<PAGE>
File No. 2-28844, 2-28842, 2-28843, 811-1636
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment to
FORM N-3
on
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 45 (2-28844) [X]
46 (2-28842)
47 (2-28843)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25 [X]
(Check appropriate box or boxes)
Variable Annuity Fund I of Southwestern Life
(Exact Name of Registrant)
Southwestern Life Insurance Company
(Name of Insurance Company)
500 North Akard, Dallas, Texas 75201
(Address of Insurance company's Principal Executive Offices) (Zip Code)
Insurance Company's Telephone Number, including Area Code (214) 954-7111
Daniel B. Gail, 500 North Akard, Dallas, Texas 75201
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
The organization and classification of the Registrant under the Investment
Company Act of 1940 was changed from management company to unit investment
trust, effective May ___, 1996. Pursuant to Rule 414 under the Securities
Act of 1933, the Registrant hereby adopts the Registration Statement of the
Registrant on Form N-3 and amends the Registration Statement on Form N-4.
Page 1 of 106<PAGE>
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VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
Cross Reference Sheet
Item Number Form N-4 Caption
PART A - Prospectus
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis Synopsis
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant,
Depositor and Portfolio Companies Southwestern, The Separate Account,
Conversion of the Separate Account,
Growth Portfolio, Voting Rights
6. Deductions and Expenses Deductions for Sales and Other
Expenses
7. General Description of Variable
Annuity Contracts Annuity Contracts, Accumulation
Period, Assignment, Modification,
Contract Owner Inquiries, Rights,
Suspension
8. Annuity Period Annuity Period
9. Death Benefit Death Benefits
10. Purchases and Contract Value Accumulation Period, Principal
Underwriter
11. Redemptions Termination
12. Taxes Federal Tax Consequences
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement
of Additional Information Table of Contents of the Statement
of Additional Information
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PART B - Statement of Additional Information
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History General Information
18. Services Conversion Transaction, Accountants,
General Information
19. Purchase of Securities
Being Offered Purchase of Contracts
20. Underwriters Underwriter, Purchase of Contracts
21. Calculation of Performance Data N/A
22. Annuity Payments Annuity Payments
23. Financial Statements Financial Statements
PART C - Other Information
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
Page 3 of 106<PAGE>
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PROSPECTUS
Variable
Annuity Fund I
of Southwestern Life
SOUTHWESTERN LIFE INSURANCE COMPANY
This prospectus describes group flexible payment contracts ("Contracts")
issued by Southwestern Life Insurance Company ("Southwestern") for use as tax
sheltered annuities in retirement programs that satisfy the requirements of
section 403(b) of the Internal Revenue Code of 1986, as amended ("Code").
Although new Contracts are no longer being issued, Southwestern continues to
accept purchase payments on existing Contracts and new Participants under
existing Contracts.
Variable Annuity Fund I of Southwestern Life ("Separate Account") is a unit
investment trust that invests exclusively in shares of beneficial interest in
the Capital Growth Portfolio ("Growth Portfolio") of Scudder Variable Life
Investment Fund ("Scudder Fund").
This prospectus sets forth information about the Separate Account that a
prospective investor ought to know before investing and should be kept for
future reference. Additional information about the Separate Account has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information, dated May __, 1996, which information is incorporated herein by
reference and is available without charge by writing to Southwestern Life
Insurance Company, P.O. Box 2699, Dallas, Texas 75221-9917, or by calling
1-800-792-4368.
The Table of Contents of the Statement of Additional Information appears on
page 15 of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus Dated May __, 1996
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<PAGE>
TABLE OF CONTENTS
Page
Definitions 3
Synopsis 3
The Contracts 3
The Separate Account 4
Condensed Financial Information 4
Southwestern 5
The Separate Account 6
Conversion of Separate Account 7
Portfolio Voting Rights 7
Deductions and Expenses 7
Deductions for Sales and Other Expenses 7
Charges for Mortality and Expense Undertakings 7
Other Expenses 8
Annuity Contracts 8
Accumulation Period 8
Application for Contracts 8
Crediting Accumulation Units 8
Value of an Accumulation Unit 8
Net Investment Factor 8
Valuation of the Separate Account 9
Termination 9
Annuity Period 10
Annuity Forms 10
Death Benefits 11
Death Before the Annuity Date 11
Death After the Annuity Date 11
Federal Tax Consequences 11
Assignment 13
Modification 13
Suspension 14
Principal Underwriter 14
Legal Proceedings 14
Contract Owner Inquiries 14
Earlier Contracts 14
Table of Contents of the Statement of Additional
Information 15
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION
TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
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DEFINITIONS
Accumulation Unit: a measuring unit used to calculate the value of a Contract
before annuity payments begin.
Annuitant: a person on whose life annuity payments are based.
Annuity Unit: a measuring unit used to calculate the amount of annuity
payments.
Contract Owner: the person who has title to the Contract.
Fixed-Dollar Annuity: an annuity providing for payments that remain fixed in
amount throughout the payment period.
General Account: all assets of Southwestern that are not allocated to and
made a part of the Separate Account or any other segregated account of
Southwestern.
Participant: a person who makes Purchase Payments, or for whom Purchase
Payments are made, under a group Contract.
Purchase Payment: amount paid to Southwestern pursuant to the Contract.
Valuation Date: Each Monday through Friday with certain limited exceptions
such as days when changes in the value of the investment company's portfolio
securities do not materially affect the current net asset value of the
investment company's redeemable securities, and on the day following
Thanksgiving.
Variable Annuity: an annuity providing for payments that vary in amount with
the investment experience of the Separate Account.
SYNOPSIS
The Contracts
The Contracts offered by this prospectus are group flexible premium variable
annuity Contracts under which annuity payments will commence on a selected
future date (see "Annuity Period," page 10). The Contracts primarily are
intended for use as tax-sheltered annuity contracts issued to employees of
public school systems, certain tax-exempt organizations and state-supported
educational systems pursuant to section 403(b) of the Code (see "Federal Tax
Consequences," page 12). A Contract that covers all Participants is issued to
the Contract Owner. Each Participant receives a certificate that summarizes
the provisions of the Contract and evidences participation in the annuity
purchase plan.
The minimum initial and subsequent premium under the Contract is $10 (see
"Application for Contracts," page 8). Premiums, less deductions for sales and
administrative expenses and applicable premium taxes, are held in the Separate
Account. The deduction for sales and administrative expenses is 6 1/4%,
consisting of 3 1/4% for sales expense and 3% for administrative expense (see
"Deductions for Sales and Other Expenses," page 7). Where applicable, a
deduction is made from each payment for premium taxes (currently ranging from
.5% to 3.0%). The Contract provides for charges equal to 1% on an annual basis
of the average daily net asset value of the Separate Account, for mortality
and expense risk undertakings by Southwestern. Southwestern estimates .70% is
allocated to its mortality undertakings and .30% to its expense undertaking
(see "Charges for Mortality and Expense Undertakings," page 7).
The Contract includes Southwestern's undertaking to provide annuity payments
determined in accordance with the applicable annuity tables and other
provisions in the Contract for the lifetime of the Annuitant regardless of the
actual mortality experience among Annuitants. Southwestern also provides an
undertaking that the deductions for sales and administrative services will be
the only cost to Participants for these services regardless of the actual cost
to Southwestern.
During the accumulation period, a Participant's account or a portion thereof
may be redeemed for a cash payment equal to the value of the Accumulation
Units redeemed, valued at the next determined unit value after Southwestern
receives notice of the redemption request (see "Termination," page 9). No
redemption charge is imposed.
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<TABLE>
==============================================================================
<S> <C>
Contract Owner Transaction Expenses (1), as a percentage
of the purchase payments Sales Load Imposed on Purchases 3.25 %
Administrative Expenses 3.00 %
Separate Account Annual Expenses, as a percentage of average
net assets (for the year ended December 31, 1995, as adjusted) (2)
Mortality Risk Fees 0.70 %
Expense Risk Fees 0.30 %
Other expenses 0.20 %
------
Total Separate Account Annual Expenses 1.20 %
Growth Portfolio Annual Expenses, as a percentage of average net
assets (for the year ended December 31, 1995, as adjusted)
Total Growth Portfolio Operating Expenses 0.57 %
- ------------------------------------------------------------------------------
<CAPTION>
EXAMPLE (4) 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
If you surrender (or annuitize) your
Contract at the end of the applicable
time period:
You would pay the following expenses on
a $1,000 investment, assuming 5% annual
return on assets: $80 $116 $156 $276
If you do not surrender your Contract:
You would pay the following expenses on
a $1,000 investment, assuming 5% annual
return on assets: $80 $116 $156 $276
(1) State Premium Taxes (ranging from .5% to 3.0%) are not included.
(2) Actual expenses adjusted to reflect the conversion of the Separate
Account from a management investment company to a unit investment trust,
effective __________, 1996.
(3) Audit expense of the Separate Account (limited to 20% of net asset
value). In connection with the conversion of the Separate Account into a
unit investment trust, Southwestern agreed to assume the audit expense of
the Separate Account to the extent it would otherwise exceed 0.20% of the
Separate Account's average net assets in any year.
(4) Assumes the conversion of the separate account to a unit investment
trust was effective throughout the periods presented.
The EXAMPLE, a projection, should not be considered a representation of past
or future expenses. Actual expenses may be greater or lesser than those shown.
THE PURPOSE OF THE ABOVE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING
THE EXPENSES THAT THEY BEAR DIRECTLY AND INDIRECTLY. THE TABLE ABOVE REFLECTS
THE EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THE CAPITAL GROWTH PORTFOLIO.
SEE "DEDUCTIONS AND EXPENSES," PAGE 7, AND THE ACCOMPANYING PROSPECTUS OF THE
SCUDDER FUND.
==============================================================================
As described in Note 2 of the above table, the expense information in the
table has been adjusted to reflect the conversion of the Separate Account from
a management investment company to a unit investment trust.
The Separate Account
The Separate Account operates as an investment company registered with the
Securities and Exchange Commission ("Commission") under the Investment Company
Act of 1940 ("1940 Act"). Effective ________, the Separate Account converted
from an open-end diversified management company to a unit investment trust.
The Separate Account invests exclusively in shares of the Capital Growth
Portfolio of Scudder Variable Life Investment Fund. The investment objectives
of the Growth Portfolio are discussed in the accompanying prospectus of the
Scudder Fund.
CONDENSED FINANCIAL INFORMATION
The following information is based upon the performance of the Separate
Account when it was organized as an open-end diversified management company.
The per unit income and capital changes data for the ten years ended December
31,1995, have been examined by Coopers & Lybrand L.L.P., independent certified
public accountants. The data reflects operations conducted before May 1, 1987,
the date SLC Financial Services, Inc. became the investment adviser of the
Separate Account. Upon conversion of the Separate Account to a unit investment
trust, SLC Financial Services, Inc. ceased to serve as investment adviser of
the Separate Account.
Page 7 of 106<PAGE>
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(For an accumulation unit outstanding throughout the year)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Qualified unit:
Investment income $ .213 $ .187 $ .176 $ .163 $ .188 $ .222 $ .172 $ .111 $ .084 $ .081
Expenses .131 .106 .105 .097 .084 .074 .065 .053 .049 .045
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income .082 .081 .071 .066 .104 .148 .107 .058 .035 .036
Net realized and unrealized gain
(loss) on securities 1.547 .231 .101 .200 .918 (.116) .811 .188 (.167) (.054)
Net increase (decrease) in unit ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
value 1.629 .312 .172 .266 1.022 .032 .918 .246 (.132) (.018)
Unit value:
Beginning of year 5.710 5.398 5.226 4.960 3.938 3.906 2.988 2.742 2.874 2.892
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
End of year $7.339 $5.710 $5.398 $5.226 $4.960 $3.938 $3.906 $2.988 $2.742 $2.874
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding at
end of year (in thousands) 548 685 701 764 930 1,156 1,399 1,819 2,193 2,641
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Nonqualified unit:
Investment income $ .195 $ .170 $ .160 $ .149 $ .171 $ .202 $ .157 $ .101 $ .076 $ .074
Expenses .120 .096 .096 .088 .076 .067 .059 .048 .044 .041
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income .075 .074 .064 .061 .095 .135 .098 .053 .032 .033
Net realized and unrealized
gain (loss) on securities 1.408 .210 0.92 .183 .834 (.106) .737 .171 (.152) (.049)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease) in unit
value 1.483 .284 .156 .244 .929 .029 .835 .224 (.120) (.016)
Unit value:
Beginning of year 5.197 4.913 4.757 4.513 3.584 3.555 2.720 2.496 2.616 2.632
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
End of year $6.680 $5.197 $4.913 $4.757 $4.513 $3.584 $3.555 $2.720 $2.496 $2.616
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding at
end of year (in thousands) 115 112 112 116 116 124 135 139 156 161
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
----------------------------------------------------------------------------------------
Ratios:
Expenses to average
net assets % 1.94 1.91 1.98 1.95 1.92 1.91 1.83 1.81 1.47 1.43
Net investment income to
average net assets % 1.21 1.47 1.33 1.35 2.39 3.85 3.01 1.98 1.06 1.16
Portfolio turnover % 0 6 9 5 25 8 44 18 6 78
</TABLE>
Note: Prior to 1984, federal income taxes or benefits were charged or credited
to accumulation unit values on nonqualified units on each valuation date and
affected net realized and unrealized gain (loss).
The Separate account has had no senior securities (or outstanding bank loans)
during the last ten fiscal years.
Financial Statements of the Separate Account and Southwestern may be found in
the Statement of Additional Information. A copy of the Statement of Additional
Information may be obtained without charge by written request to Southwestern
Life Insurance Company, P.O. Box 2699, Dallas, Texas 75221-9917, or by
calling 1-800-792-4368.
SOUTHWESTERN
Southwestern is a stock life insurance company originally chartered in 1903
under the laws of the State of Texas. Its home office is located at 500 North
Akard Street, Dallas, Texas 75201. Southwestern primarily writes life
insurance. It is licensed to write life insurance business in 39 states and in
the District of Columbia. Southwestern is an indirect wholly-owned subsidiary
of Southwestern Financial Corporation ("SFC"), an insurance holding company.
SFC is owned by two entities: PennCorp Financial Group, Inc., which indirectly
holds 15.1% of the voting stock of SFC, and Knightsbridge Capital Fund I,
L.P., which directly holds 84.9% of the voting stock of SFC.
Page 8 of 106<PAGE>
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THE SEPARATE ACCOUNT
On December 19, 1967, the Board of Directors of Southwestern established the
Separate Account in accordance with certain provisions of the Texas Insurance
Code. The Separate Account is registered with the Commission as a unit
investment trust under the 1940 Act. Such registration does not involve
supervision by the Commission of the management or investment practices or
policies of the Separate Account.
The Separate Account is administered and accounted for as part of the general
business of Southwestern, but the income, gains and losses whether or not
realized, from assets allocated to the Separate Account are, in accordance
with the Contracts, credited or charged against the Separate Account without
regard to other income, gains or losses of Southwestern. Assets of the
Separate Account are not chargeable with liabilities arising out of any other
business of Southwestern.
All obligations arising under the Contract, including the obligation to make
annuity payments, are general corporate obligations of Southwestern and all of
Southwestern's assets are available to meet its expenses and obligations under
the Contracts. However, while Southwestern is obligated to make the variable
annuity payments under a Contract, the amount of these payments is not
guaranteed.
On April 23, 1996, the University of Texas at Austin, P.O. Box 8047, Austin,
Texas 78712, owned a group variable annuity contract which represented 11.28%
of the assets of the Separate Account. In addition, Southwestern owned a
13.04% interest in the assets of the Separate Account, as of April 23, 1996,
by virtue of its initial contribution to the Separate Account when the
Separate Account was organized.
CONVERSION OF SEPARATE ACCOUNT
Effective _______, 1996, the Separate Account converted from a management
investment company into a unit investment trust (the "Conversion"). The
Separate Account no longer invests directly in a diversified portfolio of
securities, but instead invests exclusively in the shares of the Growth
Portfolio.
GROWTH PORTFOLIO
The Capital Growth Portfolio is a series of Scudder Variable Life Investment
Fund, a Massachusetts business trust established by Declaration of Trust dated
March 15, 1985. The Scudder Fund is registered with the Commission under the
1940 Act as an open-end, diversified management investment company. Such
registration does not involve supervision of the Commission of the management
or investment practices or policies of the Scudder Fund. The Scudder Fund is
designed to provide an investment vehicle for variable annuity contracts and
variable life insurance policies offered by separate accounts of life
insurance companies.
The Growth Portfolio seeks to maximize long-term capital growth through a
broad and flexible investment program. The Growth Portfolio invests primarily
in marketable securities, principally common stocks and consistent with its
objective of long-term capital growth, preferred stocks. The Growth Portfolio
is free to invest in a wide range of marketable securities offering the
potential for growth, in various sectors of the stock market, including
companies that own or develop natural resources, companies that may benefit
from changing consumer demands and lifestyles and foreign companies. In order
to reduce risk, as market or economic conditions may warrant, the Growth
Portfolio may also invest up to 25% of its assets in short-term debt
instruments.
In addition, Growth Portfolio may invest up to 20% of its net assets in
intermediate to longer-term debt securities when Growth Portfolio's investment
adviser, Scudder, Stevens & Clark, Inc. ("Scudder"), anticipates that the
total return on debt securities is likely to equal or exceed the total return
on common stocks over a selected period of time. The Growth Portfolio may
purchase investment-grade debt securities, which are those rated Aaa, Aa, A or
Baa by Moody's Investors Service, Inc., or AAA, AA, A or BBB by Standard &
Poor's or if unrated, of equivalent quality as determined by the adviser. The
Growth Portfolio's intermediate to longer-term debt securities may also include
those which are rated below investment grade, as long as no more than 5% of its
net assets are invested in such securities.
The accompanying prospectus of the Scudder Fund should be read carefully
before investing. It contains more detailed information about the Growth
Portfolio, including the risks of investing in the Growth Portfolio.
Page 9 of 106<PAGE>
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VOTING RIGHTS
Contract Owners have the opportunity to instruct Southwestern as to the
voting of Growth Portfolio shares at meetings of shareholders of the Scudder
Fund, in proportion to their respective interest under the Contracts. Contract
Owners entitled to vote will receive proxy material and a form on which voting
instructions may be given. Southwestern will vote the shares of the Growth
Portfolio held by the Separate Account attributable to the Contracts, in
accordance with instructions received from Contract Owners. Such shares for
which timely instructions have not been received from Contract Owners will be
voted by Southwestern for or against any proposition, or Southwestern will
abstain in the same proportion as shares in the Separate Account for which
instructions are receive. Southwestern will vote, or abstain from voting, any
Growth Portfolio shares that are not attributable to Contract Owners in the
same proportion as all Contract Owners in the Separate Account vote or
abstain. However, if Southwestern determines that it is permitted to vote such
shares of the Growth Portfolio in its own right, it may elect to do so,
subject to the then-current interpretations of the 1940 Act and the rules
thereunder.
Unless the Contract has been issued in connection with a deferred
compensation plan, individuals participating under a Contract Owners's
retirement plan have the right to instruct the owner with respect to shares
attributable to their contributions and to such additional extent as the
owner's retirement plan may permit. For purposes of determining voting rights,
the number of shares of the Growth Portfolio held in the Separate Account
deemed attributed to a Participant's interest under a Contract prior to the
annuity date will be determined on the basis of the value of the accumulation
units credited to the Participant's account as of the record date. On or after
the annuity commencement date, the number of attributable shares will be based
on the value of the assets held in the Separate Account to meet annuity
obligations to the payee under the Contracts as of the record date. In either
case, the number of Growth Portfolio shares eligible to be voted is computed by
dividing the "value" so determined by the net asset value of the Growth
Portfolio share on the record date. During the annuity period, the number of
votes attributable to a Contract will generally decrease since funds held in
the Separate Account for an annuitant will decrease over time.
Because the Scudder Fund is organized as a Massachusetts business trust, it
is not required to elect Trustees of the Scudder Fund annually and does not
expect to hold annual meetings for any other purpose. Nevertheless, if
Trustees of the Scudder Fund are required to be elected or any other action is
required to be taken at any special or annual meeting of Scudder Fund,
instructions for voting shares underlying the interests of Contract Owners
will, as indicated above, be solicited by means of proxy materials.
DEDUCTIONS AND EXPENSES
Charges under the Contracts are assessed in two ways: as deductions from
Purchase Payments and as charges to the Separate Account. The level of these
fees may be revised periodically (see "Modification," page 13).
Deductions for Sales and Other Expenses
Deductions are made from each Purchase Payment as received to cover: (i)
sales expenses; (ii) administrative expenses, including but not limited to
items such as salaries and travel expenses of home office officials and
employees, rent, postage, telephone, legal fees, office equipment, stationery
and other office expenses; and (iii) premium taxes, when applicable. The
deductions for administrative expenses are designed only to reimburse
Southwestern for its actual expenses, and Southwestern does not expect to
recover from these deductions any amounts above its accumulated expenses in
administering the Contracts. These deductions do not cover: (i) taxes arising
from income and capital gains on the Separate Account or otherwise from the
existence of the Separate Account; (ii) fees and expenses of audit of the
Separate Account. These other expenses are borne by the Separate Account other
than taxes on income and capital gains (if any) as may be attributable to
Southwestern's initial capital contribution to the Separate Account, which
taxes will be borne by Southwestern. The cost of preparing and printing annual
or other amendments to the Separate Account's registration statement, including
prospectuses, is borne by Southwestern.
Page 10 of 106<PAGE>
<PAGE>
Under the Contracts, the deduction is 6 1/4% (plus applicable premium taxes),
consisting of 3 1/4% for sales expense and 3% for administrative expense. This
represents 6.67% (excluding any premium tax) of the amount invested. At the
time annuity benefits are purchased, any additional premium taxes are
deducted. Premium taxes may range from .5% to 3.5%. No deduction for sales or
administrative expense is made from a Purchase Payment composed entirely of an
amount payable by Southwestern under a fixed-dollar group annuity contract
issued by Southwestern.
Charges for Mortality and Expense Undertakings
Southwestern provides a mortality undertaking by assuming the risk that its
actuarial estimate of mortality rates among Annuitants may prove erroneous and
that reserves set up on the basis of this estimate will not be sufficient to
meet its annuity payment obligations. Southwestern provides an expense
undertaking by assuming the risk that charges made under the Contracts may not
prove sufficient to cover the actual cost of providing sales, administrative
and other services. If the reserves or charges prove more than sufficient, the
excess will be a profit to Southwestern. If the reserves or charges are not
sufficient, the loss will fall on Southwestern. If the cost of selling the
Contracts is greater than the charges collected, the deficiency will be made
up out of Southwestern's General Account assets which may include profits
derived from the mortality undertaking fee.
Other Expenses
Accounting fees (not to exceed 0.20% of the Separate Account's average net
assets in any year) are charged against the assets of the Separate Account at
cost, pursuant to Rule 26a-1 under the 1940 Act. In addition, there are
deductions from and expenses paid out of the Growth Portfolio that are
described in the accompanying prospectus of the Scudder Fund.
THE ANNUITY CONTRACTS
The basic objective of the Contracts is to provide benefits over the lifetime
of an Annuitant that will tend to vary with changes in the cost of living.
There is no assurance that the value of a Participant's account will equal or
exceed the Purchase Payments made.
The dollar amount of variable annuity payments varies with the investment
experience of the Separate Account and reflects the Separate Account's
investment experience throughout the Contract's existence. The value of the
Separate Account's investments in the Growth Portfolio fluctuates daily and is
subject to all the risks of changing economic conditions, as well as the risk
inherent in the Scudder Fund's ability to anticipate changes in investments
necessary to meet changes in economic conditions.
Because it is impossible to predict how long an Annuitant will live and
because annuity payments vary, there is no way of knowing whether the
aggregate amount of the variable annuity payments received in the years
following the commencement of annuity payments will equal or exceed the amount
applied to provide these payments.
ACCUMULATION PERIOD
Application for Contracts
New Contracts are no longer being marketed or issued. However, Southwestern
continues to accept Purchase Payments on existing Contracts and to accept new
Participants under existing group Contracts.
When new Contracts were being marketed and issued, completed applications for
the Contracts were forwarded to the home office of Southwestern for
acceptance. A Purchase Payment may accompany an application for a Contract. The
minimum initial and subsequent Purchase Payment for a Contract is $10.
Each application was subject to acceptance by Southwestern. As a general rule,
Contracts were issued if any of the following situations existed: (i) there
were fifty or more eligible employees; (ii) there were ten or more
Participants; or (iii) there were at least three Participants and it was
anticipated that contributions under the Contract would aggregate at least
$3,000 per year for the next ten years. Upon acceptance, a Contract was issued
to the Contract Owner and, if a Purchase Payment accompanied the application,
the Purchase Payment (net of deductions for sales and administrative expenses
and applicable premium
Page 11 of 106<PAGE>
<PAGE>
taxes) was held in the Separate Account and credited to the Participant's
account. If an application was complete upon receipt, the Purchase Payment was
credited to the Participant's account within two business days. If it was not
complete, Southwestern requested additional information to complete the
processing of the application. If this was not accomplished within five
business days, Southwestern would return the Purchase Payment to the
applicant unless otherwise instructed. Subsequent Purchase Payments are
credited to the Participant's account at the price next computed after the
Purchase Payment is received by Southwestern at its home office.
Crediting Accumulation Units
Purchase payments (net of deductions for sales and administrative expenses and
applicable premium taxes) are credited to the Contract in the form of
Accumulation Units. The number of units credited is determined by dividing the
amount credited by the value of an Accumulation Unit next determined after the
Purchase Payment is received by Southwestern at its home office.
The number of Accumulation Units credited is not affected by any subsequent
change in the value of an Accumulation Unit, but the dollar value of an
Accumulation Unit may vary from date to date depending upon the investment
experience of the Separate Account.
Value of an Accumulation Unit
The value of an Accumulation Unit is determined on each Valuation Date by
multiplying the Accumulation Unit value for the immediately preceding date by
the net investment factor for the current date. The value of a Participant's
account at any time prior to the commencement of annuity payments can be
determined by multiplying the total number of Accumulation Units credited to
his or her account by the current Accumulation Unit value. The Participant
will be advised at least twice each year of the number of Accumulation Units
credited to his or her account and the current dollar value of an Accumulation
Unit.
Net Investment Factor
The net investment factor is an index of the percentage change (adjusted for
the deduction of the fees for audit and mortality and expense undertakings) in
the net asset value of the Separate Account since the preceding Valuation
Date. This factor may either be positive or negative depending upon the Growth
Portfolio's investment performance.
Valuation of the Separate Account
The value of the Separate Account is the sum of its assets minus its
liabilities. Because the Separate Account invests exclusively in the Growth
Portfolio, the fair market value of its assets will be based on the net asset
value of the Growth Portfolio. For the calculation of the net asset value of
the Growth Portfolio, see the current prospectus for the Growth Portfolio, a
current copy of which accompanies this prospectus. Portfolio securities
generally are valued at market value. However, securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by the Trustees of the Scudder Fund. Short-term obligations are
valued at amortized cost.
Termination
During the accumulation period a Participant's account, or a portion thereof,
may be redeemed for a cash payment equal to the value of the Accumulation
Units redeemed as next determined after receipt of proper notice by
Southwestern at its home office on a form obtained from Southwestern. Upon
redemption of a portion of a Participant's account, the account is reduced by
the number of Accumulation Units redeemed. No redemption charge is imposed by
Southwestern.
A redemption of all or a portion of a Participant's account resulting in a
cash payment to a resident of any one of certain states may result in a
reduction of Southwestern's premium tax liability in that state. In this
event, Southwestern will pay in addition to the value of the Accumulation
Units redeemed, an amount equal to the lesser of:
(i) the amount by which the premium tax liability of Southwestern
is reduced as a result of this redemption, or
Page 12 of 106<PAGE>
<PAGE>
(ii) the amount previously deducted for premium taxes from Purchase
Payments allocable to the Accumulation Units redeemed.
No representation is hereby made that upon the redemption of all or a portion
of an account that any additional payment will be made, since the state of
residence of the Participant and the premium tax laws of that state at the
time of redemption will determine the additional amount payable, if any.
Any cash payment resulting from the partial or complete redemption of a
Participant's account is payable within seven days following receipt by
Southwestern of the request for redemption in proper form provided, however,
the right is reserved to suspend or postpone redemptions during any period
when:
(i) trading on the New York Stock Exchange is restricted by the
Commission or the Exchange is closed for other than weekends
and holidays,
(ii) the Commission has by order permitted suspension, or
(iii) an emergency as determined by the Commission exists making
disposal of portfolio securities or valuation of assets of the
Separate Account not reasonably practicable.
In addition to an election to receive a cash payment for the value of a
Participant's account, the following options are available. An election may be
made to use the redemption value of an account to purchase an individual
deferred fixed dollar annuity or variable annuity. Any such conversion will be
made and the provisions and annuity purchase tables of the contract will be in
accordance with the rules of Southwestern in effect with respect to the
annuity contracts at the time application is made to Southwestern. A
Participant under a Contract who becomes an employee of another employer which
has a contract of the same type then in force with Southwestern may elect,
subject to approval of Southwestern and the new employer, to transfer the
value of his or her individual account to that contract.
If a Contract is issued in connection with the Texas Optional Retirement
Program for employees of certain state-supported educational institutions, a
redemption will require the joinder of the Contract Owner and, in accordance
with an opinion of the Attorney General of Texas, may not be effected prior to
termination of employment, retirement or death of the Participant. Certain
restrictions on distributions from annuity contracts sold to plans qualified
under section 403(b) of the Code also apply. (See "Federal Tax Consequences,"
page 11.)
A Participant may, one time only and within thirty days after a redemption,
reinvest the proceeds with no deduction for sales or other expenses.
ANNUITY PERIOD
The annuity period is that period during which annuity payments are made. The
Participant may select any date for annuity payments to commence with the
exception that annuity payments must begin within five years after the
standard annuity commencement date selected by the Contract Owner. During the
annuity period, an Annuitant receives a monthly variable annuity payment
determined on the basis of the number of variable Annuity Units purchased and
the investment experience of the Separate Account. In addition, the level of
annuity payments is affected by the age of the Annuitant and the annuity form
selected. Each annuity payment is payable on the first business day following
the due date of the payment.
The amount of a variable annuity payment is not affected by adverse mortality
experience or by any excess in Southwestern's expenses over expense deductions
provided for in the Contract. Accordingly, Southwestern provides an
undertaking that its actual expense and actual mortality results will not
adversely affect the dollar amounts of variable annuity payments.
Each month, the Annuitant receives the value of a fixed number of Annuity
Units. The value of an Annuity Unit, and the amount of the monthly payments,
reflects the Separate Account's investment gains and losses and investment
income. Accordingly, payments vary with the investment experience of the
assets of the Separate Account, namely, shares of the Growth Portfolio.
Page 13 of 106<PAGE>
<PAGE>
The Annuity Unit is a measure of the value of the Annuitant's income from a
variable annuity Contract during the annuity period. The value of an Annuity
Unit is determined by multiplying the value of an Annuity Unit for the
immediately preceding date by the product of (i) the net investment factor for
the date the value is calculated and (ii) a factor to neutralize the net
investment rate built into the annuity tables contained in the Contract.
The objective of the Contract is to provide annuity payments that tend to vary
with changes in the cost of living over the life of an Annuitant.
The achievement of this objective depends in part upon the validity of the
assumption that the annual net investment rate built into the annuity tables
will be realized. Payments will be smaller than, equal to or greater than the
first payment, depending upon whether the actual net investment rate is
smaller than, equal to or greater than the assumed annual net investment rate.
A higher assumption would mean a higher initial payment but a more slowly
rising series of subsequent payments if actual investment performance exceeds
the assumed rate, or a more rapidly falling series of subsequent payments if
actual performance is less than the assumed rate. A lower assumption would
have the opposite effect. If the actual net investment rate is at the assumed
rate, the annuity payments are level.
Annuity Forms
The Annuitant is generally given the choice of receiving annuity payments in
accordance with the annuity forms set forth in the Contract. The right to
elect annuity forms may be restricted to comply with the Code. In the absence
of an effective election, a variable annuity on Annuity Form 2 will be deemed
to have been elected, with annuity payments guaranteed for ten years.
In general, the longer annuity payments are guaranteed, the lower the amount
of each payment. No minimum value for a Participant's account is required to
elect any of the annuity forms specified below.
Annuity Form 1 - Life Annuity
An annuity payable monthly during the lifetime of the Annuitant and
terminating with the last monthly payment preceding the death of the
Annuitant. This annuity form offers the maximum level of monthly payments
since there is no undertaking by Southwestern to provide a minimum number of
payments or a death benefit for beneficiaries. It would be possible for the
Annuitant to receive only one payment, if he or she died prior to the due date
of the second annuity payment.
Annuity Form 2 - Life Annuity with 5, 10, 15 or 20 Years Certain
An annuity payable monthly during the lifetime of an Annuitant with payments
assured for an elected certain period of 5, 10, 15 or 20 years. If the
Annuitant dies during the period, however, the beneficiary may elect to
receive in one sum the present value of the remaining number of payments,
based on interest at the assumed annual net investment rate in the annuity
table included in the Contract, compounded annually.
Annuity Form 3 - Unit Refund Life Annuity
An annuity payable monthly during the lifetime of the Annuitant, terminating
with the last payment due prior to death of the Annuitant, provided that the
beneficiary will then receive a payment of the dollar value, as of the date of
the Annuitant's death, of a number of Annuity Units equal to the excess, if
any, of (a) over (b) where (a) is the total amount applied under this annuity
form divided by the Annuity Unit value for the date on which annuity payments
commence and (b) is the number of Annuity Units represented by each monthly
payment multiplied by the number of monthly payments made.
Annuity Form 4 - Joint Life and Survivor Annuity - 10 Years Certain
An annuity payable monthly for 10 years and so long thereafter as either the
Annuitant or the joint Annuitant shall live. If both Annuitants die during the
certain period, the present value of the remaining payments, based on interest
at the assumed annual net investment rate in the annuity table included in the
Contract, compounded annually, will be paid.
Page 14 of 106<PAGE>
<PAGE>
A participant may, if a greater initial payment would result, prior to the due
date of the first annuity payment, elect an annuity with a first monthly
payment in the amount which can be provided by a single premium life annuity
contract, if any are then being issued by Southwestern, at the current
published rates with a single premium equal to 103% of the amount that would
otherwise be applied to determine the first monthly payment.
DEATH BENEFITS
Death Before the Annuity Date
Under the Contract, the amount payable upon death of a Participant before the
due date of the first annuity payment is equal to the dollar value of the
Participant's individual account as of the date on which proof satisfactory to
Southwestern of the Participant's death is received by Southwestern.
If the total death benefit is $2,000 or more, payment may be made to the
beneficiary in installment payments instead of one cash payment or payment may
be deferred for a specified period of time, during which interest is added by
Southwestern to the sum deferred.
All certificates issued after January 18, 1985, are required by the Code to
provide that, if the Participant dies before the annuity starting date, his or
her entire interest must be distributed within 5 years. An exception to this
requirement exists for any portion of the participant's interest payable to
(or for the benefit of) a designated beneficiary, and (i) such portion will be
distributed over the life, or a period not exceeding the life expectancy of
the designated beneficiary and (ii) such distributions will begin not later
than one year after the Participant's death or such later date as may be
prescribed by regulations issued by the Secretary of the Treasury. If the
designated beneficiary is the surviving spouse of the Participant, he or she
will be treated as the Participant.
Death After the Annuity Date
If the Annuitant under the Contract dies after the annuity date, the death
proceeds, if any, depend upon the form of annuity payment in effect at the
time of death (see "Annuity Forms," page 11).
A certificate issued after January 18, 1985, is also required to provide that,
if the Annuitant dies on or after the annuity date, the remaining portion of
his or her interest will be distributed at least as rapidly as under the
method of distribution used at the date of the Annuitant's death.
FEDERAL TAX CONSEQUENCES
The operations of the Separate Account form part of the operations of
Southwestern, but the Code currently provides that if certain conditions are
satisfied no federal income tax is payable by Southwestern on the investment
income and capital gains of the Separate Account other than the amount of such
income and capital gain (if any) as may be attributable to Southwestern's
initial capital contribution in the Separate Account. No federal income tax is
payable by a Participant under a certificate until annuity payments commence
or a full or partial withdrawal is made if the investments of the Separate
Account (directly or indirectly, through the Growth Portfolio) meet certain
diversification requirements.
The amount of premiums paid by the employer are excluded from the employee's
income for the taxable year to the extent that the payments do not exceed the
employee's exclusion allowance for the taxable year. In addition,
tax-sheltered annuities may permit nondeductible employee contributions.
Payments to purchase a tax-sheltered annuity contract for an employee are
subject to the overall limits on contributions and benefits applicable to
tax-sheltered plans under section 403(b) or, if applicable, section 415 of the
Code.
All distributions, with the exception of a return of nondeductible employee
contributions, are included in gross income in the year they are paid. If an
amount is received before the annuity starting date, the Participant may be
allowed to recover pre-1987 nondeductible employee contributions tax-free
before receiving the taxable income. Otherwise, both before and after the
annuity starting date, each payment under a certificate is treated in part as
a return of nondeductible employee contributions and the remainder as taxable
income.
Page 15 of 106<PAGE>
<PAGE>
The Tax Reform Act of 1986 imposes restrictions on distributions (i.e.,
redemptions in whole or part) from annuity contracts sold to plans qualified
under section 403(b) of the Code. These restrictions are effective in tax
years beginning after December 31, 1988. Section 403(b)(11) of the Code
requires that for such annuity contracts to receive tax-deferred treatment,
they must provide that:
Distributions attributable to contributions made pursuant to a salary
reduction agreement be paid only:
(1) when the employee attains age 59 1/2 separates from service, dies, or
becomes disabled (within the meaning of section 72(m) (7)); or
(2) in the case of hardship. In hardship cases, only the distribution of
contributed amounts is permitted; distribution of any income attributable
to these contributions is prohibited.
The contracts described in this prospectus were modified to comply with these
changes in the Code. Disclosure relating to "Termination" of the contracts and
redemption of all or a portion of a Participant's account should be read with
the above restrictions in mind.
Distributions from contracts that are attributable to assets held as of
December 31, 1988, are not subject to these Code restrictions.
In the case of benefits accruing under a tax-sheltered annuity after 1986, the
Contract value must be distributed or annuity payments must be commenced by
April 1 of the calendar year following the year in which the Participant
retires or attains age 70 1/2. Such payments are based upon the life expectancy
or a period not exceeding the life expectancy of the Participant or the
Participant and a designated beneficiary. At least 50% of the present value of
the amount available for distribution under a tax-sheltered annuity must be
paid within the life expectancy of the Participant. This rule does not apply
where the Participant's spouse is the designated beneficiary, but each payment
to the spouse must be no greater than each payment to the Participant and
spouse. If certain requirements of the Code are met, distributions from a
tax-sheltered annuity may be rolled over tax-free to another qualified plan or
to an IRA. However, distributions required to be made under the Code cannot be
rolled over.
Southwestern is required to withhold federal income tax on annuity payments
and on distributions required by the Code. However, recipients of Contract
distributions are allowed to make an election not to have federal income tax
withheld. After such an election is made with respect to annuity payments, an
Annuitant may revoke the election at any time, and commence withholding. In
this case, Southwestern will notify the payee at least annually of his or her
right to change the election.
However, for any lump-sum, partial or other distributions made on or after
January 1, 1993, that are eligible in whole or in part to be rolled over
tax-free into another eligible plan, contract or IRA, Southwestern is required
to withhold 20% of the taxable portion of the distribution, unless the
eligible portion of the distribution is transferred directly to such other
plan, contract or IRA in a direct "trustee-to-trustee" transfer. Recipients of
such distributions are not permitted to waive the 20% withholding requirement.
Payees are required by law to provide Southwestern (as payor) with their
correct taxpayer identification number. If the payee is an individual, this
number is his or her social security number.
The description in this prospectus of the federal tax status of amounts
accumulated or received under the Contract is not exhaustive and is for
general information purposes only. For this reason, a qualified tax adviser
should be consulted for complete tax information regarding any specific
situation.
ASSIGNMENT
Assignment by a Participant of his or her interest in any payment or benefits
under a Contract is prohibited, unless such prohibition is contrary to
applicable law.
MODIFICATION
The Contracts may be modified by Southwestern from time to time to the extent
necessary to make the Contracts conform to any law or regulation issued by a
governmental agency. No other modification can be made before the Contract's
fifth anniversary without the Contract Owner's agreement. No mutually agreed
upon modification, however, will adversely affect Accumulation or Annuity
Units credited before its effective date without the agreement of Participants
and Annuitants covered by the Contract.
Page 16 of 106<PAGE>
<PAGE>
Group variable Annuity contracts are normally in force over many years, and
the character of the group covered by the Contract continually changes, thus
affecting Southwestern's ability to predict the future costs of administering
the Contract. Accordingly, on the fifth or any later Contract anniversary,
Southwestern reserves the right to modify the Contract, including the
deductions from Purchase Payments for sales and administrative expense, the
periodic charge for mortality and expense undertakings, and the annuity
purchase rates. No modification will adversely affect Accumulation or Annuity
Units credited before its effective date. At least 90 days' notice of any such
modification will be given to the Contract Owner, and notice will also be
given to each Participant and Annnuitant covered by the Contract.
The Separate Account presently invests exclusively in shares of the Growth
Portfolio. Should shares of the Growth Portfolio become available for
investment by the Separate Account, or if Southwestern determines that
investment in the Growth Portfolio would be inappropriate in view of the
purposes of the Contract, Southwestern may, in its discretion, substitute
shares of a different open-end management investment company registered as
such under the 1940 Act, or one or more separate investment series thereof,
for shares of the Growth Portfolio held or to be acquired by the Separate
Account. No such substitution may take place unless it is permitted by the
Commission and under such conditions as the Commission may impose.
SUSPENSION
Southwestern may suspend a Contract on any Contract anniversary if during the
year preceding the anniversary (i) the Contract Owner has failed to remit the
required Purchase Payments or (ii) the number of Participants under the
Contract has become less than ten. A Contract may be suspended upon written
notice to Southwestern by the Contract Owner. Upon suspension, Southwestern
will not accept any further Purchase Payments under the Contract, but
suspension in no way affects the Accumulation Units or Annuity Units
previously credited to any Participant. Suspension of a Contract will not
result in any immediate tax consequences to the Contract Owner or any
Participant.
PRINCIPAL UNDERWRITER
The Contracts have been sold primarily by life insurance agents of
Southwestern who have been properly licensed by the appropriate state
insurance departments. In addition, these agents have been licensed with the
National Association of Securities Dealers, Inc. ("NASD") as registered
representatives of the principal underwriter, PLAPCO. PLAPCO's principal
offices are located at 400 Market Street, 11th Floor, Philadelphia,
Pennsylvania 19106. Although new Contracts are no longer being issued,
Southwestern continues to accept purchase payments on existing Contracts and
to accept new Participants under the existing group Contracts. PLAPCO is a
wholly owned subsidiary of Philadelphia Life Insurance Company which, in turn,
is an indirect wholly-owned subsidiary of Life Partners Group, Inc.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Separate Account
is a party.
CONTRACT OWNER INQUIRIES
Southwestern provides a toll free number for inquiries by Contract Owners and
Participants. The number is 1-800-793-4368. Written questions should be sent
to Southwestern Life Insurance Company P.O. Box 2699, Dallas, Texas
75221-9917.
EARLIER CONTRACTS
Southwestern has outstanding a number of Variable Annuity contracts funded in
the Separate Account that are no longer offered or sold. These earlier
contracts differ in several respects from those described in this prospectus.
Any copy of this prospectus, required to be delivered to an Owner or
Participant under such earlier contract, contains a supplement setting forth
material differences.
Page 17 of 106<PAGE>
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
General Information 3
Conversion Transaction 3
Purchase of Contracts 4
Underwriter 4
Annuity Payments 5
Illustration of Calculation of Annuity Payments 5
Experience Rating Credits 6
State Regulation 6
Legal Opinions 7
Accountants 7
Financial Statements 7
The Separate Account's Statement of Additional Information and this prospectus
omit certain information contained in the Registration Statement which the
Separate Account has filed with the Securities and Exchange Commission under
the Securities Act of 1933, and reference is hereby made to the Registration
Statement and its amendments, for further information with respect to the
Separate Account and the securities offered herby. The Registration Statement
and its amendments, are available for inspection by the public at the
Securities and Exchange Commission in Washington, D.C.
Page 18 of 106<PAGE>
<PAGE> Variable Annuity Fund I
of Southwestern Life
For Contracts Issued on Form APDVA
Supplement to Prospectus Dated May ___, 1996
The individual annual premium deferred variable annuity contract issued by
Southwestern on Form APDVA ("Contract") is no longer offered or sold by
Southwestern but remains in effect. The Contract differs from the contract
described in the prospectus in certain material respects. For a complete
description of the provisions of the Contract, in addition to those described
below, see the Contract itself.
(1) Premiums. Premiums may be paid annually, semiannually, quarterly or
monthly, but each purchase payment must be at least $10.
(2) Sales and Administrative Expenses.* A deduction is made from each purchase
payment of 4 1/4% for sales expense plus 3 3/4% for administrative expense
for a total deduction of 8 1/4% (8.99% of the amount invested, excluding
premium tax, if any).
(3) Grace Period. Thirty-one days of grace are granted for the payment of each
premium except the first. During that grace period the Contract will
remain in force.
(4) Premium Default. Any premium for the Contract unpaid at the end of the
grace period will be in default. Upon default, the Contract will be
continued in force as a paid-up variable annuity contract based on the
number of Accumulation Units in the Individual Account as of the due date
of the premium in default and, subject to provision (5) herein,
Southwestern will not accept the payment of any premium thereafter.
(5) Resumption of Premium Payments. Upon the payment of all past due premiums
at any time within three years after the due date of the first premium
then in default and while the Contract is in force as a paid-up variable
annuity contract, premium payments may be resumed in accordance with the
provisions of the Contract.
(6) Annuity Forms. The life annuity with 5 years certain under Annuity Form 2
is not available under the Contract.
(7) Assignment. When the Contract is not used to fund a plan qualified for
favorable tax treatment under the Internal Revenue Code, it may be
assigned.
<TABLE>
<CAPTION>
==============================================================================
* The expense table on page 4 of the prospectus should be replaced with the
following:
<S> <C>
Contract Owner Expenses (1), as a percentage of the purchase payment
Sales Load Imposed on Purchases 4.50 %
Administrative Expenses 3.75 %
Separate Account Annual Expenses, as a percentage of average net assets
(for the year ended December 31, 1995, as adjusted) (2)
Mortality Undertaking 0.70 %
Expense Undertaking 0.30 %
Other expenses 0.20 %
Total Annual Expenses 1.20 %
Growth Portfolio Annual Expenses, as a percentage of average net assets
(for the year ended December 31, 1995, as adjusted) (2)
Total Annual Expenses 0.57 %
- ------------------------------------------------------------------------------
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
If you surrender (or annuitize) your
Contract at the end of the applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $99 $135 $174 $292
If you do not surrender your Contract:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $99 $135 $174 $292
(1) State Premium Taxes (ranging from .5% to 3.0%) are not included.
(2) Actual expenses adjusted to reflect the conversion of the Separate
Account from a management investment company to a unit investment trust,
effective __________, 1996.
(3) Audit expense of the Separate Account (limited to 20% of net asset value).
In connection with the conversion of the Separate Account into a unit
investment trust, Southwestern agreed to assume the audit expense of the
Separate Account to the extent it would otherwise exceed 0.20% of the
Separate Account's average net assets in any year.
(4) Assumes the conversion of the separate account to a unit investment trust
was effective throughout the periods presented.
The EXAMPLE, a projection, should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown.
THE PURPOSE OF THE ABOVE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING
THE EXPENSES THAT THEY BEAR DIRECTLY AND INDIRECTLY. THE ABOVE TABLE REFLECTS
THE EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THE CAPITAL GROWTH
PORTFOLIO.
==============================================================================
</TABLE>
The Date of this Supplement is May ____, 1996
Page 19 of 106<PAGE>
<PAGE>
Variable Annuity Fund I
of Southwestern Life
For Contracts Issued on Form FPDVA
Supplement to Prospectus Dated May ____, 1996
The individual flexible premium deferred annuity contract issued by
Southwestern on Form FPDVA ("Contract") is no longer offered or sold by
Southwestern but remains in effect. The Contract differs from the contract
described in the prospectus in certain material respects. For a complete
description of the provisions of the Contract, in addition to those described
below, see the Contract itself.
(1) Premiums. Premiums may be paid as often as once a month subject to a $10
minimum. The total amount of premiums payable during any one Contract year
may, at the option of Southwestern, be limited to two times the premium
paid during the first Contract year.
(2) Deductions.* Under the Contract, a deduction is made from each purchase
payment of 4 1/2% for sales expense plus 3 3/4% for administrative expense
or total deduction of 8 1/4% (8.99% of the amount invested, excluding
premium tax, if any).
(3) Right to Cancel. If the Contract is to be used as an IRA, Southwestern
will mail notice of the applicant's right to cancel the application,
within 7 days of the notice, for a full refund of any purchase payment.
(4) Annuity Forms. The life annuity with 5 years certain under Annuity Form 2
is not available under the Contract.
<TABLE>
<CAPTION>
==============================================================================
* The expense table on page 4 of the prospectus should be replaced with the
following:
<S> <C>
Contract Owner Expenses (1), as a percentage of the purchase payment
Sales Load Imposed on Purchases 4.50 %
Administrative Expenses 3.75 %
Separate Account Annual Expenses, as a percentage of average net assets
(for the year ended December 31, 1995, as adjusted) (2)
Mortality Undertaking 0.70 %
Expense Undertaking 0.30 %
Other expenses 0.20 %
Total Annual Expenses 1.20 %
Growth Portfolio Annual Expenses, as a percentage of average net assets
(for the year ended December 31, 1995, as adjusted) (2)
Total Annual Expenses 0.57 %
- ------------------------------------------------------------------------------
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
If you surrender (or annuitize) your
Contract at the end of the applicable
time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $ 99 $135 $174 $292
If you do not surrender your Contract:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $ 99 $135 $174 $292
(1) State Premium Taxes (ranging from .5% to 3.0%) are not included.
(2) Actual expenses adjusted to reflect annualized investment advisory fees.
During 1994, no advisory fees were paid from February 11, 1994 to May 2,
1994, the date the Separate Account executed a new advisory agreement with
SLC Financial Services, Inc.
The EXAMPLE, a projection, should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown.
THE PURPOSE OF THE ABOVE TABLE IS TO ASSIST CONTRACT OWNERS
IN UNDERSTANDING THE EXPENSES THAT THEY BEAR DIRECTLY AND INDIRECTLY.
THE ABOVE TABLE REFLECTS THE EXPENSES OF THE SEPARATE ACCOUNT
AS WELL AS THE CAPITAL GROWTH PORTFOLIO.
</TABLE>
The Date of this Supplement is May ____, 1996
Page 20 of 106<PAGE>
<PAGE>
Variable Annuity Fund I
of Southwestern Life
For Contracts Issued on Form GRVA
Supplement to Prospectus Dated May ___, 1996
The group variable annuity contract issued by Southwestern on Form GRVA
("Contract") is no longer offered or sold by Southwestern but remains in
effect. The Contract differs from the contract described in the prospectus in
certain material respects. For a complete description of the provisions of the
Contract, in addition to these described below, see the Contract itself.
(1) Annuity Election. The Participant's right to elect an annuity form is
subject to certain restrictions specified in the Contract.
(2) Withdrawal Options. The Contract Owner will notify Southwestern of the
number of Accumulation Units to be released to a Participant which are not to
be used to provide an annuity. The Participant may, within 31 days after the
date of notice, elect (a) to receive the value of those Accumulation Units in
a cash payment to be made within 7 days, or (b) to convert the value of the
Accumulation Units to an individual deferred annuity contract. In the absence
of an election, Southwestern will pay the value of those units as provided in
(a). Any Accumulation Units in a Participant's Individual Account not used to
provide an annuity for a Participant and not released to the Participant shall
be automatically paid to the Contract Owner.
(3) Discontinuance. The Contract Owner may give written notice to Southwestern
that contributions for the Contract are to be discontinued. Southwestern may
discontinue the Contract where the Contract Owner fails to submit an
application or make a contribution for any Participant in accordance with the
Plan or where it is not practicable, in the opinion of Southwestern, to
provide for the continued purchase of annuities under the Contract because of
a change in the Plan or in the amount of benefits to be provided. If the
Contract Owner fails to make any contribution required by the Plan within 31
days from the date a contribution is due, the Contract will automatically be
discontinued. On discontinuance other than by the Contract Owner, Southwestern
will pay to the Contract Owner an amount equal to the value of the remaining
Accumulation Units.
(4) Benefit Limitations. Employer contributions for any of the 25 highest paid
employees whose anticipated benefit from such contributions will exceed $1,500
may be restricted in certain circumstances specified in the Contract.
The Date of this Supplement is May ____, 1996
Page 21 of 106<PAGE>
<PAGE>
VARIABLE
ANNUITY FUND I
OF SOUTHWESTERN LIFE
Southwestern Life Insurance Company
P.O. Box 2699
Dallas, Texas 75221-9917
STATEMENT OF ADDITIONAL INFORMATION
May __, 1996
Philadelphia Life Asset Planning Company
400 Market Street, 11th Floor
Philadelphia, Pennsylvania 19106
(Principal Underwriter)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the prospectus for Variable Annuity Fund I of
Southwestern Life also dated May ___, 1996. A copy of the prospectus may be
obtained by writing to Southwestern Life Insurance Company at the above
address or by calling:
1-800-792-4368.
Page 22 of 106<PAGE>
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
General Information 3
Conversion Transaction 3
Purchase of Contracts 4
Underwriter 4
Annuity Payments 5
Illustration of Calculation of Annuity Payments 5
Experience Rating Credits 6
State Regulation 6
Legal Opinions 7
Accountants 7
Financial Statements 7
Page 23 of 106<PAGE>
<PAGE>
GENERAL INFORMATION
Variable Annuity Fund I of Southwestern Life ("Separate Account") is
registered with the Securities and Exchange Commission ("SEC") as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act").
Registration with the SEC does not involve supervision of the management or
investment practices or policies of the Separate Account by the SEC.
Southwestern Life Insurance Company ("Southwestern") is a wholly-owned
subsidiary of Constitution Life Insurance Company, which is a wholly-owned
subsidiary of Southwestern Life Acquisition Corp., an insurance holding
company, which is a wholly-owned subsidiary of Southwestern Financial
Corporation ("SFC"), which is also an insurance holding company. SFC is owned
by two parties, Knightsbridge Capital Fund I, L.P., which owns 84.9% of the
voting stock of SFC, and PennCorp Southwest, Inc., which owns 15.1% of the
voting stock of SFC. Knightsbridge Capital Fund I, L.P. is an investment
partnership whose general partner is Knightsbridge Capital, L.L.C. PennCorp
Southwest, Inc., is an insurance holding company, which is a wholly-owned
subsidiary of PennCorp Financial Group, Inc., an insurance holding company.
Southwestern participates in the Separate Account as a result of the
initial capital it contributed to the Separate Account at the time the
Separate Account was organized. The percentage of the total assets of the
Separate Account attributable to Southwestern's initial capital contribution
was 12.47% as of April 1, 1996. In addition, on April 23, 1996, the University
of Texas at Austin, P.O. Box 8047, Austin, Texas 78712, owned a group variable
annuity contract which represented 11.28% of the assets of the Separate
Account. For a further description of Southwestern and the Separate Account,
see the prospectus.
Philadelphia Life Asset Planning Company ("PLAPCO") is registered as a
broker-dealer under the Securities Exchange Act of 1934 and acts as the
principal underwriter of the contracts offered by the prospectus (see
"Underwriter," page 5).
The assets of the Separate Account are not chargeable with liabilities
arising out of any other business that Southwestern may conduct. Accordingly,
the assets of the Separate Account are held for the exclusive benefit of
participants in, and persons entitled to payment under, the Contract and other
contracts under which net purchase payments are placed in the Separate Account
to provide benefits varying in accordance with the investment experience of
the Separate Account.
CONVERSION TRANSACTION
Effective May ___, 1996, the Separate Account converted from a
diversified open-end management investment company to a unit investment trust
(the "Conversion") and now invests exclusively in shares of the Capital Growth
Portfolio of Scudder Variable Life Investment Fund. Prior to the Conversion,
SLC Financial Services, Inc. served as the investment adviser for the
Separate Account pursuant to an Investment Advisory Agreement that was
terminated effective upon the Conversion. SLC Financial Services, Inc. was
formerly, but is not currently, an affiliate of Southwestern. Under the
Investment Advisory Agreement, and its predecessor advisory agreement,
Page 24 of 106<PAGE>
<PAGE>
the Separate Account paid SLC Financial Services, Inc. advisory fees of
$17,027 during 1995, $12,372 during 1994 and $16,000 for 1993.
Administrative services for the Separate Account and the Contracts are
provided by Southwestern. Such administrative services include, among other
things, salaries and travel expenses of home office officials and employees,
rent, postage, telephone, legal fees, office equipment, stationery and other
office expenses. As compensation for the performance of administrative
services, the Contracts provide for the deduction of 3.0% from purchase
payments to reimburse Southwestern for administrative expenses. The
deductions for administrative expenses are designed only to reimburse
Southwestern for its actual expenses, and Southwestern does not expect to
recover from these deductions any amounts above its accumulated expenses in
administering the Contracts. These deductions do not cover (i) any taxes that
might arise from income and capital gains on the Separate Account or otherwise
from the existence of the Separate Account; and (ii) fees and expenses of any
audit of the Separate Account. These other expenses are borne by the Separate
Account, except that taxes on income and capital gains (if any) as may be
attributed to Southwestern's initial capital contribution to the Separate
Account will be borne by Southwestern. The cost of preparing and printing
annual or other amendments to the Separate Account's registration statement,
including prospectuses, is borne by Southwestern.
PURCHASE OF CONTRACTS
The Separate Account no longer offers Contracts for sale, though it
continues to accept purchase payments on existing Contracts and to accept new
participants under existing group Contracts. For a description of the manner
in which the Contracts were offered in the past, including the method used to
determine the sales load, see the prospectus for the Separate Account.
UNDERWRITER
PLAPCO is the principal underwriter for the Contracts. Although no new
Contracts are being offered to the public or issued, the Contracts have been
sold primarily by life insurance agents of Southwestern who have been properly
licensed by the appropriate state insurance departments and with the National
Association of Securities Dealers, Inc. ("NASD"). The commissions paid to
such persons will bear a reasonable relationship to, and in the aggregate will
be equivalent to or less than, the deductions for sales expenses. Although
commissions on purchase payments made for the first contract year may exceed
the sales expense deductions from such purchase payments, any such excess
commission will be paid from Southwestern's general account. To the extent
that overall sales expenses exceed amounts deducted for sales loads, they will
be borne by Southwestern. PLAPCO receives no underwriting commissions from
the Separate Account in connection with the sale of the Contracts.
PLAPCO was formerly, but is not currently, an affiliate of Southwestern.
Page 25 of 106<PAGE>
<PAGE>
ANNUITY PAYMENTS
At commencement of the annuity period, a number of annuity units is
determined from the applicable annuity tables that reflect the age or year of
birth of the annuitant (and the joint annuitant, if applicable), the dollar
amount available to effect the annuity and the next determined applicable
annuity unit value. The number of annuity units so determined is credited to
the Participant's account and thereafter, the number of annuity units will not
change except in accordance with the provisions of the annuity form selected
at the commencement of the annuity period.
The amount of each subsequent annuity payment will be determined by
multiplying the number of annuity units credited to the Participant's account
on the due date of such payment by the applicable annuity unit value for that
date.
The annuity tables for the Contracts are based on the Group Annuity
Table for 1951 and an assumed net investment rate of 3-1/2% per year. Because
the Contracts provide for age adjustment based on the year of birth of the
Annuitant (and, if applicable, the joint Annuitant), a person's actual age
when payments commence may not be the same as the age used in determining the
amount of the first annuity payment.
The dollar amount available to be credited as annuity units for a
Participant's account under a Contract is determined on the basis set forth in
the plan and the Contract. If the plan permits such election, the Annuitant
may elect to receive all or a portion of his or her annuity payments on a
fixed-dollar basis rather than a variable basis. The accumulation units
applicable to the amount available will be withdrawn from the accumulation
account.
The first annuity payment under a Contract shall be due on the day the
Participant's account enters the annuity period. Subsequent payments shall be
due each month thereafter on the day corresponding to the day of the month of
the first payment.
ILLUSTRATION OF CALCULATION OF ANNUITY PAYMENTS
Assume that a Participant at the due date of his or her first annuity
payment is entitled to 30,000 accumulation units, and that the value of an
accumulation unit on the day on which payments commence is $1.150000,
producing a total accumulated value of $34,500. Assume also that the
Participant elects an annuity form for which the table in the variable annuity
Contract indicates the first monthly payment is $6.97 per $1,000 of value
applied. The annuitant's first monthly payment would be 34.500 multiplied by
$6.97, which produces $240.47.
Assume that the annuity unit value for the due date of the first payment
is $1.100000. When this is divided into the first monthly payment, the number
of annuity units represented by that payment is determined to be 218.609. The
value of this same number of annuity units will be paid each subsequent month.
Page 26 of 106<PAGE>
<PAGE>
Each subsequent monthly annuity payment is determined by multiplying the
fixed number of annuity units (218.609) by the annuity unit value for the day
on which the annuity payment is due.
EXPERIENCE RATING CREDITS
The Contracts provide that Southwestern, in its sole discretion, may
allow experience rating credits to provide additional accumulation or annuity
units, as the case may be. Pursuant to its experience rating plan,
Southwestern will determine the administrative expenses applicable to each
Contract. If actual costs exceed the amount deducted for such expenses, no
additional deduction will be made. If, however, the amount deducted for such
expenses exceeds actual costs, Southwestern in its discretion may allocate
all, a portion, or none of such excess as an experience rating credit under
the Contract. Such experience rating credit (less applicable premium taxes)
will be applied to increase the number of accumulation units or annuity units,
as applicable, without deduction of any amounts for sales and administrative
expenses. Southwestern reserves discretion to determine when to initiate its
experience rating plan, but after experience rating commences, a determination
of the credit, if any, to be allocated under the Contracts will be made
annually. Southwestern does not intend to begin experience rating in the
immediate future.
STATE REGULATION
As a life insurance company organized and operated under Texas law,
Southwestern is subject to provisions governing such companies and to
regulation by the Texas Commissioner of Insurance. An annual statement is
filed with the Commissioner on or before March 1st of each year covering the
operations of Southwestern for the preceding year and its financial condition
on December 31st of such year. Southwestern's books and accounts are subject
to review and examination by the Texas Department of Insurance at all times,
and a full examination of its operations is conducted by the National
Association of Insurance Commissioners ("NAIC") at least once every three
years. The NAIC has divided the country into four geographic zones. A
representative of each zone in which Southwestern is licensed to operate is
invited to participate in the triennial examination.
In addition, Southwestern is subject to the insurance laws and
regulations of other jurisdictions in which it conducts insurance operations.
Generally, the insurance departments of such jurisdictions apply the laws of
Texas in determining permissible investments for Southwestern.
Page 27 of 106<PAGE>
<PAGE>
LEGAL OPINIONS
Certain legal matters concerning the Contracts, including the legality
of the Contracts and their issuance by Southwestern, and the binding
obligations of Southwestern represented by the Contracts, have been passed
upon by Daniel B. Gail, General Counsel of Southwestern.
ACCOUNTANTS
Coopers & Lybrand L.L.P., located at 1999 Bryan Street, Suite 3000,
Dallas, Texas 75201, provides auditing services for the Separate Account and
Southwestern.
FINANCIAL STATEMENTS
The financial statements of Southwestern should be considered by the
purchaser of variable annuity Contracts only as bearing upon the ability of
Southwestern to meet its obligations under the variable annuity Contracts and
not in any sense as a measure of the possible future investment performance of
the Separate Account.
Page 28 of 106<PAGE>
<PAGE>
Report of Independent Accountants
To the Board of Managers and Contract Owners of the
Variable Annuity Fund I of Southwestern Life:
We have audited the accompanying statement of assets and liabilities of the
Variable Annuity Fund I of Southwestern Life (the "Fund"), including the
schedule of portfolio investments, as of December 31, 1995, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the
selected accumulation unit data and ratios for each of the five years in the
period then ended. These financial statements and selected accumulation unit
data and ratios are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
selected accumulation unit data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
selected accumulation unit data and ratios are free of material misstatements.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and selected accumulation unit data
and ratios referred to above present fairly, in all material respects, the
financial position of the Fund as of December 31, 1995, the results of its
operations for the year then ended, and the selected accumulation unit data
and ratios for each of the five years in the period then ended, in conformity
with general accepted accounting principles.
Coopers & Lybrand L.L.P.
Dallas, Texas
January 15, 1996
Page 29 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in securities at market (identified cost $2,294,866) $4,815,922
Short-term investments at cost, which approximates market 314,136
---------------
Total investments 5,130,058
Cash 15,619
Receivable for securities sold 181,474
Accrued dividends and interest receivable 28,541
---------------
Total assets 5,355,692
---------------
LIABILITIES:
Payable to affiliates:
Investment management fee payable 1,390
Expense and mortality guarantee fee payable 4,280
Accountant's and Board of Managers' fees payable 2,938
Premiums and surrenders, net 13,858
---------------
Total liabilities 22,466
---------------
NET ASSETS $5,333,226
===============
NET ASSETS:
548,359 qualified accumulation units at $7.339334 per unit $4,024,590
114,809 nonqualified accumulation units at $6.679868 per unit 766,909
Annuity fund for currently payable contracts 541,727
---------------
$5,333,226
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 30 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INVESTMENT INCOME:
Income:
<S> <C>
Dividends $75,180
Interest 90,429
------------
Total income 165,609
------------
Expenses:
Accountant's fees 25,000
Board of managers' fees 7,500
Investment management fee 17,052
Expense and mortality guarantee fee 52,497
------------
Total expenses 102,049
------------
Net investment income 63,560
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions:
Proceeds from sales 947,860
Cost of securities sold 372,712
------------
Net realized gain on investments 575,148
------------
Net unrealized appreciation on investments:
Beginning of the year 1,858,127
End of the year 2,521,056
------------
Change in unrealized appreciation of investments for the year 662,929
------------
Net realized and unrealized gain on investments 1,238,077
------------
Increase in net assets resulting from operations $1,301,637
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 31 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1995 1994
--------------- ---------------
<S> <C> <C>
Increase in net assets from operations:
Net investment income $63,560 $71,826
Net realized gain on investments 575,148 81,268
Increase in unrealized appreciation 662,929 104,155
--------------- ---------------
Net increase in net assets resulting from operations 1,301,637 257,249
--------------- ---------------
Contract owners' account transactions:
Additions:
Net contract purchases 36,864 42,573
--------------- ---------------
36,864 42,573
--------------- ---------------
Deductions:
Contract surrenders 956,312 109,757
Adjustments for mortality deviation (30,555) (23,480)
Annuity payments 70,126 62,063
--------------- ---------------
995,883 148,340
--------------- ---------------
Decrease in net assets resulting from
contract owners' account transactions (959,019) (105,767)
--------------- ---------------
Net increase in net assets 342,618 151,482
Net assets:
Beginning of year 4,990,608 4,839,126
--------------- ---------------
End of year $5,333,226 $4,990,608
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 32 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
PORTFOLIO OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET PERCENT OF
OR SHARES COST VALUE NET ASSETS
--------- ---- ------ ----------
COMMON STOCKS:
<S> <C> <S> <C> <C> <C>
CONSUMER DURABLE GOODS 3,000 Anheuser-Busch Cos., Inc. $128,175 $200,625 3.76%
32.26% 4,000 Colgate-Palmolive Co. 80,930 281,000 5.27
12,000 General Motors Corp. Class E 92,385 624,000 11.70
2,000 Philip Morris Companies, Inc. 102,950 180,500 3.38
2,000 WMX Technologies, Inc. 66,700 59,500 1.12
1,000 CPC International, Inc. 41,850 68,625 1.29
2,000 Motorola, Inc. 71,850 114,000 2.14
1,000 V F Corporation 44,225 52,625 0.99
1,000 Coca-Cola 52,225 74,375 1.39
------------ ------------ --------
681,290 1,655,250 31.04
------------ ------------ --------
CONSUMER SERVICES 6,000 Walt Disney Co. 26,244 353,250 6.62
6.89% ------------ ------------ --------
26,244 353,250 6.62
------------ ------------ --------
FINANCIAL SERVICES
0.84% 1,000 Regions Financial Corp. 37,475 43,000 0.81
------------ ------------ --------
37,475 43,000 0.81
------------ ------------ --------
HEALTH CARE 6,000 Abbott Laboratories 97,650 249,750 4.68
14.47% 9,000 Schering-Plough Corporation 52,155 492,750 9.24
------------ ------------ --------
149,805 742,500 13.92
------------ ------------ --------
PRODUCER DURABLE GOODS 9,000 Intel Corporation 22,688 510,750 9.58
9.96% ------------ ------------ --------
22,688 510,750 9.58
------------ ------------ --------
INTERMEDIATE GOODS & SERVICES 4,000 Amoco Corp. 219,400 287,500 5.39
10.20% 3,000 Texaco Inc. 203,925 235,875 4.42
------------ ------------ --------
423,325 523,375 9.81
------------ ------------ --------
TOTAL COMMON STOCKS $1,340,827 $3,828,125 71.78%
------------ ------------ --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 33 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
PORTFOLIO OF INVESTMENTS IN SECURITIES - (Continued)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET PERCENT OF
OR SHARES COST VALUE NET ASSETS
--------- ---- ------ ----------
LONG TERM BONDS:
<S> <C> <S> <C> <C> <C>
GOVERNMENT 150,000 U. S. Treasury Note 7.375%
19.26% Due 11/15/97 $148,430 $155,766 2.92%
300,000 U. S. Treasury Note 8.00%
Due 10/15/96 301,313 306,328 5.74
500,000 U. S. Treasury Note 7.875%
Due 1/15/98 504,297 525,703 9.86
------------ ------------ --------
954,039 987,797 18.52
------------ ------------ --------
TOTAL LONG TERM BONDS $954,039 $987,797 18.52%
------------ ------------ --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 34 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
PORTFOLIO OF INVESTMENTS IN SECURITIES - (Continued)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET PERCENT OF
OR SHARES COST VALUE NET ASSETS
--------- ---- ------ ----------
<S> <C> <S> <C> <C> <C>
SHORT TERM INVESTMENTS:
6.12% 315,000 U. S. Treasury Bill
Due 1/11/96 $314,136 $314,136 5.89%
------------ ------------ --------
TOTAL COMMERCIAL PAPER 314,136 314,136 5.89%
------------ ------------ --------
TOTAL SHORT TERM INVESTMENTS 314,136 314,136 5.89%
------------ ------------ --------
TOTAL INVESTMENTS $2,609,002 (A) 5,130,058 96.19
============ ============ ========
OTHER ASSETS LESS LIABILITIES 203,168 3.81
------------ --------
$5,333,226 100.00%
============ ========
</TABLE>
(A) Aggregate cost for Federal Income Tax purposes is the same.
At December 31, 1995, unrealized appreciation/(depreciation)
of securities for Federal Income Tax purposes is as follows:
Unrealized appreciation $2,528,256
Unrealized depreciation (7,200)
------------
$2,521,056
============
The accompanying notes are an integral part of the financial statements.
Page 35 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Variable Annuity Fund I of Southwestern Life (the Fund) is registered under
the Investment Company Act of 1940, as amended, (the Act) as a diversified,
open-end management investment company. The Fund is no longer actively
seeking investors and unit sales are only open to renewals. The following is
a summary of significant accounting policies consistently followed by the
Fund. The operations of the Fund are part of Southwestern Life Insurance
Company (Southwestern).
Security Valuation
- ------------------
The Fund's investments in securities are carried at market value. Securities
are valued at the last sales price for securities listed on an exchange or
quoted on a national market system, or at the mean between the current bid or
asked price for unlisted securities and listed securities in which there were
no transactions during the day. Debt securities, including listed issues, are
valued on the basis of valuations furnished by a pricing service, which
reflect valuations of normal institutional size trading units of debt
securities, without exclusive reliance upon exchange or over the counter
prices.
Security Transactions and Related Investment Income
- ---------------------------------------------------
Security transactions are accounted for on the trade date, the date securities
are purchased or sold. Dividend income is recorded on the ex-dividend date.
Gains and losses from sales of investments are computed on the basis of
identified cost.
Annuity Fund for Currently Payable Contracts
- --------------------------------------------
The basis of valuation of individual annuity contracts is the progressive
annuity table, with age adjustments, assuming interest rates of 3% and 3 1/2%.
The basis of valuation for group contract annuity reserves is the group
annuity table for 1951 male lives, projected to 1962 by projection scale C,
with age adjustments and assuming a 3 1/2% interest rate. To the extent the
mortality experience among annuitants varies from the prescribed tables,
Southwestern absorbs the gain or loss.
Federal Income Taxes
- --------------------
The Fund is not taxed separately because the operations of the Fund are part
of the total operations of Southwestern. Southwestern is taxed as a life
insurance company under the Internal Revenue Code. The Fund will not be taxed
as a regulated investment company under subchapter M of the Internal Revenue
Code. Under existing federal income tax law, no taxes are payable by the Fund
on the investment income or on the capital gains. Capital gains and ordinary
income are taxable to the participants only upon distribution.
Qualified accumulation units are those credited to the accounts of variable
annuity contracts or certificates purchased under benefit plans qualified for
special tax treatment under Internal Revenue Code Sections 401, 403 and 408.
Nonqualified accumulation units are those credited to the accounts of variable
annuity contracts or certificates not purchased under such benefit plans.
Prior to 1984, provisions (benefits) for federal income taxes were charged
(credited) to accumulation unit values on nonqualified accumulation units
at each valuation date. Since 1984, qualified and nonqualified accumulation
units have been credited (charged) the same percentage increase (decrease).
Page 36 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
NOTES TO FINANCIAL STATEMENTS
2. SALES AND REDEMPTIONS OF UNITS:
------------------------------
Following is a reconciliation of unit (qualified and nonqualified) activity in
the Fund for the years ended December 31, 1995 and 1994:
1995 1994
----------- -----------
Units outstanding at January 1 797,611 812,929
----------- -----------
Purchases 5,468 7,760
Surrenders (146,719) (19,688)
Transfers from/(to) annuity fund 6,808 (3,390)
----------- -----------
Net decrease in units (134,443) (15,318)
----------- -----------
Units outstanding at December 31 663,168 797,611
=========== ===========
3. RELATED PARTY TRANSACTIONS:
--------------------------
As required by the Act, the Fund's investments are managed by a registered
investment adviser, SLC Financial Services, Inc. ("SLC Financial"), an
affiliate (formerly I.C.H. Financial Services, Inc.). In accordance with a
management agreement, management fees are computed based on a daily charge of
.00089% of the net assets (.325% on an annual basis.) For the year ended
December 31, 1995, the Fund paid SLC Financial management fees of $17,027.
Southwestern provides administrative services and guarantees the mortality
expense of the Fund. A daily charge of .00274% of the net assets (1.00% on an
annual basis) or $52,419 was paid to Southwestern for the year ended
December 31, 1995.
Southwestern pays annuity payments, surrenders, death benefits and certain
expenses on behalf of the Fund. The Fund reimburses Southwestern
periodically.
4. FUND CONVERSION
---------------
On July 28, 1995, Contract Owners of the Fund approved a proposal to convert
from a management investment company to a unit investment trust and to
exchange substsntially all assets less cash, in an amount estimated to pay
current liabilities, for an equivalent amount of shares of the Capital Growth
Portfolio of Scudder Variable Life Investment Fund. The market value of the
assets of the Fund to be exchanged shall be determined as of the close of
trading on the business day preceding the closing date, after the declaration
and payment of any dividend on that date. The conversion is expected to be
completed by April 30, 1996.
Page 37 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
SUPPLEMENTARY INFORMATION - SELECTED ACCUMULATION UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
_______________________________________________________________
1995 1994 1993 1992 1991
___________ ___________ ___________ ___________ ___________
QUALIFIED UNIT:
<S> <C> <C> <C> <C> <C>
Investment income $ .213 $ .187 $ .176 $ .163 $ .188
Expenses .131 .106 .105 .097 .084
----------- ----------- ----------- ----------- -----------
Net investment income .082 .081 .071 .066 .104
Net realized and unrealized gain on securities 1.547 .231 .101 .200 .918
----------- ----------- ----------- ----------- -----------
Net increase in unit value 1.629 .312 .172 .266 1.022
Unit value:
Beginning of the year 5.710 5.398 5.226 4.960 3.938
----------- ----------- ----------- ----------- -----------
End of the year $7.339 $5.710 $5.398 $5.226 $4.960
=========== =========== =========== =========== ===========
Number of units outstanding at end of the period (in thousands) 548 685 701 764 930
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
_______________________________________________________________
1995 1994 1993 1992 1991
___________ ___________ ___________ ___________ ___________
NONQUALIFIED UNIT:
<S> <C> <C> <C> <C> <C>
Investment income $ .195 $ .170 $ .160 $ .149 $ .171
Expenses .120 .096 .096 .088 .076
----------- ----------- ----------- ----------- -----------
Net investment income .075 .074 .064 .061 .095
Net realized and unrealized gain on securities 1.408 .210 .092 .183 .834
----------- ----------- ----------- ----------- -----------
Net increase in unit value 1.483 .284 .156 .244 .929
Unit value:
Beginning of the year 5.197 4.913 4.757 4.513 3.584
----------- ----------- ----------- ----------- -----------
End of the year $6.680 $5.197 $4.913 $4.757 $4.513
=========== =========== =========== =========== ===========
Number of units outstanding at end of the period (in thousands) 115 112 112 116 116
=========== =========== =========== =========== ===========
RATIOS:
Expenses to average net assets (%) 1.94 1.91 1.98 1.95 1.92
Net investment income to average net assets (%) 1.21 1.47 1.33 1.35 2.39
Portfolio turnover (%) 0 6 9 5 25
</TABLE>
Page 38 of 106<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Southwestern Life Insurance Company
We have audited the accompanying statutory statements of
admitted assets, liabilities and capital and surplus of
Southwestern Life Insurance Company as of December 31, 1995
and 1994, and the related statements of operations, capital
and surplus and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As described in Note 1, the accompanying financial statements
have been prepared in conformity with the accounting practices
prescribed or permitted by the National Association of
Insurance Commissioners or the Texas Department of Insurance,
which is a comprehensive basis of accounting other than
generally accepted accounting principles. The effects on such
financial statements of the variances between such practices
and generally accepted accounting principles are described in
Note 15.
In our opinion, because of the effects of the matters
discussed 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 Southwestern Life Insurance Company as of December
31, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended.
However, in our opinion, the financial statements referred to
above present fairly, in all material respects, the admitted
assets, liabilities and capital and surplus of Southwestern
Life Insurance Company as of December 31, 1995 and 1994, and
the results of its operations and its cash flows for the years
then ended, on the basis of accounting described in Note 1.
Our audit was conducted for the purpose of expressing an
opinion on the statutory financial statements taken as a
whole. The Schedule of Selected Financial Data is presented
to comply with the NAIC's Annual Statement Instructions and is
not a required part of the basic statutory financial
statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic
statutory financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic
statutory financial statements taken as a whole.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 20, 1996
Page 39 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Admitted Assets, Liabilities and
Capital and Surplus (Statutory Basis)
December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
Admitted Assets 1995 1994
<S> <C> <C>
Cash and investments:
Bonds $ 890,245 $ 912,829
Common stocks:
Affiliated 5,852 83,702
Unaffiliated 495 1,561
Mortgage loans 97,650 122,318
Real estate 20,292 20,965
Policy loans 123,831 127,144
Collateral loans 41,308 49,465
Cash 16,455 17,498
Short-term investments 113,186 32,697
Other invested assets 34,965 31,657
Total cash and investments 1,344,279 1,399,836
Accrued investment income 15,238 15,667
Deferred and uncollected premiums 2,935 2,064
Electronic data processing equipment
at cost, less accumulated depreciation
of $5,234 in 1995 and $5,124 in 1994 133 243
Receivable from affiliates 17 156
Guaranty funds assessment 3,521 2,948
Due from reinsurer and other
non-affiliated parties 9,054 7,532
Other assets 6,898 7,539
$1,382,075 $1,435,985
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 40 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Admitted Assets, Liabilities and
Capital and Surplus (Statutory Basis)
(Continued)
December 31, 1995 and 1994
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Liabilities, Capital and Surplus 1995 1994
<S> <C> <C>
Liabilities:
Future policy benefits:
Aggregate reserve for life policies
and contracts $1,209,916 $1,220,054
Supplementary contracts without life
contingencies 22,167 23,366
Life policy and contract claims 8,475 7,302
Policyholders' dividend and coupon
accumulations 181 182
Policyholders' dividends and coupons
due and unpaid 190 179
Premiums received in advance and
premium deposit funds 7,209 10,232
Other policy and contract liabilities 9,561 11,951
Interest maintenance reserve 3,350 1,329
Commissions payable 656 688
Federal income taxes due or accrued 2,562
Accrued expenses and other liabilities 15,273 14,404
Asset valuation reserves 20,666 25,740
Unearned investment income 3,630 3,557
Funds held under reinsurance treaties 830 45
1,304,666 1,319,029
Capital and surplus:
Common stock, $1.00 par value, 5,000,000
shares authorized, 3,000,000 shares and
5,000,000 shares issued and outstanding
in 1995 and 1994, respectively 3,000 5,000
Additional paid-in surplus 73,024 211,637
Unassigned surplus 1,385 60,932
Treasury stock, at cost, 2,000,000
shares in 1994 (160,613)
77,409 116,956
$1,382,075 $1,435,985
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 41 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Operations (Statutory Basis)
For the Years Ended December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Premiums and other considerations:
Life and annuity $ 108,852 $ 135,898
Supplementary contracts and dividends
and coupon accumulations 2,594 2,120
Net investment income 99,622 94,580
Amortization of interest maintenance
reserve (1,195) (1,743)
Commissions on reinsurance ceded 4,663 4,992
Reserve adjustments on reinsurance
ceded and other income (15,405) (15,230)
Amounts transferred on reinsurance 108,227
Total premiums and other
considerations 199,131 328,844
Benefits paid or provided:
Death and annuity benefits 59,799 61,953
Disability benefits and benefits under
accident and health policies 503 516
Surrender benefits 76,644 35,302
Other benefits 12,979 11,922
Increase (decrease) in reserves for
life policies and contracts (10,138) 161,260
Increase (decrease) in reserves for
other contract deposit funds (2,852) 6,706
Increase (decrease) in reserve for
supplementary contract without life
contingencies and for dividend and
coupon accumulations (1,200) 13,386
Total benefits paid or provided 135,735 291,045
Insurance expenses:
Commissions 15,894 18,268
General expenses 21,800 20,987
Insurance taxes, licenses and fees 5,270 4,791
Amounts transferred on reinsurance 42,082
Other (1,440) 604
Total insurance expenses 83,606 44,650
Total benefits and expenses 219,341 335,695
Loss from operations before dividends
to policyholders and federal income
tax provision (20,210) (6,851)
Dividends to policyholders 206 120
Loss from operations before federal
income tax provision and realized
capital losses (20,416) (6,971)
Federal income tax provision 540 1,788
Net loss from operations before
realized capital losses (20,956) (8,759)
Realized capital losses, net (19,391) (6,109)
Net loss $ (40,347)$ (14,868)
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 42 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Capital and Surplus (Statutory Basis)
For the Years Ended December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Common stock:
Balance at beginning of year $ 5,000 $ 5,000
Retirement of treasury stock (2,000)
Balance at end of year 3,000 5,000
Additional paid-in surplus:
Balance at beginning of year 211,637 211,637
Cash contribution from parent 20,000
Adjustment for retirement of
treasury stock (158,613)
Balance at end of year 73,024 211,637
Unassigned surplus:
Balance at beginning of year 60,932 87,062
Net loss (40,347) (14,868)
Change in net unrealized capital
gains/losses 16,734 54
Dividends to stockholder (41,497) (14,000)
Change in asset valuation reserves 5,073 196
Prior year taxes (285)
Change in non-admitted assets 490 2,773
Balance at end of year 1,385 60,932
Less treasury stock:
Balance at beginning of year 160,613 160,613
Retirement of treasury stock (160,613)
Balance at end of year 160,613
Total capital and surplus $ 77,409 $ 116,956
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 43 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Cash Flows (Statutory Basis)
For the Years Ended December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash provided (used) by operations:
Premiums and annuity considerations $ 108,250 $ 133,714
Other premiums and deposits 2,594 2,120
Allowances received on reinsurance
assumed (17,055) (18,963)
Investment income 102,159 109,757
Other income (35,781) 116,505
Life and accident and health claims (49,458) (55,618)
Surrender benefits (76,644) (35,442)
Other benefits (24,824) (19,522)
Commissions, expenses and taxes (41,444) (43,227)
Dividends paid to policyholders (195) (179)
Federal income taxes 1,214 (5,690)
Decrease in policy loans 3,313 5,245
Other operating income 959 365
Net cash provided (used) by
operations (26,912) 189,065
Other cash provided:
Proceeds from investments sold
or matured 505,317 468,777
Proceeds from contributions to
paid-in surplus 20,000
Other cash provided 9,512 9,957
Total cash provided 507,917 667,799
Cash applied:
Cost of long-term investments 381,427 617,289
Dividends paid to stockholder 41,497 14,000
Other cash applied 5,547 27,846
Total cash applied 428,471 659,135
Net increase in cash and short-term
investments 79,446 8,664
Cash and short-term investments:
Beginning of year 50,195 41,531
End of year $ 129,641 $ 50,195
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 44 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
1. Basis of Presentation and Significant Accounting Policies
a. Organization
At December 31, 1995, Southwestern Life Insurance
Company (the "Company") was an indirect wholly-owned
subsidiary of Southwestern Financial Corporation ("SW
Financial"). Pursuant to a Stock Acquisition Agreement,
effective December 14, 1995, the Company along with its
affiliates, Constitution Life Insurance Company
("Constitution"), Union Bankers Insurance Company
("Union Bankers") and Marquette National Life Insurance
Company ("Marquette"), was acquired by SW Financial, a
newly-formed corporation organized by PennCorp Financial
Group, Inc. and Knightsbridge Capital Fund I, L.P.
Prior to December 14, 1995, the Company was a wholly-
owned subsidiary of SWL Holding Corporation, whose
parent was I.C.H. Corporation ("ICH"). Effective
January 1, 1996, the Company was contributed to and
became a wholly-owned subsidiary of Constitution.
b. Basis of Presentation
The accompanying financial statements have been prepared
in conformity with the accounting practices prescribed
or permitted by the National Association of Insurance
Commissioners ("NAIC") or the Texas Department of
Insurance ("Texas Department"). The prescribed or
permitted accounting practices vary in some respects
from generally accepted accounting principles ("GAAP").
The more significant of these differences are: (a)
methods of recording reinsurance contracts; (b) under
statutory accounting principles investments are carried
at values prescribed by the NAIC with provisions for an
asset valuation reserve ("AVR") and an interest
maintenance reserve ("IMR"); under GAAP, trading
securities and securities available for sale would be
carried at fair value, and held to maturity securities
would be carried at amortized cost; (c) acquisition
costs, such as commissions and other costs related to
acquiring new business, are charged to current
operations as incurred rather than matched against
premiums which are taken into income over the premium
paying period or on a pro rata basis over the respective
term of the policies; (d) benefit reserves are based on
statutory mortality and interest requirements and may
differ from GAAP reserves; (e) deferred federal income
taxes are not provided for bases differences between tax
and financial reporting; (f) certain assets are not
recognized under statutory accounting principles, some
of which are reflected as a reduction to surplus as non-
admitted assets; whereas under GAAP, such assets would
be separately evaluated regarding realization to
determine the appropriate valuation; and (g) statutory
statement of cash flows follows a prescribed method
included in the NAIC Instructions to present changes in
amounts in balance sheet accounts which may not reflect
actual cash flows from transactions or operations.
Prescribed statutory accounting practices include state
laws, regulations, and general administrative rules, as
well as a variety of publications of the NAIC.
Permitted statutory accounting practices encompass all
accounting practices that are not prescribed; such
practices differ from state to state, may differ from
company to company within a state, and may change in the
future. Furthermore, the NAIC has a project to codify
statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed"
statutory accounting practices. Accordingly, that
project will likely change to some extent prescribed
statutory accounting practices, and may result in
changes to the accounting practices that insurance
enterprises use to prepare their statutory financial
statements.
Page 45 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
c. Investments
Bonds not backed by other loans are stated at amortized
cost using the interest method. Loan-backed bonds and
structured securities are stated at amortized cost using
the interest method including anticipated prepayments at
the date of purchase. Significant changes in estimated
cash flows are accounted for using the prospective
method. Investments in the Class B Pass-Through
Certificates of Fund America Investors Corporation II,
Series 1993-C, are valued in the same manner as other
loan-backed bonds or, if lower, the value of the
individual underlying securities as determined utilizing
the prospective method. Obligations which do not
qualify for amortization are stated at NAIC value or a
supportable value. Bonds in or near default are carried
at fair value.
Common stocks of unaffiliated issuers are carried at
fair value. The Company's investments in 100% of the
common stocks of its insurance subsidiaries are carried
at the net capital and surplus of the respective
companies, as determined on the basis of accounting
practices prescribed by regulatory authorities. The
Company's investments of 100% in its non-insurance
subsidiary REO Holding Corporation ("REO"), and 83% in
its non-insurance subsidiary, I.C.H. Funding Corporation
("ICH Funding"), are determined on the equity basis as
described in Section 5(B)(a) of the NAIC Valuation of
Securities Manual. At December 31, 1994, the Company's
subsidiaries were Bankers Life Insurance Company of New
York ("Bankers New York"), Constitution, ICH Funding and
REO. At December 31, 1995, the Company's remaining
subsidiary was ICH Funding.
Mortgage loans on real estate are carried at their
aggregate unpaid principal balances, net of amounts non-
admitted.
Real estate, substantially all of which is acquired
through foreclosure, is carried at the lower of cost or
market at the date of acquisition, net of amounts non-
admitted, adjusted for accumulated depreciation and
related encumbrances, if any. Depreciation is computed
principally on the straight-line method.
Policy loans are carried at their aggregate unpaid
principal balances.
Short-term investments include those investments whose
maturities at the time of acquisition were one year or
less. These investments are carried at amortized cost
which approximates fair value.
Other invested assets include residual interests in
mortgage-backed securities stated at amortized cost,
utilizing the interest method and anticipated
prepayments at the date of purchase, and other
miscellaneous investments carried at amortized cost.
Realized gains and losses on investments are determined
on a specific identification basis and are included as a
component of net gain from operations, net of federal
income taxes and amounts transferred to the IMR.
Realized gains and losses on investments are recorded
when investments are sold or when management determines
a permanent impairment of investment value has occurred.
Unrealized gains or losses on investments are credited
or charged to unassigned surplus.
Page 46 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
d. Premiums Deferred and Uncollected
Deferred and uncollected life insurance premiums
represent annual or fractional premiums, either due and
uncollected or not yet due where policy reserves have
been provided on the assumption that the full premium
for the current policy year has been collected.
Deferred and uncollected premiums are reported net of
loading and reinsurance ceded.
e. Non-Admitted Assets
Assets exceeding applicable statutory limitations, or
those of questionable quality, are generally non-
admitted. Any changes in such assets are credited or
charged directly to unassigned surplus.
f. Aggregate Reserves
The reserves for future policy benefits are actuarially
computed in accordance with provisions of the Texas
Administration Code.
The reserves are reported net of a deduction for
reinsurance ceded to other companies. The ceded
reserves are calculated primarily on a yearly renewable
term or coinsurance basis.
The aggregate reserve for annuities is based primarily
on the Commissioners Annuity Reserve Valuation Method
("CARVM"). Assumed interest rates on annuities range
from 4% to 9.25%.
The aggregate reserve for life policies has been
calculated principally using the Net Level Premium
Reserve Method ("NLP Method") and the Commissioners
Reserve Valuation Method ("CRVM") utilizing the American
Experience Table, 1941, 1958 and 1980 Commissioners
Standard Ordinary Mortality Tables and assumed interest
rates of 2.5% to 6.0%. Universal life reserves are
computed in accordance with the NAIC Universal Life
Model Regulation.
Additional reserves are provided if projected cash flows
from assets supporting reserve liabilities and
anticipated future revenues from the underlying
insurance policies are determined to be insufficient to
cover future policy obligations under moderately adverse
conditions. At December 31, 1995, no such additional
reserves were needed.
g. Separate Accounts
Separate accounts represent segregated assets whose
values directly determine the amounts of the liabilities
for variable annuities. The Company does not have an
investment risk with these assets and liabilities. The
risk lies solely with the holder of the contract.
Separate accounts are included in other assets and other
liabilities in these financial statements.
h. Policy and Contract Claims
Policy and contract claims include provisions for
reported claims in process of settlement, valued in
accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred but
not reported, based on prior experience of the Company.
Page 47 of 101<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
i. Premium Income Recognition
Life insurance premiums on traditional life policies are
reported as earned on the anniversary dates of the
policies. Life insurance premiums on universal life
policies and annuities are reported as earned when
collected. Acquisition costs, such as commissions and
other costs in connection with acquiring new business,
are charged to operations as incurred.
j. Federal Income Taxes
Until December 14, 1995, the Company was a member of a
consolidated tax group which filed a Federal income tax
return with ICH and substantially all of ICH's insurance
and non-insurance subsidiaries. For the period from
December 15, 1995 through December 31, 1995, the Company
will file a separate Federal income tax return.
Effective January 1, 1996, the Company intends to file a
consolidated Federal income tax return with
Constitution, Union Bankers and Marquette. The
Consolidated Return Group for this period, is subject to
a Tax Allocation Agreement under which each member's tax
liability equals or approximates that respective
member's tax liability had a separate tax return been
filed. The agreement allows for reimbursement for
utilization of each separate entity's net operating
losses to the extent that such losses could have been
utilized, on a separate return basis.
In 1994, adjustments in prior years' taxes are charged
or credited directly to surplus. In 1995, prior years'
tax adjustments were charged or credited directly to net
income.
k. Interest Maintenance Reserve
An IMR is provided in compliance with NAIC prescribed
accounting practices in order to provide a reserve for
fixed income realized gains and losses related to
changes in interest rates. The IMR is amortized against
gain from operations on a basis reflecting the remaining
period to maturity of the fixed income securities sold.
l. Asset Valuation Reserve
An AVR is provided in compliance with NAIC prescribed
accounting practices in order to provide a reserve for
credit-related losses in the investment portfolio.
m. Postretirement Benefits Obligation
Effective January 1, 1993, the Company and its
subsidiaries were required under statutory accounting
practices to adopt the accrual method of accounting for
certain postretirement benefits. The Company and its
subsidiaries are amortizing the transition obligation
over a 20-year period.
n. Fair Values of Financial Instruments
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 statement of admitted assets,
liabilities and capital and surplus for these
instruments approximate their fair values.
Page 48 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
n. Fair Values of Financial Instruments, continued
Investment securities: Fair values for bonds are based
on quoted market prices, where available. For bonds not
actively traded, fair values are estimated using values
obtained from independent pricing services. The fair
values for unaffiliated common equity securities are
based on quoted market prices and are recognized in the
statement of admitted assets, liabilities and capital
and surplus (see Note 4).
Mortgage loans and other invested assets: Fair values
for mortgage loans are estimated using discounted cash
flow analyses, using interest rates currently being
offered for similar loans to borrowers with similar
credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations. The fair
value of the Company's investment in residual interests
in mortgage-backed securities was obtained from an
independent broker-dealer. The fair values of other
miscellaneous invested assets have not been estimated
due to their relative immateriality (see Note 4).
Investments in limited partnerships: Fair values of the
Company's investments in limited partnerships are based
on the estimated fair values of the partnership assets
and liabilities, assuming a liquidation of the
partnership and distribution of proceeds to the partners
(see Note 4).
Policy loans: The Company does not believe an estimate
of the fair value of policy loans can be made without
incurring excessive cost. Further, because of the
numerous assumptions which must be made to estimate the
fair value of policy loans, the Company does not believe
that such information would necessarily be meaningful.
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.
o. Use of Estimates
The preparations of financial statements requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenue and expenses during the reporting
period. Actual results could differ from those
estimates.
p. Reclassifications
Previously reported 1994 amounts have in some instances
been reclassified to conform to the 1995 presentation.
Certain accounts as reflected in the Company's Annual
Statement filed with regulatory authorities have been
reclassified to more accurately reflect the nature of
such accounts.
Page 49 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
2. Nature of Operations
The Company is a life insurance concern originally
organized in Texas in 1903. The Company is authorized to
sell life, annuity, and accident and health insurance in 40
states, the District of Columbia and Guam. The Company
currently derives most of its premium income from the sales
of ordinary life, universal life, and annuities to
individuals. Maximum retention on any one life is
$500,000. Business is produced through independent general
agents and their subagents and producers. The Company does
not have any branch or service offices.
3. Change in Subsidiary Holdings
a. Acquisition of Subsidiaries
In conjunction with the termination of a reinsurance
agreement with Consolidated Fidelity Life Insurance
Company ("CFLIC"), a former affiliate, the Company
acquired 83% of the common stock of ICH Funding valued
at $9.6 million (as of April 1, 1994, see Note 12).
b. Disposition of Subsidiaries
On July 26, 1995, the Company sold to an unaffiliated
party its wholly-owned subsidiary, Bankers New York, for
approximately $35 million cash. The sale resulted in a
realized capital gain of approximately $11.3 million.
Immediately prior to its sale to SW Financial, the
Company distributed its wholly-owned subsidiary,
Constitution, in the form of a dividend resulting in a
net decrease in surplus of approximately $41.5 million.
The Company reflected a realized loss of approximately
$17.0 million on the distribution, representing the
excess of the Company's cost basis in Constitution over
its carrying value; however, such loss was offset in
surplus by a corresponding reduction in unrealized
capital losses.
On December 13, 1995, the Company also sold its wholly-
owned subsidiary REO to Bankers Multiple Line Insurance
Company, a former affiliate, for $4.3 million. This
sale resulted in a realized capital loss of
approximately $2.9 million and a corresponding decrease
in surplus.
4. Investments
Bonds with a statement value of $105,113,000 and
$129,791,000 at December 31, 1995 and 1994, respectively,
were on deposit with various regulatory authorities as
required by law.
The statement value of investments in bonds, the cost of
unaffiliated common stocks and the estimated fair values of
such investments at December 31, 1995 and 1994, by category
of securities are as follows (in thousands):
Page 50 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
4. Investments, continued
<TABLE>
<CAPTION>
December 31, 1995: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
<S> <C> <C> <C> <C>
United States Government,
government agencies and
authorities $ 18,378 $ 914 $ 14 $ 19,278
States, municipalities and
political subdivisions 13,919 1,473 15,392
Foreign government 14,660 1,738 16,398
Public utilities 62,819 1,993 780 64,032
Mortgage-backed securities 395,644 15,055 29,182 381,517
All other corporate 384,825 23,713 2,908 405,630
Subtotal, bonds 890,245 44,886 32,884 902,247
Common stocks, unaffiliated 1,769 37 1,311 495
Total bonds and equity
securities $ 892,014 $ 44,923 $ 34,195 $ 902,742
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
<S> <C> <C> <C> <C>
United States Government, government
agencies and authorities $ 12,566 $ 14 $ 419 $ 12,161
States, municipalities and political
subdivisions 12,908 81 266 12,723
Foreign governments 14,747 27 1,204 13,570
Public utilities 91,223 12,576 78,647
Mortgage-backed securities 410,811 912 50,079 361,644
All other corporate 370,574 535 25,887 345,222
Subtotal, bonds 912,829 1,569 90,431 823,967
Common stocks, unaffiliated 2,655 329 1,423 1,561
Total bonds and equity securities $ 915,484 $ 1,898 $ 91,854 $ 825,528
</TABLE>
Page 51 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
4. Investments, continued
At December 31, 1995, the Company non-admitted $506,035
of the carrying value of bonds representing the
difference between book value and fair value of two
issuers. These securities are being carried at the lower
of book value or fair value.
Unaffiliated common stocks are carried at fair value with
the difference between book value and fair value reported
net as either non-ledger or non-admitted assets. At
December 31, 1995 and 1994, the Company had net non-
admitted unrealized losses of approximately $1.3 million
and $1.1 million, respectively.
The amortized cost and estimated fair value of bonds at
December 31, 1995, by contractual maturity, are shown
below (in thousands). Actual 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>
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 25,321 $ 24,222
Due after one year through five years 64,570 67,103
Due after five years through ten years 198,368 210,352
Due after ten years 206,342 219,053
494,601 520,730
Mortgage-backed securities 395,644 381,517
$890,245 $902,247
</TABLE>
At December 31, 1995 the Company held unrated or
noninvestment-grade corporate debt securities (NAIC
Classes 3 through 6) of approximately $48.5 million with
an aggregate estimated fair value of approximately $47.4
million. These holdings amounted to 5.5% of the
Company's bonds and 3.6% of total cash and invested
assets. The holdings of noninvestment-grade securities
are widely diversified and include securities of 40
issuers.
Included in Mortgage-Backed Securities is an investment
in the Class B Pass-Through Certificates of Fund America
Investors Corporation II, Series 1993-C. The carrying
value of this investment was $30.7 million and $29.6
million at December 31, 1995 and 1994, respectively.
The Company maintains its cash and short-term investments
with high credit quality institutions. At times, such
investments may be in excess of the FDIC insurance limit.
Excluding scheduled maturities, proceeds from sale of
bonds during 1995 and 1994 and the related gross gains
and gross losses realized on such sales were as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Proceeds from sales $341,257 $346,861
Gross gains 5,527 6,034
Gross losses 3,524 2,161
</TABLE>
Page 52 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
4. Investments, continued
The following is an analysis of changes in the difference
between estimated fair values and amortized cost of
investments owned by the Company during the years ended
December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Bonds $ 100,359 $(111,423)
Unaffiliated common stocks (180) (182)
Total increase (decrease) $ 100,179 $(111,605)
</TABLE>
The carrying amounts and the estimated fair values of the
Company's investments in mortgage loans and residual
interests in mortgage-backed securities were as follows at
December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Mortgage loans $97,650 $110,395 $122,318 $115,878
Residual interests $ 4,646 $ 2,651 $ 6,282 $ 2,026
</TABLE>
The Company's mortgage loans consist primarily of loans on
commercial real estate. At December 31, 1995, approximately
64% of such mortgages involved property located in Texas,
consisting primarily of first mortgage liens on income-
producing properties.
Included in mortgage loans is a loan to Bent Tree Towers.
The carrying value of this loan was $8.1 million and $7.9
million at December 31, 1995 and 1994, respectively.
At December 31, 1995 and 1994, the Company non-admitted $2.0
million and $1.0 million, respectively, of mortgage loan
book value. This non-admitted amount represents
management's estimate of potential losses on the Company's
mortgage loan portfolio. Additionally, the Company wrote
off a non-performing mortgage loan in 1995, resulting in a
realized capital loss of approximately $2.2 million.
The Company has an agreement to sell a block of seventy-two
(72) residential mortgage loans to an unaffiliated third
party for approximately $3.6 million. These mortgages were
originally acquired in 1994 as a part of the CFLIC
reinsurance settlement (see Note 12). Included in this
block of mortgage loans is all of the approximately $1.0
million of mortgage loans that are in the process of
foreclosure. The carrying value of the loans have been
reduced to the sales price, which resulted in a realized
loss of $222,014 at December 31, 1995.
In conjunction with the termination of a reinsurance
agreement with Modern American Life Insurance Company
("Modern American"), a former affiliate, the Company
transferred mortgage loans with a fair value of
approximately $4.6 million, resulting in a realized loss of
$915,720.
Page 53 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
4. Investments, continued
Following is a summary of the Company's carrying value of
investments in the common stocks of subsidiaries at December
31, 1995 and 1994 (In thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
I.C.H. Funding Corporation $ 5,852 $ 6,530
Bankers Life Insurance Company
of New York 23,898
Constitution Life Insurance Company 45,822
REO Holding Corporation 7,452
$ 5,852 $ 83,702
</TABLE>
Other than ICH Funding, all of the Company's subsidiaries
were wholly owned at December 31, 1994. The Company owned
83% of the common stock of ICH Funding at December 31, 1995
and 1994.
Summarized financial information as determined on the basis
of statutory accounting practices for investments in
subsidiaries at December 31, 1995 and 1994, is as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Insurance assets $ 685,761
Insurance liabilities 616,041
Capital and surplus 69,720
Noninsurance affiliates' equity $ 5,852 13,982
$ 5,852 $ 83,702
</TABLE>
The carrying values of investments in subsidiaries are
determined on the equity basis as described in Section 5(B)a
of the NAIC Valuation of Securities Manual. For insurance
subsidiaries, such carrying value represents the
subsidiaries' net statutory capital and surplus. For non-
insurance subsidiaries, the carrying value represents the
net value of assets and liabilities after applying statutory
accounting valuation procedures. The difference between
book value and carrying value of these investments is
reported net as either non-ledger or non-admitted assets.
At December 31, 1995, the Company reported as a non-ledger
asset an unrealized gain on investments in affiliates of
approximately $4.1 million. At December 31, 1994, the
Company reflected as a non-admitted asset an unrealized loss
on investments in affiliates of approximately $13.4 million.
Prior to December 31, 1992, Bankers Life and Casualty
Company ("Bankers"), a former affiliate, held a note
receivable from James M. Fail ("Fail") with an aggregate
carrying value, including accrued interest, of $33.6
million. The note receivable was issued in conjunction with
a December 1990 refinancing of certain obligations due by
Mr. Fail to Bankers and Marquette and was collateralized by
Mr. Fail's ownership in Consolidated Federal Savings Bank
("CFSB") and CFSB's ownership in its wholly-owned
subsidiary, Bluebonnet Savings Bank. This note receivable
was purchased by the Company on December 31, 1992, for $31.6
million. The value of the collateral at the time of
purchase was estimated to total $60.7 million. In January
1993 the Fail loan was restructured into a note receivable
from Fail for $12.4 million and a note receivable from CFSB
for $17.8 million. The terms of the notes provide for
quarterly installments of principal and interest at 12%,
which will amortize the loans over a seven-year period.
Page 54 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
4. Investments, continued
In conjunction with the termination of the CFLIC reinsurance
agreement, the Company acquired additional collateral loans
due from Fail and CFSB totalling $29.1 million and $21.5
million, respectively (as of April 1, 1994, see Note 12).
Subsequently, in 1994, 50% of the Fail loans were
transferred to an unaffiliated insurance company in exchange
for other securities. Effective January 1, 1996, an
additional amount of the Fail and CFSB loans, of
approximately $20.0 million, were transferred to the
unaffiliated insurance company in exchange for other
securities.
The Fail loan held by the Company at December 31, 1995,
including the 50% loan participation transferred to a non-
affiliate, is collateralized by 2,400 shares of CFSB common
stock. Management has estimated the value of the collateral
supporting the Company's loan to Fail, net of the
participation transferred, at $90.5 million based on the
GAAP equity of CFSB as of September 30, 1995. The carrying
value of the Fail loan at December 31, 1995 and 1994, was
$19.6 million and $20.2 million, respectively.
The CFSB loan held by the Company at December 31, 1995, is
collateralized by an equity interest equal to 100% of the
nonvoting capital stock of Bluebonnet Savings Bank, a
wholly-owned subsidiary of CFSB, and all rights there to per
the security agreement dated January 25, 1993. Management
has estimated the value of the collateral supporting the
Company's loan to CFSB at $100.2 million, based on the GAAP
equity of CFSB as of September 30, 1995. The carrying value
of the CFSB loans at December 31, 1995 and 1994, was $21.7
million and $29.3 million, respectively.
Following is an analysis of realized capital gains (losses)
on investments (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
Bonds $ 2,003 $ 3,873
Common stocks - affiliated (8,625)
Common stocks - unaffiliated 548 (691)
Equity in realized losses of
subsidiaries (3,284) (6,405)
Mortgage loans (3,585) (105)
Real estate (238) (1,433)
Other (1,179) (509)
(14,360) (5,270)
Amount transferred to the IMR (826) (1,414)
Income tax (expense) benefit (4,205) 575
Net realized capital losses $ (19,391) $ (6,109)
</TABLE>
The Company reduced its investment in residual interest
mortgage-backed securities from $6.3 million at December 31,
1994, to $4.6 million at December 31, 1995. The effective
yield on such residual interests averaged approximately 8%
at December 31, 1995.
Included in other invested assets is an ownership interest
in a limited partnership, GSSW, L.P. ("GSSW"), which
acquired, through auction, certain mortgage loans and real
estate formerly held by failed savings and loan associations
for resale. During 1994, GSSW distributed $7,891,000 of
mortgages to the Company. After this distribution the
remaining assets of GSSW consisted primarily of income
producing real estate. In 1995, one of these mortgage loans
became non-performing and
Page 55 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
4. Investments, continued
was transferred back to the partnership resulting in the
Company reporting a realized capital loss of $271,000. The
carrying value of GSSW was $27.0 million and $21.1 million
at December 31, 1995 and 1994, respectively. The fair value
of the Company's investment in GSSW approximated $40.4
million and $32.0 million at December 31, 1995 and 1994,
respectively.
5. Net Investment Income
Net investment income consists of the following (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
Investment income:
Interest on bonds and
short-term investments $ 74,191 $ 69,820
Dividends 2 6
Equity in losses of subsidiaries (A) (2,962) (2,152)
Interest on mortgage loans 10,975 11,702
Income from real estate investments 3,758 3,900
Interest on policy loans 7,727 7,832
Interest on collateral loans 5,457 5,373
Income from other invested assets 7,629 4,880
Other 591 2,055
Gross investment income 107,368 103,416
Investment expenses 7,746 8,836
Net investment income $ 99,622 $ 94,580
</TABLE>
(A) Cash dividends received from subsidiaries totalled $5.6
million in 1994.
The carrying value of nonaffiliated invested assets for which
no investment income was recorded during the twelve months
ended December 31, 1995 and 1994, was as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Bonds $ 629 $ 1,048
Common stocks 481 377
Real estate 10,785 12,462
Cash and short-term investments 1,143
Other invested assets 4,205 5,961
Total $ 16,100 $ 20,991
</TABLE>
In addition, the Company has non-admitted mortgage loan
interest on loans in foreclosure or delinquent more than one
year or where collection of interest is uncertain. At
December 31, 1995 and 1994, the interest non-admitted
totalled $257,318 and $257,768, respectively.
Page 56 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
6. Real Estate
Real estate consists of the following at December 31, 1995
and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cost of real estate $ 30,167 $ 30,934
Accumulated depreciation (1,919) (1,563)
Real estate non-admitted (7,956) (8,406)
$ 20,292 $ 20,965
</TABLE>
The non-admitted amounts represent management's estimate of
potential losses on the Company's real estate portfolio.
These estimates take into consideration the net operating
income of the property, any recent offers for purchase, and
internal appraisals of values.
7. Transactions With Affiliates
Through December 31, 1995, the Company was a party to a
management and services agreement with Facilities Management
Installation, Inc. ("FMI"), a subsidiary of ICH. FMI
provided substantially all administrative, management,
investment, personnel, data processing, facilities and
certain other services for ICH, its subsidiaries and
affiliates and certain other unrelated parties. Under the
management and service agreement with FMI, the Company paid
fees for personnel, data processing, and other services
equal to the cost of such services, and a percentage markup,
to FMI. The Company incurred $20,935,475 and $21,822,864 in
fees in accordance with the agreement in 1995 and 1994,
respectively.
On November 9, 1992 the Company sold its wholly-owned
subsidiary, Bankers Life and Casualty Company ("Bankers").
The sale of Bankers was subject to Bankers having a
specified level of adjusted capital and surplus as of
October 31, 1992. A final determination as to the level of
such adjusted capital and surplus was mutually agreed upon
by the buyer and the Company on June 30, 1994. The Company
was required to return a portion of the proceeds it had
received from the sale totalling $2.5 million.
The Company also paid $275,000 to its former affiliate,
Philadelphia American Life Insurance Company, on November
23, 1994, in settlement of certain uncollectible receivables
related to the sale of Bankers.
As part of a reorganization effected in September 1993, the
Company entered into a reinsurance agreement with Modern
American. Effective October 1, 1995, the Company terminated
this reinsurance agreement (see Note 12).
8. Federal Income Taxes
Life insurance companies are taxed at corporate rates on
life insurance company taxable income, any distributions
from a policyholders' surplus account (the Company's balance
in this account is zero) and net realized capital gains.
Taxable income is life insurance gross income reduced by
life insurance deductions which include generally available
business deductions and certain other adjustments prescribed
by the Internal Revenue Code.
Page 57 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
8. Federal Income Taxes, continued
Pursuant to the Tax Reform Act of 1986, all corporations
including insurance companies are subject to the alternative
minimum tax ("AMT"). This law requires corporations to pay
the higher of regular tax or AMT. A corporation's
alternative minimum taxable income is equal to its regular
taxable income increased by tax preferences and other
adjustments. In general, the AMT rate is 20%.
Reconciliations of the amounts computed by applying the
statutory U.S. federal income tax rate of 35% to income
before tax and the provisions as reflected in the statement
of operations for the years ended December 31, 1995 and
1994, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Loss from operations before realized
capital gains (losses):
Computed expected tax provision
(benefit) $ (7,146) $ (2,440)
Increase (decrease) in taxes
resulting from:
Equity in losses of subsidiaries 1,037 753
Book/tax difference in mortgage
loan accretion 111 1,756
Reserve revaluations 526 1,567
Reinsurance recapture with no
current tax effect 8,680
Capitalization of policy
acquisition costs 1,602 1,530
Limited partnership income (losses) (770) 496
Utilization of AMT credit
carryforwards (2,171)
Tax settlements, 1986-1989 (2,373)
Other (1,127) 297
Federal income tax expense $ 540 $ 1,788
Realized capital gains (losses):
Computed "expected" tax provision
(benefit) $ (5,026) $ (1,844)
Increase (decrease) in taxes
resulting from:
Equity in gains (losses) of
subsidiaries 1,149 1,271
Loss on sale or dividend of
subsidiaries with no tax effect 3,197
Collateralized mortgage obligation
taxable writedowns 1,227 177
Corporate taxable mortgage loan
accretion 412
Limited partnership bases differences 1,773
Mortgage loan writedowns 1,160
Other 313 (179)
Federal income tax provision
(benefit) $ 4,205 $ (575)
</TABLE>
The federal income tax returns for 1990 through 1994 are
currently under examination. There are no significant
adjustments which, after prescribed indemnifications, are
expected to result from these examinations that would
materially affect the financial position of the Company (see
Note 13).
9. Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance
benefits for retired employees. Employees meeting certain
age and length of service requirements become eligible for
these benefits. The expected cost of providing these
benefits is recognized as expense as claims are incurred for
retired employees and as service requirements are met for
active employees. These costs for the
Page 58 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
9. Postretirement Health Care and Life Insurance Benefits, continued
Company approximated $945,000 and $900,000 for the years
ended December 31, 1995 and 1994, respectively. The cost of
providing these benefits for retirees is not separable from
the cost of providing benefits for active employees. The
Company's unrecognized transition obligation as of December
31, 1995 was $3.4 million. The amortization of the
transition obligation in 1995 totaled $420,000.
10. Capital and Surplus and Shareholder Dividend Restrictions
Companies incorporated under the laws of the State of Texas
have minimum capital and surplus requirements in order to
transact business. Minimum capital and surplus requirements
are $700,000 and $700,000, respectively.
In 1995, the Company retired two million shares of treasury
stock by reducing its capital stock by $2.0 million and its
gross paid-in and contributed surplus by approximately
$158.6 million. The retirement of the treasury stock had no
effect on total capital and surplus.
On December 15, 1995, the Company received a $20.0 million
cash contribution to gross paid-in and contributed surplus
from its parent.
Generally, the net assets of the Company available for
transfer to the Company's parent as dividends are limited to
the greater of the Company's net gain from operations during
the preceding year or 10% of the Company's net surplus as of
the end of the preceding year as determined on the basis of
accounting practices prescribed or permitted by insurance
regulatory authorities. Payments of dividends in excess of
such amounts generally require approval by the Texas
Department. In 1995, the Company distributed its wholly-
owned subsidiary, Constitution, in the form of a dividend
which was approved by the Texas Department (see Note 3).
11. Insurance Liabilities
At December 31, 1995, the withdrawal characteristics for
reserve liabilities related to investment-type contracts,
including annuities and deposit liabilities, were as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
Subject to discretionary withdrawal Amount Percentage
<S> <C> <C>
- With market value adjustment $ 47,101 10.7%
- At book value less surrender charge 133,052 30.2
- At market value 4,794 1.1
- At book value (minimal or no charge
or adjustment) 146,548 33.3
Not subject to discretionary
withdrawal provision 108,467 24.7
Total annuity actuarial reserves
and deposit liabilities (gross) 439,962 100.0%
Less: Reinsurance 141,516
Total annuity actuarial reserves
and deposit liabilities (net) $ 298,446
</TABLE>
Page 59 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
11. Insurance Liabilities, continued
The estimated fair value of the liabilities for
investment-type contracts is approximately equal to the
carrying value as reflected in the preceding table at
December 31, 1995, because interest rates credited to
account balances approximate current rates paid on similar
investments and are generally not guaranteed beyond one
year. Fair values for the Company's insurance contracts
other than investment-type contracts are not required to be
disclosed. However, the fair values of liabilities under
all 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.
12. Reinsurance
The Company has set its retention limit for acceptance of
risk on individual life insurance policies at various levels
up to $500,000. There are reinsurance agreements with
various unaffiliated companies whereby insurance in excess
of the Company's retention limit is reinsured. To the
extent that reinsuring companies become unable to meet their
obligations under these agreements, the Company remains
contingently liable. Insurance in force ceded at December
31, 1995 and 1994 totalled $2,802,057,000 and
$3,170,725,000, respectively. The related reserve credits
taken on life policies and contracts totalled $1,929,000 and
$42,032,000 at December 31, 1995 and 1994, respectively.
Estimated amounts recoverable from reinsurers are
approximately $26,000 and $244,000 at December 31, 1995 and
1994, respectively. Life reinsurance premiums ceded during
1995 and 1994 totaled $21,254,000 and $23,586,000,
respectively.
Effective December 31, 1991, the Company entered into a
quota share coinsurance and modified coinsurance reinsurance
agreement with an unaffiliated reinsurer. Under the terms
of the treaty, the Company ceded 85% of its traditional
(non-interest sensitive) ordinary premium paying and paid-up
whole life, endowment, term insurance and extended term
insurance plans issued prior to January 1, 1991, and in
force as of December 31, 1991. The traditional life block
of business represented approximately $412 million in
statutory reserves, $24 million in annualized premium in
force and $2.5 billion of face amount in force. The Company
received an initial ceding commission of $75 million and
became obligated for a quarterly risk charge. The Company
had the right to recapture the ceded business with advance
written notice at any time after December 31, 1994. On
December 29, 1995, the Company gave notice of its intent to
terminate effective March 31, 1996, this agreement.
For financial reporting purposes, the Company treated the
recapture as being effective December 31, 1995 and, as a
consequence, did not take a reserve credit at year-end 1995
for the coinsurance reserves, which resulted in an increase
in reserve liabilities of approximately $25.9 million. The
face amount of insurance in force ceded under such
reinsurance agreement totaling $1,299,051,000 at December
31, 1995 is included in the total insurance in force ceded
as reflected above. Because the recapture could not be
reflected in 1995 for federal income tax purposes, the tax
benefit associated with the recapture was not reflected in
the 1995 Statement of Operations. Such tax benefit,
totalling approximately $8.7 million, is expected to be
realized in 1996.
Page 60 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
12. Reinsurance, continued
The following reflects the effects of this reinsurance
agreement for the years ended December 31, 1995 and 1994,
respectively (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Life and annuity premiums ceded $11,707 $13,034
Reserve adjustments on reinsurance
ceded and other income 1,525 5,525
Surrender benefits ceded 28,520 32,338
Decrease in reserves for supplementary
contracts without life contingencies
and for dividend and coupon
accumulations 39,731 11,491
Expense commissions ceded 3,362 3,910
Premium taxes ceded 234 261
Risk charge paid 780 1,059
Statutory surplus provided 39,731
Interest charges paid 19,814 19,010
</TABLE>
Effective September 30, 1990, the Company entered into a
reinsurance agreement with an unaffiliated insurance company
whereby it ceded retroactive to March 31, 1990, 100% of
certain annuity business to the reinsurer, which in turn
retroceded the business on essentially identical terms to
Marquette. Marquette subsequently retroceded the business
on essentially identical terms to its parent, CFLIC. The
business involved had a present value of $25 million, based
on specific assumptions about the future investment
performance of the related assets. The reinsurance
arrangements provided for an experience refund to the
Company equal to 95% of the amount by which actual future
profits on the ceded business and related assets exceeded
the amounts projected in determining the $25 million present
value of the business. As of March 31, 1990, the related
assets that the Company transferred had a book value of
approximately $447.8 million and a market value of
approximately $413.8 million. Marquette paid $25 million
for the ceded business by assuming approximately $438.8
million of reserve liabilities (as March 31) on that
business, which amount exceeded by $25 million the
approximately $413.8 million market value of the assets
transferred to Marquette through the unaffiliated reinsurer.
The reserve liabilities ceded were subsequently reduced by
$22.1 million and Marquette returned cash to the Company in
the same amount. An additional adjustment to the amounts
payable was periodically made between the companies to
reflect the effect of the adjustment in the reserves ceded.
On June 30, 1994, the CFLIC reinsurance agreements were
terminated and the business reinsured thereunder was
recaptured by the reinsurer effective as of April 1, 1994.
Annuity reserve liabilities totalling $323,305,000 were
assumed by the reinsurer and invested assets with a fair
value of $289,414,000 were transferred by CFLIC to the
reinsurer. The difference between the reserve liabilities
assumed by the reinsurer and the assets transferred from
CFLIC, totalling $33,891,000, represented the aggregate
ceding fee paid to CFLIC to effect the termination.
Immediately thereafter the Company recaptured $106,448,000
of the reserve liabilities from the reinsurer and received
invested assets from the reinsurer totalling $93,227,000.
The assets consisted of cash, short-term investments and
marketable fixed maturity investments totalling $24,740,000,
CFLIC's investment in ICH Funding and certain pass-through
certificates issued by a special purpose trust with an estimated
fair value totalling $12,528,000, collateral loans due from James
M. Fail and CFSB Corporation totalling $50,640,000 and other
assets, principally mortgage loans, totalling $5,319,000. The
difference between the reserve liabilities recaptured by the
Company and the assets transferred from the reinsurer totalling
$13,221,000 represented a ceding fee paid by the Company and
reduced the reinsurer's net ceding fees incurred to effect the CFLIC
reinsurance termination to $20,670,000. The reinsurance agreement
between the Company and the reinsurer was amended to provide that the
Page 61 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
12. Reinsurance, continued
reinsurer will be permitted to recover the net ceding fees
incurred out of the future profits on the portion of the
Company's annuity business it retained, together with
interest at 2% per annum on the unamortized balance of such
ceding fees.
Effective December 31, 1994, the Company recaptured 8% of
the remaining annuity business ceded to the reinsurer.
Annuity reserve liabilities totalling $16.6 million were
recaptured by the Company and cash totalling $15 million was
transferred by the reinsurer to the Company. The difference
between the reserve liabilities recaptured and the cash
transferred from the reinsurer, totalling $1.6 million,
represented the aggregate ceding fee paid to the reinsurer
to effect the recapture. The unamortized balance of annuity
reinsurance ceding fees totaled $13,075,000 and $18,047,000
at December 31, 1995 and 1994, respectively.
The reserve credits for liabilities ceded under the above
annuity reinsurance agreement are recorded as future policy
benefits and other policy and contract liabilities. The
aggregate reserve credit taken on contracts ceded under this
reinsurance agreement totaled approximately $139.0 million
and $188.8 million at December 31, 1995 and 1994,
respectively. Reinsurance premiums ceded during 1995 and
1994 totaled approximately $6,026,000 and $9,251,000,
respectively.
Effective August 1, 1990, the Company ceded 100% of its
guaranteed interest contracts ("GIC") to Constitution. The
liability for GIC's are recorded net of reinsurance ceded as
other policy and contract liabilities. The reserve
liabilities ceded at December 31, 1995 and 1994, were
approximately $2.5 million and $20.2 million, respectively.
Premiums ceded totaled $170,000 during 1995 and none during
1994.
The Company entered into a reinsurance agreement with Modern
American as of September 30, 1993, whereby the Company
assumed by coinsurance 100% of Modern American's interest-
sensitive life insurance policies. The Company paid an
initial ceding commission of $4.3 million by receiving
assets having an admitted asset value equal to $36.7 million
and reserves and other policy liabilities on the business
coinsured of $41.0 million. The Company terminated this
reinsurance agreement effective October 1, 1995. The
termination resulted in assets being transferred to Modern
American equaling reserves of approximately $42.1 million.
The assets transferred, consisting of bonds and mortgage
loans, were transferred at their fair value. Since assets
equaled reserve liability transferred, there was no effect
on operating earnings of the Company resulting from this
transaction; however, the valuation of the assets at their
fair value resulted in the Company realizing net capital
loss of $330,925.
The following reflects the effects of this reinsurance
agreement for the years ended December 31, 1995 and 1994,
respectively (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Life and annuity premiums assumed $1,739 $2,535
Net investment income 209 245
Death and annuity benefits assumed 855 1,313
Surrender benefits assumed 2,237 2,244
Other benefits assumed 6 9
Increase (decrease) in reserves for
life policies assumed (42,393) 886
Commissions assumed 52 91
General expenses assumed 353 503
Insurance taxes, licenses and fees
assumed 35 51
</TABLE>
Page 62 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
13. Commitments, Litigation and Contingent Liabilities
At December 31, 1995, the Company had a lease covering
certain of its administrative office facilities which is
scheduled to expire November 30, 1997. Minimum rental
commitments under the lease total approximately $3.1 million
($1.6 million in 1996 and $1.5 million in 1997).
In July 1994, the Internal Revenue Service ("IRS") completed its
examination of the Modern American consolidated group for the tax
years 1986 through 1989 and issued Notices of Proposed Deficiencies
totalling approximately $127.7 million, before interest. In August
1995, the Company's former parent, Modern American, settled the IRS
examination of these tax years by agreeing to pay $33.6 million of
additional taxes and $36.3 million of interest, for a total settlement
of $69.9 million. The Company's allocable share of the settlement,
including amounts owed as the result of prior indemnification agreements,
was a net benefit of approximately $370,000. In accordance with the
intercompany tax allocation agreement, the Company received payment of
this benefit from Modern American on December 29, 1995. On the same date
ICH made a capital contribution to Modern American and Modern American
paid $69.9 million to the IRS in full satisfaction of the settlement.
The IRS is currently conducting an examination of the Company's tax
return for 1990 through 1994. The Company is not aware of any issues
that would materially affect its financial position. In addition, the
Company has been indemnified by ICH against all tax liabilities that
might arise prior to the date of sale (see Note 3) and ICH has
deposited funds in an escrow account to fulfill its obligations,
if any, under the indemnification.
From time to time, assessments are levied on the Company and
its subsidiaries by life and health guaranty associations of states
in which they are licensed to do business. Such assessments are made
primarily to cover the losses of policyholders of insolvent or
rehabilitated insurers. In some states, these assessments can be
partially recovered through a reduction in future premium taxes.
The Company paid or accrued assessments in 1995 and 1994 totalling
approximately $2.4 million and $1.6 million, respectively.
Based on information currently available, management believes that any
future assessments are not reasonably likely to have a material adverse
effect on the Company or its subsidiaries.
Various lawsuits and claims are pending against the Company. Based in
part upon the opinion of counsel as to the ultimate disposition of these
matters, management believes that the liability, if any, will not be
material.
14. Regulatory Matters
On September 24, 1993, the Company, ICH and Union Bankers
entered into a letter agreement with the Texas Department.
This letter agreement superseded a letter agreement dated
March 31, 1993, among the parties. Both the Company and
Union Bankers agreed that they would not enter into any
financial reinsurance agreements without prior notice to the
Texas Department. In addition, the Company agreed, among
other things, that it would 1) give the Texas Department at
least 30 days' prior notice of any stockholder dividend, 2)
limit the amount it invests in private placement securities
without the prior approval of the Texas Department, and 3)
not invest in any interest-only securities ("IO's") and
would exercise commercially reasonable efforts to liquidate
the IO's held by it and its subsidiaries. Management
subsequently gave assurances to the Texas Department that
the Company would not declare and pay any dividends in 1995
without the approval of the Texas Insurance Commissioner.
Upon the sale of the Company in December 1995, the letter
agreements with the Texas Department were withdrawn.
The Texas Department has examined the Company through
December 31, 1994. No adjustments were made as a result of
the examination.
Page 63 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
15. Reconciliation to Generally Accepted Accounting Principles
A reconciliation to stockholder's equity and net income
(loss) as of and for the years ended December 31, 1995 and
1994, from the basis of accounting as prescribed or
permitted by regulatory authorities (statutory basis) to the
basis of GAAP is as set forth below (in thousands). The
December 31, 1995, balances are unaudited and presented on a
basis of accounting no longer utilized by the Company
subsequent to its acquisition by SW Financial (see Note 1).
However, such basis of accounting is consistent with the
basis of accounting previously utilized as of and for the
year ended December 31, 1994.
<TABLE>
<CAPTION>
December 31,
1995 1994
(unaudited)
Stockholder's equity:
<S> <C> <C>
Per statutory basis $ 77,409 $ 116,956
Adjustments for:
Deferred policy acquisition costs and
present value of future profits of
acquired business 120,885 148,220
Excess cost 75,224 77,650
Statutory asset valuation reserves 20,666 25,740
Financial reinsurance (13,075) (57,778)
Deferred income tax (liability) asset (5,324) 58,096
Difference in carrying value of
subsidiaries 193 (10,153)
Due from reinsurers 152,604 198,762
Difference in carrying values of
invested assets 11,933 (196,024)
Net ceding fees incurred by the
reinsurer to be recovered from future
profits on retained annuity business 6,245
Difference in reserve and other
liabilities (158,647) (133,003)
Other, net 10,023 10,982
Stockholder's equity in accordance
with GAAP $ 291,891 $ 245,693
</TABLE>
Page 64 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements, continued
15. Reconciliation to Generally Accepted Accounting Principles, continued
<TABLE>
<CAPTION>
December 31,
1995 1994
(unaudited)
Net income (loss):
<S> <C> <C>
Per statutory basis $ (40,347) $(14,868)
Adjustments for:
Amortization of deferred policy
acquisition costs and present value
of future profits of acquired
business (15,274) (23,916)
Amortization of excess cost change in
accounting method in 1994 (2,427) (219,693)
Due and deferred premiums and loading (1,289) (1,201)
Financial reinsurance 41,699 10,482
Equity in earnings of subsidiaries (1,916) (22,245)
Deferred income tax (expense) benefit (36,591) 4,841
Realized capital gains 16,982 9,342
Federal income tax adjustments (2,005) 2,123
Writedown of collateralized mortgage
obligations (25,819)
Increase in reserves net of reinsurance 2,950 20,577
Increase in reserves from reinsurance (1,053) 123,030
Assets received from reinsurance (108,227)
Change in carrying value of residual
interests 1,178 1,570
Accrual of expense for lease obligation
and retired employee benefits 8,041 (1,806)
Equity in earnings of limited partnership 6,383 5,856
Amortization of unearned revenue reserve 5,260 4,010
Other, net 5,248 8,062
Net income (loss) in accordance
with GAAP $ (13,161) $(227,882)
</TABLE>
16. Adjustment of Amounts Reflected in Annual Statement
The income tax provisions as reflected in the Company's
Annual Statement for the year ended December 31, 1995, were
incorrectly allocated between income from operations and
realized capital gains (losses). In the accompanying
financial statements, such income tax provisions have been
adjusted, as follows (in thousands):
<TABLE>
<CAPTION>
Realized Total
Operating Capital Income
Income Gains Tax
(Loss) (Losses) Provision
<S> <C> <C> <C>
As reflected in Annual
Statement $ 6,052 $ (1,307) $4,745
Reclassification of tax
provision (5,512) 5,512
As reflected in accompanying
financial statements $ 540 $ 4,205 $4,745
</TABLE>
The reallocation of such income tax provisions had no effect
on the Company's reported net loss.
Page 65 of 106<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Schedule of Selected Financial Data
December 31, 1995
(In Thousands)
The following is a summary of certain financial data included
in other exhibits and schedules subjected to audit procedures
by independent accountants and utilized by actuaries in the
determination of reserves (in thousands).
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
Investment Income Earned
<S> <C>
Government bonds $ 21,130
Other bonds (unaffiliated) 49,254
Common stocks (unaffiliated) 2
Common stocks of affiliates (2,962)
Mortgage loans 10,975
Real estate 3,758
Premium notes, policy loans and liens 7,727
Collateral loans 5,457
Short-term investments 3,806
Other invested assets 7,629
Other miscellaneous 592
Gross investment income $ 107,368
Real estate owned - book value less encumbrances $ 28,248
Mortgage loans - book value:
Residential mortgages $ 4,989
Commercial mortgages 94,661
Total mortgage loans $ 99,650
Mortgage loans by standing - book value:
Good standing $ 70,970
Good standing with structured terms $ 20,995
Interest overdue more than three months,
not in foreclosure $ 6,705
Foreclosure in process $ 980
Collateral loans $ 41,308
Bonds and stocks of parents, subsidiaries and
affiliates - book value Common stocks $ 1,749
Bonds and short-term investments by class and
maturity:
Bonds and short-term by maturity - statement value:
Due within one year or less $ 166,578
Over 1 year through 5 years 172,215
Over 5 years through 10 years 300,371
Over 10 years through 20 years 202,608
Over 20 years 161,659
Total by maturity $1,003,431
</TABLE>
Page 66 of 101<PAGE>
<PAGE>
SOUTHWESTERN LIFE INSURANCE COMPANY
Schedule of Selected Financial Data
(continued)
December 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
<S> <C>
Bonds and short-term by class - statement value:
Class 1 $ 759,572
Class 2 195,335
Class 3 34,761
Class 4 8,514
Class 5 4,649
Class 6 580
Total by class $1,003,431
Total bonds and short-term publicly traded $ 928,629
Total bonds and short-term privately placed $ 74,802
Common stocks - market value $ 6,347
Short-term investments - book value $ 113,186
Cash on deposit $ 16,455
Life insurance in force:
Ordinary $8,565,233
Amount of accidental death insurance in force
under ordinary policies $ 511,820
Life insurance policies with disability
provisions in force:
Ordinary $1,233,237
Supplementary contracts in force:
Ordinary - not involving life contingencies 1
Amount on deposit $ 7,951
Income payable $ 1,272
Ordinary - involving life contingencies 5
Income payable $ 8,417
Annuities:
Ordinary
Immediate - amount of income payable $ 3,020
Deferred - fully paid - account balance $ 132,144
Deferred - not fully paid - account balance $ 45,580
Group:
Amount of income payable $ 1,270
Fully paid - account balance $ 5,275
Not fully paid - account balance $ 16,635
Deposit funds and dividend accumulations:
Deposit funds - account balance $ 7,186
Dividend accumulations -account balance $ 181
</TABLE>
Page 67 of 106<PAGE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A Condensed Financial Information
Part B Financial Statements for Variable Annuity Fund I of
Southwestern Life
Part B Financial Statements for Southwestern Life Insurance Company
(b) Exhibits
(1) Copy of resolution establishing Variable Annuity Fund I of South-
western Life (incorporated by reference to registration statements
for Variable Annuity Fund I of Southwestern Life Forms N-8B-1 and
S-5 (File Nos. 811-1636, 2-28842, 2-28843 and 2-28844), filed on
April 23, 1968, and pre-effective amendments thereto).
(1a) Amended and Restated Rules and Regulations of Variable Annuity
Fund I of Southwestern Life (filed herewith).
(2) Safekeeping Agreement between Southwestern Life Insurance Company
and NationsBank of Texas, N.A. (incorporated by reference to
Exhibit 3 to Post-Effective Amendment Nos. 46 (File No. 2-28842),
47 (File No. 2-28843), 45 (File No. 2-28844) and 24 (File No. 811-
1636) to the registration statement on Form N-3 of Variable
Annuity Fund I of Southwestern Life).
(3) Distribution and Administrative Services Agreement (Variable Annu-
ity Fund I of Southwestern Life) (incorporated by reference to
Amendment No. 12 to the Registration Statement on Form N-3 for
Variable Annuity Fund I of Southwestern Life, filed on July 2,
1986).
(4a) Specimen variable annuity contracts issued by Southwestern Life
Insurance Company and endorsements (incorporated by reference to
registration statements for Variable Annuity Fund I of
Southwestern Life Forms N-8B-1 and S-5 (File Nos. 811-1636, 2-
28842, 2-28843 and 2-28844), filed on April 23, 1968, and pre-
effective amendments thereto; and by reference to Exhibit 6a to
Post-Effective Amendment Nos. 44 (File No. 2-28842), 46 (File No.
2-28843), 45 (File No. 2-28844) and 24 (File No. 811-1636) to the
registration statement on Form N-3 of Variable Annuity Fund I of
Southwestern Life; and to Exhibit 5(a)(2) to the Registration
statement for Variable Annuity Fund I of Southwestern Life on Form
N-14 (File No. 033-59447) filed on May 19, 1995).
(5) Forms of application used with variable annuity contracts (previ-
ously filed).*
Page 68 of 106<PAGE>
<PAGE>
(6) Certificate of Incorporation and By-Laws of Southwestern Life
(previously filed).*
(7) Reinsurance contracts . . . . . . . . . . . . . . . Not Applicable
(8a) Asset Transfer Agreement (incorporated by reference to Exhibit A
to the prospectus forming a part of the Registration Statement for
Variable Annuity Fund I of Southwestern Life on Form N-14 (File
No. 033-59447) filed May 19, 1995).
(8b) Form of Participating Contract and Policy Agreement to be entered
into between Scudder Investor Services, Inc. and Southwestern Life
Insurance Company (filed herewith).
(8c) Form of letter agreement to be executed by Southwestern Life
Insurance Company and Scudder Variable Life Insurance Fund (filed
herewith).
(9) Opinion and Consent of Counsel as to legality of interests to be
issued by Variable Annuity Fund I of Southwestern Life (filed
herewith).
(10) Consent of Independent Auditors for Variable Annuity Fund I of
Southwestern Life (filed herewith).
(11) Financial Statements omitted pursuant to Item 14(a)(1) Not
Applicable
(12) Agreements or understandings in consideration of initial capital
Not Applicable
(13) Schedule for computation of performance quotations Not Applicable
(14) Financial data schedule (filed herewith).
(15) Organizational Chart showing the ultimate controlling persons and
affiliates of Southwestern Life Insurance Company (filed
herewith).
* Filed as exhibits to Variable Annuity Fund I of Southwestern Life's
Registration Statement and Post-Effective Amendments thereto.
Page 69 of 106<PAGE>
<PAGE>
Item 25. Directors and Officers of the Depositor
The officers and directors of Southwestern Life Insurance Company are
listed below. Their principal business address is 500 North Akard, Dallas,
Texas 75201.
Directors and Senior
Officers of Southwestern Position and Offices with Southwestern
Robert J. Bruce Director and Senior Vice President
Administration
Glenn H. Gettier, Jr. Chairman of the Board, Director, President
and Chief Executive Officer
Robert C. Greving Director, Executive Vice President & Chief
Actuary
John T. Hull Director, Executive Vice President, Chief
Financial Officer and Treasurer
H. Don Rutherford Director and Executive Vice President
Marketing
Daniel B. Gail Executive Vice President, General Counsel &
Secretary
David A. Leonard Vice President, Associate General Counsel &
Assistant Secretary
Charles R. Nunemaker Vice President Life Administration
Richard P. Pimsner Vice President & Controller
Mary M. Wilson Vice President & Product Actuary
Joe W. Grady Vice President & Appointed Actuary
Item 26. Persons Controlled by or Under Common Control with the Insurance
Company or Registrant
Variable Annuity Fund I of Southwestern Life is a registered separate
account of Southwestern Life Insurance Company. Exhibit 15, attached hereto,
provides information about each person by or under common control with
Southwestern Life Insurance Company.
Page 70 of 106<PAGE>
<PAGE>
Item 27. Number of Contract Owners
As of March 31, 1996, the number of qualified and non-qualified Contract
Owners of Variable Annuity Fund I of Southwestern Life was 292 and 27,
respectively.
Item 28. Indemnification
Reference is made to Exhibit 14 of Form N-8B-1 (File No. 811-1636).
Insofar as indemnification by the Separate Account for liability arising
under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Separate Account pursuant to the
foregoing provisions, or otherwise, the Separate Account 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
Separate Account of expenses incurred or paid by a director, officer or
controlling person of the Separate Account in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Separate Account 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 Underwriters
(a) Philadelphia Life Asset Planning Company, the principal
underwriter for the Registrant, does not serve as principal
underwriter for any other registered investment companies.
Page 71 of 106<PAGE>
<PAGE>
(b) Directors and Officers of the Principal Underwriter
Name Principal Positions Business Address
and Offices
Kenneth R. Carpel Director, President 400 Market Street
and 11th Floor
Treasurer Philadelphia, PA
19106
Paul Carmody Director and Vice 7887 E. Belleview
President Ave.
Englewood, CO 80111
Kenneth G. Director, Vice 7887 E. Belleview
Luzietti President and Ave.
Assistant Treasurer Englewood, CO 80111
Maxine L. Newstein Secretary 400 Market Street
11th Floor
Philadelphia, PA
19106
(c) Philadelphia Life Asset Planning Company received no compensation
from Variable Annuity Fund I of Southwestern Life during the last
fiscal year.
Item 30. Location of Accounts and Records
All accounts, books or other documents required to be maintained
by Section 31(a) of the 1940 Act and the rules promulgated
thereunder are maintained in physical possession of either
Philadelphia Life Asset Planning Company, 400 Market Street, 11th
Floor, Philadelphia, Pennsylvania 19106 or Southwestern Life
Insurance Company, 500 North Akard, Dallas, Texas 75201.
Item 36. Management Services
None.
Item 37. Undertakings
Registrant undertakes to file a post-effective amendment to this
Registration Statement as frequently as is needed to ensure that
the audited financial statements in the Registration Statement are
never more than 16 months old for so long as payments under the
variable annuity Contracts may be accepted.
Page 72 of 106<PAGE>
<PAGE>
Registrant undertakes to include a written communication in the
Prospectus that the applicant can remove to send for a Statement
of Additional Information. Registrant also 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.
Southwestern Life Insurance Company and Variable Annuity Fund I of
Southwestern Life are relying on a no-action letter from the
Securities and Exchange Commission that was issued to the American
Council of Life Insurance and made publicly available on November
28, 1988. That letter outlines conditions that must be met if a
company offering registered annuity contracts imposes the
limitations on surrenders and withdrawals on section 403(b)
contracts as required by the Internal Revenue Code. Southwestern
Life Insurance Company and Variable Annuity Fund I of Southwestern
Life are in compliance with the conditions of that no-action
letter.
Page 73 of 106<PAGE>
<PAGE>
SIGNATURES
As required by (the Securities Act of 1933) and the Investment Company
Act of 1940 the Registrant has caused this Registration Statement to be signed
on its behalf in the City of Dallas, and State of Texas on the 3rd day of
May, 1996.
Registrant: Southwestern Life Insurance Company
By:/s/Glenn H. Gettier, Jr.
------------------------
Glenn H. Gettier, Jr.
President, Chief Executive
Officer and Chairman of the Board
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/Robert J. Bruce Director May 23, 1996
- -------------------------
Robert J. Bruce
/s/Glenn H. Gettier, Jr. President and Chief Executive May 23, 1996
- ------------------------ Officer (Principal Executive
Glenn H. Gettier, Jr. Officer) and Chairman of the
Board
/s/Robert C. Greving Executive Vice President, May 23, 1996
- ------------------------ Chief Actuary and a Director
Robert C. Greving
/s/John T. Hull Executive Vice President, May 23, 1996
- ------------------------ Chief Financial Officer and
John T. Hull Treasurer (Principal
Accounting and Financial
Officer) and a Director
/s/H. Don Rutherford Director May 23, 1996
- ------------------------
H. Don Rutherford
Page 74 of 106<PAGE>
<PAGE>
Exhibit Index
Number Description
(1a) Amended and Restated Rules and Regulations of Variable Annuity
Fund I of Southwestern Life (filed herewith).
(8b) Form of Participating Contract and Policy Agreement to be entered
into between Scudder Investor Services, Inc. and Southwestern Life
Insurance Company (filed herewith).
(8c) Form of Indemnification Agreement to be entered into between
Scudder, Stevens & Clark, Inc. and Southwestern Life Insurance
Company (filed herewith).
(8d) Form of letter agreement to be executed by Southwestern Life
Insurance Company and Scudder Variable Life Insurance Fund (filed
herewith).
(9) Opinion and Consent of Counsel as to legality of interests to be
issued by Variable Annuity Fund I of Southwestern Life (filed
herewith).
(10) Consent of Independent Auditors for Variable Annuity Fund I of
Southwestern Life (filed herewith).
(14) Financial data schedule (filed herewith).
(15) Organizational Chart showing the ultimate controlling persons and
affiliates of Southwestern Life Insurance Company (filed
herewith).
* Filed as exhibits to Variable Annuity Fund I of Southwestern Life's
Registration Statement and Post-Effective Amendments thereto.
Page 75 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
DALLAS, TEXAS
RULES AND REGULATIONS
(as amended and restated ____________, 1996)
ARTICLE I
GENERAL
Section 1. Name. The name of this separate account shall be Variable
Annuity Fund I of Southwestern Life ("Fund"). The Fund was established in 1967
in accordance with the provisions of Chapter 3, Article 3.72 of the Texas
Insurance Code (the "Code") as then in effect, and continues in existence
pursuant to Article 3.75 of the Code.
Section 2. Offices. The principal office of the Fund shall be at the
offices of Southwestern Life Insurance Company ("Southwestern"), 500 North
Akard Street, Dallas, Texas 75201.
Section 3. Purposes. The purposes of the Fund are to provide, pursuant
to the applicable provisions of the Code, for a separate account of
Southwestern for the assets held and applied exclusively for the benefit of
owners or beneficiaries of the variable annuity contracts designated by
Southwestern as contracts ("Contracts") for which reserves shall be maintained
in the Fund, and to pay contractual obligations relating to the assets and
investment performance of the Fund under the Contracts to their owners or
beneficiaries.
Section 4. Fund Investments. The Fund's assets shall consist exclusively
of investments in one or more open-end management investment companies
registered as such under the Investment Company Act of 1940 ("1940 Act"), or
one or more separate investment series thereof ("Underlying Fund(s)") as
determined by Southwestern. No such investment shall be made except in
Underlying Funds that satisfy the requirements of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code") pertaining to investments
underlying variable annuity contracts. Currently, the Underlying Fund in
which the Fund shall invest exclusively in shares of the Capital Growth
Portfolio ("Growth Portfolio") of Scudder Variable Life Investment Fund
("Scudder Fund"). Should shares of the Growth Portfolio become unavailable
for investment by the Fund, or if Southwestern determines that investment in
the Growth Portfolio would be inappropriate in view of the purposes of the
Contracts, Southwestern may, in its discretion, substitute shares of a
different Underlying Fund for shares of the Growth Portfolio held or to be
acquired by the Fund. No such substitution may take place unless it is
permitted by the Securities and Exchange Commission ("Commission") and under
such conditions as the Commission may impose.
Page 76 of 106<PAGE>
<PAGE>
ARTICLE II
VARIABLE ANNUITY CONTRACT OWNERS
Section l. Contract Owner Meetings. Contract Owner meetings generally
shall not be held except as may be required by law, particularly, as required
under the 1940 Act.
Section 2. Voting Rights of Shareholders of the Underlying Fund.
Southwestern is the owner of record of all shares of the Growth Portfolio (and
will be the record owner of all of the Fund's shares in any other Underlying
Fund allocated to the Fund), and as such is entitled to exercise voting rights
pertaining to such shares on any matter that is submitted to shareholder vote
by the Scudder Fund. However, for so long as the staff of the Commission
interprets the federal securities laws as requiring it to do so, Southwestern
will provide Contract Owners (and participants under a group Contract, to the
extent permitted under the terms of any employee benefit plan that is the
owner of such Contract), with the opportunity to instruct Southwestern as to
the voting of such shares attributable to the Contract of such participants'
interest therein.
Section 3. Determination for Voting Instructions. To be entitled to
provide voting instructions to Southwestern, a person must be a Contract Owner
on the record date. During the accumulation period, each Contract Owner may
give instructions for voting the number of shares of the Underlying Fund equal
to (i) the Contract value divided by (ii) the net asset value of one share of
the Underlying Fund, both determined as of the record date, including
fractions thereof, equal to the number of variable annuity accumulation units
attributable to the contract. During the annuity period, each Contract Owner
may give instructions for voting the number of shares of the Underlying Fund,
including fractions thereof, equal to (i) the amount of the assets maintained
in the Fund as reserves to meet the annuity obligations under the contract
divided by (ii) the net asset value of one share of the Growth Portfolio, both
determined as of the record date.
Southwestern will vote the shares of the Underlying Fund for which it
has not received any voting instructions on a proposal for and against such
proposal in the same proportion as in the case of shares for which it has
received instructions.
Each Participant under a group contract will have the right to instruct
the Contract Owner with respect to amounts allocated to such Participant under
the terms of the group contract. Contract Owners shall forward instructions
that have been received from Participants. Instructions for shares with regard
to which Participants where entitled to instruct the Contract Owner, but for
which the Contract Owner has received no instructions, shall be provided by
the Contract Owner for or against each proposal to be voted upon in the same
proportion as votes for which instructions have been received.
Annuitants under individual contracts issued in connection with plans
established under the Self-Employed Individuals Tax Retirement Act of 1962, as
amended, will have the right to instruct the owners of
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such contracts with respect to all votes attributable to such contracts, if
the owners of such contracts are persons other than the annuitants. Annuitants
covered by individual contracts issued in connection with qualified employee
retirement or profit-sharing plans described in Section 401 of the Internal
Revenue Code shall be given the right to instruct the owners with respect to
shares attributable to their contributions to the plans, if any, and to the
extent authorized by the terms of the plans with respect to any additional
shares under such contracts. The owners of such contracts shall provide
instructions with respect to which instructions from annuitants have been
received in accordance with such instructions; votes applicable to individual
contracts with regard to which annuitants were entitled to instruct the
Contract Owner, but for which the Contract Owner has received no instructions,
shall be provided by the Contract Owner for or against each proposal to be
voted upon in the same proportion as votes for which instructions have been
received.
Neither the Fund nor Southwestern is under a duty to inquire as to the
instructions received or the authority of variable annuity Contract Owners to
cast votes. Except as the Fund or Southwestern has actual knowledge to the
contrary, the votes cast by Contract Owners will be considered valid and
effective as they affect the Fund, Southwestern, and any others having voting
rights with respect to the Fund.
Section 4. Determination of Voting Rights. In the event that a meeting
of Contract Owners shall be held as required by law, a record date shall be
set and a notice stating the time, date, place of meeting and the purpose or
purposes for which the meeting is called, shall be given to Contract Owners as
required by law. Unless otherwise required by law, to be entitled to vote, a
person must be a Contract Owner on the record date. During the accumulation
period, each Contract Owner may cast the number of votes, including fractions
thereof, equal to the number of variable annuity accumulation units
attributable to the contract. During the annuity period, each Contract Owner
may cast the number of votes, including fractions thereof, equal to (i) the
amount of the assets maintained in the Fund to meet the annuity obligations
under the contract divided by (ii) the value of such an accumulation unit.
Each Participant under a group contract will have the right to instruct
the Contract Owner with respect to amounts allocated to such participant under
the terms of the group contract. Contract Owners shall cast the votes for
which instructions have been received from Participants in accordance with
such instructions. Votes with regard to which participants were entitled to
instruct the Contract Owner, but for which the Contract Owner has received no
instructions, shall be cast by the Contract Owner for or against each proposal
to be voted upon in the same proportion as votes for which instructions have
been received.
Annuitants under individual contracts issued in connection with plans
established under the Self-Employed Individuals Tax Retirement Act of 1962, as
amended, will have the right to instruct the owners of such contracts with
respect to all votes attributable to such contracts, if the owners of such
contracts are persons other than the annuitants. Annuitants covered by
individual contracts issued in connection with qualified employee retirement
or profit-sharing plans described in Section 401 of the Internal Revenue Code
shall be given the right to instruct the owners with respect to votes
attributable to their contributions to the plans, if any, and to the extent
authorized by the terms of the
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plans with respect to any additional votes under such contracts. The owners
of such contracts shall cast the votes with respect to which instructions from
annuitants have been received in accordance with such instructions; votes
applicable to individual contracts with regard to which annuitants were
entitled to instruct the Contract Owner, but for which the Contract Owner has
received no instructions, shall be cast by the Contract Owner for or against
each proposal to be voted upon in the same proportion as votes for which
instructions have been received.
The number of Contract Owners constituting a quorum, the number of votes
required at such meeting and any other matters relating to meetings of
Contract Owners shall be as prescribed by law.
Except as may otherwise be required by law, neither the Fund nor
Southwestern is under a duty to inquire as to the instructions received or the
authority of variable annuity Contract Owners to cast votes. Further, except
as may otherwise be required by law, or except as the Fund or Southwestern has
actual knowledge to the contrary, the votes cast by Contract Owners will be
considered valid and effective as they affect the fund, Southwestern, and any
others having voting rights with respect to the Fund.
ARTICLE III
ADMINISTRATION
Section 1. Administration of the Fund. The Fund shall not have a Board
of Managers. Southwestern shall be responsible for, and shall bear the costs
of, administering the Fund and the Contracts except as provided below.
Section 2. Charges Against the Fund. The assets of the Fund shall be
chargeable by Southwestern for its mortality and expense undertakings at the
rates prescribed in the Contracts. In addition, the Fund shall be charged for
the actual costs of providing auditing services to it, except that
Southwestern shall not charge the Fund for any portion of such fees as may
exceed 0.20% of the average daily net assets of the Fund.
ARTICLE IV
AMENDMENTS
These Rules and Regulations, subject to applicable law, may be altered,
amended or repealed by Southwestern.
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EXHIBIT "8b"
FORM OF
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER VARIABLE
LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust created
under a Declaration of Trust dated March 15, 1985, as amended, with a
principal place of business in Boston, Massachusetts and SOUTHWESTERN LIFE
INSURANCE COMPANY, a Texas corporation (the "Company"), with a principal place
of business in Dallas, Texas on behalf of [SEPARATE ACCOUNT NAME], a separate
account of the Company, and any other separate account of the Company as
designated by the Company from time to time, upon written notice to the Fund
in accordance with Section 9 herein (each, an "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate accounts
established for variable life insurance policies and variable annuity
contracts (collectively referred to herein as "Variable Insurance Products")
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies") and their affiliated insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into several series of
shares of beneficial interest without par value ("Shares"), and additional
series of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities; and
WHEREAS, each Portfolio of the Fund, except the Money Market Portfolio, is
divided into two classes of Shares, and additional classes of Shares may be
established; and
WHEREAS, the Parties desire to evidence their agreement as to certain other
matters,
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the applicable net
asset value per Share by Participating Insurance Companies and their
affiliates and separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange
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Commission; provided, however, that the Trustees of the Fund may refuse to
sell Shares of any Portfolio to any person, or suspend or terminate the
offering of Shares of any Portfolio, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Trustees, necessary in the best interest of the shareholders of any
Portfolio.
2. Fund Materials.
The Fund, at its expense, shall provide the Company or its designee with
camera-ready copy or computer diskette versions of all prospectuses,
statements of additional information, annual and semi-annual reports and proxy
materials (collectively, "Fund Materials") to be printed and distributed by
the Company or its broker/dealer to the Company's existing or prospective
contract owners, as appropriate. The Company agrees to bear the cost of
printing and distributing such Fund Materials.
3. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares in the
Fund, execute and deliver a participation agreement in a form substantially
identical to this Agreement.
The Fund shall make available, upon written request from the Participating
Insurance Company given in accordance with Paragraph 9, to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 7 (i) a list of all other Participating
Insurance Companies, and (ii) a copy of the Agreement as executed by any other
Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 7, the net asset value of any Portfolio
of the Fund as of any date upon which the Fund calculates the net asset value
of its Portfolios for the purpose of purchase and redemption of Shares.
4. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and each of its
Trustees and officers and each person, if any, who controls the Fund within
the meaning of Section 15 of the Securities Act of 1933 (the "Act") against
any and all losses, claims, damages, liabilities or litigation (including
legal and other expenses), arising out of the acquisition of any Shares by any
person, to which the Fund or such Trustees, officers or controlling person may
become subject under the Act,
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under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or representatives,
any affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by the Company, or (iii) may
be based on any untrue statement or alleged untrue statement of a material
fact contained in a registration statement or prospectus covering insurance
products sold by the Company or any insurance company which is an affiliate
thereof, or any amendments or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, unless
such statement or omission was made in reliance upon information furnished to
the Company or such affiliate by or on behalf of the Fund; provided, however,
that in no case (i) is the Company's indemnity in favor of a Trustee or
officer or any other person deemed to protect such Trustee or officer or other
person against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 4 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the Company
in writing pursuant to Paragraph 9 within a reasonable time after the summons
or other first legal process giving information of the nature of the claims
shall have been served upon the Fund or upon such person (or after the Fund or
such person shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability which it has to the Fund or any person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this Paragraph 4. The Company shall be entitled to
participate, at its own expense, in the defense, or, if it so elects, to
assume the
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defense of any suit brought to enforce any such liability, but, if it elects
to assume the defense, such defense shall be conducted by counsel chosen by it
and satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense of any such suit and
retain such counsel, the Fund, such officers and Trustees or controlling
person or persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in case the
Company does not elect to assume the defense of any such suit, the Company
will reimburse the Fund, such officers and Trustees or controlling person or
persons, defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by them. The Company agrees promptly to
notify the Fund pursuant to Paragraph 9 of the commencement of any litigation
or proceedings against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the Act against any and all losses,
claims, damages, liabilities or litigation (including legal and other
expenses) to which it or such directors, officers or controlling person may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which
(i) may be based upon any wrongful act by the Fund, any of its employees or
representatives or a principal underwriter of the Fund, or (ii) may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading unless such statement or omission
was made in reliance upon information furnished to the Fund by the Company or
(iii) may be based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
insurance products sold by the Company, or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in
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no case (i) is the Fund's indemnity in favor of a director or officer or any
other person deemed to protect such director or officer or other person
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Fund to be liable
under its indemnity agreement contained in this Paragraph 4 with respect to
any claims made against the Company or any such director, officer or
controlling person unless it or such director, officer or controlling person,
as the case may be, shall have notified the Fund in writing pursuant to
Paragraph 9 within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon it or upon such director, officer or controlling person (or after the
Company or such director, officer or controlling person shall have received
notice of such service on any designated agent), but failure to notify the
Fund of any claim shall not relieve it from any liability which it may have to
the person against whom such action is brought otherwise than on account of
its indemnity agreement contained in this Paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so elects, to
assume the defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Company, its directors, officers
or controlling person or persons, defendant or defendants, in the suit. In the
event the Fund elects to assume the defense of any such suit and retain such
counsel, the Company, its directors, officers or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company or
such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant to
Paragraph 9 of the commencement of any litigation or proceedings against it or
any of its officers or Trustees in connection with the issuance or sale of any
Shares.
The provisions of this Section 4 shall survive the termination of the
Agreement.
5. Procedure for Resolving Irreconcilable Conflicts.
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(a) The Trustees of the Fund will monitor the operations of the Fund for the
existence of any material irreconcilable conflict among the interests of all
the contract holders and policy owners of Variable Insurance Products (the
"Participants") of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise, among other things, from: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
insurance laws or regulations; (c) a tax ruling or provision of the Internal
Revenue Code or the regulations thereunder; (d) any other development relating
to the tax treatment of insurers, contract holders or policy owners or
beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or
(g) a decision by an insurer to override the voting instructions of
Participants.
(b) The Company will be responsible for reporting any potential or existing
conflicts to the Trustees of the Fund. The Company will be responsible for
assisting the Trustees in carrying out their responsibilities under this
Paragraph 5(b) and Paragraph 5(a), by providing the Trustees with all
information reasonably necessary for the Trustees to consider the issues
raised. The Fund will also request its investment adviser to report to the
Trustees any such conflict which comes to the attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or a
majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense, and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to eliminate the
irreconcilable material conflict, including withdrawing the assets allocable
to some or all of the separate accounts from the Fund or any Portfolio or
class thereof and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund or class thereof, offering to the
affected Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
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For purposes of this Paragraph 5(c), the Trustees, or the disinterested
Trustees, shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict. In the event of a determination
of the existence of an irreconcilable material conflict, the Trustees shall
cause the Fund to take such action, such as the establishment of one or more
additional Portfolios or classes, as they in their sole discretion determine
to be in the interest of all shareholders and Participants in view of all
applicable factors, such as cost, feasibility, tax, regulatory and other
considerations. In no event will the Fund be required by this Paragraph 5(c)
to establish a new funding medium for any variable contract or policy.
The Company shall not be required by this Paragraph 5(c) to establish a new
funding medium for any variable contract or policy if an offer to do so has
been declined by a vote of a majority of the Participants materially adversely
affected by the material irreconcilable conflict. The Company will recommend
to its Participants that they decline an offer to establish a new funding
medium only if the Company believes it is in the best interest of the
Participants.
(d) The Trustees' determination of the existence of an irreconcilable material
conflict and its implications promptly shall be communicated to all
Participating Insurance Companies by written notice thereof delivered or
mailed, first class postage prepaid.
6. Voting Privileges.
The Company shall be responsible for assuring that its separate account or
accounts participating in the Fund shall use a calculation method of voting
procedures substantially the same as the following: those Participants
permitted to give instructions and the number of Shares for which instructions
may be given will be determined as of the record date for the Fund
shareholders' meeting, which shall not be more than 60 days before the date of
the meeting. Whether or not voting instructions are actually given by a
particular Participant, all Fund shares held in any separate account or
sub-account thereof and attributable to policies will be voted for, against,
or withheld from voting on any proposition in the same proportion as (i) the
aggregate record date cash value held in such sub-account for policies giving
instructions, respectively, to vote for, against, or withhold votes on such
proposition, bears to (ii) the aggregate record date cash value held in the
sub-account for all policies for which voting instructions are received.
Participants continued in effect under lapse
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options will not be permitted to give voting instructions. Shares held in any
other insurance company general or separate account or sub-account thereof
will be voted in the proportion specified in the second preceding sentence for
shares attributable to policies.
7. Duration and Termination.
This Agreement shall continue in effect for five (5) years from the date of
its execution. This Agreement may be terminated at any time, at the option of
either of the Company or the Fund, when neither the Company, any insurance
company nor the separate account or accounts of such insurance company which
is an affiliate thereof which is not a Participating Insurance Company own any
Shares of the Fund or may be terminated by either party to the Agreement upon
a determination by a majority of the Trustees of the Fund, or a majority of
its disinterested Trustees, following certification thereof by a Participating
Insurance Company given in accordance with Paragraph 9 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund. If
this Agreement is so terminated, the Fund may, at any time thereafter,
automatically redeem the Shares of any Portfolio held by a Participating
Shareholder.
8. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New York
Insurance Law.
Each Portfolio of the Fund will use its best efforts to comply with the
provisions of Section 817(h) of the Internal Revenue Code of 1986, as amended
(the "Code"), relating to diversification requirements for variable annuity,
endowment and life insurance contracts. Specifically, each Portfolio will
comply with either (i) the requirement of Section 817(h)(1) of the Code that
its assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) in the
case of variable life insurance contracts only, the diversification
requirement of Section 817(h)(1) of the Code by having all or part of its
assets invested in U.S. Treasury securities which qualify for the "Special
Rule for Investments in United States Obligations" specified in Section
817(h)(3) of the Code. The Fund will notify the Company immediately upon
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having a reasonable basis for believing that a Portfolio has ceased to comply
with the requirements of Section 817(h) of the Code or that the Portfolio
might not so comply in the future.
The provisions of Paragraphs 5 and 6 of this Agreement shall be interpreted in
a manner consistent with any Rule or order of the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, applicable to
the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general public.
9. Notices.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at
such other address as such party may from time to time specify in writing to
the other party.
If to the Fund:
Scudder Variable Life Investment Fund
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn: David B. Watts
If to the Company:
Southwestern Life Insurance Company
500 North Akard
Dallas, Texas 75221
(214) 954-7220
Attn: Al Kennon
10. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof interpreted under
and in accordance with the laws of The Commonwealth of Massachusetts.
11. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of the
Trustees for the time being under a Declaration of Trust dated March 15, 1985,
as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for
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obligations entered into on behalf of the Fund. No Portfolio shall be liable
for any obligations properly attributable to any other Portfolio.
The captions in this Agreement are included for convenience of reference only
and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
12. Entire Agreement.
This Agreement incorporates the entire understanding and agreement among the
parties hereto, and supersedes any and all prior understandings and agreements
between the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the ___ day of ________, 1996.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: ____________________
David B. Watts
President
SEAL SOUTHWESTERN LIFE INSURANCE
COMPANY
By: ____________________
Its:____________________
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EXHIBIT "8c"
FORM OF
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement") made by and between SCUDDER
STEVENS & CLARK, INC., a Delaware corporation ("SS&C"), with a principal place
of business in Boston, Massachusetts and SOUTHWESTERN LIFE INSURANCE COMPANY,
a Texas corporation (the "Company"), with a principal place of business in
Dallas, Texas on behalf of the [SEPARATE ACCOUNT NAME] , a separate account of
the Company, and any other separate account of the Company as designated by
the Company from time to time, upon written notice to the Fund in accordance
with Section 8 herein (the "Account").
WHEREAS, SS&C has caused to be organized Scudder Variable Life Investment Fund
(the "Fund"), a Massachusetts business trust created under a Declaration of
Trust dated March 15, 1985, as amended, the beneficial interest in which is
divided into several series, each designated a "Portfolio" and representing
the interest in a particular managed portfolio of securities, each of which
series (except Money Market Portfolio) is divided into two classes of shares
of beneficial interest; and
WHEREAS, the purpose of the Fund is to act as the investment vehicle for the
separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into indemnification agreements substantially identical to this
Agreement; and
WHEREAS, the parties desire to express their agreement as to certain other
matters;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Additional Definitions.
For purposes of this Agreement, the following definitions shall apply:
(a) "Shares" means shares of beneficial interest, without par value, of any
class of any Portfolio, now or hereafter created, of the Fund.
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2. Access to Other Products.
SS&C shall permit a Participating Shareholder to participate in any registered
investment company other than the Fund which is intended as the funding
vehicle for insurance products and for which SS&C or an affiliate of SS&C acts
as investment adviser, on the same basis as other insurance companies are
permitted to participate in such a registered investment company. This
provision shall not require SS&C to make available to the Company shares of
any investment company which is organized solely as the funding vehicle for
insurance products offered by a single insurance company or a group of
affiliated insurance companies.
3. Right to Review and Approve Sales Materials.
The Company shall furnish, or shall cause to be furnished, to SS&C or its
designee, at least twenty days prior to its intended use, each piece of
promotional material in which SS&C or the Fund is named. No such material
shall be used unless SS&C or its designee shall have approved such use in
writing, or twenty days shall have elapsed without approval, rejection or
objection since receipt by SS&C or its designee of such material.
SS&C shall furnish, or shall cause to be furnished, to the Company or its
designee, at least twenty days prior to its intended use, each piece of
promotional material in which the Company or its separate account(s) is named.
No such material shall be used unless the Company or its designee shall have
approved such use in writing, or twenty days shall have elapsed without
approval, rejection or objection since receipt by the Company or its designee
of such material.
4. Sales Organization Meetings.
Representatives of SS&C or its designee shall meet with the sales
organizations of the Company at such reasonable times and places as may be
agreed upon by the Company and SS&C or its designee for the purpose of
educating sales personnel about the Fund.
5. Duration.
This Agreement shall continue in effect for five (5) years from the date of
its execution, except that the obligation of each party hereto to indemnify
the other party hereto shall continue with respect to all losses, claims,
damages, liabilities or litigation based upon the acquisition of Shares
purchased
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as the funding vehicle for any variable life insurance policy or variable
annuity contract issued by the Company or any affiliated insurance company.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless SS&C and each of its
directors and officers and each person, if any, who controls SS&C within the
meaning of Section 15 of the Securities Act of 1933 (the "Act") or any person,
controlled by or under common control with SS&C ("affiliate") against any and
all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which SS&C or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any person
which (i) may be based upon any wrongful act by the Company, any of its
employees or representatives, any affiliate of or any person acting on behalf
of the Company or a principal underwriter of its insurance products, or (ii)
may be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement .or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information furnished to SS&C
or the Fund by the Company, provided, however, that in no case (i) is the
Company's indemnity in favor of a director or officer or any other person
deemed to protect such director or officer or other person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Company to be liable under its indemnity
agreement contained in this Paragraph 6 with respect to any claim made against
SS&C or any person indemnified unless SS&C or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 8 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon SS&C or
upon such person (or after SS&C or such person shall have received notice of
such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it has
to SS&C or any person against whom
Page 92 of 106<PAGE>
<PAGE>
such action is brought otherwise than on account of the indemnity agreement
contained in this Paragraph 6. The Company shall be entitled to participate,
at its own expense, in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but, if it elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to SS&C, to its officers and directors, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Company elects to assume the defense of any such suit and retain such counsel,
SS&C, such officers and directors or controlling person or persons, defendant
or defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse SS&C, such officers
and directors or controlling person or persons, defendant or defendants in
such suit, for the reasonable fees and expenses of any counsel retained by
them. The Company agrees promptly to notify SS&C pursuant to Paragraph 8 of
the commencement of any litigation or proceedings against it in connection
with the issue and sale of any Shares.
(b) SS&C agrees to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the Act against any and all losses,
claims, damages, liabilities or litigation (including legal and other
expenses) to which it or such directors, officers or controlling persons may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which
(i) may be based upon any wrongful act by SS&C, any of its employees or
representatives or a principal underwriter of the Fund, or (ii) may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such statement or omission was
made in reliance upon information furnished to the Fund or the Company by
SS&C; provided, however, that in no case (i) is SS&C's indemnity in favor of a
director or officer or any other person deemed to protect such director or
officer or other person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his
Page 93 of 106<PAGE>
<PAGE>
reckless disregard of obligations and duties under this Agreement or (ii) is
SS&C to be liable under its indemnity agreement contained in this Paragraph 6
with respect to any claims made against the Company or any such director,
officer or controlling person unless the Company or such director, officer or
controlling person, as the case may be, shall have notified SS&C in writing
pursuant to Paragraph 8 within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon it or upon such director, officer or controlling person (or
after the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to
notify SS&C of any claim shall not relieve it from any liability which it may
have to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this Paragraph 6. SS&C will be
entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if SS&C elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Company, its
directors, officers or controlling person or persons, defendant or defendants,
in the suit. In the event SS&C elects to assume the defense of any such suit
and retain such counsel, the Company, its directors, officers or controlling
person or persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in case SS&C
does not elect to assume the defense of any such suit, it will reimburse the
Company or such directors, officers or controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of
any counsel retained by them. SS&C agrees promptly to notify the Company
pursuant to Paragraph 8 of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issuance
or sale of any Shares.
(c) SS&C agrees to indemnify and hold harmless the Company and each of its
directors and officers against any and all losses, claims, damages,
liabilities or litigation arising from the imposition of additional federal
income taxes on the Company or any policyholder solely as a result of a Final
Determination that any Portfolio has failed (x) to comply with the
diversification requirements of section 81 7(h) of the Internal Revenue Code
of 1986, as amended (the "Code"), relating to the diversification requirements
for variable annuity, endowment and life insurance contracts, or (y) to
Page 94 of 106<PAGE>
<PAGE>
qualify as a regulated investment company within the meaning of section 851 of
the Code; provided, however, that (i) SS&C shall have no liability under this
Paragraph 6(c) if such failure is caused by a third party who is not an
employee or agent of SS&C (e.g., the Fund's custodian or another service
provider), and (ii) in no case is SS&C's indemnity under this Paragraph 6(c)
deemed to protect any person against any liability to which that person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of that person's duties or by reason of reckless
disregard by that person of obligations under this Agreement.
The Company agrees that if the Internal Revenue Service asserts in writing in
connection with any governmental audit or review of the Company or, to the
Company's knowledge, of any policyholder, that any Portfolio has failed to
comply with the diversification requirements of section 81 7(h) of the Code or
the Company otherwise becomes aware of any facts that could give rise to any
claim against SS&C as a result of such a failure or alleged failure, (i) the
Company shall promptly notify SS&C of such assertion or potential claim; (ii)
the Company shall consult with SS&C as to how to minimize any liability that
may arise as a result of such failure or alleged failure; (iii) the Company
shall use its best efforts to minimize any liability of SS&C for
indemnification resulting from such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations Section 1.817-5(a) (2), to the
Commissioner of the Internal Revenue Service that such failure was
inadvertent; (iv) the Company shall permit SS&C and its legal and accounting
advisors to participate in any conferences, settlement discussions or other
administrative or judicial proceedings or contests (including judicial appeals
thereof) with the Internal Revenue Service, any policyholder or any other
claimant regarding any claims that could give rise to indemnification by SS&C
as a result of such a failure or alleged failure; (v) any written materials to
be submitted by the Company to the Internal Revenue Service, any policyholder
or any other claimant in connection with any of the foregoing proceedings or
contests (including, without limitation, any such materials to be submitted to
the Internal Revenue Service pursuant to Treasury Regulations Section
1.817-5(a) (2)), (a) shall be provided by the Company to SS&C (together with
any supporting information or analysis) at least 10 business days prior to the
day on which such proposed materials are to be submitted and (b) shall not be
submitted by the Company to any such person without the express written
consent of SS&C,
Page 95 of 106<PAGE>
<PAGE>
which shall not be unreasonably withheld; (vi) the Company shall provide SS&C
and its advisors with such cooperation as SS&C shall reasonably request
(including, without limitation, by permitting SS&C and its accounting and
legal advisors to review the relevant books and records of the Company) in
order to facilitate SS&C's review of any written submissions provided to it
pursuant to the preceding clause or its assessment of the validity or amount
of any claim against it arising from such a failure or alleged failure; (vii)
the Company shall not with respect to any claim of the IRS or any policyholder
that would give rise to a claim for indemnification against SS&C (a)
compromise or settle any claim, (b) accept any adjustment on audit, or (c)
forego any allowable judicial appeals, without the express written consent of
SS&C, which shall not be unreasonably withheld, provided that the Company
shall not be required to appeal any adverse judicial decision unless SS&C
shall have provided an opinion of independent counsel to the effect that a
reasonable basis (consistent with Formal Opinion 85-352 of the American Bar
Association) exists for taking such appeal; and (viii) SS&C shall have no
liability as a result of such failure or alleged failure if the Company fails
to comply with any of the foregoing clauses (i) through (vii). Should SS&C
refuse to give its written consent to any compromise or settlement of any
claim or liability hereunder, the Company may, in its discretion, authorize
SS&C to act in the name of the Company in, and to control the conduct of, such
conferences, discussions, proceedings, contests or appeals and all
administrative or judicial appeals thereof, and in that event SS&C shall bear
the fees and expenses associated with the conduct of the proceedings that it
is so authorized to control.
For purposes of this Paragraph 6(c), "Final Determination" shall mean, with
respect to any claim, a settlement of such claim (including the acceptance of
an adjustment proposed by the Internal Revenue Service) or a decision of a
court of competent jurisdiction with respect to such claim that has become
final after either the (i) exhaustion of allowable appeals or (2) expiration
of the time to take any such appeal with respect to the claim.
7. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof interpreted under
and in accordance with the laws of The Commonwealth of Massachusetts.
Page 96 of 106<PAGE>
<PAGE>
8. Notices.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at
such other address as such party may from time to time specify in writing to
the other party.
If to SS&C:
Scudder, Stevens & Clark, Inc.
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn: David B. Watts
If to the Company:
Southwestern Life Insurance Company
500 North Akard
Dallas, Texas 75221
(214) 954-7220
Attn: Al Kennon
9. Miscellaneous.
The captions in the Agreement are included for convenience of reference only
and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
Page 97 of 106<PAGE>
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the ___ day of _________, 1996.
SEAL SCUDDER, STEVENS & CLARK, INC.
By: __________________________
David S. Lee
Authorized Officer
SEAL SOUTHWESTERN LIFE INSURANCE
COMPANY
By: __________________________
Name:_________________________
Title:________________________
Page 98 of 106<PAGE>
<PAGE>
EXHIBIT "8d"
FORM OF LETTER AGREEMENT
________, 1996
Southwestern Life Insurance Company
500 North Akard
Dallas, Texas 75221
Reference is made to the Asset Transfer Agreement (the "Agreement")
among Variable Annuity Fund I of Southwestern Life, Scudder Variable Life
Investment Fund, on its own behalf and on behalf of its Capital Growth
Portfolio (the "Fund"), and you dated _________, 199__.
In connection with the terms and conditions of the Agreement, and as an
additional inducement for us to enter into the Agreement, we understand that:
(i) you have no present intent to market, offer or solicit the
sale of any shares of beneficial interest of the Fund, other than those
shares representing the shares of beneficial interest of the Fund issued
pursuant to the terms of the Agreement (the "Shares");
(ii) you will be responsible for insuring compliance with any Blue
Sky laws of any state or jurisdiction as may be necessary to offer the
Shares issued pursuant to the Agreement; and we will cooperate with you
in taking such actions as may be necessary to continue to qualify the
Shares for offering and sale in any state or jurisdiction so long as
such registration is required by applicable law in connection with the
Shares issued pursuant to the Agreement; and
(iii) you will not directly or indirectly engage in any activity
with respect to the Shares, and any shares of the Fund issued following
the completion of the transaction contemplated by the Agreement, which
would require you to be a registered broker or dealer within the meaning
of the Securities Exchange Act of 1934, as amended; and no person on
your behalf or on behalf of your affiliates, and no person acting as
your agent, will engage in any activity with respect to the Shares, and
any shares of the fund issued following the completion of the
transaction contemplated by the Agreement, which would require them to
register as a broker or dealer.
If the foregoing represents your understanding, please sign this letter
and return it to David B. Watts, Scudder Variable Life Investment Fund, Two
International Place, Boston, MA 02110.
SCUDDER INVESTOR SERVICES, INC.
By: ___________________________
Authorized Officer
Page 99 of 106<PAGE>
<PAGE>
The foregoing represents our understanding.
SOUTHWESTERN LIFE INSURANCE
COMPANY
By: _______________________
Authorized Officer
Page 100 of 106<PAGE>
<PAGE>
EXHIBIT "9"
April 18, 1996
Board of Managers
Variable Annuity Fund I of Southwestern Life
500 North Akard Street
Dallas, Texas 75201
Gentlemen:
You have requested my opinion, as General Counsel of Southwestern Life
Insurance Company ("Southwestern"), concerning the legality of the securities
of Variable Annuity Fund I of Southwestern Life (the "Separate Account")
registered by the Separate Account under the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940 (the "1940 Act ) on the
Registration Statement on Form N-3 and the post-effective amendments filed
thereto as follows: Amendment No. 25 on Form N-4 to the Registration Statement
under the 1940 Act, Amendment No. 45 to Registration Statement No. 2-28844
under the 1933 Act, Amendment No. 46 to Registration Statement No. 2-28842
under the 1933 Act and Amendment No. 47 to Registration Statement No. 2-28843
under the 1933 Act.
It is my opinion that the securities of the Separate Account registered
under the Amendment on Form N-4 to the Form N-3 Registration Statement are and
will be legally issued and do and will represent legal and binding obligations
of Southwestern.
Southwestern is an indirect, wholly owned subsidiary of Southwestern
Financial Corporation ("SFC"). I am a Senior Vice President of SFC and the
Executive Vice President, General Counsel and Secretary of Southwestern. I am
employed by, and receive compensation from, Southwestern Financial Services
C o r poration, a wholly owned subsidiary of SFC and an affiliate of
Southwestern.
I hereby consent to the attachment of this opinion (or a copy of this
opinion) as an exhibit to the Amendment on Form N-4 to the Form N-3
Registration Statement and to the reference to or summarization or quotation
of this opinion in that Registration Statement or in a prospectus which may
form a part of that Registration Statement.
Sincerely,
/s/Daniel B. Gail
Daniel B. Gail
Executive Vice President
General Counsel and Secretary
DBG/dt
Page 101 of 106<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Organizational For Southwestern Life Insurance Company and Affiliates
<S> <S> <S> <S>
Southwestern Financial
Knightsbridge Knightsbridge --------Services Corporation
Capital L.L.C.>---------Capital Fund I, L.P.>--- / Domicile: DE
Domicile: NY Domicile: DE | Southwestern / Ownership Q
Ownership: O | Financial Corporation<
|>------Domicile: DE \ Southwestern Life
PennCorp | Ownership: P \--------Acquisition Corporation
--Southwest, Inc.>-------- Domicile: DE
| Domicile: DE Ownership: Q
| Ownership: A |
| |
| Constitution Life
| Insurance Company
| Domicile: TX
| PennCorp Financial Ownership: T
|--Services, Inc. ______________/ \_______
| Domicile: DE | |
| Ownership: A Union Bankers Southwestern Life
| Insurance Company Insurance Company
| Domicile: TX Domicile: TX
| Ownership: R Ownership: R
| |
| PennCorp Financial, Inc. Marquette National
|--Domicile: DE Life Insurance Company
| Ownership: A Domicile: KY
| Ownership: S
|
PennCorp Financial |
Group, Inc. >--|
Domicile: DE |
| American Amicable Pioneer Security American-Amicable Life Pioneer American
|--Holdings Corporation----Life Insurance Company--Insurance Company of Texas---Insurance Company
| Domicile: DE Domicile: TX Domicile: TX Domicile: TX
| Ownership: A Ownership: E Ownership: F Ownership G
|
|
| Professional Peninsular Life PennCorp Occidental
| Pacific Life ---Insurance Corporation /--Insurance Company----Corporation
| and Accident ------| Domicile: FL | Domicile: NC Domicile: DE
|--Insurance Company | Ownership: B -----/ Ownership: D Ownership: H
| Domicile: TX | | |
| Ownership: A | Pennsylvania Life | Executive Fund Life Penn LaFranco
| ---Insurance Company--|-------Insurance Company Corporation
| Domicile: PA | Domicile: PA Domicile: British V.I.
| Ownership: C | Ownership: D Ownership: I
| | |
| | Penncorp Life LaFranco Penn Life
| -------Insurance Company Compania de Seguros
| Domicile: Canada de Vida, S.A.
| Ownership: D Domicile: Argentina
| Ownership: J
| ILC Capital
| Acquisition Salem Holdings Salem Life Occidental Life
---Corporation-------Corporation ----------Insurance Company-------Insurance Company
Domicile: DE Domicile: DE Domicile: NC of North Carolina
Ownership: A Ownership: K Ownership: L Domicile: NC
| Ownership: M
|
|
Integon Life Georgia International Life
Insurance Company-------Insurance Company
Domicile: NC Domicile: NC
Ownership: M Ownership: N
</TABLE>
<TABLE>
<CAPTION>
Ownership Codes:
<C> <S> <C> <S>
A. Wholly owned by PennCorp Financial K. Wholly owned by ILCCAC.
Group, Inc. L. ILCCAC owns 893,832 shares which constitutes
B. PLAIC 49,996.65 shares which constitutes 40% of the issued and outstanding stock of
99.99% of the issued and outstanding IFLIC. The remaining 60% is held by SHC.
Capital Stock of PIC. The remaining 3.5 M. Wholly owned by SLIC.
shares are held by non-related third parties. N. Wholly owned by ILIC.
C. Wholly owned by PLAIC. O. Limited Partnership whose General Partner
D. Wholly owned by PLIC. is Knightsbridge Capital, L.L.C.
E. Wholly owned by AAHC. P. Voting stock held by Knightsbridge
F. Wholly owned by PSLIC. (3,000,000 shares) and PennCorp Financial
G. Wholly owned by AALIC. group, Inc. (500,000 shares).
H. Wholly owned by PLICO. Q. Wholly owned by SWFC.
I. Wholly owned by PENNOCCI. R. Wholly owned by CLIC.
J. PLFC owns 2, 723 shares which constitutes S. Wholly owned by UBIC.
99% of the issued and outstanding Capital T. Wholly owned by SLAC.
Stock of LFPL.
</TABLE>
Page 102 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
500 North Akard Street
Dallas, Texas 75201
May 23, 1996
Patrice M. Pitts
Special Counsel
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Amendment on Registration Statement Form N-4 to Registration Statement
on Form N-3 of Variable Annuity Fund I of Southwestern Life; File Nos.
2-28842, 2-28843 and 2-28844; File No. 811-1636
Dear Ms. Pitts:
Attached are post-effective amendments to the above registration
statement, marked in accordance with Regulation S-T to indicate the changes
being effected by such amendments.
The post-effective amendments are being filed pursuant to Rule 485(a)(1)
because changes being made by the amendment could be deemed material. For the
reasons set forth below, the Registrant requests selective review of the post-
effective amendment and acceleration of its effective date. The Registrant, on
its behalf and on behalf of the principal underwriter of the securities
registered under the registration statement, requests acceleration of the
effectiveness of the post-effective amendment to as early a date as is
reasonably possible.
The post effective amendments will change the registration statement,
and the classification of the Separate Account as a registered investment
company under the Investment Company Act of 1940, to reflect the conversion of
Variable Annuity Fund I of Southwestern Life (the "Separate Account") from a
management investment company to a unit investment trust which invests
exclusively in shares of the Capital Growth Portfolio of Scudder Variable Life
Investment Fund (the "Scudder Fund"). The conversion transaction was described
fully in the Registration Statement on Form N-14, which the Separate Account
and the Scudder Fund filed in connection with the solicitation of the approval
of the conversion by contract owners of the Separate Account.
The post effective amendments also update information about the sponsor-
ing insurance company (the depositor, following the conversion), Southwestern
Life Insurance Company ("Southwestern"), to reflect a change in persons who
control it. I.C.H. Corporation (formerly, Southwestern Life Corporation),
through its subsidiary, has sold all of the outstanding stock of Southwestern.
In addition to bringing the financial statements in the registration
statement up to date, the other changes to be made by the post-effective
amendments conform the disclosures to the requirements of Form N-4 (such as
including information about the Scudder Fund, deleting information about the
Separate Account's investment policies, describing in Part C, and adding as an
exhibit, the indemnification agreement Southwestern and the investment advisor
of the Scudder Fund will enter upon the conversion transaction, and adding the
other agreements to be entered into in connection with the conversion transac-
tion), and update, or expand upon, information previously disclosed in the
registration statement (such as the directors and officers of Southwestern and
the financial information included in the statement); and update exhibits
filed as a part of the registration statement.
Many of the changes being effected by the post-effective amendments are
based on, or reflect, disclosures contained in the Registration Statement on
Form N-14, filed by the Separate Account and the Scudder Fund, and the
application for exemptive order, filed on behalf of Southwestern, the Separate
Page 103 of 106<PAGE>
<PAGE>
Account and the principal underwriter for the contracts funded by the Separate
Account, both of which were reviewed by Mr. Ed McDonald of the Commission's
staff.
The Separate Account would like to proceed with the conversion transac-
tion as soon as practicable. It intends to coordinate the conversion with the
effectiveness of the post-effective amendments.
The Registration Statements (File Nos. 2-28844, 2-28842 and 2-28843) were
originally filed in the early 1970s. The Registration Statements registered
different forms of variable annuity contract in definite dollar amounts. In each
Registration Statement, the amount registered is in excess of the dollar amount
of contracts sold and there is no expectation that there will be future sales
that would exceed the amounts registered. The Registrant is adopting and
amending the Registration Statements and thus no registration fee are required
to be paid in connection with the filing of the post-effective amendments. We
and Scudder Variable Life Investment Fund will pay registration fees as set
forth in the Form N-14 Registration Statement in connection with the conversion
of the separate account to a unit investment trust and the investment in shares
of the Scudder Variable Life Investment Fund.
Please do not hesitate to contact the undersigned or our counsel,
Kenneth L. Betts, Winstead, Sechrest & Minick, P.C., (214) 745-5724, if you
have questions or would like additional information in connection with the
attached filing.
Sincerely,
/s/A. Craig Mason, Jr.
A. Craig Mason, Jr.
cc: Mr. Ed McDonald, Mail Stop 10-6
Page 104 of 106<PAGE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
P.O. Box 2699
Dallas, Texas 75221-9917
May 23, 1995
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration Statement on Form N-3 of
Variable Annuity Fund I of Southwestern Life
File Nos. 2-28842, 2-28843 and 2-28844
Rule 461; Request for Acceleration
Gentlemen:
On behalf of both Variable Annuity Fund I of Southwestern Life and
Philadelphia Life Asset Planning Company, the principal underwriter for the
variable annuity contracts that are the subject of the registration statement,
we hereby request, pursuant to Rule 461 under the Securities Act of 1933,
acceleration to as early a date as is reasonably possible, of the
effectiveness of the post-effective amendment to the registration statement
that was filed with the Commission pursuant to Rule 486(a) under the 1933
Act(1) on April 29, 1996.
The undertaking described in Rule 484 under the 1933 Act is contained in
the response to Item 32 of the post-effective amendment.
If you have any questions concerning this request, please contact
Kenneth L. Betts, (214) 745-5724.
Sincerely yours,
VARIABLE ANNUITY FUND I
OF SOUTHWESTERN LIFE
/s/John T. Hull
John T. Hull, President
(1) Post-Effective Amendment Nos. 46 (2-28842), 47 (2-28843) and 45 (2-28844).
Page 105 of 106<PAGE>
<PAGE>
SIGNATURES
As required by (the Securities Act of 1933) and the Investment Company
Act of 1940 the Registrant (certifies that it meets the requirements of
Securities Act Rule 485 for effectiveness of this Registration Statement and)
has caused this Registration Statement to be signed on its behalf in the City
of Dallas, and State of Texas on the 23rd day of May, 1996.
Registrant: Variable Annuity Fund I
of Southwestern Life
By:/s/John T. Hull
---------------------------
John T. Hull
President and Secretary
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/John T. Hull President (Principal Executive May 23, 1996
John T. Hull Officer) and Secretary
/s/Richard P. Pimsner Assistant Vice President May 23, 1996
Richard P. Pimsner (Principal Financial and
Accounting Officer)
/s/John T. Hull Member, Board of Managers May 23, 1996
John T. Hull of Variable Annuity Fund I
of Southwestern Life
/s/Lynn Craft Member, Board of Managers May 23, 1996
Lynn Craft of Variable Annuity Fund I
of Southwestern Life
/s/Boone Powell, Jr. Member, Board of Managers May 23, 1996
Boone Powell, Jr. of Variable Annuity Fund I
of Southwestern Life
/s/Bill J. Priest Chairman, Board of Managers May 23, 1996
Bill J. Priest of Variable Annuity Fund I
of Southwestern Life
Page 106 of 106<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To The Board of Managers
Variable Annuity Fund I of Southwestern Life:
We consent to the inclusion in Post-Effective Amendment No.'s 45, 46 and 47
to the registration statement of Variable Annuity Fund I of Southwestern Life
("Fund") on Amendment to Form N-3 on Form N-4 (File Nos. 2-28844, 2-28842,
2-28843, 811-1636) of our report dated January 15, 1996, on our audits of the
financial statements and selected accumulated data and ratios of the Fund, and
our report dated March 20, 1996, on audits of the financial statements of
Southwestern Life Insurance Company (statutory basis). Our report on the
financial statements of Southwestern Life Insurance Company (statutory basis)
expressed an unqualified opinion on those statements prepared in conformity with
the accounting practices prescribed or permitted by the National Association of
Insurance Commissioners or the Texas Department of Insurance, but indicated the
financial statements did not present fairly the financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles. We also consent to the reference to our Firm under the Captions
"Condensed Financial Information" and "Accountants."
Coopers & Lybrand L.L.P.
Dallas, Texas
May 23, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 314,136
<INVESTMENTS-AT-VALUE> 4,815,922
<RECEIVABLES> 181,474
<ASSETS-OTHER> 44,160
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,355,692
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,466
<TOTAL-LIABILITIES> 22,466
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,333,226
<DIVIDEND-INCOME> 75,180
<INTEREST-INCOME> 90,429
<OTHER-INCOME> 0
<EXPENSES-NET> 102,049
<NET-INVESTMENT-INCOME> 63,560
<REALIZED-GAINS-CURRENT> 575,148
<APPREC-INCREASE-CURRENT> 662,929
<NET-CHANGE-FROM-OPS> 1,301,637
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17,052
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 102,049
<AVERAGE-NET-ASSETS> 5,247,456
<PER-SHARE-NAV-BEGIN> 5.638
<PER-SHARE-NII> .086
<PER-SHARE-GAIN-APPREC> .899
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.229<F1>
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>The net asset value per share at end of period is $7.339334 on the
qualified accumulation fund, $6.679868 on the nonqualified accumulation period
and $7.2633314 on the annuity fund.
</FN>
</TABLE>
