associated Mariner
Agency of Hawaii, Inc., Associated Mariner Insurance Agency of
Massachusetts, Inc., Associated Mariner Agency Ohio, Inc., Associated
Mariner Agency Texas, Inc., and Associated Mariner Agency New Mexico, Inc.
(11) Owns 50% interest in DJA Partners (a.k.a. "Teleres"), a Delaware general
partnership. Also owns 10% interest in Datalytics, Inc., an Ohio
corporation.
(12) Owns 49% of Quantra Consulting, Inc., a Delaware corporation.
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
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
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
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
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 Series Fund - 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/ISI Planning Corporation - financial planning
Associated Mariner Agency, Inc. - Insurance agency
Mariner Mortgage Corp. - Morgage origination
AUSA Institutional Marketing Group, Inc. - Insurance agency
Colorado Annuity Agency, Inc. - Insurance agency
Realty Information Systems, Inc. - Information Systems for real estate
investment management.
Melson and Associates, Inc. - Real estate financial management consulting
ITEM 27. NUMBER OF POLICYOWNERS
As of December 31, 1996, 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 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 -- Britain
Wright EquiFund -- Canada*
Wright EquiFund -- France*
Wright EquiFund -- Germany*
Wright EquiFund -- Hong Kong
Wright EquiFund -- Ireland*
Wright EquiFund -- Italian
Wright EquiFund -- Japan
Wright EquiFund -- Mexico
Wright EquiFund -- Netherlands
Wright EquiFund -- Nordic
Wright EquiFund -- Spanish*
Wright EquiFund -- Switzerland
Wright EquiFund -- United States*
Wright EquiFund -- Global Fiduciary Equity Fund*
Wright EquiFund -- International Fiduciary Equity Fund*
. 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 $19,690 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.
(d) PFL Life Insurance Company hereby represents that the fees and charges
deducted under the policies, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by PFL Life Insurance Company.
9
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the 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 28th day of April, 1997.
PFL WRIGHT
VARIABLE ANNUITY ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler
---------------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Patrick S. Baird Director
- ----------------------- April 28, 1997
Patrick S. Baird
/s/ Craig D. Vermie Director
- ----------------------- April 28, 1997
Craig D. Vermie
/s/ William L. Busler Director
- ----------------------- April 28, 1997
William L. Busler (Principal Executive Officer)
/s/ Patrick E. Falconio Director
- ----------------------- April 28, 1997
Patrick E. Falconio
/s/ Douglas C. Kolsrud Director
- ----------------------- April 28, 1997
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and
- ----------------------- Corporate Controller April 28, 1997
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer
- ----------------------- April 28, 1997
Brenda K. Clancy
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.*
------- ---------------------- ----
<S> <C> <C>
(10)(a) Consent of Independent Auditors
(10)(b) Opinion and Consent of Actuary
(14) Powers of Attorney
</TABLE>
_________________________________________________________
*Page numbers included only in manually executed original.
<PAGE>
Registration No.
33-61824
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL WRIGHT VARIABLE ANNUITY ACCOUNT
---------------
<PAGE>
EXHIBIT (10)(a)
---------------
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the use of our report dated January 31, 1997 with
respect to the financial statements of The PFL Wright Variable Annuity Account,
and to the use of our report dated February 21, 1997 with respect to the
statutory-basis financial statements and schedules of PFL Life Insurance
Company, included in Post-Effective Amendment No. 4 to the Registration
Statement (Form N-4 No. 33-61824) and related Prospectus of the PFL Wright
Variable Annuity Account.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Des Moines, Iowa
April 25, 1997
<PAGE>
EXHIBIT (10)(b)
---------------
OPINION AND CONSENT OF ACTUARY
<PAGE>
April 10, 1997
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
Re: PFL Wright Variable Annuity Account Registration on Form N-4
SEC File No. 33-61824
Dear Sir/Madam:
With regard to the above registration statement, I have examined such documents
and made such inquiries as I have deemed necessary and appropriate, and on the
basis of such examination, have the following opinions:
Fees and charges deducted under the Wright Variable Annuity policies are those
deemed necessary to appropriately reflect:
(1) the expenses incurred in the acquisition and distribution of the
Policies,
(2) the expenses associated with the development and servicing of the
policies,
(3) the assumption of certain risks arising from the operation and management
of the Policies and that provides for a reasonable margin of profit.
Fees and charges assessed against the policy values in the Variable Account
include:
(i) Service Charge and Administrative Charge
(ii) Mortality and Expense Risk Fee (M&E)
(iii) Taxes (including Premium and other Taxes if applicable)
The magnitude of each of the individual charges listed above in (i) through
(iii) is established in the pricing of the Wright Variable Annuity, to achieve a
reasonable Return on Investment (ROI), which is within the range of industry
practice with respect to comparable variable annuity products.
In the process of determining the reasonable ROI, each individual charge is also
established within the reasonable range of industry practice. For example, in
conjunction with the pricing process the company has analyzed publicly available
information pertaining to similar industry products, taking into consideration
such factors as current charge levels, the existence of charge level guarantees,
guaranteed death benefits, and guaranteed annuity rates. The methodology and
<PAGE>
PFL Life Insurance Company
April 10,1997
Page 2
results of the comparative surveys included in this analysis are maintained at
the company's administrative offices.
Except by coincidence, it is not expected that actual charges assessed in a
given year would exactly offset actual expenses incurred. Acquisition expenses
(as well as major product and/or systems development expenses) are incurred "up
front" and recovered, with a reasonable profit margin, through future years'
charges. In addition, the company cannot increase certain charges under the
Policies in the pricing process.
Therefore, in my opinion, the fees and charges deducted under the Policies, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the company.
I hereby consent to the use of this opinion, which is included as an Exhibit to
the Registration Statement.
/s/ Calvin R. Birkey
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Calvin R. Birkey, FSA, MAAA
Managing Actuary
PFL Life Insurance Company
<PAGE>
EXHIBIT (14)
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POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL WRIGHT VARIABLE ANNUITY
Know all men by these presents that Brenda K. Clancy, whose signature appears
below, constitutes and appoints Brenda K. Clancy and Craig D. Vermie, and each
of them, her attorneys-in-fact, each with the power of substitution, for her in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Wright Variable Annuity, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute, may do or cause to be done by virtue
hereof.
/s/ Brenda K. Clancy
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Brenda K. Clancy
Treasurer
PFL Life Insurance Company
April 28, 1997
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Date
