<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1996
REGISTRATION FILE NOS. 2-81129 AND 811-3640
U.S. SECURITIES AND EXCHANGE COMMISSION
=======================================
Washington, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [_]
Post-Effective Amendment No. 16 [X]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17 [X]
----
(Check appropriate box or boxes.)
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
-------------------------------------
(Exact Name of Registrant)
WASHINGTON NATIONAL INSURANCE COMPANY
-------------------------------------
(Name of Insurance Company)
300 Tower Parkway
Lincolnshire, Illinois 60069
-----------------------------
(Address of Insurance Company's Principal Executive Offices)
Insurance Company's Telephone Number, including Area Code: (847) 793-3000
Name and Address of Agent for Service: Copy to:
Craig R. Edwards, Esquire Frederick R. Bellamy, Esquire
Washington National Insurance Company Sutherland, Asbill & Brennan
300 Tower Parkway 1275 Pennsylvania Avenue, N.W.
Lincolnshire, Illinois 60069 Washington, D.C. 20004-2404
Approximate Date of Proposed Public Offering: As soon as practicable after
effectiveness of this filing
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1996, pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for the Registrant's fiscal year ended December
31, 1995, was filed on February 22, 1996.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED BY PART A (PROSPECTUS)
AND PART B (STATEMENT OF ADDITIONAL INFORMATION) OF FORM N-3
PART A
------
<TABLE>
<CAPTION>
N-3 Item Prospectus Heading
-------- ------------------
<S> <C>
1. Cover Page........................... Cover Page
2. Definitions.......................... Definitions
3. Synopsis or Highlights............... Summary; Performance Data
4. Condensed Financial
Information.......................... Condensed Financial Information
5. General Description of The Company; The
Registrant and Insurance Separate Account;
Company.............................. The Sub-Accounts
6. Management........................... Management; Investment Manager
7. Deductions and Expenses.............. Deductions and Charges
8. General Description of
Variable Annuity Summary; The Contracts;
Contracts............................ Voting Rights
9. Annuity Period....................... Summary; The Contracts
After Maturity
10. Death Benefit........................ Payment at Death
11. Purchases and Contract The Contracts Prior
Value................................ to Maturity; How Contracts
are Sold
12. Redemptions.......................... Summary; The Contracts
Prior to Maturity
13. Taxes................................ Federal Income Tax Matters
14. Legal Proceedings.................... Legal Proceedings
15. Table of Contents of the Table of Contents of
Statement of Additional the Statement of
Information.......................... Additional Information
</TABLE>
<PAGE>
PART B
------
<TABLE>
<CAPTION>
Statement of Additional
N-3 Item Information Heading
-------- -----------------------
<S> <C>
16. Cover Page........................... Cover Page
17. Table of Contents.................... Table of Contents
18. General Information General Information and
and History......................... History
19. Investment Objectives
and Policies......................... The Separate Account
20. Management........................... Management
21. Investment Advisory and Investment Manager;
Other Services....................... Administrative Services
22. Brokerage Allocation................. Brokerage Allocation
23. Purchase and Pricing of
Securities Being Offered............. The Contract
24. Underwriters......................... Underwriters
25. Calculation of Performance
Data................................. Performance Data
26. Annuity Payments..................... Annuity Payments
27. Financial Statements................. Financial Statements
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
[LOGO OF WASHINGTON NATIONAL]
INSURANCE COMPANY
LINCOLNSHIRE, ILLINOIS 60069
A WASHINGTON NATIONAL CORPORATION FINANCIAL SERVICE COMPANY
WN PLAN
DEFERRED VARIABLE ANNUITY CONTRACT
FUNDED THROUGH SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
LINCOLNSHIRE, ILLINOIS 60069
(847) 793-3000
BOND SUB-ACCOUNT
HIGH LEVEL OF CURRENT INCOME WITH CAPITAL PRESERVATION
SHORT-TERM PORTFOLIO SUB-ACCOUNT
MODERATE LEVEL OF CURRENT INCOME WITH LIQUIDITY
STOCK SUB-ACCOUNT
LONG-TERM CAPITAL GROWTH AND INCOME
The Deferred Variable Annuity Contracts described in this prospectus are
designed for retirement planning purposes by individuals who may or may not
qualify for special tax treatment under the Internal Revenue Code and by tax-
qualified retirement plans and trusts. The Contracts were offered on a group and
individual basis, and may be paid by a single Purchase Payment or by periodic
Purchase Payments. Purchase Payments may be allocated to one or more of the Sub-
Accounts of the Separate Account and/or to the Fixed Account. Washington
National Insurance Company is no longer selling new Contracts but is continuing
to accept Purchase Payments under existing Contracts.
This prospectus provides information about Washington National Insurance Company
and Separate Account I that a prospective investor should know before investing.
Additional information about Washington National, Separate Account I and the
Contracts has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated May 1, 1996, and is available without
charge upon written or oral request to Washington National Service Center, Life
and Annuity Administration, P O Box 9019, Kokomo, Indiana 46904 (telephone: 1-
800-866-9922). The Statement of Additional Information is incorporated herein.
To obtain, simply fill out the postcard which accompanies this prospectus and
return it to us. The Table of Contents of the Statement of Additional
Information appears on page 34 of this prospectus.
Investments in the Short-Term Portfolio, Bond and Stock Sub-Accounts are neither
insured nor guaranteed by the U.S. Government, and none of the Sub-Accounts
maintains a stable net asset value.
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.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
The date of this Prospectus is May 1, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS............................................................. 4
SUMMARY................................................................. 5
Separate Account I Fee Table.......................................... 5
Separate Account I.................................................... 6
Purchase Payments..................................................... 7
Allocation of Purchase Payments....................................... 7
Transfers of Contract Accumulated Values.............................. 7
Charges and Deductions................................................ 7
Anticipated Reorganization............................................ 8
CONDENSED FINANCIAL INFORMATION......................................... 9
PERFORMANCE DATA........................................................ 13
THE COMPANY............................................................. 14
THE SEPARATE ACCOUNT.................................................... 14
THE SUB-ACCOUNTS........................................................ 15
Bond Sub-Account...................................................... 15
Short-Term Portfolio Sub-Account...................................... 16
Stock Sub-Account..................................................... 16
Investment Policies and Restrictions.................................. 16
Valuation of Assets................................................... 17
THE CONTRACTS........................................................... 18
PRIOR TO MATURITY (ACCUMULATION PERIOD)............................... 18
Purchase Payments................................................... 18
Sub-Account Allocations............................................. 18
Transfers of Accumulated Values..................................... 18
Accumulated Value................................................... 19
Termination of Participation........................................ 19
Cash Surrender and Withdrawals...................................... 19
Withdrawals May Be Taxable.......................................... 20
Loan From 403(b) Contracts.......................................... 20
Options on Discontinuance of Purchase Payments...................... 20
Payment at Death.................................................... 21
Time and Delay of Payment........................................... 21
Inquiries About Your Contract....................................... 21
AFTER MATURITY (ANNUITY PERIOD)....................................... 21
Maturity Date....................................................... 21
Election of Options................................................. 22
Option 1-Income for a Fixed Period................................ 22
Option 2-Income for Life.......................................... 22
Option 3-Income of Fixed Amount................................... 22
Option 4-Interest Income.......................................... 22
Option 5-Joint and Survivor Income for Life....................... 23
Option 6-Joint and Two-thirds Survivor Income for Life............ 23
Election of Fixed or Variable Annuity Payments.................... 23
Determination of Variable Annuity Payments........................ 23
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
HOW CONTRACTS WERE SOLD................................................. 24
DEDUCTIONS AND CHARGES.................................................. 24
Annuity Rate Guarantee Deductions..................................... 24
Investment Management Charge.......................................... 24
Financial Accounting Service Charge................................... 24
Contingent Deferred Sales Charge...................................... 25
Contract Maintenance Charge........................................... 25
Expenses of Separate Account I........................................ 26
Premium Taxes......................................................... 26
CHANGES AND MODIFICATIONS............................................... 26
VOTING RIGHTS........................................................... 27
FEDERAL INCOME TAX MATTERS.............................................. 27
How We Are Taxed...................................................... 28
How You Are Taxed..................................................... 28
Non-Qualified Contracts............................................... 28
Qualified Contracts................................................... 29
Other Considerations.................................................. 31
MANAGEMENT.............................................................. 31
INVESTMENT MANAGER...................................................... 32
LEGAL PROCEEDINGS....................................................... 32
THE FIXED ACCOUNT....................................................... 32
Fixed Account Accumulated Value....................................... 32
Amount of Each Fixed Annuity Payment.................................. 33
Time and Delay of Payment............................................. 33
Fixed Account......................................................... 33
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............ 34
</TABLE>
Page 3
<PAGE>
DEFINITIONS
WE, OUR, US -- the Washington National Insurance Company.
YOU, YOUR -- the owner of the Contract.
ACCUMULATED VALUE -- the value (prior to maturity) of all Accumulation Units
credited to the Contract or the Participant's Certificate under the Contract.
ACCUMULATION UNIT -- a unit used to measure the value of the Contract prior
to maturity.
ANNUITANT -- the person named to receive annuity payments.
ANNUITY UNIT -- a unit used to determine the amount of each annuity payment.
ATTAINED AGE -- the Annuitant's age on the Contract Date plus the number of
years and completed months from the Contract Date.
BENEFICIARY -- the person or entity to receive the Proceeds in the event of
the Annuitant's death.
CERTIFICATE -- certifies participation and represents a Participant's
interest under a group Contract.
CONTRACT -- the group or individual Contracts offered by this prospectus.
CONTRACT ANNIVERSARY -- the same day and month as the Contract Date for each
succeeding year the Contract remains in force.
CONTRACT DATE -- the effective date of the Contract and the date from which
Contract Anniversaries, Contract years and Contract months are determined.
FIXED ACCOUNT -- all of Our assets other than those allocated to any of Our
separate accounts.
FIXED ANNUITY -- an annuity with payments of a stated amount which are not
based on the investment results of Separate Account I, but are guaranteed by
Us.
NET ACCUMULATED VALUE -- The Accumulated Value reduced by any applicable
deductions and charges.
PARTICIPANT -- a person who participates in and for whom benefits are being
accrued under one of the group contracts offered through this prospectus.
Unless otherwise indicated, the term is used interchangeable with the term
Annuitant in this prospectus.
PROCEEDS -- the amount We are obligated to pay under the terms of the
Contract when a full or partial withdrawal is made, when the contract matures
or when the Annuitant dies.
PURCHASE PAYMENT -- the amount paid to Us for the benefits under the
Contract.
SEPARATE ACCOUNT I -- the separate account established by Us under Illinois
law, the assets of which are kept separate from Our other assets. The Separate
Account I meets the definition of a separate account under the federal
securities laws.
SUB-ACCOUNT -- a Separate Account I portfolio to which Purchase Payments are
allocated. The term SUB-ACCOUNT also refers to a Sub-Account Division if a Sub-
Account has Divisions.
VALUATION DATE -- each day when the New York Stock Exchange is open for
business or when trades in the securities of any Sub-Account would materially
change the Accumulation and Annuity Unit Values of the Sub-Account.
VALUATION PERIOD -- the period of time between one Valuation Date and the
next Valuation Date.
VARIABLE ANNUITY -- an annuity with payments which vary in amount with the
investment experience of a separate account.
WRITTEN REQUEST -- in a written form satisfactory to Us, signed by You
and/or the Participant and filed in our Home Office in Lincolnshire, Illinois.
Page 4
<PAGE>
SUMMARY
The group and individual Variable Annuity Contracts described in this prospectus
are designed for use by retirement plans which receive favorable tax treatment
under the Internal Revenue Code, as well as by individuals and groups that are
not covered by such plans.
During the Accumulation Period, which is the time between the date a Contract is
issued and the maturity date (the date on which We begin making payments to the
Annuitant), the full amount of every Purchase Payment paid to Us is put to work.
We make no deduction for sales charges from those payments. You have a great
deal of flexibility as to how payments are applied and have the ability to move
Accumulated Values around within the available Sub-Accounts and the Fixed
Account. A brief description of these and other features of the Contract
follows. This prospectus describes generally only the variable aspects of this
Contract. For information about the fixed aspects of this Contract, see The
Fixed Account, page 32.
SEPARATE ACCOUNT I FEE TABLE
<TABLE>
<CAPTION>
SHORT-TERM
BOND PORTFOLIO STOCK
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------
<S> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases $ -- $ -- $ --
Maximum Contingent Deferred Sales
Load (as a percentage of
Accumulated Value Withdrawn) 6% 6% 6%
Transfer Fee $ -- $ -- $ --
ANNUAL CONTRACT FEE $30 Per Contract
SUB-ACCOUNT ANNUAL EXPENSES
(as a percentage of average account
value)
Management Fee .50% .50% .50%
Annuity Rate Guarantees .80% .80% .80%
Financial Accounting Fees .35% .35% .35%
Other Expenses (net charged to account) .20% .20% .20%
Total Annual Expenses 1.85% 1.85% 1.85%
</TABLE>
The purpose of this Table is to assist you in understanding the various costs
and expenses that you bear directly and indirectly. For more information on the
charges described in this Table, see Deductions and Charges on page 24.
Page 5
<PAGE>
EXAMPLES
You would pay the following expenses on a $1000 investment, assuming a 5%
annual return on assets:
1. If you surrender your Contract at the end of the applicable time
period:*
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------
<S> <C> <C> <C> <C>
Bond Sub-Account $73 $113 $156 $224
Short-Term Portfolio Sub-Account $73 $113 $156 $224
Stock Sub-Account $73 $113 $156 $224
</TABLE>
2. If you do not surrender your Contract:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------
<S> <C> <C> <C> <C>
Bond Sub-Account $19 $ 60 $103 $224
Short-Term Portfolio Sub-Account $19 $ 60 $103 $224
Stock Sub-Account $19 $ 60 $103 $224
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
* These expense amounts also apply if you annuitize your Contract under
certain settlement options during the first five contract years.
SEPARATE ACCOUNT I -- Separate Account I is an open-end management
investment company. There are currently three Sub-Accounts within Separate
Account I, each with its own investment objective and policies as follows:
a. BOND SUB-ACCOUNT - high level of current income while preserving
capital by investing in fixed income securities. (See Bond Sub-Account,
page 15.)
b. SHORT-TERM PORTFOLIO SUB-ACCOUNT - moderate level of current income
consistent with liquidity and preservation of capital by investing in
money market instruments. (See Short-Term Portfolio Sub-Account, page
16.) The Short-Term Portfolio Sub-Account may not be diversified.
c. STOCK SUB-ACCOUNT - long-term capital growth and income by investing
principally in equity type securities. (See Stock Sub-Account, page
16.)
There can be no assurance that these investment objectives will be achieved.
Investments in the Bond, Short-Term Portfolio and Stock Sub-Accounts are not
insured or guaranteed by any government, government agency or other entity, and
none of the Sub-Accounts maintains a stable net asset value per share or unit.
All Sub-Account investments are subject to two general types of risks: financial
risk, which refers to the ability of the issuer of a security to pay principal,
interest or dividends; and market risk, which refers to the degree to which the
price of a security will react to changes in conditions in the securities
markets and to changes in the overall level of interest rates.
Page 6
<PAGE>
The Sub-Accounts may invest in certain types of securities, subject to the
limitations set forth under Investment Policies and Restrictions on page 16,
that involve greater than usual risks. The Bond Sub-Account may invest a portion
of its assets in securities that are unrated or are rated lower than the four
highest ratings of Moody's Investors Service, Inc. and Standard & Poor's
Corporation. These securities may be subject to greater market and financial
risk than higher quality issues. (See Bond Sub-Account, page 15.) The Stock Sub-
Account will invest in equity securities for the purpose of achieving higher
returns. This objective involves a greater risk of declining values. (See Stock
Sub-Account, page 16.)
The Accumulated Value of Purchase Payments allocated to Separate Account I
varies with the investment performance of the Sub-Account(s) and is not
guaranteed. The Accumulated Value of the Purchase Payments is guaranteed as to
payments allocated to the Fixed Account.
We are the issuer of the Contracts and serve as investment manager to Separate
Account I. Washington National Equity Company ("WNEC") was the principal
underwriter for Separate Account I until March 31, 1990, when WNEC deregistered
as a broker-dealer under the Securities and Exchange Act of 1934.
PURCHASE PAYMENTS -- Each payment which you make must be at least $25 with no
less than $300 paid each year. You may allocate no less than $25 to the Fixed
Account or to any Sub-Account of Separate Account I at any time. You may
increase Your payments at any time, but We do reserve the right to refuse to
accept any such increases. (See Purchase Payments, page 18.)
ALLOCATION OF PURCHASE PAYMENTS -- You indicate the manner in which Your
Purchase Payments are to be allocated at the time You apply for the Contract.
All or a portion of the payment may be directed to one or more of the Sub-
Accounts of Separate Account I, to the Fixed Account or to a combination of the
Fixed Account and one or more of the Sub-Accounts. You may change Your Purchase
Payment allocation at any time without charge. (See Sub-Account Allocations,
page 18.)
TRANSFERS OF CONTRACT ACCUMULATED VALUES -- Transfers of all or a part of the
Accumulated Value of the Contract are permitted. There is no charge made for
transfers, but there are some limitations. (See Transfers of Accumulated Values,
page 18.)
CHARGES AND DEDUCTIONS -- We do not currently make any deductions from Your
Purchase Payments, but apply the full amount We receive in the manner which You
have indicated. During any Contract year prior to maturity, You may withdraw up
to 10% of the Accumulated Value of the Contract without a contingent deferred
sales charge. A contingent deferred sales charge, which is intended to reimburse
Us for Our expenses in the sale of the Contract, will be deducted from any
amount withdrawn in excess of 10% of the Accumulated Value of the Contract
during each Contract year. The contingent deferred sales charge is 6% of the
amount withdrawn that is subject to the charge. (You will find a detailed
description of the method of calculation and a list of the exceptions from the
charge under Contingent Deferred Sales Charge, page 25.) Withdrawals may be
treated as taxable income and they may be subject to a penalty tax under the
Internal Revenue Code. (See How You Are Taxed, page 28.)
We deduct from the total value of each Sub-Account daily charges equal to an
annual rate of approximately .80% for the annuity rate guarantees (see Annuity
Rate Guarantee Deductions, page 24), .50% for investment management services
(see Investment Management Charge, page 24) and .35% for financial accounting
(see Financial Accounting Service Charge, page 24); the daily charge for
investment
Page 7
<PAGE>
management services is subject to change, but the rates for annuity rate
guarantees and financial accounting are not.
In addition, Separate Account I pays for certain operational expenses, covering
such items as brokerage fees and commissions, fees and expenses of legal counsel
and independent auditors, and custodian fees and expenses. (See Expenses of
Separate Account I, page 26.) Currently, Separate Account I is charged daily at
an annual rate of .20% of the account value.
An annual charge of $30 for administration and contract maintenance (see
Contract Maintenance Charge, page 25) is deducted from the Accumulated Value of
each Contract on the Contract Anniversary date, or on the date of surrender if
it occurs between Contract Anniversaries. The amount and frequency of this
charge is subject to change. We currently will waive this charge if, on the
Contract Anniversary date, the Contract has an Accumulated Value of $20,000 or
more, if $1,200 or more in Purchase Payments were made during the Contract Year,
or if the Contract is an Individual Retirement Account.
While We do not, at this time, make a deduction for any premium taxes which We
must pay on Purchase Payments received by Us, We reserve the right to do so in
the future. (See Premium Taxes, page 26.) We also retain the right to provide
for possible income taxes which may become payable for Separate Account I. (See
How We Are Taxed, page 28.)
ANTICIPATED REORGANIZATION -- It is currently anticipated that, as of the close
of business on June 30, 1996, Separate Account I will be reorganized from a
management investment company into a unit investment trust. This reorganization
was approved by the Separate Account Voters at a Special Meeting on March 12,
1996. After the reorganization, Separate Account I will no longer hold
securities and other instruments directly but rather will hold similar
investments indirectly by investing in shares of a mutual fund, the Scudder
Variable Life Investment Fund. See the proxy statement/prospectus dated February
1, 1996, for detailed information about the reorganization. We intend to
withdraw our investment in Separate Account I when the reorganization takes
place.
Page 8
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following audited information shows the value of an Accumulation Unit and
how it has changed in the last 10 years.
<TABLE>
<CAPTION>
Selected data per accumulation unit
outstanding throughout the year
For the years ended December 31, 1995 1994 1993
-------------------------- -------------------------- ---------------------------
Sub-Account Sub-Account Sub-Account
-------------------------- -------------------------- ---------------------------
Short-Term Short-Term Short-Term
Bond Portfolio Stock Bond Portfolio Stock Bond Portfolio Stock
-------------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per accumulation unit data:
Investment income $ 0.17 $ 0.10 $ 0.09 $ 0.16 $ 0.07 $ 0.08 $ 0.16 $ 0.05 $ 0.07
Expenses (0.04) (0.03) (0.06) (0.04) (0.03) (0.04) (0.04) (0.03) (0.04)
-------------------------- -------------------------- ---------------------------
NET INVESTMENT INCOME 0.13 0.07 0.03 0.12 0.04 0.04 0.12 0.02 0.03
Net realized and unrealized
gain (loss) on investments 0.21 -- 0.85 (0.22) -- (0.02) 0.03 -- 0.21
-------------------------- -------------------------- ---------------------------
Net increase (decrease) in
accumulation unit value 0.34 0.07 .88 (0.10) 0.04 0.02 0.15 0.02 0.24
Accumulation unit value at
beginning of year 2.16 1.70 2.54 2.26 1.66 2.52 2.11 1.64 2.28
-------------------------- -------------------------- ---------------------------
ACCUMULATION UNIT VALUE
AT END OF YEAR $ 2.50 $ 1.77 $ 3.42 $ 2.16 $ 1.70 $ 2.54 $ 2.26 $ 1.66 $ 2.52
========================== ========================== ===========================
Ratios:
Ratio of expenses to average
net assets 1.82% 1.86% 1.87% 1.87% 1.85% 1.83% 1.85% 1.85% 1.81%
Ratio of net investment income
to average net assets 5.58 4.11 1.03 5.28 2.47 1.41 5.50 1.28 1.17
Portfolio turnover rate 1.25 -- 7.41 -- -- 12.20 33.66 -- 3.50
Number of accumulation units
outstanding at end of year
(000's omitted) 4,955 946 9,443 5,297 1,032 9,882 5,836 980 10,202
</TABLE>
Page 9
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONT.)
<TABLE>
<CAPTION>
Selected data per accumulation unit
outstanding throughout the year
For the years ended December 31, 1992 1991 1990
-------------------------- -------------------------- ---------------------------
Sub-Account Sub-Account Sub-Account
-------------------------- -------------------------- ---------------------------
Short-Term Short-Term Short-Term
Bond Portfolio Stock Bond Portfolio Stock Bond Portfolio Stock
-------------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per accumulation unit data:
Investment income $ 0.17 $ 0.06 $ 0.07 $ 0.16 $ 0.09 $ 0.07 $ 0.16 $ 0.11 $ 0.08
Expenses (0.04) (0.03) (0.04) (0.03) (0.03) (0.04) (0.03) (0.03) (0.03)
-------------------------- -------------------------- ---------------------------
NET INVESTMENT INCOME 0.13 0.03 0.03 0.13 0.06 0.03 0.13 0.08 0.05
Net realized and unrealized
gain (loss) on investments (0.01) -- 0.12 0.14 -- 0.34 (0.11) -- (0.14)
-------------------------- -------------------------- ---------------------------
Net increase (decrease) in
accumulation unit value 0.12 0.03 0.15 0.27 0.06 0.37 0.02 0.08 (0.09)
Accumulation unit value at
beginning of year 1.99 1.61 2.13 1.72 1.55 1.76 1.70 1.47 1.85
-------------------------- -------------------------- ---------------------------
ACCUMULATION UNIT VALUE
AT END OF YEAR $ 2.11 $ 1.64 $ 2.28 $ 1.99 $ 1.61 $ 2.13 $ 1.72 $ 1.55 $ 1.76
========================== ========================== ===========================
Ratios:
Ratio of expenses to average
net assets 1.85% 1.85% 1.85% 1.85% 1.86% 1.86% 1.79% 1.85% 1.83%
Ratio of net investment income
to average net assets 6.22 1.82 1.33 7.02 3.80 1.85 7.61 5.29 2.82
Portfolio turnover rate 10.83 -- 4.92 -- -- 5.97 10.03 -- 15.70
Number of accumulation units
outstanding at end of year
(000's omitted) 6,457 1,065 10,457 6,616 1,130 10,564 7,308 1,505 10,693
</TABLE>
Page 10
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONT.)
<TABLE>
<CAPTION>
Selected data per accumulation unit
outstanding throughout the year
For the years ended December 31, 1989 1988 1987
-------------------------- -------------------------- ---------------------------
Sub-Account Sub-Account Sub-Account
-------------------------- -------------------------- ---------------------------
Short-Term Short-Term Short-Term
Bond Portfolio Stock Bond Portfolio Stock Bond Portfolio Stock
-------------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per accumulation unit data:
Investment income $ 0.15 $ 0.12 $ 0.06 $ 0.14 $ 0.11 $ 0.06 $ 0.13 $ 0.08 $ 0.06
Expenses (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.02) (0.02) (0.02)
-------------------------- -------------------------- ---------------------------
NET INVESTMENT INCOME 0.12 0.09 0.03 0.11 0.08 0.03 0.11 0.06 0.04
Net realized and unrealized
gain (loss) on investments 0.05 -- 0.15 (0.01) -- 0.04 (0.11) -- 0.07
-------------------------- -------------------------- ---------------------------
Net increase in accumulation
unit value 0.17 0.09 0.18 0.10 0.08 0.07 -- 0.06 0.11
Accumulation unit value at
beginning of year 1.53 1.38 1.67 1.43 1.30 1.60 1.43 1.24 1.49
-------------------------- -------------------------- ---------------------------
ACCUMULATION UNIT VALUE
AT END OF YEAR $ 1.70 $ 1.47 $ 1.85 $ 1.53 $ 1.38 $ 1.67 $ 1.43 $ 1.30 $ 1.60
========================== ========================== ===========================
Ratios:
Ratio of expenses to average
net assets 1.84% 1.85% 1.82% 1.87% 1.84% 1.84% 1.86% 1.86% 1.91%
Ratio of net investment income
to average net assets 7.50 6.34 1.97 7.31 5.60 1.70 7.35 4.82 1.29
Portfolio turnover rate 4.75 -- 18.91 -- -- 47.75 15.86 -- 40.86
Number of accumulation units
outstanding at end of year
(000's omitted) 7,503 1,496 11,111 7,382 1,569 11,618 7,101 1,571 11,588
</TABLE>
Page 11
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONT.)
<TABLE>
<CAPTION>
Selected data per accumulation unit
outstanding throughout the year
For the years ended December 31, 1986
--------------------------
Sub-Account
--------------------------
Short-Term
Bond Portfolio Stock
--------------------------
<S> <C> <C> <C>
Per share data:
Investment income $ 0.12 $ 0.08 $ 0.04
Expenses (0.02) (0.02) (0.02)
--------------------------
NET INVESTMENT INCOME 0.10 0.06 0.02
Net realized and unrealized
gain on investments 0.06 -- 0.15
--------------------------
Net increase in accumulation
unit value 0.16 0.06 0.17
Accumulation unit value at
beginning of year 1.27 1.18 1.32
--------------------------
ACCUMULATION UNIT VALUE
AT END OF YEAR $ 1.43 $ 1.24 $ 1.49
==========================
Ratios:
Ratio of expenses to average
net assets 1.73% 1.73% 1.73%
Ratio of net investment income
to average net assets 7.53 5.00 1.24
Portfolio turnover rate 16.77 -- 48.18
Number of accumulation units
outstanding at end of year
(000's omitted) 6,555 1,005 9,026
</TABLE>
Page 12
<PAGE>
Beginning in August 1986, Separate Account I began paying for various expenses
attributable to Separate Account I that previously had been paid voluntarily by
Us. A charge, equal to the daily allocation of the expected expenses, is
deducted from Separate Account I. Currently, the charge is equal to an annual
rate of .20% of the average net assets of Separate Account I. In the future, the
amount of the daily charge may be increased or decreased depending upon the
amount of expected expenses.
On August 26, 1983, We deposited $100,000 into Separate Account I to begin
operations. This amount was reflected as a purchase of Accumulation Units in the
Short-Term Portfolio Sub-Account and may be transferred between the Sub-Accounts
or withdrawn by Us at any time at Our discretion at the Accumulation Unit value
on the date of withdrawal. We do not expect to withdraw this amount until We
determine that it is no longer needed for the operation of Separate Account I.
During January 1985, We invested an additional $10 million in Separate Account I
by purchasing Accumulation Units in each of the three Sub-Accounts as follows:
approximately $5,000,000 of Accumulation Units in the Stock Sub-Account,
approximately $4,000,000 of Accumulation Units in the Bond Sub-Account and
approximately $1,000,000 of Accumulation Units in the Short-Term Portfolio Sub-
Account. This investment was made to enable each of the Sub-Accounts to develop
a significant portfolio and meaningful investment performance at an earlier date
than otherwise would have been possible. The Accumulation Units purchased by Us
were acquired for investment purposes and can be disposed of only by redemption.
In 1987 We withdrew $3,400,000 from the Stock Sub-Account and $1,400,000 from
the Bond Sub-Account. In 1991 We withdrew $1,000,000 from the Bond Sub-Account
and $500,000 from the Short-Term Portfolio Sub-Account. The withdrawals were
made principally from short-term funds rather than long term assets. In making
the withdrawals, We were careful not to disturb the composition of the Sub-
Accounts' portfolios. We do not anticipate making further investments in
the Sub-Accounts of Separate Account I. As noted above, we intend to withdraw
our investment from Separate Account I.
Our financial statements and those of Separate Account I may be found in the
Statement of Additional Information.
PERFORMANCE DATA
From time to time, We may advertise yields and total returns for the Sub-
Accounts of Separate Account I. In addition, We may advertise the effective
yield of the Short-Term Portfolio Sub-Account. These figures will be based on
historical information and are not intended to indicate future performance.
The yield of the Short-Term Portfolio Sub-Account refers to the annualized
income generated by an investment in that Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven-day period over a 52-week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in that Sub-
Account is assumed to be reinvested. The effective yield will be slightly higher
than the yield because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account (other than the Short-Term Portfolio Sub-Account)
refers to the annualized income generated by an investment in the Sub-Account
over a specified thirty-day period. The yield is calculated by assuming that the
income generated by the investment during that thirty-day period is generated
each thirty-day period over a twelve-month period and is shown as a percentage
of the investment.
Page 13
<PAGE>
Yield quotations will not reflect any contingent deferred sales charges.
The total return of a Sub-Account refers to return quotations assuming an
investment has been held in the Sub-Account for various periods of time
including, one, five and ten year periods. The total return quotations will
represent the average annual compounded rates of return that would equate an
initial investment of $1,000 to the redemption value of that investment as of
the last day of each of the periods for which total return quotations are
provided. These standard total return quotations will reflect any applicable
contingent deferred sales charge.
For additional information regarding yields and total returns calculated using
the standard formats briefly described above, please refer to the Statement of
Additional Information.
We may from time to time also disclose average annual total return for non-
standard periods and/or in non-standard formats and cumulative total return for
the Sub-Accounts of Separate Account I. The non-standard average annual total
return and cumulative total return will assume that no contingent deferred sales
charge is applicable.
All non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
THE COMPANY
We, Washington National Insurance Company, of Lincolnshire, Illinois, are a
stock life insurance company founded in 1911 and organized under the laws of the
State of Illinois. Our Home Office is located at 300 Tower Parkway,
Lincolnshire, Illinois 60069.
We act as investment manager to Separate Account I and are registered under the
Investment Advisers Act of 1940. We are a wholly-owned subsidiary of Washington
National Corporation ("WNC"), a Delaware Corporation, located in Lincolnshire,
Illinois. WNC is a financial services corporation.
THE SEPARATE ACCOUNT
Separate Account I was established by Us as a separate account on November 5,
1982, under Illinois law. It is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940. Registration with the Securities and Exchange Commission
does not involve supervision of management or investment practices or policies
of Separate Account I or Us by the Commission.
Separate Account I is a series type investment company currently consisting of
three Sub-Accounts, the Bond, Short-Term Portfolio and Stock Sub-Accounts. (See
The Sub-Accounts, page 15.)
We own the assets of Separate Account I, but its income, gains and losses
realized or unrealized, are credited to or charged against the assets held in
the Sub-Account for which they are held without regard to Our other income,
gains or losses. The Separate Account is not chargeable with liabilities arising
out of any other Separate Account, or other business which We may conduct. The
obligations arising under the variable annuity contract herein are Our
obligations.
Page 14
<PAGE>
Ten percent or more of the assets of each Sub-Account are owned by Us. As of
December 31, 1995, We owned 44.97% of the Bond Sub-Account, 64.77% of the
Short-Term Portfolio Sub-Account, and 29.90% of the Stock Sub-Account.
At present there are three Sub-Accounts, but this number may be increased or
decreased by Us in the future. Your Contract's investment results will depend on
the investment performance of the portfolio of the Sub-Accounts You select. The
investment objectives of the Sub-Accounts stated below are not fundamental
policies and may be changed without the approval of the Contract owners. There
is no assurance that the investment objectives will be achieved. The fundamental
policies are stated under "Investment Policies and Restrictions" and may not be
changed without the approval of a majority of the Contract owners having an
interest in the affected Sub-Account.
THE SUB-ACCOUNTS
All Sub-Account investments are subject to two general types of investment
risks: financial risk, which refers to the ability of the issuer of a security
to pay principal, interest or dividends, and market risk, which refers to the
degree to which the price of a security will react to changes in conditions in
the securities markets and to changes in the overall level of interest rates.
BOND SUB-ACCOUNT
OBJECTIVE -- to obtain as high a level of current income as possible while
preserving capital. Investments will be made primarily in fixed-income
securities. It is anticipated that 85% of the assets will be invested in
securities issued or guaranteed by the United States Government or its agencies
and publicly traded, investment grade nonconvertible corporate debt securities
issued by United States corporations which bear one of the 4 highest bond
ratings of either Moody's Investors Services, Inc. or Standard & Poor's
Corporation. The purchase of short-term corporate debt securities (commercial
paper) will be limited to those of the highest grade of those rating services.
See the Statement of Additional Information for Moody's and Standard & Poor's
commercial paper and bond ratings.
Lower rated and unrated securities may be subject to greater market and
financial risk than higher quality, lower yielding securities.
Up to 15% of the total assets may be invested in preferred stocks, convertible
securities and securities which carry warrants to purchase equity securities,
and up to 10% in real estate.
We will not invest in common stock, but may, as a result of conversion of debt
securities or the exercise of warrants, retain for a reasonable period up to 5%
of the assets in common stocks.
A number of factors determine the yields which may be obtained on debt
instruments, such as the size of the offering, maturities, ratings and the
general economic monetary and market conditions. The market value of debt
instruments varies depending on their yields, thus changing the asset value of
the Bond Sub-Account as the general level of interest rates change.
When we believe that portfolio transactions will help Us to achieve the Bond
Sub-Account's objectives, we will execute them. As a result, the rate of
portfolio turnover may vary and portfolio securities may not be held to maturity
depending on business, economic and market conditions.
Page 15
<PAGE>
SHORT-TERM PORTFOLIO SUB-ACCOUNT
OBJECTIVE -- to obtain a moderate level of current income, consistent with
liquidity and preservation of capital. We will pursue its investment objective
by investing in high quality money market instruments such as obligations of the
U.S. Government, its agencies, and instrumentalities; certificates of deposit;
bankers' acceptances; commercial paper; corporate bonds, notes and other debt
instruments; variable amount demand master notes; repurchase agreements; reverse
repurchase agreements; and when-issued and delayed delivery securities. The
assets will consist entirely of cash and investments having a maturity date of
sixty days or less from the date of purchase. Some investments may have a stated
term or maturity date as short as one day. The average maturity of the portfolio
will vary according to the investment manager's appraisal of money market
conditions.
STOCK SUB-ACCOUNT
OBJECTIVE -- to achieve long-term capital growth through capital appreciation
and income. The assets of the Stock Sub-Account are expected to be invested
primarily in equity-type investments, including common stocks and securities
convertible into common stocks, which investments may be maintained in both
rising and declining markets. We may also invest, for defensive purposes, in
investment-grade debt securities, nonconvertible preferred stocks, government
obligations or money market instruments. We may also invest up to 10% in real
estate.
Cash may be held or investment made in high grade short-term debt securities to
provide for expenses and anticipated withdrawals and so that an orderly
investment program may be carried out in accordance with investment policies.
We will invest primarily in common stocks listed on the New York Stock Exchange
and other national securities exchanges and in those traded over the counter. We
will select stocks for their potential for long-term appreciation. Investing for
higher return involves greater risks of declining values. You should expect that
the value of the Stock Sub-Account will decline during periods when stock prices
in general decline.
INVESTMENT POLICIES AND RESTRICTIONS
In connection with pursuing their investment objectives, the Sub-Accounts may
engage in certain investment practices. A more complete description of the Sub-
Accounts' investment policies and restrictions and the risks involved are
contained in the Statement of Additional Information. The following investment
policies and restrictions are fundamental policies and may not be changed
without the approval of a majority, as defined in the Investment Company Act of
1940, of the Contract owners having an interest in the affected Sub-Account.
a. The assets of the Bond and Stock Sub-Accounts will be kept fully
invested, except that cash may be kept on hand for the following
purposes:
1. to handle redemptions; or
2. pending investment; or
3. during periods warranting a more defensive investment position, a
larger proportion of the assets of the appropriate Sub-Account may
be temporarily maintained in cash or may be placed in money market
instruments or short-term fixed income securities; or
4. temporarily, to take a defensive position if warranted by market
conditions.
b. With respect to 75% of the value of the total assets of Separate
Account I, We will not invest more than 5% of the value of the assets
in the securities of, nor will We acquire more than 10% of the
outstanding voting securities of any one issuer except those of the
United States
Page 16
<PAGE>
Government, its agencies and instrumentalities. Twenty-five percent of
Separate Account I assets may be invested in securities of one or more
issuers without regard for those limitations.
c. We reserve the right to invest up to 10% of the total assets of each of
the Sub-Accounts, other than the Short-Term Portfolio Sub-Account, in
interests in real estate. Purchases and sales may be made by the Sub-
Accounts other than the Short-Term Portfolio Sub-Account of securities
of issuers which invest or deal in oil, gas or other mineral
exploration or development programs or real estate and real estate
trusts.
d. Loans will not be made except through the acquisition of a portion of
an issue of publicly distributed bonds, debentures, or other evidences
of indebtedness of a type customarily purchased by institutional
investors and except that money market instruments including repurchase
agreements may be acquired and held as permitted in accordance with Our
investment objectives and policies. Investments in repurchase
agreements maturing in more than seven days and in interests in non-
marketable real estate or any other illiquid asset will not exceed 10%
of the total assets of any Sub-Account.
VALUATION OF ASSETS
The portfolio instruments held in each Sub-Account are valued on each Valuation
Date as described below. A Valuation Date is each day when the New York Stock
Exchange is open for business or when trades in the securities of any Sub-
Account would materially change the Accumulation and Annuity Unit Values of the
Sub-Account.
A. Stock and Bond Sub-Accounts
1. Securities which are traded on national stock exchanges -- valued
at the closing price on the Valuation Date. If there are no sales
on that date, at the last current bid quotation.
2. Securities not traded on a national stock exchange -- valued at the
average between the bid and asked prices.
3. Any other assets for which no fair market value is available --
valued as determined in good faith by or under the direction of the
Board of Directors of Separate Account I.
B. Short-Term Portfolio Sub-Account
The securities are valued on an amortized cost basis. Under this
method, the security is initially valued at cost and adjusted on each
Valuation Date thereafter for amortization of premium and accrual of
discount until its maturity. Nevertheless, the Short-Term Portfolio
Sub-Account will not maintain a stable net asset value.
Page 17
<PAGE>
THE CONTRACTS
PRIOR TO MATURITY (ACCUMULATION PERIOD)
We offered both individual and group Contracts which may or may not be tax-
qualified. The Contracts are no longer being offered.
PURCHASE PAYMENTS
The first payment was due on the Contract Date. Future periodic Purchase Payment
due dates are determined by the mode or frequency You chose in the application.
If the application could be accepted in the form received, the first Purchase
Payment would be credited to purchase Accumulation Units within two business
days after receipt by Us. If, because the application was incomplete, the first
Purchase Payment was not applied to purchase Accumulation Units within five
business days after it was received by Us, the Purchase Payment would be
returned, unless You consented to Our retaining the Purchase Payment and
crediting it as soon as the necessary requirements were fulfilled.
The Contracts were issued on a periodic basis only. However, if only one payment
was made, it would be considered a single Purchase Payment deferred Variable
Annuity. If you wished Variable Annuity payments to begin immediately under an
individual Contract, You could choose to do so by paying a single Purchase
Payment of $2,000 or more, and electing one of the settlement options when
applying for the Contract.
Periodic Purchase Payments may be made every twelve, six or three months or on
one of the monthly modes which We permit. You may change the frequency of
payment on any due date.
Increases in the periodic Purchase Payment may be made only with Our consent,
and we reserve the right to refuse to accept any subsequent increased payment.
The minimum amount of Purchase Payment which we will accept, during any Contract
year, is $300.
SUB-ACCOUNT ALLOCATIONS
In the application for the Contract, You tell Us the portion of Your Purchase
Payments to be allocated to each Sub-Account of Separate Account I and to the
Fixed Account; this allocation may be changed at any time. The amount to be
allocated to any Sub-Account or allocated to the Fixed Account must be at least
$25. The number of Accumulation Units credited for each Sub-Account is
determined by dividing the net amount allocated to the Sub-Account by the
Accumulation Unit value for the Sub-Account for the Valuation Period during
which the Purchase Payment is received by Us.
TRANSFERS OF ACCUMULATED VALUES
Transfers, requested in writing, of all or a part of the Accumulated Value of
the Contract are permitted as follows (in $100 increments only):
a. Among the Stock, Bond and Short-Term Portfolio Sub-Accounts at any
time;
b. From the Stock and Bond Sub-Accounts to the Fixed Account at any time;
c. From the Fixed Account to the Stock and Bond Sub-Accounts once every
twelve months after the first Contract Year;
d. Not between the Fixed Account and the Short-Term Portfolio Sub-Account;
and
Page 18
<PAGE>
e. Only if amounts of $100 or more are transferred to or from the Fixed
Account or any Sub-Account.
If a partial withdrawal will reduce the Accumulated Value of the Fixed Account
or any Sub-Account to less than $300, the total Accumulated Value of that
account, rather than the requested amount, will be transferred. Transfer will be
based upon the Accumulation Unit value in effect on, and will be made as of, the
Valuation Date on which We received Your request.
We reserve the right under any Contract or Certificate to limit, suspend or
revoke the right to transfer among the Bond, Short-Term Portfolio and Stock Sub-
Accounts. From time to time, We may modify Our rules and procedures regarding
transfers.
ACCUMULATED VALUE
The Accumulated Value is the sum of the Accumulated Value held in each Sub-
Account plus the Accumulated Value of any Purchase Payments allocated to the
Fixed Account. The Accumulated Value of a Sub-Account is the number of
Accumulation Units credited to the Contract times the value of the Accumulation
Unit. The Net Accumulated Value is the Accumulated Value reduced by any
applicable deductions and charges, which include any contingent deferred sales
charge, the contract maintenance charge and any premium taxes.
The value of an Accumulation Unit for each Sub-Account was established at $1 on
the first Valuation Date. The value of each Accumulation Unit for the Sub-
Accounts will vary with the investment experience of the Sub-Account. Subsequent
Accumulation Unit values for the Sub-Accounts are determined by multiplying:
a. the Accumulation Unit value for the previous Valuation Date; by
b. the net investment factor for the current Valuation Date, which
reflects the investment performance of the Sub-Account less any
deduction and charges made against the Sub-Account.
TERMINATION OF PARTICIPATION
We retain the right to terminate the Contract after the first contract year and
to pay the Accumulated Value to You if the Accumulated Value of all Sub-Accounts
and the Fixed Account is less than $300. We will notify You of Our intention to
do so and grant a period of ninety days for You to make Purchase Payments to
increase the Accumulated Value to $300. The Contract will be terminated
automatically if the Accumulated Value, after deduction of the Contract
maintenance charge, is equal or less than zero.
CASH SURRENDER AND WITHDRAWALS
You or the Participant, if permitted under the plan, may withdraw part or all
(surrender) of the Contract's Net Accumulated Value. From each withdrawal We
will deduct any applicable contingent deferred sales charge.
We require that:
a. A Written Request be made;
b. You tell Us the amount and from which Sub-Account(s) and/or the Fixed
Account We are to make a withdrawal;
c. The Contract be surrendered and sent to Us if a full withdrawal is
made;
d. You withdraw at least $100; and
Page 19
<PAGE>
e. The Accumulated Value remaining in any Sub-Account or the Fixed Account
be at least $300, unless a full withdrawal is made.
WITHDRAWALS MAY BE TAXABLE
If at the time You make a surrender or withdrawal, You have not provided Us with
an election not to have federal income taxes withheld, We must by law withhold
such taxes from the taxable portion of any surrender or withdrawal and remit
that amount to the federal government. Moreover, the Internal Revenue Code
provides that a 10% penalty tax may be imposed on certain early surrenders or
withdrawals.
Participants in the Texas Optional Retirement Program are prohibited from
withdrawing part or all of the Accumulated Value of the Contract except at
retirement or termination of employment.
Section 403(b) of the Internal Revenue Code provides for tax-deferred retirement
savings plans for employees of certain non-profit and educational organizations.
In accordance with the requirements of Section 403(b), any Contract used for a
403(b) plan will prohibit distributions of (i) elective contributions made in
years beginning after December 31, 1988, (ii) earnings on those contributions,
and (iii) earnings on amounts attributable to elective contributions held as of
the end of the last year beginning before January 1, 1989. However,
distributions of such amounts will be allowed upon death of the employee,
attainment of age 59 1/2, separation from service, disability or financial
hardship, except that income attributable to elective contributions may not be
distributed in the case of hardship.
LOANS FROM 403(b) CONTRACTS
If You have a qualified contract issued pursuant to Section 403(b) of the
Internal Revenue Code, You may take a loan of from $5,000 to $50,000 from your
contract, subject to various conditions including the following:
1) You may have only one loan outstanding at a time from all of your
403(b) contracts issued by Us.
2) Generally, the loan must be repaid within five years.
3) The current rate of interest credited on any Accumulated Value of this
contract will not be affected by any outstanding loan.
4) You will be charged a rate of interest based on Moody's Corporate Bond
Yield Average; the interest rate may be changed on the loan anniversary
date.
5) The loan may affect your withdrawal privileges.
6) Our handling of the loan will be in accordance with Section 72(p) of
the Internal Revenue Service which may limit the amount you may borrow.
(See Federal Income Tax Matters, p. 27.)
7) You will be charged a $200 loan fee in all states except Wisconsin,
which has a separate fee schedule.
OPTIONS ON DISCONTINUANCE OF PURCHASE PAYMENTS
If you discontinue Purchase Payments, you may choose one of these Options:
a. Surrender (full withdrawal) -- You may surrender the Contract and
withdraw all of the Net Accumulated Value;
b. Paid-Up Annuity -- You may have the Contract continued so that the
Accumulation Units will provide benefits at the maturity date. This
Paid-Up Annuity may be surrendered at any time prior to maturity for
its then Net Accumulated Value.
Page 20
<PAGE>
You can resume payments at any time prior to maturity unless the Contract has
been surrendered.
PAYMENT AT DEATH
If the Annuitant dies prior to the date We begin to make annuity payments, We
will pay the Net Accumulated Value of the Contract, next determined on the
Valuation Date on which proof of death is received by Us. If the Beneficiary
elects to receive payments under a Settlement Option, the election must be made
within 60 days after the date of death of the annuitant in order to receive
favorable tax treatment, during which time amounts will remain as previously
allocated and will be subject to investment experience and/or interest credits.
For Contracts issued on or after January 19, 1985, federal tax law requires that
if the contract owner or any Joint contract owner dies before the maturity date,
generally the entire value of the Contract must be distributed within five (5)
years of the date of death of the contract owner. Special rules may apply to
spouses of the deceased owner. See "FEDERAL TAX MATTERS: IRS Required
Distribution" in the Statement of Additional Information for greater details.
TIME AND DELAY OF PAYMENT
We will pay all Proceeds within seven days of the date Written Request for
withdrawal is received or the date an annuity payment or payment of death and
maturity Proceeds is due. Payments under the Contract of any Proceeds derived
from Purchase Payments made by check may be delayed until such time as the check
has cleared Your bank.
We have the right to delay payment when:
a. The New York Stock Exchange is closed, other than customary weekend and
holiday closings;
b. Trading on the New York Stock Exchange is restricted;
c. An emergency exists so that it is not reasonably practicable for
Separate Account I to dispose of securities or fairly to determine the
value of its net assets; or
d. The Securities and Exchange Commission by order may permit for the
protection of the owners of the Contracts.
INQUIRIES ABOUT YOUR CONTRACT
If you have any questions regarding your Contract, you may write to Us at
Washington National Service Center, Life and Annuity Administration, P.O. Box
9019, Kokomo, Indiana 46904.
AFTER MATURITY (ANNUITY PERIOD)
MATURITY DATE
On the maturity date, which unless otherwise changed is the date You specify in
the application, the Net Accumulated Value will be applied to the annuity option
You selected or, if requested by You, paid out as a single sum settlement.
While the Contract is in force, You may, by Written Request, elect to have
Annuity Payments begin at an optional maturity date, which may be any Contract
Anniversary on which the Annuitant's Attained Age
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<PAGE>
is fifty-five or more. Prior to the due date of the first Annuity Payment, You
may change a previously elected optional maturity date to another optional
maturity date.
ELECTION OF OPTIONS
You may elect to have all or part of the Proceeds of the Contract applied under
one of the following settlement options. You may cancel or change a previous
election, but only if You do so prior to the death of the Annuitant or the
maturity date of the Contract and only if You do so in writing. If You do not
elect a settlement option prior to the Annuitant's death, the payee may do so
provided the election is made within one year after the date of death of the
Annuitant. Any settlement option election will be subject to the limitations and
conditions set forth in the Contract.
If the Annuitant dies after annuity payments have begun, the death benefit will
be as stated under the Settlement Option provision elected. If the contract
owner dies after annuity payments have begun, the remaining interest in the
Contract must be distributed at least as rapidly as under the method of
distribution in effect at the time of the contract owner's death.
Under Options 2(A) and 6, only one payment will be made if the Annuitant and any
joint Annuitant die(s) before the second payment is made; only two payments will
be made if the death(s) occur(s) before the third payment is made; and so forth.
OPTION 1 -- INCOME FOR A FIXED PERIOD
We will pay the proceeds in equal installments over a period of from one to
thirty years.
OPTION 2 --INCOME FOR LIFE
We will pay a monthly income during a person's lifetime. The monthly income may
be a life annuity only, Option 2(A); a life annuity with a minimum guaranteed
period of five, ten or twenty years, Option 2(B); or an installment refund life
annuity with payments guaranteed until the number of Annuity Units in each
payment, multiplied by the number of payments made, equals the total amount
applied under the Option divided by the Annuity Unit value used to determine the
number of units in the first payment, Option 2(C).
OPTION 3 -- INCOME OF FIXED AMOUNT
We will pay the Proceeds in equal installments in the amount and at the
intervals agreed upon until the Proceeds applied under this option, with
interest at 3% per annum, are exhausted. The final installment will be for the
remaining balance.
OPTION 4 -- INTEREST INCOME
We will hold the Proceeds on deposit and pay or credit interest at the rate of
3% per annum. Payment of interest will be at such time and for such periods as
are agreeable to You and Us.
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<PAGE>
OPTION 5 -- JOINT AND SURVIVOR INCOME FOR LIFE
We will pay an income during the lifetime of two payees, and continuing until
the death of the survivor. This option includes a minimum guaranteed period of
10 years.
OPTION 6 -- JOINT AND TWO-THIRDS SURVIVOR INCOME FOR LIFE
When a Fixed Annuity is elected, We will pay an income (the "original amount")
during the time two payees both remain alive, and two-thirds of the original
amount during the remaining lifetime of the survivor. When a Variable Annuity is
elected, the number of units will be reduced by one-third at the death of one
payee.
ELECTION OF FIXED OR VARIABLE ANNUITY PAYMENTS
You may choose when annuity payments begin, to have the Net Accumulated Value
applied, except under Options 1, 3 and 4, to provide for:
a. a Fixed Annuity;
b. a Variable Annuity; or
c. a mix of the above.
If You do not make an election, the Net Accumulated Value will be paid under
Option 2(B) with payments guaranteed for a period of ten years.
The net investment factor, or a factor which reflects a guaranteed annual
investment rate of 3%, will apply if Option 3 is chosen.
Options 1, 3 and 4 are available as a Fixed Annuity only. The Net Accumulated
Value needed to provide a Fixed Annuity or a guaranteed interest rate will be
withdrawn from Separate Account I.
The Options described above are available only if We receive proper proof of age
and proof that the payee is living, the Accumulated Value is at least $2,000,
and, under the Option chosen, results in a periodic payment of at least $20.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
On the maturity date the Net Accumulated Value is applied to provide annuity
payments. The dollar amount of the first variable Annuity Payment is determined
based on the annuity payment rates found in the Contract for the option
selected. These rates are based on an assumed interest rate of 3.5% per year.
All variable Annuity Payments after the first will reflect the investment
experience of the Sub-Accounts in which the Net Accumulated Value was held.
After the maturity date the investments may not be transferred among the Sub-
Accounts. The dollar amount of each variable Annuity Payment after the first may
increase, decrease or remain constant, depending upon whether the investment
performance is greater than, less than or equal to the assumed interest rate of
3.5%.
Accordingly, variable Annuity Payments vary with the investment performance of
Separate Account I and the option selected. Options that involve greater
durations or frequency or life contingencies generally result in smaller
periodic payments. Periodic payments will be greater for life annuities than for
joint and survivor annuities, because they are expected to be made for a shorter
period. Also, the assumed
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interest rate affects the amount of the payment. If the assumed rate were higher
than 3.5%, the initial Annuity Payment would be greater, but subsequent payments
may be more likely to decrease.
We explain in detail how variable Annuity Payments are computed in the Statement
of Additional Information.
HOW CONTRACTS WERE SOLD
The Contracts were sold by Our life insurance agents, who were licensed to sell
variable annuities and were registered representatives of WNEC, of Evanston,
Illinois (a former, wholly-owned subsidiary of WNC), which, until March 31,
1990, was registered as a broker-dealer under the Securities Exchange Act of
1934, was the principal underwriter of Separate Account I and was a member of
the National Association of Securities Dealers, Inc. (NASD). The commissions
paid to dealers do not exceed 6% of Purchase Payments.
The Contracts could also have been sold by registered representatives of other
NASD member broker-dealers who were authorized to sell Variable Annuity
Contracts. The Contracts are no longer being sold; however, additional Purchase
Payments will continue to be accepted in accordance with contractual provisions.
DEDUCTIONS AND CHARGES
ANNUITY RATE GUARANTEE DEDUCTIONS
Although Variable Annuity payments made to Annuitants will vary in accordance
with the investment performance of the investments of Separate Account I, they
will not be affected by the mortality experience (death rate) of persons
receiving such payments. We assume this "mortality risk" by virtue of annuity
rates incorporated in the Contract which cannot be changed. To compensate Us for
assuming this risk, a charge will be made daily from Separate Account I for
annuity rate guarantees, which is equal on an annual basis to approximately .80%
of the current asset value of Separate Account I. If the deductions are
insufficient to cover the actual cost of the mortality risk, We will bear the
loss; conversely, if the deductions prove more than sufficient, the excess will
be a profit to Us. We may not increase the rate of the annuity rate guarantee
deduction. This fee will be paid to Us monthly.
INVESTMENT MANAGEMENT CHARGE
We act as investment manager for Separate Account I under an investment
management agreement between Separate Account I and Us. For providing those
services, a charge will be made daily from Separate Account I which is equal on
an annual basis to .50% of the average net assets of Separate Account I. We have
contracted with NBD Bank to act as Sub-Advisor for and to manage the investments
of the Stock Sub-Account, for which We pay NBD Bank a fee of .40% of average net
asset of the Stock Sub-Account. First Chicago NBD Corp. is a major stockholder
of Washington National Corporation.
FINANCIAL ACCOUNTING SERVICE CHARGE
We are responsible for providing financial accounting services to Separate
Account I under an Administrative Service Agreement between Separate Account I
and Us. Such services include preparation and maintenance of all accounting,
bookkeeping, financial and other statements necessary to conduct the business
and operations of Separate Account I.
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For providing these services, a charge is made daily from Separate Account I and
paid to Us monthly, which is equal on an annual basis to .35% of the average net
assets of Separate Account I. The charge is designed to cover the actual
expenses incurred in providing these services and We do not expect to profit
from the charge. The amount of the charge is guaranteed not to be increased, but
may be imposed on a more or less frequent basis.
CONTINGENT DEFERRED SALES CHARGE
We do not make any deductions for sales charges from Purchase Payments when We
receive them. The full amount is invested and credited to the Contracts,
although sales expenses for items such as commissions, preparation of sales
literature and other promotional activities are incurred in connection with
their sale. The contingent deferred sales charge is made only when a withdrawal,
partial or full (including applying the Accumulated Value to a Paid-Up Annuity
under certain circumstances), is made from the Contract and is designed to
recover those sales expenses. The proceeds received from such charge are not
sufficient to pay such expenses; We pay the excess out of Our general funds,
which includes proceeds derived from the annuity rate guarantee charge.
In connection with certain withdrawals, We assess a contingent deferred sales
charge. The contingent deferred sales charge is made at the rate of 6% of the
amount withdrawn and is deducted from the amount withdrawn.
In calculating the amount of any contingent deferred sales charge:
1. Any amount which You withdraw will be treated as a withdrawal of
Purchase Payments until You have withdrawn the total amount of all
Purchase Payments received within seventy-two months of the date of
withdrawal. The maximum amount which You may withdraw cannot exceed the
Contract's or Certificate's Net Accumulated Value.
2. It will be assumed that the earliest Purchase Payment(s) is (are) the
source of the first amounts withdrawn, even if amounts are withdrawn
from the Fixed Account or a Sub-Account other than that to which such
Purchase Payments were credited.
3. The total of such charge will never exceed 6% of the total Purchase
Payments.
We will not make a deduction for the contingent deferred sales charge:
1. On the first 10% of the Accumulated Value withdrawn from a Contract or
Certificate during any Contract or Certificate year. The amount which
may be withdrawn without charge is determined as of the date of the
first withdrawal during the year.
2. On Purchase Payments received more than seventy-two months prior to the
date of withdrawal.
3. If the amount withdrawn is applied to:
a. a settlement option after the Contract or Certificate has been in
effect for five or more years, or
b. Settlement Option 2, 5 or 6 at any time.
4. If the Annuitant dies.
CONTRACT MAINTENANCE CHARGE
On each Contract or Certificate Anniversary, or on the date of full withdrawal
or election of a settlement option if that date is not the Contract or
Certificate Anniversary, We will deduct from the Accumulated Value of the
Contract a charge for establishing and maintaining records. The annual charge is
currently $30 for each Contract and Certificate. The charge will be made pro-
rata from the Accumulated Value of
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each Sub-Account and the Fixed Account and the number of Accumulated Units
credited will be reduced accordingly. This charge is not guaranteed, may be
changed in the future and may be deducted more frequently than annually. We
currently will waive this charge if, on the last day of the Contract Year, the
Contract has an Accumulated Value of $20,000 or more, if $1,200 or more in
Purchase Payments were made during the Contract Year, or if the Contract is an
Individual Retirement Account.
EXPENSES OF SEPARATE ACCOUNT I
Separate Account I will pay all taxes, interest, brokerage fees and commissions,
fees and expenses of legal counsel and independent auditors, custodian fees and
expenses, expenses associated with meetings of the contract owners, expenses
incurred in the preparation, printing and distribution of reports and
prospectuses by Separate Account I to its current contract owners, fees of and
expenses incurred by directors of Separate Account I who are not Our directors,
officers or employees, fees and expenses associated with the approval,
qualification or registration of the Contracts, extraordinary expenses if
permitted by applicable laws and regulations, and all other fees and expenses
incurred by or on behalf of Separate Account I which are not borne by Us under
the advisory agreement or an administrative services agreement or by the
underwriter under a distribution agreement. These expenses will be allocated
between Sub-Accounts as the Board of Directors deems appropriate, which is
generally in proportion to the net assets of the Sub-Accounts.
PREMIUM TAXES
Various states and municipalities impose a premium tax of up to 3.5% upon
Purchase Payments received by insurance companies. At present We will pay those
taxes, but, We reserve the right to deduct premium taxes from Purchase Payments
or to charge them against the Contracts or Certificates to which they are
attributable in the future.
CHANGES AND MODIFICATIONS
We reserve the right, subject to applicable law, and the approval, if required,
of those who have the right to vote at the meetings of the contract owners of
Separate Account I, to:
a. Change Separate Account I from a management company and operate it as a
unit investment trust under the Investment Company Act of 1940, or in
any other form permitted by law;
b. Deregister Separate Account I in the event registration under the
Investment Company Act of 1940 is no longer required;
c. Combine or divide, increase or decrease the number of Sub-Accounts or
transfer assets and Contracts from one separate account or Sub-Account
to another;
d. Amend, or deliver a new Contract in exchange for the Contract, to: 1)
assure that it qualifies for the benefits which the Internal Revenue
Code provides annuity contracts; or 2) comply with the applicable law.
e. Terminate the Contract if we determine that a change in applicable law
or its interpretation makes it no longer feasible to continue the
Contract and others like it in effect.
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VOTING RIGHTS
Before annuity payments begin, the contract owners have the right to vote at the
meetings of contract owners to the extent of their interest in the Contracts on
the matters listed below. Participants have the right to instruct contract
owners as to votes attributable to their interest in Separate Account I. The
number of votes which may be cast is equal to the number of Accumulation Units
credited to their Contracts for each Sub-Account.
After annuity payments begin, Annuitants have the right to vote at the meetings
of contract owners. The number of votes which may be cast in each Sub-Account is
equal to:
a. The reserve needed to meet the Contract obligations in each Sub-
Account, divided by
b. The Accumulation Unit value for that Sub-Account for that date.
As a result, the number of votes which may be cast will decrease as Annuity
Payments are made. Fractional votes will be counted.
Only those who have an interest in a Sub-Account will have voting rights on
matters which affect the Sub-Accounts. On matters which affect all Sub-Accounts
in the same way, votes will be counted as a group.
To be entitled to vote, or to instruct the contract owner as to how to vote, a
person must have been the owner, Participant or Annuitant, on a date chosen by
the Board of Directors of Separate Account I. That date will be within ninety
days of the meeting and the date on which the number of votes is determined.
At least twenty days prior to the meeting, written notice will be sent to the
persons entitled to vote. The matters which will be voted upon are:
a. Election of the Board of Directors of Separate Account I;
b. Any change in the fundamental investment policies and restrictions of
the Sub-Accounts;
c. Approval of any investment management agreement or its amendment(s);
d. Ratification of the selection of an independent auditor for Separate
Account I; and
e. Any other business which may properly come before the meeting.
The voting rights under the Contract do not entitle anyone to vote at any
meeting of Our shareholders or on matters which relate to the Fixed Account.
Votes may be cast in person or by proxy. There is no current intention to hold
routine annual contract owners meetings.
FEDERAL INCOME TAX MATTERS
BECAUSE OF THE COMPLEXITY OF THE LAW AND THE FACT THAT THE TAX CONSEQUENCES MAY
VARY ACCORDING TO THE ACTUAL STATUS OF THE CONTRACT OWNER INVOLVED AND THE TYPE
OF PLAN, IF ANY, UNDER WHICH THE CONTRACT IS PURCHASED, ANY PERSON CONTEMPLATING
THE PURCHASE OF A CONTRACT DESCRIBED HEREIN IS ADVISED TO CONSULT A QUALIFIED
TAX ADVISOR.
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It should be understood that a complete description of the federal income tax
consequences of the purchase of these Contracts cannot be made in this
prospectus and that special tax rules may be applicable with respect to certain
purchase situations not discussed here. In addition, no attempt is made here to
consider any applicable state or other tax laws. For more complete and detailed
information, a qualified tax advisor should always be consulted. The discussion
here is general in nature and is based upon Our understanding of current federal
income tax laws as they are currently interpreted. No representation is made
regarding the likelihood of continuation of current federal income tax laws or
of the current interpretations thereof by the Internal Revenue Service or the
courts.
HOW WE ARE TAXED
We are taxed as a life insurance company under Subchapter L of the Internal
Revenue Code of 1986 (the "Code"). Separate Account I is not a separate taxable
entity; its operations form a part of, and are taxed with, Our total operations.
Under existing federal income tax law, no taxes are due on interest, dividends
or capital gains realized by Separate Account I with respect to the Contracts.
We reserve the right to levy a charge to cover any taxes that might be assessed
against Separate Account I in the future due to any change in the existing
federal tax law.
HOW YOU ARE TAXED
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes. The Statement of Additional
Information discusses such qualifications.
NON-QUALIFIED CONTRACTS
An annuity contract owner generally is not taxed on increases in the value of a
Contract until distribution occurs, either in the form of a lump sum payment
received by withdrawing all or part of the cash value or as annuity payments
under the annuity option elected. For this purpose, the assignment or pledge of,
or the agreement to assign or pledge, any portion of the value of a Contract
will be treated as a distribution. The taxed portion of a distribution (in the
form of a lump sum payment or an annuity) is taxed as ordinary income. However,
for Purchase Payments made after February 28, 1986, an owner of a Contract who
is not a natural person (subject to limited exceptions) generally will be taxed
on any increase in the Contract's cash value over the "investment in the
contract" during the taxable year, even if no distribution occurs. The following
discussion applies to Contracts owned by natural persons.
Except as provided below, in the case of a surrender or withdrawal under a
Contract, amounts received are first treated as taxable income to the extent
that the Contract Value of the Contract immediately before the withdrawal
exceeds the "investment in the contract" at that time. Any additional amount
withdrawn is not taxable. However, in the case of a withdrawal under a Contract
issued before August 14, 1982, and allocable to an "investment in the contract"
made before that date, amounts received are treated as taxable income only to
the extent that they exceed the "investment in the contract." The "investment in
the contract" generally equals the portion, if any, of any premium paid by or on
behalf of an individual under a Contract which is not excluded from the
individual's gross income.
Although the tax consequences may vary depending on the form of annuity selected
under the Contract, the recipient of an Annuity Payment under a Contract
generally is taxed on the portion of such payment that exceeds the "investment
in the contract." For Variable Annuity Payments, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
For Fixed Annuity Payments, in general, there is no tax on the amount of each
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payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity Payment for the term of the
payment; however, the remainder of each Annuity Payment is taxable. For
individuals whose Annuity Commencement Date is after December 31, 1986, the
entire distribution will be fully taxable once the recipient is deemed to have
recovered the dollar amount of his "investment in the contract."
There may be imposed a penalty tax on distributions equal to ten percent of the
amount treated as taxable income. The penalty tax is not imposed in certain
circumstances, which generally include: (1) distributions received on or after
the taxpayer attains age 59 1/2 ; (2) distributions made on or after the
holder's death or that are attributable to the taxpayer's disability; (3)
distributions received in substantially equal installments as a life annuity
(subject to special "recapture" rules if the series of payments is subsequently
modified); and (4) distributions allocable to the "investment in the contract"
before August 14, 1982.
A transfer of ownership or assignment of a Contract, the selection of certain
maturity dates, or the designation of an Annuitant or other beneficiary who is
not also the contract owner, may result in certain tax consequences to the
contract owner that are not discussed herein. A contract owner contemplating any
such transfer, assignment, selection, or designation should contact a competent
tax advisor with respect to the potential tax effects of such a transaction.
All non-qualified deferred annuity contracts entered into after October 21, 1988
that are issued by Us or an affiliated insurance company to the same contract
owner during any calendar year will be treated as one annuity contract, and
therefore aggregated for purposes of determining the amount includable in gross
income. In addition, there may be other situations in which the Treasury
Department may conclude (under its authority to issue regulations) that it would
be appropriate to aggregate two or more annuity contracts purchased by the same
contract owner.
We will withhold and remit to the U.S. Government a part of the taxable portion
of each distribution made under a Contract unless the contract owner or
Annuitant is permitted to elect not to have amounts withheld and notifies Us at
or before the time of the distribution that he or she chooses not to have any
amount withheld.
QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified plans. The
following are brief descriptions of qualified plans with which Our Contracts may
be used:
a. CORPORATE AND H.R. 10 PENSION AND PROFIT-SHARING PLANS--Section 401 and
403(a) of the Code permit corporate employers to establish various
qualified plans for their employees, and self-employed individuals to
establish qualified plans for themselves and their employees. Taxation
of plan Participants depends on the specific plan. The Code governs
such plans with respect to maximum contributions, distribution dates,
non-forfeitability of interests, tax rates applicable to distributions,
and in other respects. In order to establish such a plan, a plan
document, often in prototype form preapproved by the Internal Revenue
Service, is adopted and implemented by the employer. Such retirement
plans may permit the purchaser of the Contract to accumulate retirement
savings. When issued in connection with Section 401 or 403(a) plans, a
Contract will be amended to conform to the requirements under the Code.
Purchasers of a Contract for such purposes will be provided with
supplemental information required by the Internal Revenue Service or
other appropriate agency.
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b. INDIVIDUAL RETIREMENT ANNUITIES--Section 408 of the Code permits
certain individuals to contribute to an individual retirement program
known as an "Individual Retirement Annuity" or an "IRA." IRAs are
subject to limitations on eligibility, maximum contributions, time of
distribution and other features. Distributions from certain other types
of qualified plans may be "rolled over" on a tax-deferred basis into an
IRA. Sales of a Contract for use with an IRA may be subject to special
requirements of the Internal Revenue Service. Purchasers of a Contract
for such purposes will be provided with supplemental information
required by the Internal Revenue Service or other appropriate agency.
Such purchasers will have the right to revoke the Contract within seven
days of the earlier of the establishment of the IRA or the purchase of
the Contract.
c. PLANS OF PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX EXEMPT ORGANIZATIONS--
Section 403(b) of the Code permits public school systems and certain
tax-exempt organizations to establish plans that provide retirement
benefits for employees through the purchase of annuity contracts. Such
plans may permit the purchase of the Contracts in order to provide
benefits under the plans. However, distributions from Contracts used in
Section 403(b) plans are severely restricted (see "Cash Surrender and
Withdrawals" at page 19 of the prospectus).
d. TEXAS OPTIONAL RETIREMENT PROGRAM--The Optional Retirement Program of
the State of Texas will contribute an amount equal to the contribution
of each Participant. If a Participant is not a "faculty member," as
defined in the Texas Education Code, at the beginning of the second
year of participation, We will return the employer's contribution to
the State. In addition, the Program prohibits Participants from
withdrawing part or all of the Accumulated Value of the Contract except
at retirement or termination of employment. Payment of Proceeds will
also be made at the death of a Participant.
e. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS--Section 457
of the Code permits states, political subdivisions of the states,
agencies and instrumentalities of states or of political subdivisions
of states and certain tax exempt organizations to establish deferred
compensation plans for individuals who perform services for such
entities. Such entities are the legal owners of Contracts issued under
such plans. Thus, Participants will be in the position of a general
creditor of the entity rather than the actual or beneficial owner of
the assets of the plan.
Participants under such plans, as well as contract owners, annuitants and
beneficiaries, should be aware that the rights of any person to any benefits
under such plans may be subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the Contracts. Purchasers
of Contracts for use with any qualified plan, as well as plan participants and
beneficiaries, should consult counsel and other competent advisors as to the
suitability of the Contracts to their specific needs and as to applicable Code
limitations and tax consequences.
The rules governing the tax treatment of contributions and distributions under
qualified plans, as set forth in the Code and applicable rulings and
regulations, vary according to the type of the plan and the terms and conditions
of the plan itself. Generally, in the case of a distribution to a participant or
beneficiary under a Contract purchased in connection with these plans (other
than a Section 457 deferred compensation plan), only the portion of the payment
in excess of the "investment in the contract" allocated to that payment is
subject to tax. The "investment in the contract" equals the portion of plan
contributions invested in the Contract that was not excluded from the
participant's gross income, and may be zero. In general, for withdrawals or
surrenders, a ratable portion of the amount received is taxable, based on the
ratio of the investment in the contract to the total Contract Value. For
contracts
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with annuity starting dates commencing after December 31, 1986, the amount
excluded from a taxpayer's income will be limited to an aggregate cap equal to
the investment in the contract. The taxable portion of annuity payments is
generally determined under the same rules applicable to Non-Qualified Contracts.
However, special favorable tax treatment may be available for certain
distributions (including lump sum distributions). Adverse tax consequences may
result from distributions prior to age 59 1/2 (subject to certain exceptions),
distributions that do not conform to specified commencement and minimum
distribution rules, aggregate distributions in excess of a specified annual
amount and in certain other circumstances. Effective January 1, 1993, certain
distributions from Contracts used in plans that qualify for special tax
treatment under Sections 401(a), 403(a) and 403(b) of the Code are subject to
mandatory withholding, generally at a rate of 20% (that is, electing no
withholding is not permitted).
OTHER CONSIDERATIONS
In past years, legislation has been proposed in the U.S. Congress that would
have adversely modified the federal taxation of certain annuities. For example,
one such proposal would have changed that tax treatment of non-qualified
annuities that did not have "substantial life contingencies" by taxing income as
it is credited to the anuuity. Although as of the date of this Prospectus
Congress was not actively considering any legislation regarding the taxation of
annuities, there is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as IRS regulations, revenue
rulings, judicial decisions, etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date of the
change).
Because of the complexity of the federal tax law, and the fact that tax results
will vary according to the factual status of the individual involved, tax advice
may be needed by a person contemplating purchase of a Contract or the exercise
of elections under the Contract. It should be understood that the above comments
and the discussion in the Statement of Additional Information concerning the
federal income tax consequences are not an exhaustive discussion of all tax
questions that might arise under the Contracts and that special rules are
provided with respect to situations not discussed there. No representation is
made regarding the likelihood of continuation of the present income tax laws or
of current interpretations by the Internal Revenue Service. No attempt has been
made to consider any applicable state or other tax law except with respect to
the imposition of any state premium taxes.
We do not make any guarantee regarding the tax status of any Contract, and the
"Federal Tax Matters" discussions in this prospectus and in the Statement of
Additional Information are not intended as tax advice.
MANAGEMENT
Separate Account I is managed by a Board of Directors consisting of three
outside and two inside directors. Their duties, as set forth in the Rules and
Regulations of Separate Account I, include: selection of an independent auditor;
approval of agreements providing for sales, administrative, investment
management and advisory services; review and supervision of the investment of
assets; obtaining of fidelity bond coverage; and any acts necessary to carry out
the above.
We serve as investment adviser to Separate Account I. We also advise The
Washington National Retirement Plan, which was frozen effective December 31,
1990.
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INVESTMENT MANAGER
We act as investment manager for Separate Account I under an investment
management agreement between Us and Separate Account I. The agreement provides
that We will manage the investments of Separate Account I under the direction of
the Board of Directors. For providing those services, Separate Account I will
pay Us a fee at an annual rate of .50% of the average net assets of Separate
Account I. This fee will be calculated daily and paid monthly. Our duties under
the agreement are to:
a. Decide on and place orders for the purchase and sale of securities for
the Sub-Accounts, using Our best efforts to obtain the most favorable
terms possible.
b. Regularly furnish reports at the periodic meetings of the Board of
Directors.
We are subject to the supervision of the Board of Directors. Under the
agreement, We have the right to withdraw the use of Our name by Separate Account
I. The agreement will continue in effect from its effective date and from year
to year so long as it is approved by the Board of Directors or by the contract
holders as required by the Rules and Regulations of Separate Account I, and so
long as We do not terminate it by giving sixty days written notice.
Effective January 1, 1994, we have contracted with NBD Bank, an Illinois banking
corporation having its principal office and place of business of 1603 Orrington
Avenue, Evanston, Illinois 60201, to have them manage the investment portfolio
of the Stock Sub-Account.
Effective December 1, 1995, following the merger of its parent, NBD Bank is
controlled by First Chicago NBD Corporation, a Delaware corporation and bank
holding company. In mid-1996, NBD Bank itself reportedly is expected to be
merged into The First National Bank of Chicago, First Chicago NBD Corporation's
lead bank in Illinois.
LEGAL PROCEEDINGS
We and certain affiliated companies have been named in various pending legal
proceedings considered to be ordinary routine litigation incidental to the
business of such companies. A number of other legal actions have been filed that
demand compensatory and punitive damages aggregating material dollar amounts.
Our management and chief legal officer believe that such litigation will not
have a material affect on the consolidated results of operations or financial
position. Separate Account I is not engaged in any litigation.
THE FIXED ACCOUNT
Purchase Payments which are allocated to the Fixed Account become part of Our
general account which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933 ("1933 Act"), nor is the Fixed
Account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the Fixed Account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account have not been reviewed by the staff of the Securities and Exchange
Commission.
FIXED ACCOUNT ACCUMULATED VALUE--The value of a fixed Accumulation Unit was
established at $1 and is adjusted daily to reflect the rate(s) of interest being
credited to Contracts with an interest in the Fixed Account. A Calendar Year is
a period of one year from January 15 of one year through January 14 of the
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next year. The Fixed Account Accumulated Value is the total of periodic Purchase
Payments and transfers to the account, increased at rates of interest
established by Us, reduced by the total of any deductions, charges, withdrawals
and transfers from the account. We reserve the right to deduct premium or other
taxes from Purchase Payments or to charge those taxes against the Contracts to
which they are attributable. The guaranteed interest rate for the first Calendar
Year is stated in the Contract. That rate may be changed by Us at the end of the
first Calendar year and at the end of each Calendar year thereafter. We will
credit interest daily at the established rates, but interest will be compounded
annually. We will notify You of the rate of interest to be credited during the
next Calendar year.
We guarantee that the interest rate will be at least 4%.
AMOUNT OF EACH FIXED ANNUITY PAYMENT
a. The amount of the first Fixed Annuity payment will be equal to:
1. the amount of the Net Accumulated Value being used to purchase a
Fixed Annuity, divided by
2. $1,000, times
3. a factor from the Fixed Annuity Settlement Option Table that
appears in the Contract.
b. The dollar amount of Fixed Annuity payments remain fixed during the
annuity payment period, except under:
1. Option 4, and
2. Options 2, 3 and 5, which may be increased by interest in excess of
the guaranteed rates.
3. Option 6, under which the number of units is reduced one-third at
the death of the first payee.
TIME AND DELAY OF PAYMENT
FIXED ACCOUNT--We may delay paying the amount of any withdrawal or surrender for
up to six months after a request is received by Us.
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TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
Page
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GENERAL INFORMATION AND HISTORY .......................................... 3
The Company ........................................................... 3
THE SEPARATE ACCOUNT ..................................................... 4
Investment Policies And Restrictions .................................. 4
Real Estate ........................................................... 4
Money Market Instruments .............................................. 5
Turnover .............................................................. 5
Net Asset Value ....................................................... 5
THE CONTRACT ............................................................. 6
Ownership ............................................................. 6
Beneficiary ........................................................... 6
Assignment ............................................................ 6
Calculation of the Accumulation Unit Value ............................ 6
Single Sum Settlement ................................................. 7
Reports ............................................................... 7
ANNUITY PAYMENTS ......................................................... 8
Election of Fixed or Variable Annuity Payments ........................ 8
Limitations/Conditions ................................................ 8
Variable Annuity Unit Value ........................................... 9
Amount of Each Variable Annuity Payment ............................... 9
FEDERAL TAX MATTERS ...................................................... 9
Diversification Requirements .......................................... 9
IRS Required Distributions ............................................ 10
MANAGEMENT ............................................................... 11
Directors and Officers of Separate Account I .......................... 11
Remuneration of Board of Directors, Officers and Employees ............ 12
Principal Stockholders of Washington National Corporation ............. 13
INVESTMENT MANAGER ....................................................... 14
ADMINISTRATIVE SERVICES .................................................. 16
CUSTODY AGREEMENT ........................................................ 16
BROKERAGE ALLOCATION ..................................................... 16
Securities Transactions ............................................... 16
Transactions May Be Made for a Number of Accounts at Once ............. 17
Other Transactions With Brokers or Dealers ............................ 17
UNDERWRITERS ............................................................. 17
PERFORMANCE DATA ......................................................... 17
LEGAL MATTERS ............................................................ 20
STATE REGULATION ......................................................... 20
REGISTRATION STATEMENT ................................................... 20
EXPERTS .................................................................. 20
FINANCIAL STATEMENTS ..................................................... 20
APPENDIX A: Commercial Paper and Bond Ratings ............................ A-1
APPENDIX B: Short-Term Portfolio Sub-Account Investments ................. B-1
Page 34
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
WN PLAN
DEFERRED VARIABLE ANNUITY CONTRACT
FUNDED THROUGH SEPARATE ACCOUNT I
OF
WASHINGTON NATIONAL INSURANCE COMPANY
LINCOLNSHIRE, ILLINOIS 60069
(847) 793-3000
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996
This is not a prospectus. It should be read with the prospectus for this product
dated May 1, 1996 which may be obtained by writing or calling Washington
National Service Center, Life and Annuity Administration, P. O. Box 9019,
Kokomo, Indiana 46904; telephone (800) 866-9922.
The definitions used in the prospectus are incorporated in this statement.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
GENERAL INFORMATION AND HISTORY .............................. 3
The Company ............................................... 3 14
THE SEPARATE ACCOUNT ......................................... 4 14
Investment Policies and Restrictions ...................... 4 16
Real Estate ............................................... 4
Money Market Instruments .................................. 5
Turnover .................................................. 5
Net Asset Value ........................................... 5
THE CONTRACT(S) .............................................. 6 18
Ownership ................................................. 6
Beneficiary ............................................... 6
Assignment ................................................ 6
Calculation of the Accumulation Unit Value ................ 6
Single Sum Settlement ..................................... 7
Reports ................................................... 7
ANNUITY PAYMENTS ............................................. 8
Election of Fixed or Variable Annuity Payments ............ 8
Limitations/Conditions .................................... 8
Variable Annuity Unit Value ............................... 9
Amount of Each Variable Annuity Payment ................... 9
FEDERAL TAX MATTERS .......................................... 9 27
Diversification Requirements .............................. 9
IRS Required Distributions ................................ 10
MANAGEMENT ................................................... 11 31
Directors and Officers of Separate Account I .............. 11
Remuneration of Board of Directors, Officers and Employees. 12
Principal Stockholders of Washington National Corporation . 13
INVESTMENT MANAGER ........................................... 14 32
ADMINISTRATIVE SERVICES ...................................... 16
CUSTODY AGREEMENT ............................................ 16
BROKERAGE ALLOCATION ......................................... 16
Securities Transactions ................................... 16
Transactions May Be Made for a Number of Accounts at Once . 17
Other Transactions With Brokers or Dealers ................ 17
UNDERWRITERS ................................................. 17
PERFORMANCE DATA ............................................. 17 13
LEGAL MATTERS ................................................ 20
STATE REGULATION ............................................. 20
REGISTRATION STATEMENT ....................................... 20
EXPERTS ...................................................... 20
FINANCIAL STATEMENTS ......................................... 20
APPENDIX A: Commercial Paper and Bond Ratings ................ A-1
APPENDIX B: Short-Term Portfolio Sub-Account Investments ..... B-1
Page 2
<PAGE>
GENERAL INFORMATION AND HISTORY
THE COMPANY
We, Washington National Insurance Company, are a wholly-owned subsidiary of
Washington National Corporation (WNC), a Delaware Corporation, whose executive
offices are located at 300 Tower Parkway, Lincolnshire, Illinois 60069.
We are licensed to do business in all states of the United States (except New
York) and the District of Columbia. We have total assets of over $3.0 billion.
Page 3
<PAGE>
THE SEPARATE ACCOUNT
INVESTMENT POLICIES AND RESTRICTIONS
In addition to the investment policies and restrictions contained in the
prospectus, the Sub-Accounts have the following policies and restrictions. These
investment policies and restrictions are fundamental policies and may not be
changed without the approval of a majority of the contract owners having an
interest in the affected Sub-Account. A majority means the lesser of (A) 67% or
more of the voting securities present at a meeting, if more than 50% of the
voting securities are present, or (B) 50% of the voting securities.
a. No investment will be made in the securities of any issuer for the
purpose of exercising management or control.
b. Investments will not be made in restricted or foreign securities,
except that the Short-Term Portfolio Sub-Account may acquire
Certificates of Deposit issued by U.S. branches of foreign banks and
foreign branches of U.S. banks, and commercial paper issued by foreign
corporations, assuming proper rating, provided that no more than 25% of
the assets of the Sub-Account will be so invested at the time the
investment is made.
c. No securities owned or held will be mortgaged, pledged, hypothecated or
in any manner transferred as security for indebtedness.
d. Senior securities will not be issued.
e. 1. Investments will not be concentrated in any geographical area of
the United States (such as northeastern states, mid-western states,
etc.).
2. No more than 25% of the total assets of any Sub-Account will be
invested in any one industry other than obligations of the U.S.
Government, its agencies and instrumentalities or bank certificates
of deposit, bankers' acceptances or instruments secured by these
money market instruments.
f. We may borrow money for temporary or emergency purposes up to an amount
equal to 5% of the value of Separate Account I at the time of
borrowing. All borrowings will be unsecured.
g. Securities of other issuers will not be underwritten, nor will we
purchase the securities of other issuers which might later be deemed to
be underwritten by Us.
h. No purchase will be made of commodities or commodity contracts.
i. Short sales, purchases on margin, or purchases of put or call options
or combinations thereof, will not be made.
j. Investments may be made in the securities of one or more investment
companies; but no Sub-Account may have more than 5% of its assets
invested in any one investment company, have a total of more than 10%
of its assets invested in investment company securities, nor own more
than 3% of the total outstanding voting securities of any one
investment company.
REAL ESTATE
To a limited extent, the Bond and Stock Sub-Accounts may invest in real estate.
All real estate investments are subject to some degree of risk. Because of their
non-liquid nature, real estate equity investments may limit Our ability to vary
the portfolio promptly in response to changing economic, financial and
investment conditions. Such investments may be subject to adverse changes in
general or
Page 4
<PAGE>
local economic conditions, such as excessive building and increases in
unemployment, as well as other factors affecting real estate values, including
the attractiveness of the properties to tenants. Equity investments are also
subject to risks such as an inability to lease the premises on acceptable terms,
cancellation of existing leases, financial ability of tenants, adverse changes
in interest rates or the availability of long-term mortgage funds, and changes
in property tax rates or zoning laws.
MONEY MARKET INSTRUMENTS
The instruments in which the Short-Term Portfolio Sub-Account will invest, the
practices it will follow and the risks involved are set forth in Appendix B.
TURNOVER
The turnover rate for the Bond and Stock Sub-Accounts cannot be accurately
predicted, but it is anticipated that turnover will range between 50% and 100%
per year for the Bond Sub-Account and should not exceed 75% per year for the
Stock Sub-Account. A turnover rate for the Short-Term Portfolio Sub-Account is
not applicable because of the short-term nature of its money market investments.
The turnover is calculated by dividing the lesser of purchase or sales of Sub-
Account securities by the monthly average of securities owned by the Sub-Account
during the year. Not included in this calculation are all securities with
maturity or expiration dates of one year or less at the time acquired.
During any year, conditions could dictate portfolio changes at a greater rate
than anticipated, in which case the turnover rate will not be a limiting factor.
Brokerage expenses will, however, be affected by portfolio activity.
NET ASSET VALUE
The net asset value of the Sub-Accounts is determined as of 4:00 p.m. Eastern
Standard Time on each Valuation Date. It is calculated by determining the value
of securities owned, as described in the prospectus, for each Sub-Account,
adding any cash or other assets and subtracting all liabilities.
In the event of liquidation, You, as owner, will be entitled to receive an
amount equal to the Accumulated Value of the Accumulation Units of the Sub-
Account which are credited to the Contract. If the net asset value of the Sub-
Account is insufficient to pay the full amount, then the percentage of the net
assets which the Accumulation Units credited to the Contract bears to the total
Accumulation Units of the Sub-Account will be paid. In the event that the net
asset value of the Sub-Account exceeds the Accumulated Values of all Contracts
with Accumulation Units in the Sub-Account, the excess will be paid to Us. Ten
percent or more of the assets of each Sub-Account are owned by Us.
The Short-Term Portfolio Sub-Account determines the value of its portfolio
securities using the amortized cost method. Because the Sub-Account only invests
in high quality debt securities with a maturity of sixty days or less, it is
anticipated that the amortized cost method will result in a fair value.
Nevertheless, the Board of Directors will review the portfolio at appropriate
intervals to determine whether the net asset value calculated by the amortized
cost method deviates from its calculation using available market quotations. If
it believes the deviation may result in material dilution or other unfair
Page 5
<PAGE>
results to contract owners, the Board may take any corrective action it
determines as necessary and appropriate. This action may include:
1. Selling portfolio securities prior to maturity to realize gains or
losses or to shorten average portfolio maturity;
2. Using available market quotations to determine the net asset value.
THE CONTRACT
OWNERSHIP
You, as the owner of the Contract, are named as owner in the application. You
may exercise all the rights and options that the Contract provides. If You are
the owner of an individual Contract, Your rights and options, while the
Annuitant is living, are subject to the rights of any irrevocable Beneficiary.
If You are not the Annuitant under an individual Contract and You die before the
Annuitant, Your estate will become the owner unless You have named a successor
owner.
BENEFICIARY
The Beneficiary named in the application will receive the death Proceeds unless
You, or the Participant under a group Contract, name a new Beneficiary. In that
event, We will pay the death Proceeds to the Beneficiary named in the last
change of Beneficiary request as provided in the Contract.
ASSIGNMENT
It is possible to assign or transfer the Contract according to its terms. We
must receive a copy of any assignment before We may be required to take notice
of or be responsible for honoring that transfer or assignment. Assignments made
after the death of the Annuitant will be valid only with Our consent. Of course,
We are not responsible for the validity of any assignment.
However, certain restrictions exist as to the assignment or transfer of
Contracts issued under a tax-qualified plan. A Contract issued under a tax-
qualified plan must provide that it may not be sold, assigned or pledged to any
person or organization other than the insurance company issuing it, when owned
by any person other than the trustees of any trust described in Section 401(a),
the custodian of a custodial account as described in Section 401(f), or the
administrator of an annuity plan described in Section 403(a) of the Internal
Revenue Code. Contracts issued pursuant to Section 403(b) or certain other plans
may also be subject to restrictions on assignments or transfers.
The assignment or transfer of the Contract may result in adverse tax
consequences.
CALCULATION OF THE ACCUMULATION UNIT VALUE
These are the factors which We use to determine the Accumulation Unit value for
each Valuation Date for the Sub-Accounts. The Accumulation Unit value varies
with the investment performance of the Sub-Accounts, and with the deductions and
charges made against the Sub-Accounts.
Page 6
<PAGE>
The gross investment rate is equal to:
a. investment income, plus
b. realized or unrealized capital gains, minus
c. realized or unrealized capital losses, adjusted for
d. any taxes paid or reserved on the Sub-Account (see Federal Income Tax
Matters-How We Are Taxed, page 28 of the prospectus), minus
e. liabilities and the expenses allocable to the Sub-Account (see
Investment Manager, page 31 of the prospectus), including the daily
charge for investment fees, divided by
f. the net asset value of the Sub-Account at the beginning of the
Valuation Period.
The net investment rate is:
a. the gross investment rate, minus
b. a daily charge of .000032 (.000022 for annuity rate guarantees and
.000010 for financial accounting services). (See Charges and
Deductions, page 7 of the prospectus.)
Both the gross investment rate and the net investment rate may be more or less
than 0.
The net investment factor is:
a. 1.000000, plus
b. the net investment rate.
We reserve the right to deduct premium or other taxes allocable to a Sub-Account
either in the computation of the net investment factor or as a charge against
the Contracts to which such taxes are attributable.
SINGLE SUM SETTLEMENT
While it is in force, You, by surrendering the Contract and filing a Written
Request with Us within thirty days prior to the maturity date, may elect to
receive a single sum settlement at the maturity date equal to the Net
Accumulated Value of the Contract at that date. The election will take effect on
the maturity date, if the Annuitant is living, and the annuity payments that
would otherwise have commenced at the maturity date will not be made.
REPORTS
We will send You periodically, and no less than once each Contract Year prior to
the date of the first annuity payment, a statement of:
a. the number of fixed and variable Accumulation Units credited;
b. the current unit values; and
c. the total Accumulated Value.
Page 7
<PAGE>
The Payee will be sent semiannually a report containing financial statements and
a listing of portfolio securities of Separate Account I.
ANNUITY PAYMENTS
ELECTION OF FIXED OR VARIABLE ANNUITY PAYMENTS
You may choose, when annuity payments begin to have the Net Accumulated Value
applied, except under Options 1, 3 and 4, to provide for:
a. a Fixed Annuity;
b. a Variable Annuity; or
c. a mix of the above.
If You do not make an election, the Net Accumulated Value will be paid under
Option 2(B) with payments guaranteed for a period of ten years, with the portion
of the Accumulated Value that was held in Separate Account I applied to a
Variable Annuity and the portion held in the Fixed Account applied to a Fixed
Annuity.
The net investment factor, or a factor which reflects a guaranteed annual
investment rate of 3%, will apply if Option 3 is chosen. Options 1, 3 and 4 are
available as a Fixed Annuity only. The Net Accumulated Value needed to provide a
Fixed Annuity or a guaranteed interest rate will be withdrawn from Separate
Account I and placed in the general account of Washington National Insurance
Company. Such withdrawn amounts are not subject to annuity rate guarantee
charges or other charges made against assets in Separate Account I, except the
annual maintenance charge.
When a Fixed Annuity is elected, higher payments than those stated in the
Contract may be paid at Our discretion.
LIMITATIONS/CONDITIONS
a. The amount applied under any settlement option must be at least $2,000
and must be sufficient to provide a periodic installment or interest
payment of at least $20.
b. An option will be available without Our consent only if the Proceeds
are payable to a natural person receiving them for his or her own
benefit.
c. We may require proof of the age of any payee under Option 2, 5 or 6. We
also may require evidence that the payee is living at the time any
payment is due.
d. The first payment under an option will be due on the date the option
becomes effective, except under Option 4 it will be due at the end of
the first payment interval.
e. If a settlement option is elected during the lifetime of the Annuitant
and prior to the Contract being in effect for five years, a contingent
deferred sales charge will be deducted. (See Contingent Deferred Sales
Charge, page 25 of the prospectus for exceptions.)
Page 8
<PAGE>
VARIABLE ANNUITY UNIT VALUE
The value of a Variable Annuity Unit for each Sub-Account was established at $1
on the first Valuation Date. Subsequent Annuity Unit values for each Sub-Account
are determined by multiplying:
a. the Annuity Unit value for the previous Valuation Date, by
b. the net investment factor for the current Valuation Date, divided by
c. a factor to reflect the assumed interest rate of 3.5% used in the
Variable Annuity Settlement Option Tables that appear in the Contract,
which are based on the Progressive Annuity Table assuming age last
birthday and births in the year 1900.
AMOUNT OF EACH VARIABLE ANNUITY PAYMENT
a. The amount of the first Variable Annuity payment will be equal to:
1. the amount of the Net Accumulated Value being used to purchase a
Variable Annuity, divided by
2. 1,000, times
3. the rate of each $1,000 of Proceeds in the table for the option
chosen.
The amount under Options 2, 5 and 6 will depend on the sex(es) and age(s)
of the payee(s).
b. To determine the number of Variable Annuity Units in each payment:
1. the Net Accumulated Value for each Sub-Account is divided by
2. the Annuity Unit value for the Sub-Account.
The number of Annuity Units in each payment then remains fixed, except
under Option 6, where upon the death of either payee, the number of Annuity
Units is reduced by one-third.
c. Each payment after the first is determined by multiplying:
1. the number of Annuity Units for each Sub-Account, by
2. the Annuity Unit value for the Sub-Account.
Subsequent payments will be determined on the Valuation Date on or just
prior to the seventh calendar day before the payment is due.
FEDERAL TAX MATTERS
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code provides in substance that Section 72 of the Code
will not apply and We will not be treated as the owner of the assets of Separate
Account I unless the investments made by Separate Account I are "adequately
diversified" in accordance with regulations prescribed by the Treasury. Thus, if
Separate Account I is not "adequately diversified," any increase in the value of
a variable annuity contract will be taxed to the contract owner currently. We
intend to comply with the diversification requirements prescribed by the
Treasury in Treas. Reg. (S) 1.817-5, which affect how Separate Account I's
assets may be invested. Treasury has also announced that the diversification
regulations do not provide
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<PAGE>
guidance concerning the extent to which owners may direct their investments to
particular divisions of a separate account. It is not clear whether additional
guidance will be provided nor whether it will be prospective only. It is
possible that if guidance is issued, the Contract may need to be modified to
comply with such guidance. For these reasons, we reserve the right to modify the
Contract as necessary to prevent the contract owner from being considered the
owner of the assets of the Separate Account.
IRS REQUIRED DISTRIBUTIONS
In addition to the requirements of Section 817(h) of the Code, in order to be
treated as an annuity contract for federal income tax purposes, Section 72(s) of
the Code requires any Non-qualified Contract issued after January 18, 1985 to
provide that (a) if any Contract owner dies on or after the Annuity Date but
prior to the time the entire interest in the Contract has been distributed, the
remaining portion of such interest will be distributed at least as rapidly as
under the method of distribution being used as of the date of that Contract
owner's death; and (b) if any contract owner dies prior to the Annuity Date, the
entire interest in the Contract will be distributed within five years after the
date of that contract owner's death. These requirements shall be considered
satisfied if any portion of the contract owner's interest which is payable to or
for the benefit of a "designated beneficiary" is distributed over the life of
such "designated beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary and such distributions begin within one year of
the contract owner's death. (The contract owner's "designated beneficiary" is
that person designated by such contract owner as a beneficiary and to whom
ownership of the Contract passes by reason of death and must be a natural
person.) However, if the contract owner's "designated beneficiary" is the
surviving spouse of the contract owner, the Contract may be continued with the
surviving spouse as the new contract owner.
The Non-qualified Contracts issued after January 18, 1985 contain provisions
which are intended to comply with the requirements of Section 72(s) of the Code,
although no regulations interpreting these requirements have yet been issued. We
intend to review such provisions and modify them if necessary to assure that
they comply with the requirements of Code Section 72(s) when clarified by
regulation or otherwise.
Other rules may apply to Qualified Contracts.
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<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS OF SEPARATE ACCOUNT I
Separate Account I is managed by a Board of Directors in accordance with the
Rules and Regulations of Separate Account I.
The initials WNIC, WNC, and WNDC, refer to Washington National Insurance
Company, Washington National Corporation and Washington National Development
Company, respectively.
<TABLE>
<CAPTION>
NAME AND PRESENT POSITION WITH CURRENT PRINCIPAL BUSINESS AFFILIATIONS AND
BUSINESS ADDRESS SEPARATE ACCOUNT I PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Harry C. Benford, III Director Partner with law firm of Schuyler, Roche and Zwirner
1603 Orrington Avenue since January, 1985.
Evanston, IL 60201
- ---------------------------------------------------------------------------------------------------
Barbara A. Cremin* Director Vice President of WNIC since January, 1993.
300 Tower Parkway Assistant Vice President from January, 1992 to
Lincolnshire, IL 60069 January, 1993. Director, Life & Annuity
Administration from September, 1990 to January,
1992.
- ---------------------------------------------------------------------------------------------------
George J. Cyrus, Jr. Director Chairman, Cyrus Realtors since December, 1980.
2929 Central Street
Evanston, IL 60201
- ---------------------------------------------------------------------------------------------------
James E. Dresmal* Chairman of the Board Vice President and Chief Investment Officer of WNIC
300 Tower Parkway and Director since January, 1990. President and Director of
Lincolnshire, IL 60069 WNDC.
- ---------------------------------------------------------------------------------------------------
Craig R. Edwards Secretary and Counsel Vice President, Corporate Counsel and Secretary of
300 Tower Parkway WNIC since May, 1992. Vice President and Investment
Lincolnshire, IL 60069 Counsel July, 1991 to May, 1992; Investment Counsel
July, 1989 to July, 1991.
- ---------------------------------------------------------------------------------------------------
William P. Zeh Director Private investor.
1160 Breckenridge
Lake Forest, IL 60045
</TABLE>
* Directors who are interested persons of Separate Account I as defined in
the Investment Company Act of 1940.
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REMUNERATION OF BOARD OF DIRECTORS, OFFICERS AND EMPLOYEES OF SEPARATE ACCOUNT I
The following table shows the compensation paid to all directors of
Separate Account I during 1995:
<TABLE>
<CAPTION>
Pension or Estimated Total
Retirement Annual Compensation
Aggregate Benefits Accrued Benefits From Registrant
Name of Person, Compensation As Part of Fund Upon and Fund Complex
Position From Registrant Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Harry C. Benford, III $1,700 $0 $0 $1,700
Director
- ----------------------------------------------------------------------------------------------------
Barbara A. Cremin $ 0 $0 $0 $ 0
Director
- ----------------------------------------------------------------------------------------------------
George J. Cyrus Jr. $1,700 $0 $0 $1,700
Director
- ----------------------------------------------------------------------------------------------------
James E. Dresmal $ 0 $0 $0 $ 0
Chairman of the
Board and Director
- ----------------------------------------------------------------------------------------------------
William P. Zeh $1,700 $0 $0 $1,700
Director
</TABLE>
Members of the Board of Directors who are not directors, officers or employees
of Washington National Insurance Company receive from Separate Account I an
annual retainer of $1,000, a meeting fee of $350 per meeting and reimbursement
for their travel expenses in attending meetings of the Board of Directors.
During 1995, the Members of the Board of Directors of Separate Account I
received as a group $5,100 in compensation. There were two meetings of the Board
in 1995.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF WASHINGTON NATIONAL CORPORATION
The following table sets forth the stock ownership of all persons known by WNC
to be the beneficial owners of more than 5% of each class of the outstanding
voting stock of WNC (exclusive of treasury stock) as of April 8, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED /(1)/
-------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE
- ---------------------------------------------------------------------------------
<S> <C> <C>
George P. Kendall, Jr. /(2)/
300 Tower Parkway
Lincolnshire, Illinois 60069 1,484,592 12.13%
- ---------------------------------------------------------------------------------
First Chicago NBD Corporation /(3)/
One First National Plaza
Chicago, IL 60670 1,361,039 11.12%
- ---------------------------------------------------------------------------------
Shufro, Rose & Ehrman /(4)/
745 Fifth Avenue
New York, New York 10151 722,170 5.90%
- ---------------------------------------------------------------------------------
SunTrust Banks, Inc. /(5)/
25 Park Place, N.E.
Atlanta, GA 30303 1,560,450 12.75%
- ---------------------------------------------------------------------------------
</TABLE>
(1) The table includes common stock which could be acquired within 60 days by
exercise of a stock option. The table does not include the beneficial
ownership of WNC's preferred stock. The only person known to the Company to
own beneficially more than 5% of the outstanding shares of the preferred
stock is Melvin S. Cutler, Cutler Associates Investments, Inc., P.O. Box
15049, Worcester, Massachusetts 01615, who beneficially owned, as of May 25,
1995, 30,100 shares, or 21.0%, of the preferred stock according to a
Schedule 13G filed with the Securities and Exchange Commission on such date.
Such shares, if fully converted into shares of Common Stock, would
constitute less than 1% of the outstanding shares of common stock.
(2) George P. Kendall, Jr. beneficially owns 1,484,592 shares of common stock,
including 1,263,003 shares which are also reported under First Chicago NBD
Corporation's beneficial ownership total. The 1,263,003 shares are held by
various trusts (including the G. R. Kendall Foundation and Trust) with
respect to which George P. Kendall, Jr. and First Chicago NBD Corporation,
as well as other members of the Kendall family, share voting and investment
power as co-trustees of such trusts. Excluding these 1,263,003 shares,
George P. Kendall, Jr., beneficially owns 221,589 shares, or 1.81% of the
outstanding shares.
(3) According to a Schedule 13G filed with the Securities and Exchange
Commission on February 13, 1996, First Chicago NBD Corporation beneficially
owned 1,361,039 shares of common stock on such date. First Chicago NBD
Corporation indicated that it had sole voting power over 43,459 shares,
shared voting power over 1,317,580 shares, sole investment power over 20,906
shares and shared investment power over 1,299,254 shares. Included in First
Chicago NBD Corporation's beneficial ownership total are 510,169 shares held
by the G.R. Kendall Foundation and Trust over which First Chicago NBD
Corporation shares voting and investment power in its capacity as co-trustee
with, among others, George P. Kendall, Jr., a director of WNC.
Page 13
<PAGE>
(4) According to its Schedule 13G filed with the Securities and Exchange
Commission on February 14, 1996, Shufro, Rose & Ehrman beneficially owned on
such date 722,170 shares of common stock. Shufro, Rose & Ehrman indicated
that on such date it had sole voting power over 72,350 shares and sole
investment power over 722,170 shares.
(5) According to its Schedule 13G filed with the Securities and Exchange
Commission on January 23, 1996, SunTrust Banks, Inc., beneficially owned
1,560,450 shares of common stock on such date. SunTrust Banks, Inc.,
indicated that it had sole voting power over 545,750 shares, sole investment
power over 1,559,700 shares and shared investment power over 750 shares.
INVESTMENT MANAGER
We act as investment manager for Separate Account I under an investment
management agreement between Us and Separate Account I. The agreement provides
that We will manage the investments of Separate Account I under the direction of
the Board of Directors. Our fees as investment adviser are .50% of the average
net assets of Separate Account I. The fees are calculated daily and paid
monthly. Each Sub-Account pays a pro rata portion of the advisory fee based on
its average net assets. For the last three years, Separate Account I has paid Us
$228,886, $196,785, and $200,155 for 1995, 1994, and 1993 respectively, in
advisory fees; during such respective years, Separate Account I paid Us $64,576,
$61,636, and $67,275 for the Bond Sub-Account; $9,227, $8,400, and $8,532 for
the Short-Term Portfolio Sub-Account; and $155,083, $126,749, and $124,348 for
the Stock Sub-Account.
Our duties under the agreement are to:
a. Make all determinations with respect to and place the orders for the
purchase and sale of securities for the Sub-Accounts. Such
determinations and services include determining the manner in which
voting rights, rights to consent to corporate action and any other
rights pertaining to securities should be exercised, subject to the
supervision of the Board of Directors.
b. Regularly furnish reports at the periodic meetings of the Board of
Directors and as may reasonably be requested by the Board of Directors,
of:
1. the decisions which We have made with respect to the investment
of the assets of Separate Account I and the purchase and sale of
securities,
2. the reasons for such decisions, and
3. the extent to which those decisions have been implemented.
c. Place all orders for the execution of the securities transactions
using Our best efforts to obtain the best securities prices available
and place all such orders subject to and in accordance with any
directions which the Board of Directors may issue from time to time.
Under the agreement We have the right to withdraw the use of Our name by
Separate Account I.
The agreement will continue in effect from its effective date and from year to
year except that, with respect to each Sub-Account:
Page 14
<PAGE>
a. The agreement will continue in effect for a period more than two years
from its effective date as long as it is specifically approved at least
annually by the Board of Directors by a majority of the votes in the
Sub-Account and is also approved by the vote of a majority of the
members of the Board of Directors who are not interested persons.
b. The agreement will terminate automatically if it is assigned or if a
majority of the votes of the Sub-Account do not approve the agreement
at the first annual meeting of Contract owners.
c. The agreement may be terminated by the Board of Directors of Separate
Account I or by a majority of the votes in the Sub-Account at any time
with 60 days written notice to Us without the payment of any penalty.
d. The agreement may be terminated by Us at any time with 60 days written
notice to Separate Account I without the payment of any penalty.
Under the agreement We will pay or reimburse Separate Account I for the
following costs associated with the furnishing of investment management
services: costs associated with the furnishing of office space, heat, telephone
service, light, power and other utilities, furnishings, advisory and research
services, salaries of personnel, reports to the Board of Directors of Separate
Account I and fidelity bond coverage. Separate Account I will pay all taxes,
interest, brokerage fees and commissions, fees and expenses of legal counsel and
independent auditors; custodian fees and expenses, expenses associated with
meetings of the contract owners, expenses incurred in the preparation, printing
and distribution of reports and prospectuses by Separate Account I to its
current contract owners, fees of and expenses incurred by directors of Separate
Account I who are not Our directors, officers or employees, fees and expenses
associated with the approval, qualification or registration of the Contracts,
extraordinary expenses if permitted by applicable laws and regulations, and all
other fees and expenses incurred by or on behalf of Separate Account I which are
not borne by Us under the agreement or an administrative services agreement or
by the underwriter under a distribution agreement.
The agreement, as amended in 1993, authorizes us to contract with one or more
other entities to provide investment advisory services, as sub-advisor, to one
or more of the Sub-Accounts. It also provides that the advisory fee paid to us
by any affected Sub-Account will be reduced by the amount of any fee the Sub-
Account pays to any such sub-advisor. Pursuant to that provision, We have
entered into a Sub-Investment Advisory Agreement (the "Sub-Agreement"),
effective January 1, 1994, with the Bank Trust Division of NBD Bank ("NBD"), an
Illinois banking corporation, pursuant to which NBD provides certain investment
advisory and management services for the Stock Sub-Account. NBD is responsible
for selecting portfolio securities for the Stock Sub-Account and for placing
purchase and sale orders. NBD's primary business is the provision of trust and
investment services to a wide range of individuals, corporations and other
entities. NBD currently has approximately $1.4 billion under management for
approximately 1,500 client accounts. The Sub-Agreement may be terminated at any
time without penalty upon 60 days notice by us or the Board of Directors, with 6
months notice by NBD, or by vote of a majority of the outstanding voting
securities of the Stock Sub-Account. The Sub-Agreement will continue in effect
subject to the same conditions and exceptions as the agreement with us, except
that the Sub-Agreement automatically terminates in the event of the termination
of the agreement with us.
As compensation for services provided, and expenses assumed, under the Sub-
Agreement, NBD will receive an investment management fee at an annual rate of
.40% of the Stock Sub-Account's average net assets.
NBD is a wholly-owned subsidiary of First Chicago NBD Corporation which
beneficially owns an aggregate of 1,361,039 shares, or 11.1% of WNC. NBD also
serves as trustee for certain of our other accounts.
Page 15
<PAGE>
ADMINISTRATIVE SERVICES
We have entered into agreements with Financial Administrative Services (FAS) of
Haddam, Connecticut; Investors Fiduciary Trust Company of Kansas City, Missouri
(IFTC) and United Presidential Life Insurance (UPI) of Kokomo, Indiana, under
which they have agreed to perform certain administrative services for Separate
Account I and the Sub-Accounts. IFTC keeps records of all investment information
with respect to the Sub-Accounts. Pursuant to an agreement with FAS dated
February 26, 1990, FAS assumed the handling of all matters in connection with
contract issue and administration from August 1, 1991 through May 31, 1995. We
entered into an agreement dated June 1, 1995 with our subsidiary, United
Presidential Life Insurance Company (UPI) to provide administrative services
beginning on June 1, 1995.
In the last three years the total fees paid by us to IFTC were $134,062,
$133,686, and $132,565 for 1995, 1994 and 1993 respectively. The total fees paid
to FAS were $148,228, $301,495, and $314,513 in 1995, 1994 and 1993
respectively. The total fees paid by us to UPI were $165,462 in 1995.
Neither We, Separate Account I nor any of Our affiliates have any connection
other than that described herein with FAS or IFTC.
CUSTODY AGREEMENT
Since November 1995, CTC Illinois Trust Company, Chicago, Illinois 60606, has
been the custodian of the securities and other assets of Separate Account I and
receives remuneration based on its standard schedule of fees under an agreement
with Separate Account I and Us. The Federal Reserve Bank of Chicago, Depository
Trust Company of New York, and the Bank of New York, New York act as securities
depositories of such securities under agreements with CTC Illinois Trust Company
and such securities depositories attend to the collection of principal and
income and payment for and collection of proceeds of securities bought and sold
by Separate Account I.
BROKERAGE ALLOCATION
SECURITIES TRANSACTIONS
We have responsibility for placing orders for the purchase and sale of
securities for Separate Account I under an investment management agreement. In
meeting this responsibility, Our objective is to obtain the most favorable
prices and execution of orders possible. As a guide to assist Us in evaluating
commissions, We have established, and maintain, benchmarks as to the rates which
are prudent and as to what the market dictates. In the case of fixed income
securities, transactions are presented to a number of brokers for competitive
bids before orders are placed. Where equity securities are being bought and
sold, commissions are negotiated. We do not expect to use any one particular
broker or dealer but, subject to obtaining the best prices and executions,
brokers who provide statistical information and supplemental research to Us for
pricing and appraisal services may receive orders for transactions although
their commissions may be slightly higher. It is not possible to determine the
exact value of such statistical information and supplemental research, because
such information and research are used by Us for the benefit of all Our
investment accounts and no allocation of services or costs is made nor is such
an allocation possible.
Page 16
<PAGE>
TRANSACTIONS MAY BE MADE FOR A NUMBER OF ACCOUNTS AT ONCE
At times, transactions for Separate Account I may be executed together with
purchases or sales of the same security for Our Fixed Account or for other
accounts served by Us. When making concurrent transactions for several accounts
at once, We try to allocate executions and prices among them fairly.
Transactions of this type are executed only when We believe it is in the best
interest of Separate Account I. However, the possibility exists that concurrent
transactions may work out to Separate Account I's disadvantage.
OTHER TRANSACTIONS WITH BROKERS OR DEALERS
In addition to using brokers and dealers to execute portfolio securities
transactions for accounts We manage, We may enter into other types of business
transactions with brokers or dealers. These other transactions are unrelated to
allocation of any Sub-Account's portfolio transactions. In the last three years
We paid out total brokerage fees of $5,342, $7,695, and $4,748 for 1995, 1994
and 1993 respectively.
UNDERWRITERS
Washington National Equity Company (WNEC), a Delaware Corporation, was a wholly-
owned subsidiary of WNC prior to WNEC's dissolution on June 29, 1990. It acted
as principal underwriter to Separate Account I. WNEC was a registered broker-
dealer under the Securities and Exchange Act of 1934 until March 31, 1990, and
was a member of the National Association of Securities Dealers, Inc. (NASD).
Variable annuity contracts are no longer offered for sale. No underwriting
commissions were paid by Us to WNEC since 1991, due to WNEC's dissolution.
PERFORMANCE DATA
SHORT-TERM PORTFOLIO SUB-ACCOUNT YIELDS
The Short-Term Portfolio Sub-Account will attempt, consistent with safety of
principal, to achieve the highest possible yield from its investments. The
manner in which the Sub-Account's yield quotation will be derived is similar to
the way in which the yields of money market mutual funds are calculated. The
Short-Term Portfolio Sub-Account's annualized yield for a seven-day period will
be computed by determining the "net change in value" of a hypothetical account
(Contract) having a balance of one Accumulation Unit at the beginning of the
period, dividing the net change in account (Contract) Accumulated Value by the
Accumulated Value at the beginning of the base period to obtain the base period
return, subtracting a hypothetical charge reflecting deductions from contract
owner accounts, and multiplying the difference by 365/7 with the resulting yield
carried to the nearest hundredth of one percent. For the purposes of calculating
the yield, net changes in the value of an account (Contract) will consist of the
increases in the Accumulation Unit value after adjustment to exclude realized
gains or losses or unrealized appreciation or depreciation on portfolio
investments. The seven-day yield for the Short-Term Portfolio Sub-Account for
the period ended December 31, 1995, was 3.92%. The effective yield for the same
period was 4.00%.
Page 17
<PAGE>
Yield as determined in any appropriate fashion with respect to the Short-Term
Portfolio Sub-Account normally will fluctuate, sometimes substantially, on a
daily basis and is affected by changes in interest rates on money market
instruments, average portfolio maturities, the types and quality of portfolio
securities held and the expenses of the Sub-Account. Therefore, the yield for
any given past period should not be considered as representative of the yield
for any future period.
OTHER SUB-ACCOUNT YIELDS
We may from time to time disclose the current annualized yield of one or more of
the Sub-Accounts (except the Short-Term Portfolio Sub-Account) for thirty-day
periods. The annualized yield of a Sub-Account refers to the income generated by
the Sub-Account over a specified thirty-day period. Because the yield is
annualized, the yield generated by a Sub-Account during the thirty-day period is
assumed to be generated each thirty-day period. The yield is computed by
dividing the net investment income per accumulation unit earned during the
period by the price per unit on the last day of the period, according to the
following formula:
YIELD = 2[(a-b + 1)/6/ - 1]
---
cd
Where:
a = net investment income earned during the period by the Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of accumulation units outstanding during the
period; and
d = the maximum offering price per accumulation unit on the last day of
the period.
Net investment income will be determined in accordance with rules established by
the Securities and Exchange Commission. Accrued expenses will include all
recurring fees that are charged to all owner accounts. The yield calculations do
not reflect the effect of any contingent deferred sales charges that may be
applicable to a particular Contract. The contingent deferred sales charge is
equal to 6% of the amount withdrawn attributable to Purchase Payments received
not more than seventy-two months prior to the date of withdrawal.
The yield on amounts held in the Sub-Accounts normally will fluctuate over time.
Therefore, the disclosed yield for any given past period is not an indication or
representation of future yields or rates of return. The Sub-Account's actual
yield will be affected by the types and quality of portfolio securities held by
the Sub-Account and its operating expenses.
Page 18
<PAGE>
TOTAL RETURN CALCULATIONS
We may from time to time also disclose average annual total returns for one or
more of the Sub-Accounts for various periods of time. Average annual total
return quotations are computed by finding the average annual compounded rates of
return over one, five and ten-year periods or the life of the Sub-Account that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P (1 - T)/n/ = ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment (made at the
beginning of the one, five or ten year period) at the end of the one,
five, or ten-year period (or fractional portion thereof).
All recurring fees that are charged to all owner accounts are recognized in the
ending redeemable value. The average annual total return calculations will
reflect the effect of contingent deferred sales charges that may be applicable
to a particular period.
For the one, five and ten-year periods ended December 31, 1995, respectively,
the average annual total returns for the Bond Sub-Account were 10.40%, 6.96% and
6.98%; and for the Stock Sub-Account were 29.41%, 13.60% and 9.96%.
We may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
contingent deferred sales charge percentage will be assumed to be 0%. Using the
non-standard format, for the one, five and ten-year periods ended December 31,
1995 respectively, the average annual total returns for the Bond Sub-Account
were 15.71%, 7.73% and 6.98%; and for the Stock Sub-Account were 34.61%, 14.18%
and 9.96%.
We may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the contingent deferred
sales charge percentage will be 0%.
CTR = (ERV / P) - 1
Where:
CTR = the cumulative total return net of Sub-Account recurring charges for
the period;
ERV = ending redeemable value of a hypothetical $1,000 payment (made at the
beginning of the one, five, or ten-year period) at the end of the
one, five, or ten-year period (or fractional portion thereof); and
P = a hypothetical initial payment of $1,000.
Page 19
<PAGE>
All non-standard performance data will only be advertised if the standard
performance data for the required period is also disclosed.
LEGAL MATTERS
Sutherland, Asbill & Brennan in Washington, D.C. has provided advice with
respect to certain matters relating to federal securities and tax laws.
STATE REGULATION
Washington National Insurance Company, an Illinois Company, is subject to
regulation by the Illinois Director of Insurance. An annual statement is filed
with the Director on or before March 1st of each year covering Our operations
for the preceding year and Our financial condition on December 31st of such
year. Our books and accounts are subject to review and examination by the
Illinois Insurance Department at all times and a full examination of Our
operations is conducted at periodic intervals. In addition, We are subject to
the insurance laws and regulations of the other jurisdictions in which We are
licensed to operate.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus does
not include all of the information contained in the registration statements, its
amendments and exhibits, which were also filed.
EXPERTS
The consolidated financial statements of Washington National Insurance Company
and the financial statements and Selected Per Accumulation Unit Data and Ratios
of Separate Account I of Washington National Insurance Company appearing herein
have been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon appearing elsewhere herein. Such financial
statements have been included herein in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
The consolidated financial statements of Washington National Insurance Company
and subsidiaries included herein should be distinguished from the financial
statements of Separate Account I and should be considered only as bearing upon
the ability of Washington National Insurance Company to meet its obligations
under the Contracts.
Page 20
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
PAGE
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................. 22
Statement of Assets and Liabilities............................... 23
Portfolio of Investments.......................................... 24
Statement of Operations........................................... 29
Statement of Changes in Net Assets................................ 30
Notes to Financial Statements..................................... 32
Supplementary Information-Selected Per Accumulation Unit Data
and Ratios...................................................... 35
WASHINGTON NATIONAL INSURANCE COMPANY
Report of Independent Auditors.................................... 37
Consolidated Balance Sheet........................................ 37
Consolidated Statement of Income.................................. 39
Consolidated Statement of Cash Flows.............................. 40
Consolidated Statement of Shareholder's Equity.................... 41
Notes to Consolidated Financial Statements........................ 42
</TABLE>
Page 21
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contract Owners and Board of Directors
Separate Account I of Washington
National Insurance Company
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Separate Account I of Washington National
Insurance Company (comprising, respectively, the Bond, Short-Term Portfolio and
Stock Sub-Accounts) as of December 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the selected per
accumulation unit data and ratios for each of the five years in the period then
ended. These financial statements and per accumulation unit data and ratios are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and per 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 per accumulation
unit data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of 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 per accumulation unit data
and ratios referred to above present fairly, in all material respects, the
financial position of each of the respective Sub-Accounts constituting Separate
Account I of Washington National Insurance Company at December 31, 1995, the
results of their operations of the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the selected per
accumulation unit data and ratios for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 9, 1996
Page 22
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
Sub-Account
------------------------------------
Short-Term
Bond Portfolio Stock
----------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Investments, at fair value
(cost: Bond-$11,586,900: Short-Term
Portfolio-$1,672,826:
Stock-$17,992,994) - Note C $12,172,146 $1,672,826 $32,136,723
Cash 3,580 834 31,925
Dividends and interest receivable 195,593 1,266 68,117
Other receivables 7,921 - 49,477
----------- ---------- -----------
12,379,240 1,674,926 32,286,242
LIABILITIES
Payable to Washington National 1,407 117 6,521
Insurance Company - Note B
----------- ---------- -----------
NET ASSETS $12,377,833 $1,674,809 $32,279,721
=========== ========== ===========
Accumulation units outstanding 4,954,931 945,624 9,442,564
=========== ========== ===========
Accumulation unit value $2.50 $1.77 $3.42
===== ===== =====
</TABLE>
See notes to financial statements.
Page 23
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
PORTFOLIO OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Principal Fair
Amount Value
---------- ----------
<S> <C> <C>
BOND SUB-ACCOUNT
U.S. Government and Government Agency Obligations--31.3%
U.S. Treasury, 6.13% note, due 7-31-00 $ 750,000 $ 772,500
U.S. Treasury, 7.00% note, due 4-15-99 500,000 525,000
U.S. Treasury, 8.00% note, due 1-15-97 500,000 515,000
Federal Home Loan Mortgage Corporation, 6.2% debenture, due 9-8-08 500,000 495,000
Federal Home Loan Mortgage Corporation, 8.75% debenture, due 4-1-08 146,895 143,916
Federal Home Loan Mortgage Corporation, 9.25% participation certificates, pool 160055, due 8-1-08 85,458 85,337
Federal Home Loan Mortgage Corporation, 10.25% participation certificates, pool 160095, due 11-1-09 37,750 36,237
Federal Home Loan Mortgage Corporation, 10.75% participation certificates, pool 170033, due 7-1-10 52,810 50,308
Federal Home Loan Mortgage Corporation, 10% participation certificates, pool 170152, due 1-1-16 31,383 31,541
Government Trust Certificate, 9.25% certificate, due 11-15-01 500,000 555,000
Government National Mortgage Association, 7.5% participation certificates, pool 327726, due 8-15-22 667,759 673,307
----------
TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (cost - $3,766,304) 3,883,146
Corporate Bonds--60.0%
General Motors Corporation, 9.63% debentures, due 12-1-00 500,000 575,000
DuPont De Nemours, 9.15% note, due 4-15-00 500,000 565,000
American Home Products, 7.70% note, due 2-15-00 500,000 535,000
Hoechst Celanese Corporation, 9.63% note, due 9-1-99 500,000 535,000
Pacificorp, 6.75% 1st mtg & collateral trust, due 4-1-05 500,000 515,000
General Telephone Company of the Northwest, Inc., 8.25% first mortgage bonds, Series W, due 2-1-07 500,000 515,000
Comerica, Inc., 7.13% note, due 12-1-13 500,000 505,000
NCNB Texas National Bank, 9.5% note, due 6-1-04 500,000 600,000
Nationsbank Corporation, 6.63% note, due 1-15-98 500,000 510,000
Banc One Corporation, 7.25% note, due 8-1-02 500,000 530,000
Aon Corporation, 6.7% note, due 6-15-03 500,000 515,000
Corestates Capital Corporation, 6.63% note, due 3-15-05 500,000 510,000
Equifax Inc., 6.5% note, due 6-15-03 500,000 510,000
Morgan Stanley Group, 6.38% note, due 12-15-03 500,000 505,000
----------
TOTAL CORPORATE BONDS (cost - $6,956,596) 7,425,000
</TABLE>
See notes to financial statements.
Percentages shown are based on total net assets of each Sub-Account.
Page 24
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
PORTFOLIO OF INVESTMENTS -- Continued
December 31, 1995
<TABLE>
<CAPTION>
Principal Fair
Amount Value
---------- -------------
<S> <C> <C>
Floating Rate Demand Notes--7.0%
Associate Corporation of North America, 5.09% , due on demand $ 150,000 $ 150,000
General Electric Credit Corporation, 5.35%, due on demand 714,000 714,000
-------------
TOTAL FLOATING RATE DEMAND NOTES (cost - $864,000) 864,000
-------------
TOTAL INVESTMENTS--BOND SUB-ACCOUNT--98.3% (cost - $11,586,900) $ 12,172,146
=============
SHORT-TERM PORTFOLIO SUB-ACCOUNT
Commercial Paper--83.4%
American Express Credit Corporation, 5.70%, due 1-18-96 200,000 $ 199,462
Chevron Oil Finance Company, 5.77%, due 1-30-96 200,000 199,070
John Deere Credit Company, 5.78%, due 1-26-96 200,000 199,197
Ford Motor Credit Company, 5.61%, due 1-22-96 200,000 199,346
Household Finance Corporation, 5.65%, due 1-5-96 200,000 199,874
IBM Credit Corporation, 5.77%, due 1-25-96 200,000 199,231
Prudential Funding Corporation, 5.79%, due 1-12-96 200,000 199,646
-------------
TOTAL COMMERICAL PAPER (cost - $1,395,826) 1,395,826
Floating Rate Demand Notes--16.5%
Associates Corporation of North American, 5.09%, due on demand 10,000 10,000
General Electric Credit Corporation, 5.94%, due on demand 267,000 267,000
-------------
TOTAL FLOATING RATE DEMAND NOTES (cost - $277,000) 277,000
-------------
TOTAL INVESTMENTS--SHORT-TERM PORTFOLIO SUB-ACCOUNT--99.9% (cost - $1,672,826) $ 1,672,826
=============
</TABLE>
<TABLE>
<CAPTION>
Number of Fair
Shares Value
---------- -------------
<S> <C> <C>
STOCK SUB-ACCOUNT
Common Stocks--99.4%
Automobile--2.4%
General Motors Corporation 15,000 $ 780,000
</TABLE>
See notes to financial statements.
Percentages shown are based on total net assets of each Sub-Account
Page 25
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
PORTFOLIO OF INVESTMENTS -- Continued
December 31, 1995
<TABLE>
<CAPTION>
Number of Fair
Shares Value
---------- ----------
<S> <C> <C>
STOCK SUB-ACCOUNT--CONTINUED
Common Stocks--99.4% - Continued
Banks-3.8%
Banc One Corporation 14,456 $ 543,907
Huntington Bancshare 27,859 668,616
----------
1,212,523
Beverages--2.7%
Anheuser-Busch 13,200 882,750
Brokerage Firms--3.2%
Merrill Lynch 20,200 1,030,200
Consumer Products--4.3%
Newell Company 16,000 414,000
Rubbermaid, Inc. 15,000 382,500
Warner Lambert 6,000 582,750
----------
1,379,250
Drugs--6.7%
Bristol-Myers Squibb 10,000 858,750
Merck & Co. 10,400 682,500
Pfizer, Inc. 10,000 630,000
----------
2,171,250
Electrical--6.0%
Emerson Electric 10,100 825,675
General Electric 15,600 1,123,200
----------
1,948,875
Electronics and Instruments--7.1%
Avnet, Inc. 17,700 792,075
Hewlett-Packard Company 18,000 1,507,500
----------
2,299,575
Entertainment--2.3%
Walt Disney Company 12,800 755,200
</TABLE>
See notes to financial statements.
Percentages shown are based on total net assets of each Sub-Account.
Page 26
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
PORTFOLIO OF INVESTMENTS -- Continued
December 31, 1995
<TABLE>
<CAPTION>
Number of Fair
Shares Value
--------- ----------
<S> <C> <C>
STOCK SUB-ACCOUNT--CONTINUED
Common Stocks -- 99.4% - Continued
Financial--5.2 %
Federal National Mortgage Association 8,500 $1,052,938
Fleet Financial Group 15,000 611,250
----------
1,664,188
Foods--4.9%
CPC International 12,600 864,675
Sysco Corporation 22,000 715,000
----------
1,579,675
Industrial--8.3%
WMX Technologies, Inc. 12,000 357,000
Parker-Hannifin 23,700 811,725
Pitney Bowes, Inc. 13,600 639,200
Sherwin Williams 21,600 880,200
----------
2,688,125
Insurance--5.1%
Aetna Life and Casualty Company 6,200 429,350
General Reinsurance Corporation 4,400 682,000
Lincoln National Corporation 10,000 537,500
----------
1,648,850
Mines and Minerals--2.3%
Minnesota Mining and Manufacturing Company 11,000 730,125
Oil--11.0%
Amoco Corporation 11,000 786,500
Chevron Corporation 18,600 974,175
Exxon Corporation 11,600 933,800
Mobil Corporation 7,600 849,300
----------
3,543,775
Radio and Television--2.2%
Interpublic Group Incorporated 16,000 694,000
Restaurants--3.0%
McDonald's Corporation 21,400 965,675
</TABLE>
See notes to financial statements.
Percentages shown are based on total net assets of each Sub-Account.
Page 27
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
PORTFOLIO OF INVESTMENTS -- Continued
December 31, 1995
<TABLE>
<CAPTION>
Number of Fair
Shares Value
--------- -----------
<S> <C> <C>
STOCK SUB-ACCOUNT--CONTINUED
Common Stocks--99.3%--Continued
Retail--2.2%
Home Depot Incorporated 8,000 $ 382,000
Tandy Corporation 8,000 332,000
-----------
714,000
Technology--6.6%
Intel Corporation 22,000 1,248,500
Motorola Incorporated 15,600 889,200
-----------
2,137,700
Telephone--3.3%
Bell Atlantic Corporation 10,500 702,187
Pacific Teleisis Group 10,800 361,800
-----------
1,063,987
Utilities--6.8%
Central & Southwest 19,600 546,350
Duke Power 12,400 587,450
Northeast Utilities 17,400 421,950
Pennsylvania Power and Light Company 17,800 445,000
SCE Corp 10,000 176,250
-----------
2,177,000
TOTAL COMMON STOCKS (cost-$17,922,994) 32,066,723
Principal
Amount
---------
Floating Rate Demand Notes--.2%
Associate Corporation of North
America, 5.09%, due on demand $ 42,000 42,000
General Electric Credit Corportion,
5.35%, due on demand 28,000 28,000
-----------
TOTAL FLOATING RATE DEMAND NOTES
(cost-$70,000) 70,000
-----------
TOTAL INVESTMENTS-STOCK SUB-ACCOUNT-99.6%
(cost-$17,992,994) $32,136,723
===========
</TABLE>
See notes to financial statements.
Percentages shown are based on total net assets of each Sub-Account.
Page 28
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Sub-Account
--------------------------------------
Short-Term
Bond Portfolio Stock
---------- ---------- ----------
<S> <C> <C> <C>
Investment income:
Interest $ 890,627 $102,093 $ 57,515
Dividends -- -- 769,515
Other -- -- 18,301
---------- -------- -----------
890,627 102,093 845,331
Expenses--Note B:
Mortality and expense assurance 96,554 13,722 233,914
Investment advisory and management fee 60,346 8,576 146,196
Accounting service fee 42,242 6,003 102,337
General and administrative expenses 20,135 3,430 62,114
---------- -------- -----------
219,277 31,731 544,561
---------- -------- -----------
NET INVESTMENT INCOME 671,350 70,362 300,770
Realized and unrealized gains (losses):
Net realized gains 789 721,695
Unrealized gains (losses)--Note C:
Beginning of year (477,813) 6,657,961
End of year 585,246 14,143,729
---------- -----------
Net unrealized gain 1,063,059 7,485,768
---------- -----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 1,063,848 8,207,463
---------- -------- -----------
INCREASE IN NET ASSETS
FROM OPERATIONS $1,735,198 $ 70,362 $ 8,508,233
========== ======== ===========
</TABLE>
See notes to financial statements.
Page 29
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------------
Sub-Account
--------------------------------------------
Short-Term
Bond Portfolio Stock
------------- ------------ -------------
<S> <C> <C> <C>
ADDITIONS (DEDUCTIONS)
From operations
Net investment income $ 671,350 $ 70,362 $ 300,770
Net realized gain 789 -- 721,695
Net unrealized gain 1,063,059 -- 7,485,768
------------- ------------ -------------
INCREASE IN NET ASSETS FROM OPERATIONS 1,735,198 70,362 8,508,233
From capital transactions-Note A
Net proceeds from units sold 419,329 36,762 1,276,994
Cost of units redeemed (1,084,252) (110,683) (2,733,504)
Net asset value of units transferred, including exchanges
with the Fixed Account (139,525) (75,944) 141,268
------------- ------------ -------------
DECREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS (804,448) (149,865) (1,315,242)
------------- ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS 930,750 (79,503) 7,192,991
Net assets at beginning of year 11,447,083 1,754,312 25,086,730
------------- ------------ -------------
NET ASSETS AT END OF YEAR $ 12,377,833 $ 1,674,809 $ 32,279,721
============= ============ =============
ANALYSIS OF CHANGES IN UNITS OUTSTANDING
Units sold 178,815 21,559 427,709
Units redeemed (458,670) (63,500) (907,205)
Units transferred (61,842) (44,197) 39,629
------------- ------------ -------------
DECREASE IN UNITS OUTSTANDING (341,697) (86,138) (439,867)
Units outstanding at beginning of year 5,296,628 1,031,762 9,882,431
------------- ------------ -------------
UNITS OUTSTANDING AT END OF YEAR 4,954,931 945,624 9,442,564
============= ============ =============
</TABLE>
See notes to financial statements.
Page 30
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31, 1994
--------------------------------------------
Sub-Account
--------------------------------------------
Short-Term
Bond Portfolio Stock
----------- ---------- ------------
<S> <C> <C> <C>
ADDITIONS (DEDUCTIONS)
From operations
Net investment income $ 644,387 $ 41,670 $ 359,394
Net realized gain 26,252 -- 237,338
Net unrealized loss (1,206,736) -- (413,568)
----------- ---------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (536,097) 41,670 183,164
From capital transactions-Note A
Net proceeds from units sold 406,807 51,010 1,055,215
Cost of units redeemed (992,431) (134,122) (2,092,462)
Net asset value of units transferred,
including exchanges with the Fixed Account (592,255) 170,143 233,261
----------- ---------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL TRANSACTIONS (1,177,879) 87,031 (803,986)
----------- ---------- ------------
NET INCREASE (DECREASE) IN NET ASSETS (1,713,976) 128,701 (620,822)
Net assets at beginning of year 13,161,059 1,625,611 25,707,552
----------- ---------- -----------
NET ASSETS AT END OF YEAR $11,447,083 $1,754,312 $25,086,730
=========== ========== ===========
ANALYSIS OF CHANGES IN UNITS OUTSTANDING
Units sold 185,686 30,089 420,378
Units redeemed (454,958) (80,108) (831,402)
Units transferred (270,163) 101,699 91,183
----------- ---------- -----------
INCREASE (DECREASE) IN UNITS OUTSTANDING (539,435) 51,680 (319,841)
Units outstanding at beginning of year 5,836,063 980,082 10,202,272
----------- ---------- -----------
UNITS OUTSTANDING AT END OF YEAR 5,296,628 1,031,762 9,882,431
=========== ========== ===========
</TABLE>
See notes to financial statements.
Page 31
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Account: The Separate Account I of Washington National Insurance Company
(the "Separate Account") is a segregated investment account of Washington
National Insurance Company ("WNIC"). WNIC is a wholly-owned subsidiary of
Washington National Corporation. The Separate Account is registered as an open-
end diversified management investment company pursuant to the provisions of the
Investment Company Act of 1940. The Separate Account no longer issues new
contracts. There are three Sub-Accounts within the Separate Account, each with
its own investment objectives and policies as follows:
Bond Sub-Account -- high level of current income while preserving capital
by investing in fixed income securities.
Short-Term Portfolio Sub-Account -- moderate level of current income
consistent with liquidity and preservation of capital by investing in one
or more types of short-term instruments.
Stock Sub-Account -- long-term capital growth and income by investing
principally in equity-type securities.
In addition, a contract holder may elect to invest in a fixed annuity held by
WNIC, called the Fixed Account.
WNIC is a contract holder of the Separate Account. At December 31, 1995, the
fair value of WNIC's investments were $5,576,669, $1,084,802, and $9,654,392 in
the Bond, Short-Term Portfolio, and Stock Sub-Accounts, respectively. During
1995, WNIC made no deposits or withdrawals.
Valuation of Investments: Securities traded on a national securities exchange
are valued at the closing price as of the valuation date. Investments traded in
the over-the-counter market are valued at the average between the bid and ask
prices. Commercial paper is valued at amortized cost and other short-term
investments are valued at cost. Differences, if any, from fair value are not
considered material in relation to net assets.
Investment Transactions and Income: Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Interest income is
recorded on the accrual basis and dividend income is recorded on the ex-dividend
date. Realized gains and losses on investments are determined on a first-in,
first-out basis.
Accumulation Unit Valuation: Accumulation unit values reflect the net asset
value of each Sub-Account and are computed daily.
Page 32
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- Continued
December 31, 1995
NOTE B -- DEDUCTIONS AND CHARGES
Deductions and charges are made from the Separate Account and paid to WNIC as
follows:
. As a fee for administration and contract maintenance, WNIC deducts $30
annually from the accumulated value of each contract on the contract
anniversary or on the date of surrender if it occurs between contract
anniversaries. This fee does not apply to contracts for individual
retirement accounts, or to contracts which at the end of any contract
anniversary have received at least $1,000 of payments or in which the
accumulated value is at least $20,000.
. As compensation for annuity rate guarantees, WNIC deducts an amount,
computed on a daily basis, which is equal on an annual basis to .8% of the
average net asset value of the Separate Account.
. As a fee for managing and administering the investment activities of the
Separate Account, WNIC deducts an amount, computed on a daily basis, equal
to an annual rate of .5% of the average net asset value of each Sub-
Account.
. As compensation for providing financial accounting services to the Separate
Account, WNIC deducts an amount, computed on a daily basis, equal to an
annual rate of .35% of the average net asset value of the Separate Account.
. As reimbursement for incurring various other general and administrative
expenses attributable to the Separate Account, WNIC deducts an amount,
computed on a daily basis, equal to an annual rate of .2% of the average
net asset value of the Separate Account. A component of these expenses is
the fee paid to the Separate Account's Board of Directors. Only members of
the Board of Directors who are not directors, officers, or employees of
WNIC receive an annual retainer of $1,000, and a meeting fee of $350. In
1995, the Separate Account's three external directors each received $1,700.
. A contingent deferred sales charge of 6% is made on any amounts withdrawn
which are in excess of 10% of the contract's accumulated value on the date
of the first withdrawal during the respective contract year, except that no
such charge is made for withdrawals of purchase payments received more than
72 months prior to the date of withdrawal and no such charge is made if the
withdrawal amount is applied to a settlement option after the contract has
been in force for five years or if the contract contains life
contingencies.
Page 33
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- Continued
December 31, 1995
NOTE C -- INVESTMENTS
The aggregate cost of purchases and sales of investments other than United
States Government obligations and short-term notes was:
<TABLE>
<CAPTION>
Proceeds
Cost of From
Investments Investments
Sub-Account Acquired Sold
------------- ------------ ----------
<S> <C> <C>
Bond $ 499,370 $ 130,224
Stock 2,320,712 2,093,126
</TABLE>
The cost of purchases of United States Government obligations was $748,477 in
the Bond Sub-Account. The total unrealized gain on investments at December 31,
1995 consisted of unrealized appreciation of $590,246 and $14,284,704 and
unrealized depreciation of $5,000 and $140,975 in the Bond and Stock Sub-
Accounts, respectively.
NOTE D -- FEDERAL INCOME TAXES
The operations of the Separate Account form a part of, and are taxed with, the
operations of WNIC, which under the Internal Revenue Code is taxed as a "life
insurance company." The Separate Account is not taxed as a regulated investment
company under Subchapter M of the Code. Under existing federal income tax law,
no taxes are payable on the investment income or on the realized gains of the
Separate Account.
NOTE E -- SUBSEQUENT EVENT
A special meeting of the Separate Account contract holders has been scheduled on
March 12, 1996 to seek approval to reconstitute the Separate Account as a unit
investment trust which will invest all of its assets in an investment portfolio
of Scudder Variable Life Investment Fund.
Immediately following the restructuring of the Separate Account, the contract
holders will have beneficial interests in the same number of units in each Sub-
Account of the restructured Separate Account as they owned in that Sub-Account
immediately prior to the transaction.
The transaction was initiated to provide contract holders with experienced
mutual fund management, greater diversification of investments, and a reduction
in fees.
Page 34
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
SUPPLEMENTARY INFORMATION--SELECTED PER ACCUMULATION UNIT DATA AND RATIOS
Selected data per accumulation unit
outstanding throughout the year
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended December 31, 1995 1994 1993
------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
------------------------------------------------------------------------------------------
Short-Term Short-Term Short-Term
Bond Portfolio Stock Bond Portfolio Stock Bond Portfolio Stock
----------------------------- --------------------------- ----------------------------
Per accumulation unit data:
Investment income $ 0.17 $ 0.10 $ 0.09 $ 0.16 $ 0.07 $ 0.08 $ 0.16 $ 0.05 $ 0.07
Expenses (0.04) (0.03) (0.06) (0.04) (0.03) (0.04) (0.04) (0.03) (0.04)
----------------------------- --------------------------- ----------------------------
NET INVESTMENT INCOME 0.13 0.07 0.03 0.12 0.04 0.04 0.12 0.02 0.03
Net realized and unrealized
gain (loss) on investments 0.21 -- 0.85 (0.22) -- (0.02) 0.03 -- 0.21
----------------------------- --------------------------- ----------------------------
Net increase (decrease) in
accumulation unit value 0.34 0.07 0.88 (0.10) 0.04 0.02 0.15 0.02 0.24
Accumulation unit value at
beginning of year 2.16 1.70 2.54 2.26 1.66 2.52 2.11 1.64 2.28
----------------------------- --------------------------- ----------------------------
ACCUMULATION UNIT VALUE
AT END OF YEAR $ 2.50 $ 1.77 $ 3.42 $ 2.16 $ 1.70 $ 2.54 $ 2.26 $ 1.66 $ 2.52
============================= =========================== ============================
Ratios:
Ratio of expenses to average
net assets 1.82% 1.86% 1.87% 1.87% 1.85% 1.83% 1.85% 1.85% 1.81%
Ratio of net investment income
to average net assets 5.58 4.11 1.03 5.28 2.47 1.41 5.50 1.28 1.17
Portfolio turnover rate 1.25 -- 7.41 -- -- 12.20 33.66 -- 3.50
Number of accumulation units
outstanding at end of year
(000's omitted) 4,955 946 9,443 5,297 1,032 9,882 5,836 980 10,202
</TABLE>
See notes to financial statements.
Page 35
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON NATIONAL INSURANCE COMPANY
SUPPLEMENTARY INFORMATION--SELECTED PER ACCUMULATION UNIT DATA AND
RATIOS (cont.)
Selected data per accumulation unit
outstanding throughout the year
<S> <C> <C>
For the year ended December 31, 1992 1991
------------------------------- ---------------------------
Sub-Account Sub-Account
------------------------------- ---------------------------
Short-Term Short-Term
Bond Portfolio Stock Bond Portfolio Stock
------------------------------- ---------------------------
Per accumulation unit data:
Investment income $ 0.17 $ 0.06 $ 0.07 $ 0.16 $ 0.09 $ 0.07
Expenses (0.04) (0.03) (0.04) (0.03) (0.03) (0.04)
-------------------------------------------------------------
NET INVESTMENT INCOME 0.13 0.03 0.03 0.13 0.06 0.03
Net realized and unrealized
gain (loss) on investments (0.01) -- 0.12 0.14 -- 0.34
-------------------------------------------------------------
Net increase in
accumulation unit value 0.12 0.03 0.15 0.27 0.06 0.37
Accumulation unit value at
beginning of year 1.99 1.61 2.13 1.72 1.55 1.76
-------------------------------------------------------------
ACCUMULATION UNIT VALUE
AT END OF YEAR $ 2.11 $ 1.64 $ 2.28 $ 1.99 $ 1.61 $ 2.13
============================== ============================
Ratios:
Ratio of expenses to average
net assets 1.85% 1.85% 1.85% 1.85% 1.86% 1.86%
Ratio of net investment income
to average net assets 6.22 1.82 1.33 7.02 3.80 1.85
Portfolio turnover rate 10.83 -- 4.92 -- -- 5.97
Number of accumulation units
outstanding at end of year
(000's omitted) 6,457 1,065 10,457 6,616 1,130 10,564
Page 36
</TABLE>
See notes to financial statements.
<PAGE>
Report of Independent Auditors
Board of Directors
Washington National Insurance Company
We have audited the accompanying consolidated balance sheet of Washington
National Insurance Company as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1995. 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Washington
National Insurance Company at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note C, the Company changed its method of accounting for
certain investments in debt and equity securities in 1994 and postemployment
benefits in 1993.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 8, 1996
Page 37
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(000s omitted)
December 31, 1995 1994
=================================================================================================
<S> <C> <C>
Assets Investments
Fixed maturities-
Available for sale at fair value
(cost: $1,953,314; $1,768,181) $2,060,710 $1,649,453
Held to maturity at cost (fair value: $112,368) -- 113,116
Mortgage loans on real estate 317,249 357,641
Real estate and joint ventures 33,918 26,835
Policy loans 56,279 54,368
Other long-term 27,744 30,340
Short-term 47,920 51,642
----------------------------------------------------------------------------------
Total Investments 2,543,820 2,283,395
Cash 4,852 3,669
Deferred acquisition costs 235,499 293,850
Reinsurance recoverables and prepaid premiums 49,502 54,842
Accrued investment income 32,652 33,084
Insurance premiums in course of collection 14,718 14,857
Property and equipment 18,259 22,988
Goodwill 18,385 19,092
Separate Account 51,005 42,178
Other 40,781 38,402
----------------------------------------------------------------------------------
Total Assets $3,009,473 $2,806,357
- -------------------------------------------------------------------------------------------------
Liabilities Policy liabilities $2,363,329 $2,354,818
General expenses and other liabilities 123,310 119,069
Mortgage payable 1,309 1,907
Short-term notes payable 1,175 1,175
Income taxes (current: $1,094; $430) 31,569 (15,874)
Minority interest 56,381 44,157
Separate Account 51,005 42,178
----------------------------------------------------------------------------------
Total Liabilities 2,628,078 2,547,430
- -------------------------------------------------------------------------------------------------
Shareholder's Common stock ($5.00 par value; authorized - 5,250
Equity shares; issued and outstanding - 5,007 shares) 68,274 68,274
Retained earnings 271,476 250,198
Net unrealized investment gains (losses) 45,250 (56,897)
Unfunded pension loss (3,605) (2,648)
----------------------------------------------------------------------------------
Total Shareholder's Equity 381,395 258,927
----------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $3,009,473 $2,806,357
=================================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 38
<PAGE>
Consolidated Statement of Income
<TABLE>
<CAPTION>
(000s omitted)
Year Ended December 31, 1995 1994 1993
=========================================================================================================
<S> <C> <C>
Revenues Insurance premiums and policy charges $501,572 $468,386 $438,822
Net investment income 184,146 181,524 183,430
Realized investment gains (losses) (1,136) (1,425) 896
Other 11,812 8,142 6,324
------------------------------------------------------------------------------------------
Total Revenues 696,394 656,627 629,472
- ---------------------------------------------------------------------------------------------------------
Benefits and Insurance benefits paid or provided 466,285 435,802 420,358
Expenses Insurance and general expenses 139,688 137,239 129,584
Amortization of deferred acquisition costs 40,952 38,053 37,943
------------------------------------------------------------------------------------------
Total Benefits and Expenses 646,925 611,094 587,885
- ---------------------------------------------------------------------------------------------------------
Earnings Income before income taxes, minority interest,
and cumulative effect of change in
accounting principle 49,469 45,533 41,587
Income taxes 15,525 13,062 10,728
Minority interest 3,566 2,937 389
------------------------------------------------------------------------------------------
Income before cumulative effect of change
in accounting principle 30,378 29,534 30,470
Cumulative effect of change in accounting
principle--net of tax -- -- (1,550)
------------------------------------------------------------------------------------------
Net Income $ 30,378 $ 29,534 $ 28,920
=========================================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 39
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(000s omitted)
Year Ended December 31 1995 1994 1993
====================================================================================================================
<S> <C> <C> <C> <C>
Operating Activities Net income $ 30,378 $ 29,534 $ 28,920
Adjustments to reconcile to net cash provided
by operating activities
Increase in policy liabilities 52,048 48,998 80,440
Deferred acquisition costs (11,561) (3,894) (15,282)
Change in reinsurance receivable 4,058 (11,387) 4,587
Other, net 14,141 18,140 10,832
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 89,064 81,391 109,497
- --------------------------------------------------------------------------------------------------------------------
Investing Activities Proceeds from sales
Fixed maturities - available for sale 308,663 113,375 --
Fixed maturities - held to maturity 1,950 -- 261,313
Mortgage loans, real estate, and other 4,744 18,239 55,354
Proceeds from maturities and redemptions
Fixed maturities - available for sale 96,188 155,684 --
Fixed maturities - held to maturity 19,417 17,313 266,217
Mortgage loans, real estate, and other 46,828 58,666 73,763
Cost of purchases
Fixed maturities - available for sale (507,084) (399,418) --
Fixed maturities - held to maturity -- (5,000) (726,358)
Mortgage loans, real estate, and other (6,495) (26,068) (40,661)
Increase in policy loans (1,911) (2,083) (784)
Purchase of property and equipment (768) (2,008) (7,824)
Net change in short-term investments 3,722 15,710 (4,350)
----------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (34,746) (55,590) (123,330)
- ---------------------------------------------------------------------------------------------------------------------
Financing Activities Policyholder account deposits 150,469 143,627 142,871
Policyholder account withdrawals (194,006) (169,278) (124,795)
Dividends to parent (9,000) (2,975) (7,710)
Change in short-term notes payable -- -- (11,950)
Sale of common stock by subsidiary -- -- 25,382
Repayment of long-term borrowings (598) (527) (9,536)
-----------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing
Activities (53,135) (29,153) 14,262
- ---------------------------------------------------------------------------------------------------------------------
Change in Cash Increase (Decrease) in Cash 1,183 (3,352) 429
Cash at Beginning of Year 3,669 7,021 6,592
-----------------------------------------------------------------------------------------------
Cash at End of Year $ 4,852 $ 3,669 $ 7,021
======================================================================================================================
</TABLE>
See note to consolidated financial statements.
Page 40
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
(000s omitted)
Year Ended December 31, 1995 1994 1993
=====================================================================================================================
<S> <C> <C> <C> <C>
Common Stock Balance at beginning of year $ 68,274 $ 87,865 $ 87,865
and Additional Subsidiary stock issuance -- (19,591) --
-----------------------------------------------------------------------------------------------------
Paid-In Capital Balance at end of year 68,274 68,274 87,865
- ---------------------------------------------------------------------------------------------------------------------
Retained Earnings Balance at beginning of year 250,198 226,639 205,429
Net income 30,378 29,534 28,920
Dividends to parent (9,100) (5,975) (7,710)
-----------------------------------------------------------------------------------------------------
Balance at end of year 271,476 250,198 226,639
- ---------------------------------------------------------------------------------------------------------------------
Net Unrealized Balance at beginning of year (56,897) (9) 111
Investments Gains Effect of change in accounting principle -- 39,424 --
(Losses) Change during year 102,147 (96,312) (120)
----------------------------------------------------------------------------------------------------
Balance at end of year 45,250 (56,897) (9)
- ---------------------------------------------------------------------------------------------------------------------
Unfunded Pension Balance at beginning of year (2,648) (2,791) (1,269)
Loss Change during year (957) 143 (1,522)
----------------------------------------------------------------------------------------------------
Balance at end of year (3,605) (2,648) (2,791)
- ---------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity at End of Year $381,395 $258,927 $311,704
=====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 41
<PAGE>
Notes To Consolidated Financial Statements
Note A
Nature of Operations
Washington National Insurance Company (WNIC or the Company) is a wholly owned
subsidiary of Washington National Corporation (WNC). WNIC and its subsidiaries
are engaged primarily in marketing and underwriting specialty health insurance
and life insurance and annuity products for individuals and groups throughout
the United States. Based on assets and income, the life insurance and annuity
products account for more than two-thirds of WNIC's business. The specialty
health insurance products account for the remainder.
The markets for WNIC's life insurance and annuities products include
individuals and small businesses seeking universal life insurance and other
interest-sensitive life insurance and annuity products.
The markets for the Company's specialty health insurance products include:
individuals without employer-sponsored insurance in need of major medical
coverage; educators and other school district employees purchasing disability
insurance and other specialty insurance products; and employers with from 2 to
1,000 employees seeking employer-sponsored health insurance and associated life
insurance and stop-loss insurance.
Note B
Significant Accounting Policies and Practices
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) and include the
accounts and operations of the Company. Significant intercompany transactions
have been eliminated. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported. Actual results could differ from these estimates. Certain
amounts applicable to prior years' financial statements have been reclassified
to conform to the 1995 presentation.
The Company owns a 71.3% interest in United Presidential Corporation (UPC),
the parent company of United Presidential Life Insurance Company (UPI), a life
insurance company domiciled in Indiana. The remaining 28.7% of UPC is owned by
WNC. WNC purchased its interest in UPC based on UPC's statutory book value,
which was less than UPC's GAAP book value. As a result of this difference, an
adjustment of $19,591,000 was recorded to WNIC's additional paid-in capital to
reflect the decrease in WNIC's GAAP-basis carrying value of UPC. The operations
of UPC are consolidated in the accompanying financial statements, with WNC's
interest in UPC represented by a minority interest.
Investments
Fixed Maturities. Fixed maturities include bonds, redeemable preferred stocks,
and mortgage-backed securities with contractual maturities greater than one
year. Fixed maturities classified as "available for sale" are carried at fair
value and fixed maturities classified as "held to maturity" are carried at
amortized cost. The carrying value of the Company's fixed maturity portfolio is
inversely impacted by increases and decreases in market interest rates which may
change significantly in short time periods.
The amortized cost of fixed maturities is adjusted for amortization of
premiums and accretion of discounts. This adjustment is included in investment
income. The difference between amortized cost for "available for sale"
securities and their fair value, net of applicable deferred income taxes and
certain deferred acquisition costs, is reflected as a component of shareholder's
equity as an unrealized investment gain or loss. If a security's fair value has
a decline that is considered to be other-than-temporary, the carrying value is
reduced to its net realizable value. Such reductions in value are included in
realized investment gains and losses.
As a result of newly issued guidance from the Financial Accounting
Standards Board (FASB), the Company transferred its $84,146,000 of "held to
maturity" fixed maturities to "available for sale" at December 31, 1995,
resulting in a $5,337,000 increase to unrealized investment gains. The Company
no longer holds any fixed maturities as "held to maturity."
Page 42
<PAGE>
Mortgage Loans on Real Estate. Mortgage loans on real estate are carried at
unpaid principal balances, net of allowance for losses. The allowance is based
on estimated uncollectible amounts considering past credit loss experience and
current economic conditions and is subject to fluctuation based on actual
experience. Loans considered permanently impaired are written down to their net
realizable value and the write-down is recognized as a realized investment loss.
Real Estate and Joint Ventures. Real estate investments are principally
carried at cost less allowances for depreciation and possible losses. Foreclosed
real estate is considered "available for sale" and is recorded at the lower of
current carrying value or estimated fair value less expected costs of disposal.
Joint ventures are accounted for principally using the equity method.
Policy Loans. Loans to policyholders are carried at the unpaid principal
balance.
Other Long-term Investments. Other long-term investments consist of an
investment of funds in the Company's Separate Account, equity securities
reported at fair value, and venture capital investments that are accounted for
under the equity method.
Short-term Investments. Short-term investments include commercial paper,
variable demand notes, and money market funds and are carried at amortized cost.
Net Investment Income. Net investment income consists primarily of interest
and dividends less expenses. Interest on fixed maturities and performing
mortgage loans, adjusted for any amortization of discount or premium, is
recorded as income when earned and includes adjustments resulting from
prepayments or expected changes in prepayments on mortgage-backed securities.
Dividends are recorded as income on ex-dividend dates. Income on impaired loans
and real estate is recorded principally on a cash basis. Income on investments
accounted for under the equity method is recognized as it becomes earned.
Investment expenses are accrued as incurred.
Realized Investment Gains and Losses. Realized investment gains and losses
are recognized using the specific identification method and include write-downs
on investments having an other-than-temporary decline in value.
Depreciation
Depreciation for real estate investments and property and equipment is based on
the estimated useful life of the asset primarily using the straight-line method.
Information on depreciation follows:
========================================================
Accumulated Depreciation
(000s omitted) 1995 1994
- --------------------------------------------------------
Property and equipment $ 3,571 $ 2,434
Real estate investments 12,635 24,777
========================================================
Depreciation Expense
(000s omitted) 1995 1994 1993
- --------------------------------------------------------
Property and equipment $ 1,137 $ 1,333 $2,740
Real estate investments 1,320 1,453 1,480
- --------------------------------------------------------
Insurance Premiums and Policy Charges
Insurance premiums and policy charges include reinsurance premiums assumed and
are net of reinsurance ceded. Health insurance premiums are earned on a pro rata
basis over the policy period. Premiums for traditional life insurance products
are recognized as revenues when due. Revenues for certain interest-sensitive
products consist of charges earned and assessed against policy account balances
during the period for the cost of insurance, policy initiation fees, policy
administration expenses, and surrender charges.
Deferred Acquisition Costs (DAC)
Certain costs associated with acquiring new business are deferred and amortized
to income over time. Amortization of costs for traditional life insurance and
health products is over the premium paying period and is based on assumptions
consistent with those used in determining policy benefit reserves. Actual
results may differ significantly from these assumptions. For certain interest-
sensitive products, costs are amortized over the estimated life of those
products in proportion to the present value of estimated gross profits from
surrender charges and investment, mortality, and expense margins. Changes in the
amount or timing of estimated gross profits will result in adjustments in the
cumulative amortization of these costs.
To the extent that unrealized investment gains or losses on fixed
maturities would result in an adjustment of DAC had those investment gains or
losses been realized, the related unamortized DAC is adjusted and included in
shareholder's equity.
Page 43
<PAGE>
The unamortized cost of purchased insurance in force is included in DAC and
amortized in proportion to the present value of estimated gross profits over an
estimated twenty-one year remaining life with interest rates ranging from 7.5%
to 8.5%.
The changes in the unamortized cost of purchased insurance in force for the
years ended December 31 follow:
==========================================================================
(000s omitted) 1995 1994 1993
- --------------------------------------------------------------------------
Balance at beginning of year $45,282 $41,902 $47,039
Interest on unamortized balance 2,915 3,136 3,436
Amortization (5,635) (6,026) (8,573)
Effect of unrealized investment
(gains) losses (13,432) 6,270 --
- --------------------------------------------------------------------------
Balance at end of year $29,130 $45,282 $41,902
- --------------------------------------------------------------------------
The estimated percentage of the December 31, 1995 balance before the effect
of unrealized investment gains and losses to be amortized over the next five
years follows:
==========================================================================
1996 14.6%
1997 14.1%
1998 13.0%
1999 12.8%
2000 12.6%
- --------------------------------------------------------------------------
Policy Liabilities
Liabilities for future policy benefits for traditional life insurance products
are provided on the net level premium method. The Company bases reserve
calculations on the present value of future net premiums, benefits, and
expenses, using estimates of future investment yield, mortality, and withdrawal
rates, adjusted to provide for possible adverse deviation. Interest rate
assumptions are graded and ranged from 4.5% to 7.5% at December 31, 1995.
Withdrawal assumptions are based principally on Company experience and vary by
issue age, type of coverage, and duration.
Liabilities for future policy benefits of certain interest-sensitive
products are based on policy account balances prior to applicable surrender
charges, deferred policy initiation fees that are recognized as income over the
term of the policies, and a provision for the return of insurance charges.
Policy benefits and claims that are charged to expense include benefit claims in
excess of related policy accounts incurred in the period, interest credited to
policy balances, and a provision for the return of the cost of insurance
charges. Credited interest rates for these products ranged from 3.0% to 7.3% at
December 31, 1995.
Liabilities for policy and contract claims are determined using statistical
analyses and case-basis evaluations and represent estimates of the expected cost
of incurred claims. Revisions to these estimates are recognized in the
Consolidated Statement of Income in the period when the revisions are made.
Goodwill
The amount paid to acquire a company over the fair value of its net assets is
reported as goodwill and is amortized on a straight-line basis, generally over a
thirty-five year period. The value of goodwill is considered appropriate based
on the prospect of continued growth and the long-term nature of the insurance
policies sold. Accumulated amortization of goodwill was $6,744,000 and
$6,038,000 at December 31, 1995 and 1994, respectively.
Separate Account
Separate Account assets and liabilities are principally carried at fair value
and represent funds that are separately administered for annuity contracts for
which the contract holders bear the investment risk. The assets are legally
segregated from the Company's assets and are not subject to any claims that
arise from any other business of the Company. Investment income and realized
investment gains and losses accrue directly to the contract holders and are
excluded from the accompanying Consolidated Statement of Income.
Income Taxes
The Company files a consolidated life/nonlife federal income tax return with its
parent. The Company establishes deferred tax provisions for temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities at the enacted tax rate expected to be in effect when the
temporary differences reverse. A valuation allowance for deferred tax assets is
provided for the portion of the asset not expected to be realized.
Reinsurance
In the normal course of business, WNIC minimizes its exposure to loss by
reinsuring a portion of its life insurance, annuity, and health insurance risks
with other insurance companies. The Company's policy on claim exposure for life
insurance and
Page 44
<PAGE>
annuity products is to retain a maximum of $300,000 of life insurance exposure
on any one individual ($400,000 with accidental death coverage). Paid-claim
exposure for group insurance products is limited to $750,000 per claim for major
medical coverage and $250,000 per claim for individual stop-loss in any one
calendar year. The Company retains a maximum of 50% of all long-term disability
and long-term care claims. WNIC's reinsurance for individual health insurance
claims is designed to protect the Company from an excessive amount of claims
over $250,000 on an individual claim basis.
The Company cedes reinsurance to entities with A. M. Best ratings of "A" or
better or to entities required to maintain assets in an independent trust fund
whose fair value is sufficient to discharge the obligations of the reinsurer.
Reinsurance contracts do not discharge the Company from its obligations to the
policyholders.
Benefit amounts paid directly by the Company for insurance claims covered
under ceded reinsurance agreements are recorded as reinsurance recoverables to
the extent not already reimbursed. The cost of reinsurance related to
long-duration contracts is accounted for over the life of the underlying
reinsured policies using assumptions consistent with those used to account for
the underlying policies. Reinsurance costs related to short-duration contracts
are amortized over the remaining contract period in proportion to the protection
provided.
Substantially all of the reinsurance assumed by the Company as of December
31, 1995, relates to individual health insurance. This reinsurance is on a 50%
or 100% coinsurance basis and is accounted for in a manner similar to the direct
business.
Note C
New Accounting Standards
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) 114 and SFAS 118, issued by FASB, relating to the impairment of
mortgage loans. The statement requires that loans be identified as impaired when
it is probable that a creditor will be unable to collect all amounts
contractually due. The impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, at
the loan's observable market price, or at the fair value of the collateral if
the loan is collateral dependent. The adoption of this statement did not have an
effect on the Company at January 1, 1995, as the Company had no loans that met
the criteria for impairment.
In December 1995, the Company adopted SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement establishes guidance for recognizing and measuring impairment
losses for long-lived assets, certain identifiable intangibles, and goodwill
related to those assets. The statement applies to those assets to be held and
used and those to be disposed. This statement did not have a material effect on
the Company.
Effective January 1, 1994, the Company adopted SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." The effect of the adoption
resulted in an increase to shareholder's equity of $39,424,000.
Effective January 1, 1993, the Company adopted SFAS 112, "Employers'
Accounting for Postemployment Benefits" resulting in a one-time cumulative
effect adjustment to net income of $1,550,000, net of taxes of $834,000.
Page 45
<PAGE>
Note D
Investments
Fixed Maturities
A comparison of amortized cost to fair value of fixed maturity investments by
category at December 31 follows:
<TABLE>
<CAPTION>
=====================================================================================================================
Gross Unrealized
Amortized ------------------ Fair
(000s omitted) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States government obligations $ 75,750 $ 4,860 $ 66 $ 80,544
Obligations of states and political subdivisions 78,824 3,685 89 82,420
Public utilities 147,206 8,216 296 155,126
Industrial and miscellaneous 989,348 71,124 2,510 1,057,962
Mortgage-backed securities 634,236 19,404 627 653,013
Other 27,950 3,695 -- 31,645
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities $1,953,314 $110,984 $ 3,588 $2,060,710
- ---------------------------------------------------------------------------------------------------------------------
1994
- ---------------------------------------------------------------------------------------------------------------------
Available for sale
United States government obligations $ 74,293 $ 265 $ 4,577 $ 69,981
Obligations of states and political subdivisions 75,555 1,215 5,286 71,484
Public utilities 131,184 20 13,650 117,554
Industrial and miscellaneous 798,018 5,091 53,406 749,703
Mortgage-backed securities 655,286 3,232 49,315 609,203
Other 33,845 63 2,380 31,528
- ---------------------------------------------------------------------------------------------------------------------
Total available for sale 1,768,181 9,886 128,614 1,649,453
- ---------------------------------------------------------------------------------------------------------------------
Held to maturity
United States government obligations 251 -- -- 251
Obligations of states and political subdivisions 22,109 860 45 22,924
Industrial and miscellaneous 86,027 845 2,591 84,281
Mortgage-backed securities 4,529 181 -- 4,710
Other 200 2 -- 202
- ---------------------------------------------------------------------------------------------------------------------
Total held to maturity 113,116 1,888 2,636 112,368
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities $1,881,297 $ 11,774 $131,250 $1,761,821
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
During 1995, the Company sold one "held to maturity" investment with an
amortized cost of $2,000,000. The sale, which resulted in a realized investment
loss of $50,000, was made as a result of significant deterioration of the bond
issuer's creditworthiness.
Page 46
<PAGE>
The amortized cost and fair value of fixed maturities at December 31, 1995,
by contractual maturity, follow. Expected maturities differ from contractual
maturities as borrowers may have the right to call or prepay obligations with or
without penalties.
<TABLE>
<CAPTION>
==============================================================================
Amortized Fair
(000s omitted) Cost Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Due in 1996 $ 8,144 $ 8,186
Due in 1997 - 2000 201,403 210,561
Due in 2001 - 2005 460,056 486,563
Due after 2005 649,475 702,387
Mortgage-backed securities 634,236 653,013
- ------------------------------------------------------------------------------
Total fixed maturities $1,953,314 $2,060,710
- ------------------------------------------------------------------------------
</TABLE>
Mortgage Loans on Real Estate
Information on mortgage loans on real estate at December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
==============================================================================
(000s omitted)
- ------------------------------------------------------------------------------
<S> <C>
Impaired loans
With allowance (net of $135 allowance) $ 2,762
Without allowance 7,640
- ------------------------------------------------------------------------------
Total impaired loans 10,402
Non-impaired loans (net of $7,171 allowance) 306,847
- ------------------------------------------------------------------------------
Total mortgage loans $317,249
- ------------------------------------------------------------------------------
</TABLE>
In 1995, the Company's average investment in impaired mortgage loans was
$5,812,000. Income recognized and received on these loans was $732,000 and
$714,000, respectively.
A rollforward of the allowance for mortgage loan losses follows:
<TABLE>
<CAPTION>
==============================================================================
(000s omitted) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $8,032 $12,031 $11,618
Additions 400 1,501 3,475
Deductions (1,126) (5,500) (3,062)
- ------------------------------------------------------------------------------
Balance at December 31 $7,306 $ 8,032 $12,031
- ------------------------------------------------------------------------------
</TABLE>
Non-Cash Investing Activities
During 1995, 1994, and 1993, non-cash investing activities totaled $10,707,000,
$4,009,000, and $4,869,000, respectively, and consisted of real estate acquired
through foreclosure of fixed maturities and mortgage loans on real estate,
purchase money mortgages, and venture capital distributions of common stock.
Realized Investment Gains and Losses
Details of realized investment gains (losses) for the years ended December 31
follow:
<TABLE>
<CAPTION>
==============================================================================
(000s omitted) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities
Gross gains $ 7,257 $ 2,026 $ 21,513
Gross losses (7,740) (3,760) (12,481)
- ------------------------------------------------------------------------------
Total fixed maturities (483) (1,734) 9,032
Mortgage loans on real estate (52) (82) 2,047
Real estate and other (601) 391 (10,183)
- ------------------------------------------------------------------------------
Realized investment
gains (losses) $(1,136) $(1,425) $ 896
- ------------------------------------------------------------------------------
</TABLE>
Investment Income
Major sources of net investment income for the years ended December 31 follow:
<TABLE>
<CAPTION>
==============================================================================
(000s omitted) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $151,944 $147,396 $141,809
Mortgage loans on real estate 30,587 34,982 42,030
Real estate and other 7,103 8,181 12,906
Policy loans 3,643 3,459 3,460
Short-term 3,206 2,326 2,123
- ------------------------------------------------------------------------------
Gross investment income 196,483 196,344 202,328
Investment expenses 12,337 14,820 18,898
- ------------------------------------------------------------------------------
Net investment income $184,146 $181,524 $183,430
- ------------------------------------------------------------------------------
</TABLE>
Investment expenses consist primarily of real estate expenses.
As of December 31, 1995, the carrying value of investments that produced no
income for the previous twelve month period was $5,249,000 or less than 1% of
invested assets.
Unrealized Investment Gains and Losses
The following table details the net unrealized investment gains and losses
included in shareholder's equity:
<TABLE>
<CAPTION>
==============================================================================
(000s omitted) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized gains $112,849 $ 9,974
Gross unrealized losses (4,316) (128,873)
DAC (37,700) 33,000
Deferred income taxes (21,035) 24,543
Minority interest (4,548) 4,459
- ------------------------------------------------------------------------------
Net unrealized investment
gains (losses) $ 45,250 $(56,897)
- ------------------------------------------------------------------------------
</TABLE>
Fixed maturities had an increase (decrease) in unrealized investment gains of
$226,872,000,
Page 47
<PAGE>
($201,808,000), and $25,438,000 in 1995, 1994, and 1993, respectively.
Note E
Income Taxes
Components of WNIC's deferred tax liabilities and
assets at December 31 follow:
<TABLE>
<CAPTION>
================================================================
(000s omitted) 1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
DAC $ 75,789 $ 97,322
Unrealized investment gains 33,768 --
Joint ventures and venture
capital investments 2,150 1,025
Accrued bond discount 1,630 1,312
Other 1,739 2,791
- ----------------------------------------------------------------
Total deferred tax liabilities 115,076 102,450
Deferred tax assets:
Policy liability adjustments 65,576 63,349
Liabilities for employee benefits 13,723 13,643
Realized investment losses 5,718 11,449
Unrealized investment losses -- 41,452
Other 4,672 4,459
- ----------------------------------------------------------------
Total deferred tax assets 89,689 134,352
Valuation allowance (5,088) (15,598)
- ----------------------------------------------------------------
Deferred tax assets, net of
valuation allowance 84,601 118,754
- ----------------------------------------------------------------
Net deferred tax (assets) liabilities $ 30,475 $(16,304)
- ----------------------------------------------------------------
</TABLE>
Other than capital gain or loss items, the nature of WNIC's
deferred tax assets and liabilities is such that the general
reversal pattern for these temporary differences is expected to
result in a full realization of WNIC's deferred tax assets.
At December 31, 1995, WNIC had capital loss carryforwards
for tax return purposes of $10,959,000, of which $1,498,000 will
expire in 1996 and the remainder in 2000. For financial reporting
purposes, a valuation allowance has been recognized to offset the
deferred tax assets related to those carryforwards, investment
loss reserves, and other capital-loss-related deferred tax assets
not expected to be realized. The valuation allowance was
decreased by $10,510,000 in 1995 and increased by $833,000 in
1994.
The following reconciles the difference between actual tax
expense and the amounts obtained by applying the statutory federal
income tax rate of 35%:
<TABLE>
<CAPTION>
=======================================================================
(000s omitted) 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at statutory rate applied
to income before income taxes and
cumulative effect of change in
accounting principle $16,067 $14,909 $14,419
Tax expense not recognized on certain
GAAP-basis capital gains or losses (1,320) (2,205) (2,870)
Investment income not taxed (487) (733) (1,035)
Amortization of purchase
accounting adjustments 247 247 247
Other 1,018 844 (33)
- ----------------------------------------------------------------------
Income tax expense $15,525 $13,062 $10,728
- ----------------------------------------------------------------------
Comprised of:
Current expense $13,632 $ 9,361 $ 4,476
Deferred expense 1,893 3,701 6,252
- ----------------------------------------------------------------------
Income tax expense $15,525 $13,062 $10,728
- ----------------------------------------------------------------------
</TABLE>
Prior to 1984, the Company was required to accumulate certain untaxed
amounts in a memorandum "policyholders' surplus account." Under the Tax
Reform Act of 1984, the "policyholders' surplus account" balances were
capped at December 31, 1983 and taxed only to the extent distributed to
shareholders or when they exceed certain prescribed limits. The Company
does not intend to make any taxable distributions or to exceed the pre-
scribed limits in the foreseeable future; therefore, no income tax pro-
vision has been made for those purposes. However, if such taxes were
assessed, the amount of tax payable would be approximately, $20,000,000.
As of December 31, 1995, the combined "policyholders' surplus account"
of the Company approximates $57,000,000.
Under current and prior law, income of the Company taxed on a current
basis is accumulated in a shareholder's surplus account and can be dis-
tributed without tax to WNIC. At December 31, 1995, this shareholder's
surplus was $270,000,000.
Income taxes paid by WNIC were $12,969,000, $8,120,000 and $4,100,000
in 1995, 1994, and 1993, respectively. WNIC has a nonlife net operating
loss carryforward for tax purposes of $273,000 that will begin to expire
in 2008.
The Internal Revenue Service is currently examining the Company's
tax returns for 1992 through 1994.
Page 48
<PAGE>
Note F
Reinsurance
The effect of reinsurance on insurance premiums and policy charges earned for
short duration and long duration contracts for the years ended December 31
follows:
<TABLE>
<CAPTION>
================================================================
Short Long
(000s omitted) Duration Duration Total
- ----------------------------------------------------------------
1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums and policy
charges $302,151 $203,478 $505,629
Premiums assumed 51,463 1,751 53,214
Premiums ceded (3,671) (53,600) (57,271)
- ----------------------------------------------------------------
Net premiums and policy
charges $349,943 $151,629 $501,572
- ----------------------------------------------------------------
1994
- ----------------------------------------------------------------
Direct premiums and policy
charges $272,400 $201,043 $473,443
Premiums assumed 55,044 1,596 56,640
Premiums ceded (4,670) (57,027) (61,697)
- ----------------------------------------------------------------
Net premiums and policy
charges $322,774 $145,612 $468,386
- ----------------------------------------------------------------
1993
- ----------------------------------------------------------------
Direct premiums and policy
charges $274,828 $195,789 $470,617
Premiums assumed 23,210 7,812 31,022
Premiums ceded (5,047) (57,770) (62,817)
- ----------------------------------------------------------------
Net premiums and policy
charges $292,991 $145,831 $438,822
- ----------------------------------------------------------------
</TABLE>
The Company's written premiums for short duration contracts do not vary
materially from premiums earned.
Reinsurance benefits ceded were $20,862,000, $22,850,000, and $22,685,000,
in 1995, 1994, and 1993, respectively.
As a result of past divestitures, the Company reinsures 100% of certain
supplemental health insurance, life insurance, and annuity business with
unaffiliated companies. At December 31, 1995, 52% of WNIC's total reinsurance
recoverables were due from Combined Insurance Company of America, and 14% were
due from American Founders Life Insurance Company. In addition, 18% of
reinsurance recoverables were due from UNUM Life Insurance Company in the normal
course of business.
For 1995, 31% and 66% of reinsurance premiums assumed were from Harvest
Life Insurance Company and National Casualty Company, respectively. These
reinsurance agreements provide that the Company reinsure blocks of individual
major medical business issued by National Casualty Company and Harvest Life
Insurance Company on a 50% and 100% coinsurance basis, respectively. The Company
also administers 100% of the National Casualty Company business.
The Company uses yearly renewable term reinsurance at its insurance
subsidiary to maintain statutory profitability and other statutory financial
requirements while sustaining growth. The cumulative contribution to statutory
basis capital and surplus from this reinsurance was $8,202,000 and $9,044,000 at
December 31, 1995 and 1994, respectively. These transactions do not materially
impact the Company's GAAP financial statements.
Note G
Defined Benefit and Contribution Plans
Retirement Plans
The Company has three qualified defined contribution retirement plans: a
non-contributory money-purchase retirement plan, a non-contributory
discretionary profit sharing plan, and a contributory 401(k) plan. The plans
cover substantially all employees who have met the prescribed requirements for
participation. The Company contribution to the money-purchase retirement plan is
3% of each employee's compensation plus an additional 3% of compensation in
excess of the Social Security wage base. The Company contribution to the profit
sharing plan is at the discretion of both WNIC and UPI's Boards of Directors in
consultation with WNC's Board of Directors and is based on financial
performance. Employees may contribute up to 12% of compensation to the 401(k)
plan. The Company matches employee contributions dollar for dollar up to a
maximum of 3% of compensation. The net pension expense for the defined
contribution plans in 1995, 1994, and 1993 was $3,251,000, $3,006,000 and
$3,760,000, respectively. The Company has a non-qualified supplemental
retirement plan under which benefits are paid to certain employees equal to the
amounts by which the qualified plan benefits are reduced due to provisions of
the Internal Revenue Code (IRC). At both December 31, 1995 and 1994, the
unfunded liability for the supplemental retirement plan was not material.
The Company has defined benefit retirement plans that cover certain
grandfathered employees and agents. Benefits are based principally on years
Page 49
<PAGE>
of service and compensation. The funding policies are to contribute annually at
least the minimum amounts required by the IRC. The plans have been amended to
terminate the accrual of future benefits which resulted in a curtailment gain.
Contributions are intended to provide benefits attributed to service to date.
Plan assets are invested principally in mutual funds, bonds, and stocks.
The fair value of WNC Common and Preferred Stock held by one of the retirement
plans was $12,408,000 and $8,580,000, at December 31, 1995 and 1994,
respectively. Dividends of $492,000 were received on the WNC Common and
Preferred Stock in both 1995 and 1994. No WNC shares were purchased or sold
during 1995 or 1994.
The components of net periodic pension income for the defined benefit plans
for the years ended December 31 follow:
================================================================
(000s omitted) 1995 1994 1993
- ----------------------------------------------------------------
Interest cost on projected
benefit obligations $ 1,734 $ 1,824 $ 1,923
Actual return on plan assets (3,419) (419) (2,035)
Net amortization and deferral 1,118 (2,054) (642)
Curtailment gain -- -- (491)
Service cost for benefits earned -- -- 99
- ----------------------------------------------------------------
Net periodic pension
income $ (567) $ (649) $(1,146)
- ----------------------------------------------------------------
The funded status and the amounts reported in WNIC's Consolidated Balance
Sheet as part of other liabilities for the defined benefit plans at December 31
follow:
=========================================================
(000s omitted) 1995 1994
- ---------------------------------------------------------
Actuarial present value of
accumulated benefit obligations:
Vested $(26,501) $(23,759)
Non-vested (78) (118)
- ---------------------------------------------------------
Accumulated benefit obligations $(26,579) $(23,877)
- ---------------------------------------------------------
Projected benefit obligations $(26,579) $(23,877)
Plan assets at fair value 25,482 22,794
- ---------------------------------------------------------
Projected benefit obligations in
excess of plan assets $ (1,097) $ (1,083)
- ---------------------------------------------------------
Comprised of:
Prepaid pension cost $ 3,190 $ 1,526
Unrecognized actuarial net loss (8,207) (7,835)
Unrecognized transition asset 3,920 5,226
- ---------------------------------------------------------
Total $ (1,097) $ (1,083)
- ---------------------------------------------------------
The actuarial assumptions used to measure the projected benefit obligation
include:
======================================================
1995 1994 1993
- ------------------------------------------------------
Weighted-average discount
rate 7.0% 7.5% 6.7%
Weighted-average expected
rate of return on plan assets 7.6% 7.6% 7.5%
- ------------------------------------------------------
The transition asset is being amortized over a fourteen-year period.
Actuarial gains and losses are deferred and then amortized over a fourteen-year
period when the cumulative deferred amounts exceed certain limits.
GAAP required employers to recognize a minimum liability at least equal to
the unfunded accumulated benefit obligation. WNIC's prepaid pension cost was
less than the unfunded accumulated benefit obligation requiring a pretax
adjustment of $4,287,000 and $2,769,000 at December 31, 1995 and 1994,
respectively, with an offset to shareholder's equity.
Postretirement Benefit Plan
In addition to the Company's retirement programs, a contributory group life and
medical insurance plan is provided to certain eligible retirees and certain
grandfathered active employees who have met a combination of age and service
requirements. The plan was amended in 1992 to limit the future eligibility of
benefits for active employees. The plan pays a stated percentage of most medical
expenses, reduced for deductibles and payments made by government programs or
other group coverage. Certain active employees who are not included in the
grandfathered group are eligible for $10,000 of life insurance benefits under
the plan after reaching a combination of age and service requirements.
In 1993, the Company established a Voluntary Employees' Beneficiary
Association (VEBA) trust under section 501(c)(9) of the IRC for the purpose of
paying out postretirement benefits to plan participants. The VEBA is funded
annually, based on the difference between the net periodic postretirement
benefit expense as measured by statutory accounting rules and the retiree
medical claims incurred during the respective periods, subject to certain IRC
limitations. Assets of the VEBA trust are invested in two-year U.S. Treasury
notes and corporate demand notes.
Page 50
<PAGE>
The components of net periodic postretirement benefit expense for the years
ended December 31 follow:
===================================================================
(000s omitted) 1995 1994 1993
- -------------------------------------------------------------------
Interest cost $1,904 $1,994 $2,061
Service cost 49 56 61
Return on plan assets (224) (28) --
Net amortization and deferral 84 227 (14)
- -------------------------------------------------------------------
Net periodic postretirement
benefit expense $1,813 $2,249 $2,108
- -------------------------------------------------------------------
The funded status of the plan and the amount recognized in WNIC's
consolidated balance sheet as part of other liabilities at December 31 follow:
====================================================================
(000s omitted) 1995 1994
- --------------------------------------------------------------------
Accumulated postretirement
benefit obligation
Retirees, dependents, and disabled
participants $(27,578) $(25,022)
Fully eligible active plan
participants (997) (846)
Other active plan participants (1,048) (661)
- --------------------------------------------------------------------
Total accumulated postretirement
benefit obligation (29,623) (26,529)
Fair value of plan assets 4,516 2,726
- --------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets $(25,107) $(23,803)
- --------------------------------------------------------------------
Comprised of
Accrued postretirement benefit expense $(23,074) $(24,392)
Unrecognized net gain (loss) (2,215) 393
Unrecognized prior service cost 182 196
- --------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets $(25,107) $(23,803)
- --------------------------------------------------------------------
The actuarial assumptions used to measure the postretirement benefit
obligation include:
====================================================================
1995 1994
- --------------------------------------------------------------------
Weighted-average discount rate 7.0% 7.5%
Weighted-average after-tax expected
rate of return on plan assets 4.6% 4.6%
Estimated income tax rate 34% 34%
- --------------------------------------------------------------------
The health care trend rate used in 1995 was 11.5% for pre-age 65 and 9.7% for
post-age 65 participants, graded evenly to 5% in 14 years. The health care cost
trend rate in 1994 was 12% for pre-age 65 and 10% for post-age 65 participants,
graded evenly to 5% in 15 years. The health care cost trend rate assumption has
a significant effect on the amounts reported. Increasing the trend rate by 1%
per year would increase the accumulated postretirement benefit obligation by
$2,713,000 at December 31, 1995 and the aggregate of the service and interest
cost components of net periodic postretirement benefit expense by $171,000 in
1995.
Note H
Commitments and Contingencies
Leases
WNIC has noncancelable operating leases primarily for office space and office
equipment, the most significant of which is a twenty-year lease of the home
office building with a related party as lessor. Future minimum lease payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 1995 follow:
====================================================================
(000s omitted)
- --------------------------------------------------------------------
1996 $ 7,828
1997 7,102
1998 5,364
1990 4,430
2000 3,974
Thereafter 44,569
- --------------------------------------------------------------------
Total minimum lease commitments $73,267
- --------------------------------------------------------------------
Rental expenses were $7,161,000, $6,189,000, and $6,900,000, in 1995, 1994,
and 1993, respectively.
Financial Guarantees
The Company has entered into certain financial guarantees. A financial guarantee
is a conditional commitment to guarantee the payment of an obligation by an
unrelated entity to a third party and has off-balance sheet credit risk. The
exposure to credit risk is represented by the amount the Company would be
required to pay under certain circumstances.
At December 31, 1995, the Company had three financial guarantees totaling
$13,733,000, as well as a construction completion guarantee. At December 31,
1994 the Company had two financial guarantees totaling $15,206,000.
The Company feels it has adequate reserves for related potential losses.
Page 51
<PAGE>
Litigation
WNIC has been named in various pending legal proceedings considered to be
ordinary routine litigation incidental to the business of such companies. A
number of other legal actions have been filed which demand compensatory and
punitive damages aggregating material dollar amounts. WNIC believes that such
suits are substantially without merit and that valid defenses exist. WNIC's
management and its chief legal officer are of the opinion that such litigation
will not have a material effect on WNIC's results of operations or consolidated
financial position.
State Guaranty Funds
Under insolvency or guaranty laws in most states in which the Company and its
insurance subsidiary operate, insurers can be assessed for policyholder losses
incurred by insolvent insurance companies. At present, most insolvency or
guaranty laws provide for assessments based on the amount of insurance
underwritten in a given jurisdiction. The Company paid $1,934,000, $2,850,000,
and $2,500,000 in state guaranty fund assessments in 1995, 1994, and 1993,
respectively, and had accrued liabilities of $3,478,000 and $3,128,000 for
estimated future assessments at December 31, 1995 and 1994, respectively.
The Company's accounting policy with regard to payments to state guaranty
funds is to treat as assets any such payments in those states where current law
allows an offset against future premium taxes. At December 31, 1995 and 1994,
other assets included $5,226,000 and $5,464,000, respectively, of deferred
payments to state guaranty funds. Generally, these amounts will be used to
offset future premium tax payments over periods from five to ten years. Under
certain circumstances, including changes in state laws and a change in the
Company's product mix, such amounts might become unrecoverable.
Health Care Reform
The Company's products are subject to governmental regulation at both the
federal and state level. Currently, there are numerous health care reform
proposals at both of these levels, some of which, if enacted, could have a
significant impact on the Company's revenues and income.
Note I
Statutory Financial Information
WNIC and its insurance subsidiary prepare statutory financial statements in
accordance with accounting principles and practices prescribed or permitted by
the insurance department of the applicable state of domicile. Prescribed
statutory accounting practices (SAP) currently include state laws, regulations,
and general administrative rules applicable to all insurance enterprises
domiciled in a particular state, as well as practices described in National
Association of Insurance Commissioners' publications. Permitted practices
include practices not prescribed, but allowed, by the domiciliary state
insurance department. The prescribed and permitted statutory accounting
practices differ from GAAP.
Current statutory practice does not address reserves for certain endowment
features of several life insurance products marketed by the Company's insurance
subsidiary. The subsidiary uses a practice permitted by its state of domicile
and discounts the future benefit using mortality and interest rate assumptions.
SAP to GAAP Reconciliation
A reconciliation of SAP capital and surplus to GAAP shareholder's equity at
December 31 follows:
=======================================================================
(000s omitted) 1995 1994
- -----------------------------------------------------------------------
SAP capital and surplus $ 231,930 $ 221,270
DAC 235,499 293,850
Adjustments to policy liabilities (115,937) (119,521)
Unrealized gain (loss) on fixed
maturities 107,396 (118,728)
Asset valuation and interest maintenance
reserves 34,700 29,005
Deferred income taxes (30,475) 16,304
Postretirement and pension liabilities (26,969) (28,313)
Goodwill 18,385 19,092
Minority interest (56,381) (44,157)
Other, net (16,753) (9,875)
- -----------------------------------------------------------------------
GAAP shareholder's equity $ 381,395 $ 258,927
- -----------------------------------------------------------------------
Page 52
<PAGE>
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
===========================================================================
(000s omitted) 1995 1994 1993
- ---------------------------------------------------------------------------
SAP net income $18,278 $18,633 $10,954
DAC 11,561 3,894 15,282
Adjustments to policy benefits 1,653 1,270 401
Financial reinsurance 1,800 -- (3,500)
Deferred income taxes (1,893) (3,700) (6,262)
Cumulative effect of change
in accounting principle -- -- (1,550)
Other, net (1,021) 9,437 13,595
- ---------------------------------------------------------------------------
GAAP net income $30,378 $29,534 $28,920
- ---------------------------------------------------------------------------
Dividends To Parent
The amount of dividends available for distribution without prior regulatory
approval is limited by regulatory restrictions. This amount is the greater of:
a) 10% of the insurance subsidiary's statutory capital and surplus as of the
preceding year end; or b) the insurance subsidiary's statutory net income from
operations for the preceding year. WNIC is permitted a maximum of $20,832,000 in
dividend distributions to WNC in 1996.
Note J
Borrowings and Credit Arrangements
Borrowings
Borrowings of $2,484,000 at December 31, 1995 consist of a mortgage on
investment real estate with an interest rate of 6.5% that matures in July, 1997
and a non-interest bearing promissory note for $1,175,000 payable to WNC in May,
1996. Payments of $1,665,000 and $922,000 will be required in 1996 and 1997,
respectively. For the mortgage loan, the property, with a carrying value of
$14,007,000 is pledged as collateral.
Interest paid on borrowings by WNIC was $110,000, $405,000, and $1,670,000,
in 1995, 1994, and 1993, respectively.
Credit Arrangements
WNIC has a $10,000,000 short-term line of credit with one bank which is also
available to WNC. At December 31, 1995, WNC had used $3,100,000 of this line of
credit. The interest rate on this borrowing was 6.9%. The line of credit
arrangement is renewable annually, but credit can be withdrawn at the bank's
option.
In addition, WNIC has five letters of credit with varying terms and
conditions totaling $2,821,000.
As of December 31, 1995, the entire amount was unused.
Note K
Policy Liabilities
Detail of WNIC's policy liabilities at December 31 follows:
===========================================================================
(000s omitted) 1995 1994
- ---------------------------------------------------------------------------
Future policy benefits
Annuities $1,228,947 $1,278,252
Life 837,990 790,894
Policy and contract claims 219,755 213,572
Unearned premiums 37,382 33,220
Other 39,255 38,880
- ---------------------------------------------------------------------------
Total policy liabilities $2,363,329 $2,354,818
- ---------------------------------------------------------------------------
Activity in the liability for short duration unpaid claims and short
duration claim adjustment expense (included in policy and contract claims and a
component of general expenses and other liabilities) follows:
===========================================================================
(000s omitted) 1995 1994 1993
- ---------------------------------------------------------------------------
Balance at January 1 $215,351 $210,348 $202,322
Less: reinsurance recoverables 11,741 11,547 11,956
- ---------------------------------------------------------------------------
Net balance at January 1 203,610 198,801 190,366
Incurred relating to:
Current year 313,291 291,209 260,144
Prior years (19,562) (31,296) (26,638)
- ---------------------------------------------------------------------------
Total incurred 293,729 259,913 233,506
- ---------------------------------------------------------------------------
Paid relating to:
Current year 203,924 179,762 151,989
Prior years 83,905 75,342 73,082
- ---------------------------------------------------------------------------
Total paid 287,829 255,104 225,071
- ---------------------------------------------------------------------------
Net balance at December 31 209,510 203,610 198,801
- ---------------------------------------------------------------------------
Add: reinsurance recoverables 10,248 11,741 11,547
- ---------------------------------------------------------------------------
Balance at December 31 $219,758 $215,351 $210,348
- ---------------------------------------------------------------------------
Page 53
<PAGE>
Note L
Fair Value of Financial Instruments
The fair values of certain financial instruments along with their corresponding
carrying values at December 31, 1995 and 1994 follow. As the fair value of all
WNIC's assets and liabilities is not presented, this information in the
aggregate does not represent the underlying value of WNIC. WNIC does not have
any financial instruments held or issued for trading purposes.
<TABLE>
<CAPTION>
========================================================================================================================
1995 1994
------------------------ ------------------------
Fair Carrying Fair Carrying Valuation
(000s omitted) Value Value Value Value Method
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial assets
Fixed maturities $2,060,710 $2,060,710 $1,761,821 $1,762,569 (1)
Equity securities 1,994 1,994 1,720 1,720 (1)
Mortgage loans on real estate 336,366 317,249 366,373 357,641 (2)
Policy loans 53,665 56,279 52,600 54,368 (3)
Separate Account investment 11,840 11,840 11,327 11,327 (4)
Cash and short-term investments 52,772 52,772 55,311 55,311 (4)
Investment proceeds receivable 2,289 2,289 1,094 1,094 (4)
Accrued investment income 32,652 32,652 33,084 33,084 (4)
Financial liabilities
Investment-type insurance contracts 1,131,665 1,161,263 1,174,017 1,203,608 (3)
Mortgage payable 1,328 1,309 1,854 1,907 (2)
Short-term borrowings 1,175 1,175 1,175 1,175 (4)
Off-balance sheet
Real estate development guarantees 157 -- 80 -- (5)
Lending commitments 15 -- 105 -- (6)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fair values are based on publicly quoted market prices at the close of
trading on the last business day of the year. In cases where publicly
quoted market prices are not available, fair values are based on estimates
using values obtained from independent pricing services, or, in the case of
private placements, by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality, and maturity
of the investments.
(2) Fair values are estimated using discounted cash flow analyses, based on
interest rates currently being offered for similar loans to borrowers with
similar credit ratings. A pricing cap is put on mortgage loans that carry
significant above-market interest rate yields to reflect the prepayment
risk.
(3) Fair values are estimated using discounted cash flow calculations, based on
interest rates currently being offered for similar contracts with similar
maturities.
(4) Carrying value approximates fair value.
(5) Fair values are based on estimates of fees to guarantee similar
developments. In addition, the Company has a construction completion
guarantee pertaining to a joint venture investment. The Company does not
feel that estimating a fair value for the instrument is practicable due to
the inability to estimate cash flows. See Note H for further discussion of
guarantees.
(6) Fair values are based on commitment fees of the loans in question.
Page 54
<PAGE>
Note M
Segment Information
WNIC has three business segments: life insurance and annuities; specialty health
insurance; and corporate and other. The segments are based on WNIC's insurance
products and organization. The corporate and other segment includes realized
investment gains and losses and operations that do not specifically support the
other segments. Assets not individually identifiable by segment are allocated,
generally, based on the amount of segment liabilities. Depreciation expense and
capital expenditures are not material. Revenues, income before income taxes and
cumulative effect of change in accounting principle (net of minority interest
in the life insurance and annuities segment), and assets by segment for the
years ended and at December 31 follow:
<TABLE>
<CAPTION>
================================================================================
(000s omitted) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Life insurance and annuities $ 234,127 $ 229,732 $ 228,950
Specialty health insurance 453,993 420,982 394,562
Corporate and other 8,274 5,913 5,960
- --------------------------------------------------------------------------------
Consolidated total $ 696,394 $ 656,627 $ 629,472
- --------------------------------------------------------------------------------
Income before income taxes
and change in accounting principle
Life insurance and annuities $ 30,408 $ 30,240 $ 27,739
Specialty health insurance 9,541 5,895 11,500
Corporate and other 5,954 6,461 1,959
- --------------------------------------------------------------------------------
Consolidated total $ 45,903 $ 42,596 $ 41,198
- --------------------------------------------------------------------------------
Assets
Life insurance and annuities $2,431,653 $2,274,005 $2,291,529
Specialty health insurance 367,553 321,481 344,245
Corporate and other 210,267 210,871 205,618
- --------------------------------------------------------------------------------
Consolidated total $3,009,473 $2,806,357 $2,841,392
- --------------------------------------------------------------------------------
</TABLE>
Actuarial estimates are used in determining certain policy liabilities and
deferred acquisition costs which in turn effect the reported profitability of
the operating segments. Actual results can differ materially from these
actuarial estimates. In addition, changes in these estimates, where required,
may have a significant effect on reported net income, especially in the year of
the change.
The profits of the life insurance and annuities segment are highly
dependent on interest rate spreads, which is the difference between the amount
earned on investments and the amount credited to policyholders. Increases in
market interest rates could result in the need to credit higher rates to
policyholders without a comparable increase in the rate earned on the Company's
invested assets; they could also result in customers surrendering their policies
to obtain higher rates from other insurance companies or alternative products.
Decreases in market interest rates could result in inadequate spreads due to the
inability to lower credited rates below certain minimum guarantees as to such
rates.
The Company's health insurance profits are dependent in part on the
Company's ability to adequately predict and price medical care inflation and
increased policyholder utilization of medical services. Actual results of these
items can differ significantly from the Company's assumptions.
The profitability of most of the Company's products depends on the ability
to attract and retain customers at a price level sufficient to cover the various
expenses incurred by the Company. The nature of these products is such that
customers can in most cases easily transfer to other insurance carriers offering
more attractive coverage. The profitability of the products may change over time
depending on the degree of competition in the markets for such products.
<PAGE>
APPENDIX A
COMMERCIAL PAPER AND BOND RATINGS
Standard & Poor's Corporation (Standard & Poor's) and Moody's Investors Service,
Inc. ("Moody's") ratings:
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest. The
"A," "A-1" and "A-2" categories are described as follows:
"A" Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designations 1, 2 and 3 to indicate the relative degree of safety.
"A-1" This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be noted with a plus (+)
sign designation.
"A-2" Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as
for issues designated "A-1."
Moody's employs three designations all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations are as follows:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-1
<PAGE>
BOND RATINGS
Standard & Poor's
AAA Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small
degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
BB, B, CCC, CC Debt rated BB, CCC, or CC is regarded, on balance, as
predominately speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "CC" the highest degree
of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C This rating is reserved for income bonds on which no interest is being
paid.
D Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus to show relative standing within the major rating
categories.
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as an Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities.
A-2
<PAGE>
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
A-3
<PAGE>
APPENDIX B
SHORT-TERM PORTFOLIO SUB-ACCOUNT INVESTMENTS
The Short-Term Portfolio Sub-Account and the other Sub-Accounts may invest in
these liquid, short-term debt securities:
1. U.S. Treasury Bills and other obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities. These are debt
securities (including bills, certificates of indebtedness, notes, and
bonds) issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government that is established under the
authority of an act of Congress. Such agencies or instrumentalities
include, but are not limited to, the Federal National Mortgage
Association, the Federal Farm Credit Bank, and the Federal Home Loan
Bank. Although all obligations of agencies and instrumentalities are
not direct obligations of the U.S. Treasury, payment of the interest
and principal on them is generally backed directly or indirectly by the
U.S. Government. This support can range from the backing of the full
faith and credit of the United States, to U.S. Treasury guarantees, or
to the backing solely of the issuing instrumentality itself.
2. Certificates of deposit, bankers' acceptances and time deposits of
banks having assets (as most recently reported) in excess of $1
billion. Certificates of deposit issued by U.S. branches of foreign
banks are eligible for purchase if the branches are subject to state
banking laws, Federal Reserve reporting requirements and have a minimum
U.S. deposit size of $1 billion. Certificates of deposit issued by
foreign branches of U.S. banks may also be purchased if the dollar
deposit of the branch exceeds $1 billion. Certificates of deposit
issued for foreign branches of U.S. banks are not governed by U.S.
banking and securities laws and may be influenced by future political
and economic developments and governmental restrictions. The term
"certificates of deposit" includes both Eurodollar certificates of
deposit, which are traded in the over-the-counter market, and
Eurodollar time deposits, for which there is generally not a market.
"Eurodollars" are dollars deposited in banks outside the United States.
An investment in Eurodollar instruments involves risks that are
different in some respects from an investment in debt obligations of
domestic issuers, including future political and economic developments
such as possible expropriation or confiscatory taxation that might
adversely affect the payment of principal and interest on the
Eurodollar instruments. In addition, there might be less publicly
available information about a foreign bank than about a domestic bank,
and such foreign banks may not be subject to the same accounting,
auditing, and financial standards and requirements as domestic banks.
Finally, in the event of default, judgments against a foreign issuer
might be difficult to obtain or enforce. "Certificates of deposit" are
certificates evidencing the indebtedness of a commercial bank to repay
funds deposited with it for a definite period of time (usually from
fourteen days to one year). "Bankers' acceptances" are credit
instruments evidencing the obligation of a bank to pay a draft which
has been drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of
the instrument upon maturity. "Time deposits" are non-negotiable
deposits in a bank for a fixed period of time.
3. Commercial paper issued by domestic corporations which at the date of
investment is rated "high quality" by Moody's or Standard & Poor's,
provided that in no event will the Sub-Account purchase commercial
paper rated lower than Prime-2 by Moody's or A-2 by Standard & Poor's
or, if not rated, issued by domestic corporations which have an
outstanding senior long-term debt issue rated Aa or better by Moody's
or Aa or better by Standard & Poor's. See Appendix A for an explanation
of the ratings issued by Moody's and Standard & Poor's. "Commercial
paper"
B-1
<PAGE>
consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their
current operations.
4. Other corporate obligations issued by domestic corporations which at
the date of investment are rated Aa or better by Moody's or AA or
better by Standard & Poor's. See Appendix A for rating information.
"Corporate obligations" are bonds and notes issued by corporations and
other business organizations, including business trusts, in order to
finance their long-term credit needs.
5. Variable amount demand master notes issued by domestic corporations
which, at the date of investment, either (a) have an outstanding senior
long-term debt issue rated Aa or better by Moody's or AA or better by
Standard & Poor's or (b) do not have rated long-term debt outstanding
but have commercial paper rated at least Prime-2 by Moody's or A-2 by
Standard & Poor's. Variable amount demand master notes are unsecured
obligations that permit the investment by the Sub-Account of amounts
that may fluctuate daily, at varying rates of interest pursuant to
direct arrangements between the Sub-Account and the issuing
corporation. Although callable on demand by the Sub-Account, these
obligations are not marketable to third parties. They will not be
purchased unless the investment adviser has determined that the
issuer's liquidity is such as to enable it to pay the principal and
interest immediately upon demand.
REPURCHASE AGREEMENTS
We may enter into repurchase agreements with member banks of the Federal Reserve
System or with government securities dealers recognized by the Federal Reserve
Board. In a repurchase agreement transaction, a buyer invests the cash for
negotiated periods at prevailing market rates by purchasing securities from a
securities dealer or commercial bank and agreeing to resell such securities to
the seller at a later date at a specified price. Upon resale, the buyer receives
the Proceeds, plus an amount which represents interest on the Proceeds. The
period of maturity is usually quite short, possibly overnight or a few days,
although it may extend over a number of months. The resale price is in excess of
the purchase price, reflecting an agreed-upon market rate effective for the
period of time the Sub-Account's money is invested in the security, and is not
related to the coupon rate of the purchased security. Repurchase agreements may
be considered loans of money to the seller of the underlying security, which are
collateralized by the securities underlying the repurchase agreement. The Sub-
Account will not enter into repurchase agreements unless the agreement is "fully
collateralized," i.e., the value of the securities is, and during the entire
term of the agreement remains, at least equal to the amount of the "loan"
including accrued interest. The Sub-Account will take possession of the
securities underlying the agreement and will value them daily to assure that
this condition is met. The Sub-Account will make payment for such securities
only upon physical delivery of the certificates or evidence of book-entry
transfer to the account of the safekeeper of securities.
The Sub-Account has established standards for the parties with whom it will
enter into repurchase agreements which it believes are reasonably designed to
assure that such a party presents no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
agreement. In the event that a seller defaults on a repurchase agreement, the
Sub-Account may incur a loss on disposition in market value of the collateral;
and, if a party with whom the Sub-Account had entered into a repurchase
agreement becomes involved in bankruptcy proceedings, the Sub-Account's ability
to realize on the collateral may be limited or delayed.
B-2
<PAGE>
REVERSE REPURCHASE AGREEMENTS
The Sub-Account may enter into reverse repurchase agreements with banks, which
agreements have the characteristics of borrowing and involve the sale of
securities held by the Sub-Account with an agreement to repurchase the
securities at an agreed upon price and date, which reflect a rate of interest
paid for the use of funds for the period. Generally, the effect of such a
transaction is that the Sub-Account can recover all or most of the cash invested
in the securities involved during the term of the reverse repurchase agreement,
while in many cases it will be able to keep some of the interest income
associated with those securities. Such transactions are only advantageous if the
Sub-Account has an opportunity to earn a greater rate of interest on the cash
derived from the transaction than the interest cost of obtaining that cash. The
Sub-Account may be unable to realize a return from the use of the proceeds equal
to or greater than the interest required to be paid. Opportunities to achieve
this advantage may not always be available, and the Sub-Account intends only to
use the reverse repurchase technique when it appears to be to its advantage to
do so. The use of reverse repurchase agreements may exaggerate any increase or
decrease in the value of the Sub-Account's securities. The Sub-Account's
custodian bank will maintain in a separate account securities of the Sub-Account
that have a value equal to or greater than the Sub-Account's commitments under
reverse repurchase agreements. The value of the securities subject to reverse
repurchase agreements will not exceed 10% of the value of the Sub-Account's
total assets.
WHEN ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Short-Term Portfolio
Sub-Account may purchase securities on a when-issued or delayed delivery basis,
i.e., delivery and payment can take place a month or more after the date of the
transaction. The purchase price and the interest rate payable on the securities
are fixed on the transaction date. The securities so purchased are subject to
market fluctuation, and no interest accrues to the Sub-Account until delivery
and payment take place. At the time the Sub-Account makes the commitment to
purchase securities on a when-issued or delayed delivery basis, it will record
the transaction and thereafter reflect the value, each day, of such securities
in determining its net asset value. The Sub-Account will make commitments for
when-used transactions only with the intention of actually acquiring the
securities and, to facilitate such acquisitions, the Sub-Account's custodian
bank will maintain in a separate account securities of the Sub-Account having a
value equal to or greater than such commitments. On delivery dates for such
transactions, the Sub-Account will meet its obligations from maturities or sales
of the securities held in the Separate Account and/or from the then available
cash flow. If the Sub-Account chooses to dispose of the right to acquire a when-
issued security prior to its acquisition, it could, as with the disposition of
any other obligation, incur a gain or loss due to market fluctuation. No when-
issued commitments will be made if, as a result, more than 15% of the Sub-
Account's net assets would be so committed.
RISK FACTORS
Because of the variability of interest rates and the risks inherent in
investment in money market instruments and other securities, there can be no
assurance that the investment objective will be obtained. To the extent that
investments are made in the instruments of nongovernmental issuers, these
assets, despite favorable credit ratings, are subject to some risk of default.
Moreover, investment yields on relatively short-term obligations such as will
comprise the portfolio, are subject to substantial and rapid fluctuation. The
value of the assets generally will vary inversely to changes in interest rates.
If interest rates increase after an issue is purchased, the security, if sold
prior to maturity, may return less than its cost. Current yield levels should
not be considered representative of yields for any future period of time.
B-3
<PAGE>
Moreover, should many contract owners change from this Sub-Account to other Sub-
Accounts at about the same time, the Sub-Account might have to sell portfolio
securities at a time when it would be disadvantageous to do so, and at a lower
price than if such securities were held to maturity.
B-4
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
PART C
OTHER INFORMATION
ITEM 28. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements:
--------------------
The following financial statements of Separate Account I of Washington
National Insurance Company and of Washington National Insurance Company,
together with the reports of independent auditors, are filed in Part B:
Report of Ernst & Young LLP, Independent Auditors for Separate
Account I of Washington National Insurance Company.
Statement of Assets and Liabilities as of December 31, 1995 for
Separate Account I of Washington National Insurance Company.
Portfolio of Investments as of December 31, 1995 for Separate
Account I of Washington National Insurance Company.
Statement of Operations of Separate Account I of Washington
National Insurance Company for the year ended December 31, 1995.
Statement of Changes in Net Assets for Separate Account I of
Washington National Insurance Company for each of the years ended
December 31, 1995 and 1994.
Notes to Financial Statements of Separate Account I of Washington
National Insurance Company.
Supplementary Information--Selected Per Accumulation Unit Data
and Ratios for Separate Account I of Washington National
Insurance Company.
Report of Independent Auditors for Washington National Insurance
Company.
Consolidated Balance Sheet of Washington National Insurance
Company as of December 31, 1995 and 1994.
<PAGE>
Consolidated Statement of Income of Washington National Insurance
Company for each of the three years in the period ended December
31, 1995.
Consolidated Statement of Cash Flows for Washington National
Insurance Company for each of the three years in the period ended
December 31, 1995.
Consolidated Statement of Shareholder's Equity for Washington
National Insurance Company for each of the three years in the
period ended December 31, 1995.
Notes to Consolidated Financial Statements of Washington National
Insurance Company.
There are no financial statements included in Part A.
(b) Exhibits:
--------
Exhibit Number Description of Exhibit
-------------- ----------------------
(1) Resolution of Executive Committee of Board of Directors
of Washington National Insurance Company establishing
Separate Account I of Washington National Insurance
Company. (1)
(2) Rules and Regulations of Separate Account I of
Washington National Insurance Company, as amended. (2)
(3) Custody Agreement dated May 1991 among Washington
National Insurance Company, Separate Account I of
Washington National Insurance Company and Continental
Bank, N.A. (3)
(4)(a) Investment Management Agreement dated July 26, 1983
between Washington National Insurance Company and
Separate Account I of Washington National Insurance
Company. (2)
(4)(b) Investment Sub-Advisory Agreement, effective January 1,
1994, between NBD Bank and Separate Account I of
Washington National Insurance Company. (12)
-C-2-
<PAGE>
(5)(a) Administrative Services Agreement dated July 26, 1983
between Separate Account I of Washington National
Insurance Company and Washington National Insurance
Company. (2)
(b) Distribution Agreement dated July 26, 1983 between
Separate Account I of Washington National Insurance
Company and Washington National Equity Company. (2)
(c) Agreement dated July 26, 1983 between Washington
National Insurance Company and Washington National
Equity Company. (2)
(d) Form of Agent Agreement among Washington
National Insurance Company, Washington National Equity
Company and agents. (2)
(6)(a) Non Qualified Individual Variable Annuity Contract. (4)
(b) Tax Qualified Individual Variable Annuity Contract. (4)
(c) Non Qualified Group Allocated Variable Annuity
Contract. (4)
(d) Certificate for Non Qualified Group Allocated Variable
Annuity Contract. (4)
(e) Tax Qualified Group Allocated Variable Annuity
Contract. (4)
(f) Certificate for Tax Qualified Group Allocated Variable
Annuity Contract. (4)
(g) Tax Qualified Group Unallocated Variable Annuity
Contract. (4)
(h) Certificate for Tax Qualified Group Unallocated
Variable Annuity Contract. (4)
(i) Total and Permanent Disability Benefit Rider on Form
ED30-1 for Non Qualified and Tax Qualified Individual
Variable Annuity Contracts. (2)
-C-3-
<PAGE>
(j) Tax Qualification Amendment on Form V32-1 for Tax
Qualified Individual Variable Annuity Contracts. (2)
(k) Tax Qualification Amendment on Form V33-1 for Tax
Qualified Individual Variable Annuity Contract. (4)
(l) Individual Retirement Annuity Rider on Form OFA7-2 for
Tax Qualified Individual Variable Annuity Contract. (2)
(m) Tax Qualification Amendment on Form V36-1 for Tax
Qualified Group Variable Annuity Contract. (2)
(n) Tax Qualification Amendment on Form V42-1 for Tax
Qualified Group Variable Annuity Contract. (4)
(o) Supplement to Application for Contracts under Texas
Optional Retirement Program. (4)
(p) Amendment for Contracts under Texas Optional Retirement
Program. (4)
(q) Distribution on Death of the Contract Owner Rider on
Form ED 188. (6)
(r) Tax Qualification Amendment on Form V38-1. (6)
(s) Tax Qualified Amendment (Joint and Survivor Annuity)
on Form OFA20-1. (6)
(t) Amendment to Contracts regarding assignment and option
restriction on Form TDA-V32-1. (6)
(u) Individual Retirement Annuity Rider on Form V116-2. (6)
(v) Annuity Loan Rider for certain states on
Form ED224-1. (9)
(w) Annuity Loan Rider for Wisconsin only on
Form ED224A. (9)
(7)(a) Application for Individual Variable Annuity Contract.
(2)
-C-4-
<PAGE>
(b)(1) Application for Group Unallocated Variable Annuity
Contract. (2)
(b)(2) Application for Group Allocated Variable Annuity
Contract. (2)
(b)(3) Application for Participants of Group Allocated
Variable Annuity Contract. (2)
(c) Supplement to Application on Form V34-2 for Tax
Qualified Individual Variable Annuity Contract. (2)
(d) Supplement to Application on Form V39-1 for Tax
Qualified Individual Variable Annuity Contract. (2)
(e) Supplement to Application on Form V43-1 for Tax
Qualified Group Variable Annuity Contract. (2)
(8) Certified copy of the Amended Articles of Incorporation
and By-Laws of Washington National Insurance Company.
(5)
(9) Not applicable.
(10) Not applicable.
(11)(a) Indemnification Agreement dated July 20, 1983 for
Directors and Officers of Separate Account I of
Washington National Insurance Company. (2)
(b) Service Agreement dated October 21, 1983 between
Washington National Insurance Company and DST Systems,
Inc. (4)
(c) Form of Recordkeeping Agency Agreement between
Washington National Insurance Company and Investors
Fiduciary Trust Company. (2)
(d) Service Agreement dated February 26, 1990 between
Washington National Insurance Company and Financial
Administrative Services, Inc. ("FAS"). (11)
(e) Administrative Services Agreement dated June 1, 1995
between Washington National
-C-5-
<PAGE>
Insurance Company and United Presidential Life
Insurance Company (UPI)
(f) Asset Transfer Agreement and Plan of Reorganization.
(13)
(12)(a) Opinion of counsel. (6)
(b) Consent of Sutherland, Asbill & Brennan. (14)
(13) Consent of Ernst & Young LLP. (14)
(14) Not applicable.
(15) Contribution Agreement dated August 26, 1983 between
Separate Account I of Washington National Insurance
Company and Washington National Insurance Company. (4)
(16)(a) Schedule for Computation of Short-Term Portfolio
Sub-Account Yield. (11)
(b) Schedule for Computation of Bond Sub-Account Yield.
(11)
(c) Schedule for Computation of Bond Sub-Account Average
Annual Total Return. (11)
(d) Schedule for Computation of Stock Sub-Account Average
Annual Total Return. (11)
(17)(a) Certified resolution of Executive Committee of Board of
Directors of Washington National Insurance Company
authorizing execution of the Power of Attorney. (1)
(b) Power of Attorney executed by certain Directors and
Officers of Washington National Insurance Company. (1)
(c) Power of Attorney executed by certain Directors and
Officers of Washington National Insurance Company. (7)
(d) Power of Attorney executed by certain Directors and
Officers of Washington National Insurance Company. (8)
-C-6-
<PAGE>
(e) Power of Attorney executed by certain Directors and
Officers of Washington National Insurance Company. (9)
(f) Power of Attorney executed by the Directors of Separate
Account I of Washington National Insurance Company in
April 1990. (10)
(g) Power of Attorney executed by certain Directors and
Officers of Washington National Insurance Company in
April 1990. (10)
Note 1 -- Incorporated by reference to the Original Registration Statement for
Separate Account I of Washington National Insurance Company (File No.
2-81129).
Note 2 -- Incorporated by reference to Pre-Effective Amendment No. l of
Separate Account I of Washington National Insurance Company (File No.
2-81129).
Note 3 -- Incorporated by reference to Post-Effective Amendment No. 12 of
Separate Account I of Washington National Insurance Company (File No.
2-81129).
Note 4 -- Incorporated by reference to Pre-Effective Amendment No. 2 of
Separate Account I of Washington National Insurance Company (File No.
2-81129).
Note 5 -- Incorporated by reference to Post-Effective Amendment No. 5 of
Separate Account I of Washington National Insurance Company (File No.
2-81129).
Note 6 -- Incorporated by reference to Post-Effective Amendment No. 6 of
Separate Account I of Washington National Insurance Company (File No.
2-81129)
Note 7 -- Incorporated by reference to Post-Effective Amendment No. 2 of
Separate Account I of Washington National Insurance Company (File No.
2-81129).
Note 8 -- Incorporated by reference to Post-Effective Amendment No. 3 of
Separate Account I of Washington National Insurance Company (File No.
2-81129).
Note 9 -- Incorporated by reference to Post-Effective Amendment No. 7 of
Separate Account I of Washington National Insurance Company (File No.
2-81129).
Note 10 --Incorporated by reference to Post-Effective Amendment No. 10 of
Separate Account I of Washington National Insurance Company
(File No. 2-81129).
-C-7-
<PAGE>
Note 11 --Incorporated by reference to Post-Effective Amendment No. 11 of
Separate Account I of Washington National Insurance Company,
April 29, 1991 (File No. 2-81129).
Note 12 --Incorporated by reference to Post-Effective Amendment No. 14 of
Separate Account I of Washington National Insurance Company,
April 26, 1994 (File No. 2-81129).
Note 13 --Incorporated by reference to Post-Effective Amendment No. 1 to the
registration statement on Form N-14 for Separate Account I of
Washington National Insurance Company, November 30, 1995
(File No. 33-62861).
Note 14 --Filed herewith.
ITEM 29. DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY
-----------------------------------------------
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices With Offices With
Business Address Insurance Company Registrant
- ------------------ ----------------- -------------
<S> <C> <C>
Kenneth A. Grubb (1) President, Education
Division and Director
Barbara A. Cremin Vice President, Director
Life and Annuity
Administration
Craig R. Edwards Vice President, Secretary
Corporate Counsel and Counsel
and Secretary
Curt L. Fuhrmann (1) President, Health
Division and Director
Robert W. Patin (1) Chairman of the Board,
President and Chief
Executive Officer
and Director
Thomas Pontarelli (1) Executive Vice President,
Law & Administration
and Director
Joan K. Cohen Vice President,
Controller, and
Treasurer
Thomas C. Scott (1) Executive Vice
President, Financial
Division, Chief Financial
Officer and Director
</TABLE>
-C-8-
<PAGE>
<TABLE>
<S> <C> <C>
James E. Dresmal Vice President and Chairman of
Chief Investment the Board
Officer and Director
</TABLE>
- --------------------------
(1) Member of Executive Committee and Investment Committee (Finance Committee)
ITEM 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE INSURANCE
------------------------------------------------------ ---------
COMPANY OR REGISTRANT
---------------------
No person is directly or indirectly controlled by Separate Account I
of Washington National Insurance Company ("Separate Account I"). Separate
Account I is a segregated asset account of Washington National Insurance
Company, an Illinois stock life insurance company ("WNIC"), and is under the
general supervision of a board of directors whose members were elected by
persons having voting rights in Separate Account I. WNIC is the investment
manager of Separate Account I. WNIC is controlled by Washington National
Corporation, which controls the following:
<TABLE>
<CAPTION>
Percent of
State of Capital Stock
Name of Company Incorporation Owned (1)
- --------------- ------------- --------------
<S> <C> <C>
David W. White and Associates, Inc. California 50 (2)
Kouzmanoff Insurance Services, Inc. California 75 (2)
United Presidential Corporation Indiana 100 (4)
United Presidential Life Insurance
Company Indiana 100 (3)
Washington National Development
Company Delaware 100 (5)
Washington National Financial
Services, Inc. Illinois 100
Washington National Insurance
Company Illinois 100
</TABLE>
Note 1 -- Ownership is by Washington National Corporation, and all subsidiaries
are included in the consolidated financial statements of same, unless
otherwise noted. A separate financial statement is also filed with
the appropriate insurance commissioner for each insurance subsidiary.
Note 2 -- Owned by Washington National Financial Services, Inc.
Note 3 -- Owned 100% by United Presidential Corporation.
Note 4 -- Owned 71.3% by Washington National Insurance Company and 28.7% by
Washington National Corporation.
Note 5 -- Owned 100% by Washington National Insurance Company.
-C-9-
<PAGE>
ITEM 31. NUMBER OF CONTRACTOWNERS
------------------------
The number of record holders of contracts funded by assets of Separate
Account I as of December 31, 1995, was 1,975.
ITEM 32. INDEMNIFICATION
---------------
The Directors and Officers of the Registrant are indemnified by
Washington National Insurance Company and Washington National Corporation
against claims and liabilities to which such persons may become subject by
reason of having acted as a member of such Board of Directors so long as the
following conditions are met:
1) The person acted in good faith and in a reasonable manner
believed to be in or not opposed to the best interests of the
Separate Account; and
2) If the proceeding was criminal, the person had no reasonable
cause to believe his or her conduct was unlawful.
In the absence of an adjudication that an officer or director
committed no willful misfeasance, gross negligence or reckless disregard of
duty, the person will be indemnified only if a determination has been made by a
majority of the Board of Directors not involved in the proceeding, or by written
opinion of independent counsel that such indemnification would be appropriate.
The indemnification agreement, which is on file with the Securities
and Exchange Commission in Pre-Effective Amendment Number 1, comports with the
provisions of Ill. Ann. Stat. Ch. 73, para. 622 and of Del. Code Ann. tit. 8,
sec. 145.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to members of the Board of Directors and
Officers of the Registrant pursuant to the provisions described in the
Agreement, the Registrant 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 payment by the
Registrant of expenses incurred or paid by a member of the Board of Managers,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such member of Directors or officer
in connection with the securities being registered, the Registrant 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
-C-10-
<PAGE>
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 33. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
----------------------------------------------------
WNIC, the investment adviser of Separate Account I, is a stock life
insurance company transacting the business of life and health insurance and
annuities. WNIC also serves as depositor for Washington National Variable
Annuity Fund A and Washington National Variable Annuity Fund B.
During the past two years, the directors and officers of WNIC have had
the substantial business and other connections set forth below. The principal
business address of Washington National Corporation, WNIC, Washington National
Financial Services, Inc., and Washington National Development Company is 300
Tower Parkway, Lincolnshire, Illinois 60069. The principal business address of
United Presidential Corporation is One Presidential Parkway, Kokomo, Indiana,
46902.
DIRECTORS AND SELECTED OFFICERS OF WNIC
<TABLE>
<CAPTION>
Name Name of Company Capacity
- ---- --------------- --------
<S> <C> <C>
Joan K. Cohen WNIC Vice President,
Controller and
Treasurer
Washington National Vice President,
Corporation Controller and
Treasurer
Washington National Director
Development Company
James E. Dresmal WNIC Vice President and
Chief Investment
Officer
Washington National President and
Development Company Director
Evanston Business Director and
Investment Corporation Former Chairman
Group Benefit Shoppers Director
Curt L. Fuhrmann WNIC President,
Health Division
and Director
</TABLE>
-C-11-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Kenneth A. Grubb WNIC President, Education
Division and
Director
Robert W. Patin WNIC Chairman of the
Board, President and
Chief Executive
Officer and Director
Washington Chairman of the
National Corporation Board, President and
Chief Executive
Officer and Director
United Presidential Director
Corporation
United Presidential Director
Life Insurance Company
Thomas Pontarelli WNIC Executive Vice
President, Law and
Administration, and
Director
Washington National Executive Vice
Corporation President
United Presidential Director
Corporation
United Presidential Director
Life Insurance Company
Washington National Director
Development Company
Thomas C. Scott WNIC Executive Vice
President,
Financial Division,
Chief Financial
Officer and Director
Washington National Executive Vice
Corporation President and Chief
Financial Officer
United Presidential Director
Corporation
United Presidential Director
Life Insurance Company
</TABLE>
-C-12-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Washington National Director
Development Company
Barbara A. Cremin WNIC Vice President, Life
and Annuity
Administration
Craig R. Edwards WNIC Vice President,
Corporate Counsel
and Secretary
</TABLE>
ITEM 34. PRINCIPAL UNDERWRITERS
----------------------
(a) Not applicable.
(b) Washington National Equity Company ("WNEC") acted as principal
underwriter for the Registrant until March 31, 1990 and was dissolved
on June 29, 1990.
(c) The following table lists the amount of commissions paid to the
principal underwriter during the last fiscal year:
<TABLE>
<CAPTION>
Net
Name of Underwriting Compensation Other
Prncipal Discounts and on Redemption Brokerage Compen-
Underwriter Commissions or Annuitization Commissions sation
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WNEC $0 $0 $0 $0
</TABLE>
ITEM 35. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
The contract owner records are held by United Presidential Life
Insurance, One Presidential Parkway, Kokomo, IN 46904. The portfolio accounting
records are held by Investors Fiduciary Trust Company of Kansas City, Missouri,
21 West Tenth Street, Kansas City, Missouri 64105. All other records are held by
Washington National Insurance Company, 300 Tower Parkway, Lincolnshire, Illinois
60069.
ITEM 36. MANAGEMENT SERVICES
-------------------
Not applicable.
ITEM 37. UNDERTAKINGS
------------
(a) Not applicable.
-C-13-
<PAGE>
(b) Not applicable.
(c) Not applicable.
(d) The Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form N-3 promptly upon written or oral request.
STATEMENT PURSUANT TO RULE 6c-7
- -------------------------------
Washington National Insurance Company and Separate Account I rely on
17 C.F.R. Section 270.6c-7 and represent that the provisions of that Rule have
been or will be complied with. Accordingly, Washington National Insurance
Company and Separate Account I are exempt from the provisions of Sections 22(e),
27(c)(1) and 27(d) of the Investment Company Act of 1940 with respect to any
variable annuity contract participating in such account to the extent necessary
to permit compliance with the Texas Optional Retirement Program.
SECTION 403(b) REPRESENTATIONS
- ------------------------------
Washington National Insurance Company represents that it is relying on
a no-action letter dated November 28, 1988, to the American Council of Life
Insurance (Ref. No. IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of
the Investment Company Act of 1940, in connection with redeemability
restrictions on Section 403(b) policies, and that paragraphs numbered (1)
through (4) of that letter will be complied with.
-C-14-
<PAGE>
S I G N A T U R E S
-------------------
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, Separate Account I of Washington National Insurance Company
certifies that it meets the requirements of Securities Act Rule 485(b) for
effectiveness of this Registration Statement and has caused this Registration
Statement to be signed on its behalf, in the Village of Lincolnshire, and State
of Illinois on the 17th day of April, 1996.
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY
By: /s/ James E. Dresmal
------------------------------------
James E. Dresmal, Chairman of the
Board of Directors
<PAGE>
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities with Washington
National Insurance Company and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert W. Patin Chairman of the Board, 4/15/96
- ------------------------- President and Chief -------
Robert W. Patin Executive Officer,
and Director
Curt L. Fuhrmann* Director
- ------------------------- -------
Curt L. Fuhrmann
Director
- ------------------------- -------
Kenneth A. Grubb
Thomas Pontarelli* Director
- ------------------------- -------
Thomas Pontarelli
/s/ Joan K. Cohen Controller and 4/17/96
- ------------------------- Treasurer -------
Joan K. Cohen
Thomas C. Scott* Chief Financial Officer
- ------------------------- and Director -------
Thomas C. Scott
- ------------------------------------------------------------------------------
*By /s/ Robert W. Patin, April 15, 1996, pursuant to power of attorney filed as
-------------------
Robert W. Patin
Exhibit 17(g) to Post-Effective Amendment No. 10 to this Registration Statement.
<PAGE>
S I G N A T U R E S
-------------------
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, Washington National Insurance Company certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has caused this Registration Statement to be signed
on its behalf, in the Village of Lincolnshire, and State of Illinois on the 17th
day of April, 1996.
WASHINGTON NATIONAL INSURANCE COMPANY
By: /s/ Robert W. Patin
----------------------------------
Robert W. Patin, President and
Chief Executive Officer
<PAGE>
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities with Separate Account
I of Washington National Insurance Company and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James E. Dresmal Chairman of the Board 4/17/96
- ------------------------- of Directors -------
James E. Dresmal
Harry C. Benford, III* Director
- ------------------------- -------
Harry C. Benford, III
George J. Cyrus, Jr.* Director
- ------------------------- -------
George J. Cyrus, Jr.
Director
- ------------------------- -------
Barbara A. Cremin
William P. Zeh* Director
- ------------------------- -------
William P. Zeh
- ------------------------------------------------------------------------------
*By /s/ James E. Dresmal, April 17th, 1996, pursuant to power of attorney filed
--------------------
James E. Dresmal
as Exhibit 17(g) to Post-Effective Amendment No. 10 to this
Registration Statement.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Description No.
- ------- ----------- ----
(11)(e) Administrative Services Agreement dated June 1, 1995
(12)(b) Consent of Sutherland, Asbill & Brennan
(13) Consent of Ernst & Young LLP
<PAGE>
Exhibit (11)(e)
---------------
Administrative Services Agreement dated June 1, 1995
between WNIC and United Presidential Life Insurance Company
<PAGE>
ADMINISTRATION SERVICES AGREEMENT
This Administration Services Agreement is entered into as of the 1st day of
June, 1995, by and between Washington National Insurance Company, an Illinois
insurance corporation ("WNIC") and United Presidential Life Insurance Company,
an Indiana corporation ("UPI").
WHEREAS, WNIC desires to appoint UPI as Recordkeeping Service Agent for
those annuity contracts of WNIC listed on Exhibit A hereto ("the Contracts"),
and UPI desires to accept such appointment.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Terms of Appointment.
--------------------
1.01. Subject to provisions set forth in the Agreement, WNIC hereby
employs and appoints UPI as Recordkeeping Service Agent for the Contracts.
1.02. UPI hereby accepts such appointment and agrees that on and after the
effective date of its appointment it will act as WNIC's Recordkeeping Service
Agent for the Contracts.
1.03. UPI agrees to provide the necessary facilities, equipment, and
personnel to perform its duties and obligations hereunder in accordance with
Service Standards as attached hereto ("Exhibit B") on the attachment entitled
UPI Time Service Objectives.
1.04. UPI agrees that it will perform those Recordkeeping Service Agent
Functions necessary to be performed in order to fulfill WNIC's obligations under
the contracts
-1-
<PAGE>
held by UPI, and as more fully set forth in Exhibit C attached hereto and made a
part hereof. WNIC agrees to perform those functions designated as their
responsibility as set forth in Exhibit C. UPI agrees to provide reports on a
monthly basis in a mutually agreed upon format which reflect its actual
performance of its duties herein, as compared to the service standards set forth
in Exhibit B.
1.05. UPI agrees to modify its systems and procedures within a reasonable
time to comply with any applicable federal or state statute, law, or regulation
pertaining to the servicing of WNIC's Contracts under this Agreement.
SECTION 2. Term.
----
2.01. Subject to termination as hereinafter provided, this Agreement shall
remain inforce and effect for a period of 3 years (the initial term of the
Agreement), and this Agreement shall continue inforce and effect from year to
year thereafter until terminated as herein provided, each such additional year
being an additional term of this Agreement.
2.02. In the event that this Agreement is terminated for whatever reason,
in order to assist in providing uninterrupted service to WNIC, UPI agrees that
UPI shall perform the necessary actions in order to convert the records of WNIC
from the UPI System to whatever service or system is selected by WNIC. These
actions shall include, but not be limited to, providing programming
specifications, appropriate test environment and resources in order to test the
system, and training of the new service provider on administrative procedures.
2.03. At WNIC's option, UPI agrees, to box, label and present to WNIC's
representative(s) at UPI's address all original documents, books, records,
tapes, signature
-2-
<PAGE>
stamps, equipment and any other materials maintained by UPI and which were or
are used and/or developed in connection with the performance of services under
this Agreement and Addenda, within 5 business days of such request or within a
reasonable time thereafter. WNIC retains the right to inspect and verify the
completeness of the data. UPI further agrees to cooperate and allow WNIC
representative(s) sufficient time to effect removal.
SECTION 3. Fees and Expenses.
-----------------
3.01. During the initial term of the Agreement, and for each term
thereafter, WNIC shall pay to UPI upon receipt of the UPI statement the fees and
charges as outlined in Exhibit D. In addition, WNIC shall pay to UPI reasonable
costs or fees which arise from activities or projects required under Section
1.05 above, to the extent that such changes in the law only impact the WNIC
block of business. In the event such projects or activities are required for
compliance by the UPI business, then WNIC will not be charged for such costs or
fees. To the extent any additional programming is requested by WNIC beyond
currently scheduled conversion programming, which is not needed for UPI's
business and only pertains to WNIC's business, then WNIC shall pay to UPI such
reasonable fees which arise from requested programming projects.
3.02. In the event this Agreement is terminated in accordance with Section
2.02, UPI shall assess WNIC a reasonable fee for performing actions necessary to
the conversion as set forth in Section 2.02.
-3-
<PAGE>
SECTION 4. Representative and Warranties of UPI
------------------------------------
UPI represents and warrants to WNIC as follows:
4.01. It is a corporation duly organized and existing and in good standing
under the laws of the State of Indiana.
4.02 It is empowered under applicable laws and by its charter and bylaws
to enter into and perform the services contemplated in this Agreement.
4.03. It has, and will continue to have and maintain, the necessary
facilities, equipment, and personnel to perform its duties and obligations under
this Agreement.
SECTION 5. Representations and Warranties of WNIC.
--------------------------------------
WNIC represents and warrants to UPI as follows:
5.01. It is a corporation duly organized and existing and in good standing
under the laws of the State of Illinois.
5.02. It is empowered under the applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.
5.03. All of the Contracts and other forms related to the Contracts
provided by WNIC shall have been approved by all required regulatory agencies
and shall be in compliance with all state, and local laws and regulations.
-4-
<PAGE>
SECTION 6. Use of Name.
-----------
6.01. UPI shall have the right to use and act in WNIC's name solely and
exclusively for and to the extent necessary and appropriate to service the
Contracts. UPI agrees to execute any mutually agreeable licensing or similar
agreement, recognizing WNIC's ownership interest in its name, as required by
WNIC. UPI further acknowledges and agrees that its right to use and act in
WNIC's name hereunder does not afford, directly or indirectly, UPI any right or
ownership interest in WNIC's name.
SECTION 7. Indemnification.
---------------
7.01. For any events occurring after the effective date of this Agreement,
WNIC and UPI agree to indemnify and hold the other's directors, officers,
employees and affiliates, parents and subsidiaries harmless from any and all
demands, suits actions, liabilities, losses, damages, (including any claims for
punitive damages), fines, penalties, or expenses (including attorney's fees and
costs) incurred or suffered by either UPI or WNIC as a result of the other's
negligence, fraud, or misrepresentation, in performance of its obligations under
this Agreement.
7.02. UPI shall be responsible for and shall indemnify and hold WNIC
harmless from and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to UPI's
willful refusal or failure to comply with the terms of this Agreement, or which
arise out UPI's gross negligence or willful misconduct or which arise out of the
breach of any representations or warranty of UPI hereunder; or failure of UPI to
obtain and maintain any necessary software licenses.
-5-
<PAGE>
7.03. If any legal action is brought against UPI or WNIC by reason of any
alleged act, fault or failure of UPI in connection with its performance under
this Agreement, UPI agrees to immediately communicate to WNIC the receipt of
notice of such action and agrees to forward copies of all documents served upon
UPI, together with, if WNIC so requests, all pertinent files and correspondence
or copies thereof within 5 business days of receipt of the notice. Where the
action is brought solely against WNIC, UPI shall have no authority to institute,
prosecute, or maintain any legal proceedings on behalf of WNIC.
7.04. After receipt of any communication from a state insurance department
or other state or federal regulatory agency in regard to the regular daily
activities of administering annuity business, UPI will conduct whatever
investigation is necessitated by such inquiry and will respond to the inquiring
entity. UPI agrees to notify WNIC of any inquiry received from state insurance
departments and other state and federal regulatory agencies, and in its
investigation of actions arising out of the conduct of business under this
Agreement, UPI will provide the documentation which resolves the matter for
WNIC's files. In regard to periodic filings as required by regulatory agencies,
UPI will assist WNIC in providing the data requested to WNIC in a timely manner.
In regard to any such regulatory matter which is not in the normal course of
business, UPI will assist WNIC in gathering requested information, and WNIC will
respond to such matter on its own behalf. In regard to any lawsuit brought
against WNIC arising from this annuity business, UPI will assist WNIC in
gathering information necessary for the defense of the matter, including making
employees available for the purposes of discovery, trial, and any other
proceeding regarding the matter.
-6-
<PAGE>
7.05. In the event that a malfunction of the Vector Software System causes
an error or mistake in any record, report, date, information or output under the
terms of this Agreement, UPI shall at its expense correct and reprocess such
records. In the event that a malfunction at the WNIC Data Center causes such an
error or mistake, WNIC shall bear expense to correct and reprocess the subject
records.
SECTION 8. Covenants of WNIC and UPI.
-------------------------
8.01. UPI shall establish and maintain facilities and procedures for the
safekeeping and secure storage of policy forms, check forms and facsimile
signature imprinting devices, if any, and all other documents, reports, records,
books, files, and other materials relative to this Agreement.
8.02. UPI agrees to maintain books and records of all transactions between
itself and WNIC and contractholders in regard to its services under this
Agreement in conformance with the UPI document destruction plan and microfiche
filming schedule. The UPI paper document destruction plan will comply with
applicable federal and state law. Microfiche records will not be destroyed
without prior approval from WNIC. WNIC and WNIC's designated representatives
shall have full and free access to all documents, records, and other material
relative to this Agreement and WNIC reserves the right to audit such books and
records at any time during such period at WNIC's expense. It is agreed that such
books and records will be maintained at UPI's principal location or at a
mutually agreeable offsite storage location. UPI agrees to pay shipping charges
to the designated storage facility. UPI hereby acknowledges that the files and
records established by it are the exclusive property of WNIC
-7-
<PAGE>
and shall not be moved, stored at a location other than as designated herein,
microfilmed, destroyed, purged or discarded without WNIC's prior written
authorization.
8.03 The WNIC Data Center shall maintain appropriate backup computer
files which permit file recovery in the event of destruction of normal
processing files.
8.04. UPI warrants that it shall put in place and shall keep in place
during the term of this contract a mutually agreed upon disaster recovery plan
that satisfactorily meets any requirement of UPI to fulfill its duties under
this contract. Such plan shall include the terms that UPI shall be able to
resume operations, at least in regard to duties hereunder, as soon as possible
after such disaster. UPI agrees that WNIC has the right, upon reasonable notice,
to review said disaster recovery plan.
8.05. UPI agrees that all nonpublic information communicated or otherwise
disclosed to its employees or agents by WNIC with respect to the Contracts shall
be used by UPI only for the purposes of servicing the business, and that UPI
shall not disclose to anyone other than an employee or agent of WNIC or UPI any
such information; provided, however, that the foregoing restrictions shall not
apply to any such information that:
a) is or becomes known in the public domain or otherwise through no
action by UPI or any of their officers, agents, employees or
affiliates,
b) is rightfully obtained by UPI from a third party that has the
legal right to disclose such information, or
c) UPI is required by law or regulation to disclose.
-8-
<PAGE>
8.06. All premium and other receipts are directed to a WNIC owned bank
account for deposit (hereinafter referred to as "Deposit Account"). In the event
that any monies are received by UPI, the documents accompanying the payment will
be date stamped by UPI and the payment forwarded to the Deposit Account for
processing in the standard manner. In no event will UPI deposit any funds in any
account other than the aforementioned WNIC Deposit Account. All monies belonging
to WNIC and received by UPI must be kept separate and apart from any other
monies or funds. UPI agrees to maintain detailed records of all monies received
by UPI on WNIC's behalf, and such records should include when the monies were
received and the current status of such monies, and any other information WNIC
informs UPI it needs on such records.
8.07. In order to facilitate the handling of the Contracts, WNIC has
established a bank account in its name for use by UPI for disbursements made by
UPI on behalf of WNIC (hereinafter referred to as "Disbursement Account"). UPI
agrees to keep sufficient records for the express purpose of recording therein
the amounts and other particulars of the transactions which are the subject of
this Agreement. UPI agrees to furnish to WNIC (on mutually agreeable forms) a
reconciliation on a monthly basis of said Disbursement Account. Such
reconciliation shall include information of check use, outstanding checks and
unused check stock inventory level. WNIC has the right to terminate UPI's check
authority immediately upon notice to UPI, and UPI shall immediately return all
unused checks to WNIC following its receipt of notice of termination of check
authority.
-9-
<PAGE>
8.08. UPI will set up and maintain procedures and controls to segregate
the variable annuity processing in compliance with SEC requirements. UPI will
meet the SEC defined time standards for processing administrative transactions.
SECTION 9. Termination of Agreement.
------------------------
9.01. This Agreement may be terminated or amended by mutual agreement in
writing at any time. In the event this Agreement is terminated before the end of
the term during which such termination is to take effect, the existing fees and
charges shall remain inforce during the conversion.
9.02. Subsequent to the initial term as defined in Section 2.01, this
Agreement may be terminated by either party by written notice to the other one
hundred eighty (180) days following delivery by registered mail of said written
notice to the other party.
9.03. At least sixty (60) days prior to the end of any term hereof, UPI
shall give WNIC written notice if UPI desires to increase its fees or charges to
WNIC or to change the manner of payment. If UPI and WNIC do not agree to fees
and changes before the end of the term during which such notice is given by UPI,
this Agreement shall terminate at the end of such term, and the existing fees
and charges shall remain inforce during the conversion period set forth in
Section 2.02.
SECTION 10. Default.
--------
10.01. If either of the parties hereto shall materially breach this
Agreement or be materially in default in the performance of any of its duties
and obligations hereunder (the defaulting party), the other party hereto may
give written notice thereof of the defaulting party
-10-
<PAGE>
and if such default or breach shall not have been remedied within fifteen (15)
days after such written notice is given, then the party giving such written
notice may terminate this Agreement by giving fifteen (15) days written notice
of such termination to the defaulting party. Termination of the Agreement by
default or breach by WNIC shall not constitute a waiver of any rights of UPI in
reference to services performed prior to such termination; termination of this
Agreement by default or breach by UPI shall not constitute a waiver by WNIC of
any other rights it might have under this Agreement, including the terms set
forth in Section 2.02.
SECTION 11. Arbitration.
-----------
11.01. Any damages sought for termination for substantive breach or other
dispute between the parties relating any transaction under this Agreement, or
any act or omission hereunder, shall be referred to three arbitrators who must
be members of the American Arbitration Association and who are not related or
affiliated in any way with WNIC or WNIC's affiliates or UPI or UPI's affiliates.
UPI and WNIC shall each appoint one of the arbitrators and such two arbitrators
shall select the third. Should the two arbitrators not be able to agree on the
choice of the third, the appointment shall be left to the American Arbitration
Association. Any such arbitration shall take place in Lincolnshire, Illinois,
unless some other location is mutually agreed upon by the parties. The
arbitrators so chosen shall take into consideration the purpose and scope of
this Agreement. They will be relieved of all judicial formalities and may
abstain from following strict rules of evidence. They shall decide
-11-
<PAGE>
by a majority of votes, and form their written decision, there shall be no
appeal. The cost of arbitration, including the fees of the arbitrators, shall be
equally divided between WNIC and UPI.
11.02. In no event and under no circumstance, however, shall either party
under this Agreement be liable to the other party under any provision of this
Agreement for consequential, exemplary, or punitive damages.
SECTION 12. Changes and Modifications.
-------------------------
12.01. UPI shall have the right, at any time, and from time to time, to
alter and modify any system, programs, procedures or facilities used or employed
in performing its duties and obligations hereunder, provided that no such
alterations or modifications shall, without consent of WNIC, materially change
or affect the operations and procedures of WNIC in using or employing the Vector
Software System or Facilities hereunder. Major changes to administrative systems
shall be disclosed to WNIC prior to implementation.
12.02. Unless specifically authorized by WNIC in writing, UPI shall not
have any authority to alter, amend, waive or extend any provision of any Policy
which is the subject of this Agreement.
SECTION 13. Assignment.
----------
13.01. Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party hereto without the prior written consent of the
other, such consent which shall not be unreasonably withheld.
-12-
<PAGE>
13.02. This Agreement shall insure to the benefit of and be binding upon
the parties hereto and their respective successor and assigns.
SECTION 14. Notice.
------
14.01. Except as otherwise provided in this Agreement, notice, report,
statement, or other communication required or permitted hereunder shall be in
writing and shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission or sent by certified, registered or express mail postage
prepaid. Any such notice shall be deemed given when so delivered personally,
telegraphed, telexed or sent by facsimile transmission or, if mailed, three days
after the date of deposit in the United States mail, as follows:
To WNIC:
Washington National Insurance Company
300 Tower Parkway
Lincolnshire, Illinois 60069-3665
Attention: Executive Vice President and Chief Financial Officer
To UPI:
United Presidential Life Insurance Company
One Presidential Parkway
Kokomo, Indiana 46904-9006
Attention: President and Chief Executive Officer
Either party may change its address for purposes of receipt of any such
communication by giving notice of such change to other party in the manner above
prescribed.
SECTION 15. Miscellaneous.
-------------
15.01. WNIC or its duly authorized independent auditors will have the right
under this agreement to perform on-site audits of records and accounts directly
pertaining to the
-13-
<PAGE>
Policies serviced by UPI facilities hereunder at UPI Facilities in accordance
with reasonable frequencies. At the request of WNIC, UPI will make available to
WNIC's auditors and representatives of the appropriate regulatory agencies all
reasonably requested records, data, and access to operating procedures. UPI
agrees to respond to WNIC audit comments in a timely manner and take appropriate
action to resolve issues raised.
15.02. This agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written, and this Agreement may not be modified except
in a written instrument executed by both of the parties hereto.
15.03. If any provision of this Agreement should be determined to be
invalid or otherwise unenforceable under law, the remainder of this Agreement
shall not be affected thereby.
15.04. Failure of strict compliance with any of the conditions or
obligations of this Agreement and attachments, if any, on the part of the
Recordkeeping Service Agent shall not constitute a waiver of such conditions or
obligation by WNIC.
15.05. The representatives and warranties contained herein shall survive
the execution of the Agreement and the performance of services hereunder.
15.06. This Agreement shall be governed by the laws of the State of
Illinois.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers as of the day and year first above written.
WASHINGTON NATIONAL INSURANCE COMPANY
By:__________________________________
UNITED PRESIDENTIAL LIFE INSURANCE COMPANY
By:__________________________________
-15-
<PAGE>
EXHIBIT A
THE CONTRACTS
UPI agrees to administer the following WNIC fixed and variable annuity products:
products:
WN Plan I
WN Plan II
WN Plan III
WN Plan IV
WN Plan V
WN Plan II+
FA Exchanges
Annuity riders
Funeral Home (OFDA)
AAA Product
-16-
<PAGE>
EXHIBIT B
SERVICE STANDARDS
CONTRACT ISSUE/DUPLICATE CONTRACTS
----------------------------------
Completed and mailed within 10 days of receipt.
BILLING AND COLLECTIONS
-----------------------
All payments will be applied using the earliest date received by WNIC, UPI,
or other designated party as the effective date.
Funds collected for other carriers will be forwarded within 2 days.
All WNV payments will be process within 1 day of receipt.
Collection fees
CONTRACT CHANGES
----------------
All contract related changes will be processed within 7 days of receipt.
SURRENDERS/PARTIAL WITHDRAWALS
------------------------------
Checks mailed within 10 days of receipt.
DEATH CLAIMS
------------
Checks mailed within 10 days of receipt.
STATEMENT OF ACCOUNT VALUES
---------------------------
Statements will be mailed within 3 days of contract anniversary or
calendar quarter, depending on the product.
INTEREST RATES
--------------
Interest rates will be loaded onto the system and verified prior to the 1st
cycle needed for processing.
-17-
<PAGE>
RETURNED CHECKS
---------------
Checks returned from the bank for NSF, stop pay, etc., will be reversed
from the contract and client notified within 7 days of receipt.
DEPOSIT OF FUNDS
----------------
A daily Cash Receipts Record will be completed and the funds deposited into
a designated Washington National Deposit account. UPI will be responsible
for reconciling the account.
CASH DISBURSEMENTS
------------------
Checks will be written on a designated Washington National checking
account. UPI will be responsible for reconciling the account and following
up on checks outstanding more than ninety (90) days.
SUSPENSE ACCOUNTS
-----------------
All suspense amounts will be monitored and cleared within ninety (90) days.
ACCOUNTING CONTROL RECONCILIATIONS
----------------------------------
Completed and forwarded to Washington National by the tenth (10th) day of
each month.
FINANCIAL AND/OR REGULATORY DATA
--------------------------------
Such data will be provided by the designated due dates.
PERMANENT RECORDS
-----------------
A microjacket for each active contract and all related work
documents/reports will be transported to UPI in May, 1995 with arrival
expected the following day. Files will be updated with documentation to
support transactions within 30 days of processing the transaction.
CORRESPONDENCE/INQUIRIES
------------------------
An acknowledgment and/or response will be mailed within 7 days of receipt.
-18-
<PAGE>
All contract related correspondence will be mailed to the contract owner
unless otherwise requested by the owner.
All contractholder and agent communications (memos, letters, billings,
etc.) shall reflect the return address of Washington National Insurance
Company, Service Center, P.O. Box 9019, Kokomo, Indiana, 46904.
TELEPHONE
---------
An 800 line will be maintained for the use of WNIC clients and telephones
will be answered with "Washington National." The number is 1-800-866-9922
and it will be printed on all billings and correspondence.
INSURANCE DEPARTMENT COMPLAINTS
-------------------------------
A complaint log will be maintained for the WNIC business. All Insurance
Department complaints will be answered within the time period specified by
the state.
-19-
<PAGE>
EXHIBIT C
DOCUMENT OF EXPECTATIONS
WHEREAS, WASHINGTON NATIONAL INSURANCE COMPANY (WNIC), has entered into an
agreement with its subsidiary, United Presidential Life Insurance Company,
(UPI), of Kokomo, Indiana, to act as a Recordkeeping Service Agent for the
purpose of servicing its inforce block of annuity contracts, the following
administrative duties, service standards, and general guidelines are acceptable
and agreed to by both organization.
THE RESPONSIBILITIES FOR UPI ARE AS FOLLOWS:
Contract administration for the annuity contracts including, but not
limited to:
Contract Issue/Duplicate Contracts
Contract Changes
Billing and Collection
(including the collection of funds for other carriers)
Death and Waiver Claims
Surrenders and Partial Withdrawals
(including repetitive payments)
Inquiries/Correspondence
Returned Mail/Address Changes
Statements of Account Values (scheduled and on request)
Maintaining Records of Interest Rates
Maturities
Supplemental Contracts
Reinsurance Administration
Routine Administrative Legal and Compliance
(excluding periodic filings required by regulatory agencies and
lawsuits)
Accounting Entries and File Maintenance
General Ledger Interface
Annual Statement Data and other Annual Reporting Requirements
State and Regulatory Report Data
Account Reconciliations
Monitoring Accounting Activity
Interface with the WNIC Escheatment System
Maintain Accurate Inforce Records for Valuation
-20-
<PAGE>
Valuation and Analysis Data Related To This Block
Miscellaneous Calculations for Values
Tax Reporting (5498, 1099 and W2 Forms)
Agent Inforce Listings
Generation of Commission Extract Tape
Washington National Quality Assurance Reports (when requested)
FASB 97 Interface Replacement Report
Interface with IFTC
403 B Loans
Miscellaneous Extract Reports for Conservation,
Record Clean-up, etc.
Updating and Filming Pertinent Documents in Files
THE RESPONSIBILITIES FOR WNIC ARE AS FOLLOWS:
Policy Service for WNEB and Divested Blocks
FESAP/Bank Interface
Payouts on Annuitized Contracts (ARPS System)
Actuarial Analysis
Reinsurance Treaty Issues
Legal Issues Pending Prior to 4/1/95
Commission Payments to Agents
Agent Licensing Information
Tax Decision/Clarifications
-21-
<PAGE>
EXHIBIT D
ADMINISTRATIVE FEES
Fixed Annuity Products: $2.00 per average
policy in force
per month
Variable Annuity Products: $3.75 per average
policy in force
per month
-22-
<PAGE>
AMENDMENT
This Amendment to the Administrative Services Agreement, made by and
between Washington National Insurance Company (hereafter "WNIC") and United
Presidential Life Insurance Company (hereafter "UPI") as of the 1st day of June,
1995, is made and agreed to by the parties as of February 14, 1996.
1. Part 2.01 of Section 2 entitled TERM is modified to read as follows:
Subject to termination as hereinafter provided, this Agreement shall remain
inforce and effect for a period of ten years (the initial term of the
Agreement), and this Agreement shall continue inforce and effect from year to
year thereafter until terminated as herein provided, each such additional year
being an additional term of this Agreement.
2. On Exhibit C, all responsibilities listed as WNIC's responsibilities shall
be made responsibilities of UPI except that WNIC shall retain the responsibility
to make commission payments to agents. UPI shall be responsible for providing,
on a timely basis, data upon which WNIC may make such payments. UPI agrees to
manage the relationship and monitor the performance of any third party
administration (TPA). Fees charged by the TPA will be the responsibility of UPI.
Further, UPI will be responsible for Routine Administrative Legal and
Compliance, including periodic filings.
-23-
<PAGE>
3. Effective January 1, 1996, Exhibit D is modified to read as follows:
Fixed Annuity Products: $4.00 per average policy in force per month
Variable Annuity Products: $7.50 per average policy in force per month
The average number of contracts in force is calculated as the sum of the
number of active policies at the end of the previous month and at the end of the
current month divided by two. The calculation excludes WNEB and Variable Fund A
and B products.
4. Effective January 1, 1996, in addition to the WNIC fixed and variable
products listed on Exhibit A, UPI agrees to administer the WNEB products
(deposit administration, terminal funding, RLR).
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in their names and on their behalves by and through their duly
authorized officers as of the day and year set forth above.
UNITED PRESIDENTIAL WASHINGTON NATIONAL
LIFE INSURANCE COMPANY INSURANCE COMPANY
BY _______________________ BY ______________________
Dennis A. Taylor
Senior Vice President &
Chief Financial Officer
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<PAGE>
Exhibit (12)(b)
---------------
Consent of Sutherland, Asbill & Brennan
<PAGE>
[LETTERHEAD OF SUTHERLAND, ASBILL & BRENNAN]
April 17, 1996
Washington National Insurance Company
300 Tower Parkway
Lincolnshire, IL 60069
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of the Post-Effective Amendment No. 16
to Form N-3 for Separate Account I of Washington National Insurance Company
(File No. 2-81129). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Fred R. Bellamy
--------------------
Frederick R. Bellamy
<PAGE>
Exhibit (13)
------------
Consent of Ernst & Young LLP
<PAGE>
EXHIBIT 13
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 9, 1996, with respect to the financial
statements and selected per accumulation unit data and ratios of Separate
Account I of Washington National Insurance Company as of December 31, 1995 and
for the periods noted in the report, and our report dated February 8, 1996, with
respect to the consolidated financial statements of Washington National
Insurance Company as of December 31, 1995 and for the periods noted in the
report, in this Post-Effective Amendment to the Registration Statement on
Form N-3 (No. 2-81129) under the Securities Act of 1933 and Registration
Statement (No. 811-3640) under the Investment Company Act of 1940 and related
Prospectus and Statement of Additional Information of Separate Account I of
Washington National Insurance Company.
/s/ Ernst & Young LLP
Chicago, Illinois
April 25, 1996
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