STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE AND FIXED ANNUITY CONTRACTS
issued by
COVA VARIABLE ANNUITY ACCOUNT ONE
(FORMERLY, XEROX VARIABLE ANNUITY ACCOUNT ONE)
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
(FORMERLY, XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY)
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1995, AS AMENDED JUNE
1, 1995, FOR THE INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE AND FIXED ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE
THE COMPANY AT: One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois
60181-4644, (800) 831-LIFE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1995, AS
AMENDED JUNE 1,1995.
<PAGE>
TABLE OF CONTENTS
Company
Experts
Legal Opinions
Distributor
Yield Calculation For Money Market Sub-Account
Performance Information
Annuity Provisions
Variable Annuity
Fixed Annuity
Annuity Unit
Net Investment Factor
Mortality and Expense Guarantee
Financial Statements
<PAGE>
COMPANY
Information regarding Cova Financial Services Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus. Prior to June 1,
1995, the Company was known as Xerox Financial Services Life Insurance
Company.
The Company contributed the initial capital to the Variable Account. As of
December 31, 1994, the initial capital contributed by the Company represented
approximately .05% of the total assets of the Variable Account. The Company
has no present intention of removing these assets from the Variable Account.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1994
and 1993 and for each of the years in the three-year period ended December 31,
1994, and the financial statements of the Variable Account, and Lord Abbett
Series Fund, Inc. as of December 31, 1994 and for the year or period then
ended, included herein, have been included herein in reliance upon the reports
of KPMG Peat Marwick LLP and Deloitte and Touche LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firms as experts in accounting and auditing.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being
passed upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
DISTRIBUTOR
Cova Life Sales Company ("Life Sales") acts as the distributor. Prior to
June 1, 1995 Cova Life Sales Company was known as Xerox Life Sales Company.
Life Sales is an affiliate of the Company. The offering is on a continuous
basis.
YIELD CALCULATION FOR MONEY MARKET SUB-ACCOUNT
The Money Market Sub-Account of the Variable Account will calculate its
current yield based upon the seven days ended on the date of calculation. For
the seven calendar days ended December 31, 1994, the annualized yield for the
Money Market Sub-Account was 2.68%.
The current yield of the Money Market Sub-Account is computed by determining
the net change (exclusive of capital changes) in the value of a hypothetical
pre-existing Owner account having a balance of one Accumulation Unit of the
Sub-Account at the beginning of the period, subtracting the Mortality and
Expense Risk Premium, the Administrative Expense Charge and the Contract
Maintenance Charge, dividing the difference by the value of the account at the
beginning of the same period to obtain the base period return and multiplying
the result by (365/7).
<PAGE>
The Money Market Sub-Account computes its effective compound yield according
to the method prescribed by the Securities and Exchange Commission. The
effective yield reflects the reinvestment of net income earned daily on Money
Market Sub-Account assets.
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of
the Money Market Sub-Account in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Sub-Account and changes in the interest
rates on such investments, but also on changes in the Money Market
Sub-Account's expenses during the period.
Yield information may be useful in reviewing the performance of the Money
Market Sub-Account and for providing a basis for comparison with other
investment alternatives. However, the Money Market Sub-Account's yield
fluctuates, unlike bank deposits or other investments which typically pay a
fixed yield for a stated period of time. The yield information does not
reflect the deduction of any applicable Withdrawal Charge at the time of the
surrender. (See "Charges and Deductions - Deduction for Withdrawal Charge
(Sales Load)" in the Prospectus.)
PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described in
the Prospectus. Any such advertisement will include total return figures for
the time periods indicated in the advertisement. Such total return figures
will reflect the deduction of a 1.25% Mortality and Expense Risk Premium, a
.15% Administrative Expense Charge, the investment advisory fee for the
underlying Portfolio being advertised and any applicable Contract Maintenance
Charges and Withdrawal Charges.
The hypothetical value of a Contract purchased for the time periods described
in the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Contract Maintenance Charges and any applicable Withdrawal Charge to arrive at
the ending hypothetical value. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is:
<PAGE>
n
P (1 + T) = ERV
<TABLE>
<CAPTION>
<S> <C> <C>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment made
at the beginning of the time periods used.
</TABLE>
In addition to total return data, the Company may include yield
information in its advertisements. For each Sub-Account (other than the Money
Market Sub-Account) for which the Company will advertise yield, it will show a
yield quotation based on a 30 day (or one month) period ended on the date of
the most recent balance sheet of the Variable Account included in the
regis-tra-tion statement, computed by dividing the net investment income per
Accumulation Unit earned during the period by the maximum offering price per
Unit on the last day of the period, according to the following formula:
6
Yield = 2[((a-b)/(cd)+1) - 1]
Where:
<TABLE>
<CAPTION>
<S> <C> <C>
a = Net investment income earned during the period by the Trust or Fund
attributable to shares owned 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.
d = The maximum offering price per Accumulation Unit on the last day of
the period.
</TABLE>
The Company may also advertise performance data which will be calculated
in the same manner as described above but which will not reflect the deduction
of any Withdrawal Charge.
<PAGE>
Owners should note that the investment results of each Sub-Account will
fluctuate over time, and any presentation of the Sub-Account's total return or
yield for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return or yield may be in any
future period.
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments which: (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable Sub-Account(s) of the Variable Account.
At the Annuity Date, the Contract Value in each Sub-Account will be applied to
the applicable Annuity Tables. The Annuity Table used will depend upon the
Annuity Option chosen. If, as of the Annuity Date, the then current Annuity
Option rates applicable to this class of Contracts provide a first Annuity
Payment greater than guaranteed under the same Annuity Option under this
Contract, the greater payment will be made. The dollar amount of Annuity
Payments after the first is determined as follows:
<TABLE>
<CAPTION>
<C> <S>
(1) the dollar amount of the first Annuity Payment is divided by the
value of an Annuity Unit as of the Annuity Date. This
establishes the number of Annuity Units for each monthly
payment. The number of Annuity Units remains fixed during the
Annuity Payment period.
(2) the fixed number of Annuity Units is multiplied by the Annuity
Unit value for the last Valuation Period of the month preceding
the month for which the payment is due. This result is the
dollar amount of the payment.
</TABLE>
The total dollar amount of each Variable Annuity Payment is the sum of all
Sub-Account Variable Annuity Payments reduced by the applicable Contract
Maintenance Charge.
FIXED ANNUITY
A fixed annuity is a series of payments made during the Annuity Period which
are guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Variable Account. The General Account Value on
the day immediately preceding the Annuity Date will be used to determine the
Fixed Annuity monthly payment. The first monthly Annuity Payment will be
based upon the Annuity Option elected and the appropriate Annuity Option
Table.
<PAGE>
ANNUITY UNIT
The value of an Annuity Unit for each Sub-Account was arbitrarily set
initially at $10. This was done when the first Eligible Investment shares
were purchased. The Sub-Account Annuity Unit value at the end of any
subsequent Valuation Period is determined by multiplying the Sub-Account
Annuity Unit value for the immediately preceding Valuation Period by the
product of (a) the Net Investment Factor for the day for which the Annuity
Unit Value is being calculated, and (b) 0.999919.
NET INVESTMENT FACTOR
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing:
<TABLE>
<CAPTION>
<C> <S>
(a) the Accumulation Unit value as of the close of the current
Valuation Period, by
(b) the Accumulation Unit value as of the close of the immediately
preceding Valuation Period.
</TABLE>
Net Investment Factor may be greater or less than one, as the Annuity Unit
value may increase or decrease.
MORTALITY AND EXPENSE GUARANTEE
The Company guarantees that the dollar amount of each Annuity Payment after
the first Annuity Payment will not be affected by variations in mortality or
expense experience.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
<PAGE>
KMPG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601-9973
Xerox Variable Annuity Account One
INDEPENDENT AUDITOR'S REPORT
The Contract Owners of
Xerox Variable Annuity Account One of
Xerox Financial Services Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of Xerox
Variabile Annuity Account One of Xerox Financial Services Life Insurance
Company (the Separate Account) as of December 31, 1994, and the related
statement of operations for the year then ended, and the statement of changes
in contract owners' equity for each of the two years in the period then ended,
and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. We did not
audit the financial statements of Lord Abbett Series Fund, Inc. an open-end
management investment company in which assets of the Separate Account are
invested. The investment in the Lord Abbett Series Fund, Inc. represents 40%
of the Separate Account's assets as of December 31, 1994. The financial
statements of Lord Abbett Series Fund, Inc. were audited by other auditors,
whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for Lord Abbett Series Fund, Inc. is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. 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, based on our audits and the reports of the other auditors, the
financial statements and financial highlights referred to above present
fairly, in all material respects, the financial position of Xerox Variable
Annuity Account One of Xerox Financial Services Life Insurance Company as of
December 31, 1994, and the results of its operations for the year then ended,
the changes in its contract owners' equity for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
Chicago, Illinois
February 15, 1995
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________________
ASSETS
INVESTMENTS:
<S> <C>
VAN KAMPEN MERRITT SERIES TRUST:
Quality Income Portfolio - 3,457,435 shares at a net asset value of $9.82 per share (cost $36,067,101) $ 33,936,416
High Yield Portfolio - 2,000,944 shares at a net asset value of $9.82 per share (cost $21,902,749) 19,655,584
Growth and Income Portfolio - 1,061,698 shares at a net asset value of $10.31 per share (cost $11,553,854) 10,941,936
Money Market Portfolio - 75,996,424 shares at a net asset value of $1.00 per share (cost $75,996,424) 75,886,521
Stock Index Portfolio - 3,477,141 shares at a net asset value of $10.59 per share (cost $37,673,254) 36,810,921
LORD ABBETT SERIES FUND, INC:
Growth and Income Portfolio - 9,003,909 shares at a net asset value of $12.71 per share (cost $114,144,420) 114,429,398
Global Equity Portfolio -277,141 shares at a net asset value of $11.22 per share (cost $2,961,687) 3,108,684
____________________________________________________________________________________________________________________________
Total Assets $294,769,460
____________________________________________________________________________________________________________________________
LIABILITIES AND CONTRACT OWNERS' EQUITY
FEES PAYABLE TO XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY $ 33,950
CONTRACT OWNERS' EQUITY:
Trust Quality Income - 2,576,412 accumulation units at $13.170448 per unit 33,932,500
Trust High Yield - 1,157,642 accumulation units at $16.977032 per unit 19,653,327
Trust Growth and Income -977,209 accumulation units at $11.195845 per unit 10,940,681
Trust Money Market - 6,963,421 accumulation units at $10.896621 per unit 75,877,765
Trust Stock Index - 3,151,443 accumulation units at $11.679303 per unit 36,806,663
Fund Growth and Income - 6,875,139 accumulation units at $16.642028 per unit 114,416,253
Fund Global Equity - 233,186 accumulation units at $13.329816 per unit 3,108,321
____________________________________________________________________________________________________________________________
TOTAL CONTRACT OWNERS' EQUITY 294,735,510
____________________________________________________________________________________________________________________________
TOTAL LIABILITIES AND CONTRACT OWNERS' EQUITY $294,769,460
____________________________________________________________________________________________________________________________
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________________
VAN KAMPEN MERRITT LORD ABBETT
SERIES TRUST SERIES FUND, INC.
QUALITY HIGH GROWTH & MONEY STOCK GROWTH & GLOBAL
INCOME YIELD INCOME MARKET INDEX INCOME EQUITY
------------ ------------ ---------- ----------- ------------ ------------ ----------
___________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 2,355,865 $ 1,901,381 $ 337,643 $2,528,826 $ 1,863,364 $ 6,807,000 $ 382,539
------------ ------------ ---------- ----------- ------------ ------------ ----------
Total Income 2,355,865 1,901,381 337,643 2,528,826 1,863,364 6,807,000 382,539
____________________________________________________________________________________________________________________________
EXPENSES:
Mortality and Expense
Risk Fee 500,920 254,248 122,046 731,723 665,194 1,247,192 42,716
Other Operating
Expenses 60,110 30,510 14,646 87,807 79,823 149,663 5,126
------------ ------------ ---------- ----------- ------------ ------------ ----------
Total Expenses 561,030 284,758 136,692 819,530 745,017 1,396,855 47,842
____________________________________________________________________________________________________________________________
NET INVESTMENT INCOME 1,794,835 1,616,623 200,951 1,709,296 1,118,347 5,410,145 334,697
____________________________________________________________________________________________________________________________
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS (2,599,245) (362,967) (21,660) -- 278,818 186,013 142,294
____________________________________________________________________________________________________________________________
NET CHANGE IN UNREALIZED
LOSS ON INVESTMENTS (1,443,581) (2,525,492) (780,493) (77,617) (3,006,374) (4,137,519) (449,794)
____________________________________________________________________________________________________________________________
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (4,042,826) (2,888,459) (802,153) (77,617) (2,727,556) (3,951,506) (307,500)
____________________________________________________________________________________________________________________________
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
RESULTING FROM OPERATIONS $(2,247,991) $(1,271,836) $(601,202) $1,631,679 $(1,609,209) $ 1,458,639 $ 27,197
____________________________________________________________________________________________________________________________
<PAGE>
TOTAL
-------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends $16,176,618
-------------
Total Income 16,176,618
_____________________________________________
EXPENSES:
Mortality and Expense
Risk Fee 3,564,039
Other Operating
Expenses 427,685
-------------
Total Expenses 3,991,724
_____________________________________________
NET INVESTMENT INCOME 12,184,894
_____________________________________________
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS (2,376,747)
_____________________________________________
NET CHANGE IN UNREALIZED
LOSS ON INVESTMENTS (12,420,870)
_____________________________________________
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (14,797,617)
_____________________________________________
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
RESULTING FROM OPERATIONS $(2,612,723)
_____________________________________________
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________
VAN KAMPEN MERRITT LORD ABBETT
SERIES TRUST SERIES FUND, INC.
QUALITY HIGH GROWTH & MONEY STOCK GROWTH &
INCOME YIELD INCOME MARKET INDEX INCOME
------------- ------------ ------------ ------------ ------------- -------------
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 1,794,835 $ 1,616,623 $ 200,951 $ 1,709,296 $ 1,118,347 $ 5,410,145
Net Realized Gain/(Loss)
on Investments (2,599,245) (362,967) (21,660) -- 278,818 186,013
Net Unrealized Loss
on Investments (1,443,581) (2,525,492) (780,493) (77,617) (3,006,374) (4,137,519)
____________________________________________________________________________________________________________________________
NET INCREASE/(DECREASE)
IN CONTRACT OWNERS'
EQUITY RESULTING
FROM OPERATIONS (2,247,991) (1,271,836) (601,202) 1,631,679 (1,609,209) 1,458,639
____________________________________________________________________________________________________________________________
FROM ACCOUNT UNIT TRANSACTIONS:
Redemptions by Xerox
Financial Services Life
Insurance Company -- -- -- -- -- (165,388)
Proceeds from Units of
the Account Sold 3,457,661 3,581,861 1,768,546 26,599,639 3,204,514 12,735,754
Payments for Units of the
Account Redeemed (3,008,336) (1,363,592) (262,226) (3,948,250) (4,010,323) (4,233,747)
Account Transfers (15,379,369) (139,118) 3,508,016 45,042,209 (52,047,260) 22,587,520
____________________________________________________________________________________________________________________________
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
FROM ACCOUNT UNIT
TRANSACTIONS (14,930,044) 2,079,151 5,014,336 67,693,598 (52,853,069) 30,924,139
____________________________________________________________________________________________________________________________
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY (17,178,035) 807,315 4,413,134 69,325,277 (54,462,278) 32,382,778
____________________________________________________________________________________________________________________________
<PAGE>
CONTRACT OWNERS' EQUITY:
Beginning of Period 51,110,535 18,846,012 6,527,547 6,552,488 91,268,941 82,033,475
------------- ------------ ------------ ------------ ------------- -------------
End of Period $ 33,932,500 $19,653,327 $10,940,681 $75,877,765 $ 36,806,663 $114,416,253
____________________________________________________________________________________________________________________________
GLOBAL
EQUITY TOTAL
----------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 334,697 $12,184,894
Net Realized Gain/(Loss)
on Investments 142,294 (2,376,747)
Net Unrealized Loss
on Investments (449,794) (12,420,870)
_______________________________________________________________
NET INCREASE/(DECREASE)
IN CONTRACT OWNERS'
EQUITY RESULTING
FROM OPERATIONS 27,197 (2,612,723)
_______________________________________________________________
FROM ACCOUNT UNIT TRANSACTIONS:
Redemptions by Xerox
Financial Services Life
Insurance Company -- (165,388)
Proceeds from Units of
the Account Sold -- 51,347,975
Payments for Units of the
Account Redeemed (507,347) (17,333,821)
Account Transfers (46,118) 3,525,880
_______________________________________________________________
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
FROM ACCOUNT UNIT
TRANSACTIONS (553,465) 37,374,646
_______________________________________________________________
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY (526,268) 34,761,923
_______________________________________________________________
CONTRACT OWNERS' EQUITY:
Beginning of Period 3,634,589 259,973,587
----------- -------------
End of Period $ 3,108,321 $294,735,510
_______________________________________________________________
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Year Ended December 31, 1993
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________
VAN KAMPEN MERRITT LORD ABBETT
SERIES TRUST SERIES FUND, INC.
QUALITY HIGH GROWTH & MONEY STOCK GROWTH &
INCOME YIELD INCOME MARKET INDEX INCOME
------------ ------------ ------------ ------------- ------------ ------------
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 3,158,370 $ 1,275,361 $ 300,863 $ 229,223 $ 1,874,887 $ 4,659,452
Net Realized Gain
on Investments 1,046,610 85,878 88,162 -- 218,069 166,768
Net Unrealized Gain/(Loss)
on Investments (1,214,087) 262,532 103,052 (32,286) 2,083,909 2,044,460
____________________________________________________________________________________________________________________________
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS 2,990,893 1,623,771 492,077 196,937 4,176,865 6,870,680
____________________________________________________________________________________________________________________________
FROM ACCOUNT UNIT TRANSACTIONS:
Redemptions by Xerox
Financial Services Life
Insurance Co. -- (2,290,063) (1,383,314) -- -- --
Proceeds from Units of
the Account Sold 18,201,878 6,906,003 2,000,940 53,709,857 27,272,204 19,636,812
Payments for Units of the
Account Redeemed (1,588,701) (329,184) (113,707) (315,966) (3,501,317) (2,010,864)
Account Transfers 7,382,393 7,519,534 2,904,291 (51,069,388) 28,342,185 20,391,286
____________________________________________________________________________________________________________________________
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
FROM ACCOUNT UNIT
TRANSACTIONS 23,995,570 11,806,290 3,408,210 2,324,503 52,113,072 38,017,234
____________________________________________________________________________________________________________________________
NET INCREASE IN CONTRACT
OWNERS' EQUITY 26,986,463 13,430,061 3,900,287 2,521,440 56,289,937 44,887,914
____________________________________________________________________________________________________________________________
<PAGE>
CONTRACT OWNERS' EQUITY:
Beginning of Period 24,124,072 5,415,951 2,627,260 4,031,048 34,979,004 37,145,561
------------ ------------ ------------ ------------- ------------ ------------
End of Period $51,110,535 $18,846,012 $ 6,527,547 $ 6,552,488 $91,268,941 $82,033,475
____________________________________________________________________________________________________________________________
GLOBAL
EQUITY TOTAL
----------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 64,653 $11,562,809
Net Realized Gain
on Investments 71,656 1,677,143
Net Unrealized Gain/(Loss)
on Investments 618,901 3,866,481
_______________________________________________________________
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS 755,210 17,106,433
_______________________________________________________________
FROM ACCOUNT UNIT TRANSACTIONS:
Redemptions by Xerox
Financial Services Life
Insurance Co. -- (3,673,377)
Proceeds from Units of
the Account Sold 8,500 127,736,194
Payments for Units of the
Account Redeemed (244,059) (8,103,798)
Account Transfers (134,552) 15,335,749
_______________________________________________________________
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
FROM ACCOUNT UNIT
TRANSACTIONS (370,111) 131,294,768
_______________________________________________________________
NET INCREASE IN CONTRACT
OWNERS' EQUITY 385,099 148,401,201
_______________________________________________________________
CONTRACT OWNERS' EQUITY:
Beginning of Period 3,249,490 111,572,386
----------- -------------
End of Period $ 3,634,589 $259,973,587
_______________________________________________________________
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
SUPPLEMENTARY INFORMATION - FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account and presented below:
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________
Van Kampen Merritt Series Trust - Quality Income Portfolio
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 13.97 $ 12.75 $ 12.02 $ 10.62 $ 9.97
-------------- -------------- -------------- -------------- --------------
Net Investment Income .60 1.00 .64 .67 .60
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (1.40) .22 .09 .73 .05
-------------- -------------- -------------- -------------- --------------
Total from Investment Operations (.80) 1.22 .73 1.40 .65
-------------- -------------- -------------- -------------- --------------
Accumulation Unit Value,
End of Period $ 13.17 $ 13.97 $ 12.75 $ 12.02 $ 10.62
__________________________________________________________________________________________________________________
Total Return* (5.70)% 9.50% 6.10% 13.20% 6.55%
Net Assets, End of Period
(in thousands) $ 33,936 $ 51,118 $ 24,138 $ 6,783 $ 6,064
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40% 1.40%
___________________________________________________________________________________________________________________
Ratio of Net Investment Income
to Average Contract
Owners' Equity 4.48% 8.30% 5.45% 6.09% 6.24%
___________________________________________________________________________________________________________________
Number of Units Outstanding
at End of Period 2,576,412 3,659,656 1,891,499 563,960 564,940
___________________________________________________________________________________________________________________
<FN>
* Investment returns do not reflect any annual contract maintenance fees
or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
SUPPLEMENTARY INFORMATION - FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account and presented below:
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________
Van Kampen Merritt Series Trust - High Yield Portfolio
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 18.02 $ 14.99 $ 12.75 $ 10.06 $ 10.02
-------------- -------------- -------------- -------------- --------------
Net Investment Income 1.38 1.80 2.26 1.14 1.00
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (2.42) 1.23 (.02) 1.55 (.96)
-------------- -------------- -------------- -------------- --------------
Total from Investment Operations (1.04) 3.03 2.24 2.69 .04
-------------- -------------- -------------- -------------- --------------
Accumulation Unit Value,
End of Period $ 16.98 $ 18.02 $ 14.99 $ 12.75 $ 10.06
__________________________________________________________________________________________________________________
Total Return* (5.79)% 20.21% 17.53% 26.73% .44%
__________________________________________________________________________________________________________________
Net Assets, End of Period
(in thousands) $ 19,656 $ 18,849 $ 5,419 $ 3,806 $ 2,866
__________________________________________________________________________________________________________________
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40% 1.40%
___________________________________________________________________________________________________________________
Ratio of Net Investment Income
to Average Contract
Owners' Equity 7.92% 13.05% 16.04% 9.83% 10.00%
___________________________________________________________________________________________________________________
Number of Units Outstanding
at End of Period 1,157,642 1,045,815 361,296 298,202 280,854
___________________________________________________________________________________________________________________
<FN>
* Investment returns do not reflect any annual contract maintenance fees or
withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
SUPPLEMENTARY INFORMATION - FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account and presented below:
<TABLE>
<CAPTION>
_________________________________________________________________________________________________
VAN KAMPEN MERRITT SERIES TRUST - GROWTH & INCOME PORTFOLIO
For the Period From
For the Year For the Year 5/1/92
Ended Ended (Commencement of Operations)
12/31/94 12/31/93 Through 12/31/92
_________________________________________________________________________________________________
<S> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 11.92 $ 10.47 $ 10.00
-------------- -------------- -----------------------------
Net Investment Income .19 .54 .19
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (.91) .91 .28
-------------- -------------- -----------------------------
Total from Investment Operations (.72) 1.45 .47
-------------- -------------- -----------------------------
Accumulation Unit Value,
End of Period $ 11.20 $ 11.92 $ 10.47
_________________________________________________________________________________________________
Total Return** (6.07)% 13.84% 7.09%*
_________________________________________________________________________________________________
Net Assets, End of Period
(in thousands) $ 10,942 $ 6,529 $ 2,629
_________________________________________________________________________________________________
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40%*
_________________________________________________________________________________________________
Ratio of Net Investment Income
to Average Contract
Owners' Equity 2.05% 7.54% 3.82%*
_________________________________________________________________________________________________
Number of Units Outstanding
at End of Period 977,209 547,643 250,919
_________________________________________________________________________________________________
<FN>
* Annualized
** Investment returns do not reflect any annual contract maintenance fees or
withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
SUPPLEMENTARY INFORMATION - FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account and presented below:
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________
VAN KAMPEN MERRITT SERIES TRUST - MONEY MARKET PORTFOLIO
For the Period From 11/1/91
For the Year For the Year For the Year (Commencement
Ended Ended Ended of Operations)
12/31/94 12/31/93 12/31/92 Through 12/31/91
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 10.61 $ 10.46 $ 10.21 $ 10.00
-------------- -------------- -------------- -----------------------------
Net Investment Income .30 .19 .25 .21
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (.01) (.04) -- --
-------------- -------------- -------------- -----------------------------
Total from Investment Operations .29 .15 .25 .21
-------------- -------------- -------------- -----------------------------
Accumulation Unit Value,
End of Period $ 10.90 $ 10.61 $ 10.46 $ 10.21
________________________________________________________________________________________________________________
Total Return** 2.70% 1.45% 2.44% 4.19%*
________________________________________________________________________________________________________________
Net Assets, End of Period
(in thousands) $ 75,887 $ 6,554 $ 4,033 $ 5,390
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40%*
________________________________________________________________________________________________________________
Ratio of Net Investment Income
to Average Contract
Owners' Equity 2.90% 1.78% 2.46% 4.04%*
________________________________________________________________________________________________________________
Number of Units Outstanding
at End of Period 6,963,421 617,575 385,448 527,571
________________________________________________________________________________________________________________
<FN>
* Annualized
** Investment returns do not reflect any annual contract maintenance
fees or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
SUPPLEMENTARY INFORMATION - FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account and presented below:
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________
VAN KAMPEN MERRITT SERIES TRUST - STOCK INDEX PORTFOLIO
For the Period From 11/1/91
For the Year For the Year For the Year (Commencement
Ended Ended Ended of Operations)
12/31/94 12/31/93 12/31/92 Through 12/31/91
_______________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 11.87 $ 11.05 $ 10.55 $ 10.00
-------------- -------------- -------------- -----------------------------
Net Investment Income .37 .22 .52 (.02)
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (.56) .60 (.02) .57
-------------- -------------- -------------- -----------------------------
Total from Investment Operations (.19) .82 .50 .55
-------------- -------------- -------------- -----------------------------
Accumulation Unit Value,
End of Period $ 11.68 $ 11.87 $ 11.05 $ 10.55
________________________________________________________________________________________________________________
Total Return** (1.58)% 7.35% 4.75% 38.03%*
________________________________________________________________________________________________________________
Net Assets, End of Period
(in thousands) $ 36,811 $ 91,283 $ 35,000 $ 6,761
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40%*
________________________________________________________________________________________________________________
Ratio of Net Investment Income
to Average Contract
Owners' Equity 2.10% 2.99% 10.02% (1.40)%*
________________________________________________________________________________________________________________
Number of Units Outstanding
at End of Period 3,151,443 7,691,151 3,164,251 639,923
<FN>
* Annualized
** Investment returns do not reflect any annual contract maintenance
fees or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
SUPPLEMENTARY INFORMATION - FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account and presented below:
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________________
LORD ABBETT SERIES FUND, INC. - GROWTH AND INCOME PORTFOLIO
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
__________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 16.42 $ 14.50 $ 12.73 $ 10.15 $ 10.06
-------------- -------------- -------------- -------------- --------------
Net Investment Income .76 .88 1.06 .85 .23
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (.54) 1.04 .71 1.73 (.14)
-------------- -------------- -------------- -------------- --------------
Total from Investment Operations .22 1.92 1.77 2.58 .09
-------------- -------------- -------------- -------------- --------------
Accumulation Unit Value,
End of Period $ 16.64 $ 16.42 $ 14.50 $ 12.73 $ 10.15
__________________________________________________________________________________________________________________
Total Return* 1.32% 13.24% 13.98% 25.42% .83%
__________________________________________________________________________________________________________________
Net Assets, End of Period
(in thousands) $ 114,429 $ 82,046 $ 37,168 $ 18,166 $ 10,651
__________________________________________________________________________________________________________________
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40% 1.40%
__________________________________________________________________________________________________________________
Ratio of Net Investment Income
to Average Contract
Owners' Equity 5.40% 8.12% 10.59% 9.05% 4.62%
__________________________________________________________________________________________________________________
Number of Units Outstanding
at End of Period 6,875,139 4,994,582 2,560,999 1,426,577 1,041,342
__________________________________________________________________________________________________________________
<FN>
* Investment returns do not reflect any annual contract maintenance
fees or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
SUPPLEMENTARY INFORMATION - FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account and presented below:
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________________________
LORD ABBETT SERIES FUND, INC. - GLOBAL EQUITY PORTFOLIO
For the Year For the Year For the Year For the Year For the Period
Ended Ended Ended Ended From 4/9/90
12/31/94 12/31/93 12/31/92 12/31/91 Through 12/31/90
_____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 13.29 $ 10.64 $ 10.97 $ 9.79 $ 10.00
-------------- -------------- -------------- -------------- ------------------
Net Investment Income 1.45 .24 .18 .14 .06
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (1.41) 2.41 (.51) 1.04 (.27)
-------------- -------------- -------------- -------------- ------------------
Total from Investment Operations .04 2.65 (.33) 1.18 (.21)
-------------- -------------- -------------- -------------- ------------------
Accumulation Unit Value,
End of Period $ 13.33 $ 13.29 $ 10.64 $ 10.97 $ 9.79
_____________________________________________________________________________________________________________________
Total Return** .27% 24.91% (2.98)% 12.02% (2.81)%*
_____________________________________________________________________________________________________________________
Net Assets, End of Period
(in thousands) $ 3,109 $ 3,635 $ 3,252 $ 4,295 $ 2,584
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40% 1.40%*
_____________________________________________________________________________________________________________________
Ratio of Net Investment Income
to Average Contract
Owners' Equity 9.78% 1.88% 1.38% 2.19% 2.38%*
_____________________________________________________________________________________________________________________
Number of Units Outstanding
at End of Period 233,186 273,399 305,314 391,234 262,309
_____________________________________________________________________________________________________________________
<FN>
* Annualized
** Investment returns do not reflect any annual contract maintenance
fees or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1994 and 1993
______________________________________________________________________________
1. ORGANIZATION:
Xerox Variable Annuity Account One (the "Separate Account") is a separate
investment account established by a resolution of the Board of Directors of
Xerox Financial Services Life Insurance Company ("Xerox Life"). The Separate
Account operates as a Unit Investment Trust under the Investment Company Act
of 1940.
The Separate Account is divided into sub-accounts, with the assets of each
sub-account invested in either the Van Kampen Merritt Series Trust ("Trust")
or the Lord Abbett Series Fund, Inc. ("Fund"). The Trust is managed by Van
Kampen Merritt Investment Advisory Corp. Currently, the Van Kampen Merritt
Series Trust consists of five portfolios available for investment; the
Quality Income, High Yield, Growth & Income, Money Market, and Stock Index
Portfolios. The Lord Abbett Series Fund currently has two portfolios
available for investment; the Growth and Income Portfolio and the Global
Equity Portfolio. Not all portfolios of the Trust and Fund are available for
investment depending upon the nature and specific terms of the different
contracts currently being offered for sale. Both the Trust and Fund are
diversified, open-end, management investment companies which are intended to
meet differing investment objectives.
The Trust Quality Income Portfolio invests in U.S. Government issued debt
obligations and in various investment-grade debt instruments. The Trust High
Yield Portfolio invests in medium and lower-grade debt securities and futures
and options contracts. The Trust Growth and Income Portfolio invests in
common stocks and futures and options contracts. The Trust Money Market
Portfolio invests in short-term money market instruments. The Trust Stock
Index Portfolio invests in common stocks, stock index futures and options, and
short-term securities. The Fund Growth and Income Portfolio invests in common
stocks. The Fund Global Equity Portfolio invests in both domestic and foreign
common stocks and forward currency contracts.
In order to satisfy diversification requirements and provide for optimum
policyholder returns, Xerox Life has made periodic contributions to the Trust
and Fund to provide for the initial purchases of investments. In return,
Xerox Life has been credited with accumulation units of the Separate Account.
As additional funds were received through policyholder deposits, Xerox Life
has, at its discretion and without adversely impacting the investment
operations of the Trust and Fund, reduced its capital investment in the
Separate Account by liquidating accumulation units. Since inception,
$13,200,000 has been contributed to the Separate Account by Xerox Life of
which, after subsequent redemptions, $133,298 remains as of December 31, 1994.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES:
A. INVESTMENT VALUATION
Investments in shares of the Trust and Fund are carried in the statement of
assets and liabilities at the underlying net asset value of the Trust and
Fund. The net asset value of the Trust and Fund has been determined on the
market value basis.
B. REINVESTMENT OF DIVIDENDS
Dividends received from net investment income and net realized capital gains
are reinvested in additional shares of the portfolio of the Trust or Fund
making the distribution or, at the election of the Separate Account, received
in cash. Dividend income and capital gain distributions are recorded as
income on the ex-dividend date.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1994 and 1993
______________________________________________________________________________
C. FEDERAL INCOME TAXES
Operations of the Separate Account form a part of Xerox Life, which is taxed
as a "Life Insurance Company" under the Internal Revenue Code ("Code"). Under
current provisions of the Code, no Federal income taxes are payable by Xerox
Life with respect to earnings of the Separate Account.
Under the principles set forth in Internal Revenue Ruling 81-225 and Section
817(h) of the Code and regulations thereunder, Xerox Life believes that it
will be treated as the owner of the assets invested in the Separate Account
for Federal Income Tax purposes, with the result that earnings and gains, if
any, derived from those assets will not be included in a contract owners'
gross income until amounts are withdrawn or received pursuant to an Optional
Payment Plan.
3. CONTRACT CHARGES:
There are no deductions made from purchase payments for sales charges at the
time of purchase. However, if all or a portion of the contract value is
withdrawn, a withdrawal charge is calculated and deducted from the contract
value. The withdrawal charge is imposed on withdrawals of contract values
attributable to purchase payments within five years after receipt and is equal
to 5% of the purchase payment withdrawn. After the first contract
anniversary, an owner may make a withdrawal each contract year of up to 10% of
the aggregate purchase payments free from withdrawal charges. An annual
contract maintenance charge of $30 is imposed on all contracts on their policy
anniversary. The charge covers the cost of contract administration for the
previous year and is prorated between the sub-accounts to which the contract
value is allocated.
Mortality and expense risks assumed by Xerox Life are compensated by a charge
equivalent to an annual rate of 1.25% of the value of net assets.
In addition, the Separate Account bears certain administration expenses, which
are equivalent to an annual rate of .15% of net assets. These charges cover
the cost of establishing and maintaining the contracts and Separate Account.
4. ACCOUNT TRANSFERS:
Subject to certain restrictions, the contract owner may transfer all or a part
of the accumulated value of the contract among other offered and available
account options of the Separate Account and fixed rate annuities of Xerox
Life. If more than 12 transfers have been made in the contract year, a
transfer fee of $25 per transfer or, if less, 2% of the amount transferred
will be deducted from the account value. If the owner is participating in the
Dollar Cost Averaging program, such related transfers are not taken into
account in determining any transfer fee.
<PAGE>
5. RELATED PARTIES:
Xerox Life's share of contract owners' equity at December 31, 1994 was $
133,298 in the Lord Abbett Fund Global Equity Portfolio.
Xerox Life's direct parent is Xerox Financial Services, Inc. (XFSI). In 1993
XFSI announced its intention to disengage from its financial services
business, including Xerox Life. On January 12, 1995, XFSI entered into a
stock purchase agreement with a subsidiary of General American Life Insurance
Company (GALIC) whereby 100% of the issued and outstanding capital stock of
Xerox Life and its affiliate, Xerox Life Management Company, will be purchased
subject to certain conditions and regulatory approval, by GALIC. The
management of Xerox Life believe that this pending transaction will have no
impact on the operations of the separate account.
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1994 and 1993
______________________________________________________________________________
6. GAIN/(LOSS) ON INVESTMENTS:
The table below summarizes realized and unrealized gains and losses on
investments:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS:
____________________________________
FOR THE YEAR FOR THE YEAR
ENDED ENDED
12/31/94 12/31/93
__________________________________________________________________________
<S> <C> <C>
Trust Quality Income Portfolio:
Aggregate Proceeds From Sales $ 55,910,839 $ 25,702,244
Aggregate Cost 58,510,084 24,655,634
-------------- -------------
Net Realized Gain/(Loss) on Investments $ (2,599,245) $ 1,046,610
__________________________________________________________________________
Trust High Yield Portfolio:
Aggregate Proceeds From Sales $ 9,145,332 $ 2,531,575
Aggregate Cost 9,508,299 2,445,697
-------------- -------------
Net Realized Gain/(Loss) on Investments $ (362,967) $ 85,878
_________________________________________________________________________
Trust Growth and Income Portfolio:
Aggregate Proceeds From Sales $ 1,423,903 $ 1,551,187
Aggregate Cost 1,445,563 1,463,025
-------------- -------------
Net Realized Gain/(Loss) on Investments $ (21,660) $ 88,162
_________________________________________________________________________
Trust Money Market Portfolio:
Aggregate Proceeds From Sales $ 60,198,925 $ 60,530,372
Aggregate Cost 60,198,925 60,530,372
-------------- -------------
Net Realized Gain/(Loss) on Investments $ -- $ --
_________________________________________________________________________
Trust Stock Index Portfolio:
Aggregate Proceeds From Sales $ 67,994,793 $ 22,871,814
Aggregate Cost 67,715,975 22,653,745
-------------- -------------
Net Realized Gain on Investments $ 278,818 $ 218,069
_________________________________________________________________________
</TABLE>
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1994 and 1993
GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS
___________________________________
FOR THE YEAR FOR THE YEAR
ENDED ENDED
12/31/94 12/31/93
______________________________________________________________________________________
<S> <C> <C>
Fund Growth and Income Portfolio:
Aggregate Proceeds From Sales $ 3,887,963 $ 1,581,901
Aggregate Cost 3,701,950 1,415,133
-------------- --------------
Net Realized Gain on Investments $ 186,013 $ 166,768
______________________________________________________________________________________
Fund Global Equity Portfolio:
Aggregate Proceeds From Sales $ 738,271 $ 683,703
Aggregate Cost 595,977 612,047
-------------- --------------
Net Realized Gain on Investments $ 142,294 $ 71,656
______________________________________________________________________________________
Unrealized Gain/(Loss) on Investments
- -------------------------------------
Trust Quality Income Portfolio:
End of Period $ (2,130,685) $ (687,104)
Beginning of Period (687,104) 526,983
-------------- --------------
Net Change in Unrealized Gain/(Loss) on Investments $ (1,443,581) $ (1,214,087)
______________________________________________________________________________________
Trust High Yield Portfolio:
End of Period $ (2,247,165) $ 278,327
Beginning of Period 278,327 15,795
-------------- --------------
Net Change in Unrealized Gain/(Loss) on Investments $ (2,525,492) $ 262,532
______________________________________________________________________________________
Trust Growth and Income Portfolio:
End of Period $ (611,918) $ 168,575
Beginning of Period 168,575 65,523
-------------- --------------
Net Change in Unrealized Gain/(Loss) on Investments $ (780,493) $ 103,052
______________________________________________________________________________________
Trust Money Market Portfolio:
End of Period $ (109,903) $ (32,286)
Beginning of Period (32,286) --
-------------- --------------
Net Change in Unrealized Gain/(Loss) on Investments $ (77,617) $ (32,286)
</TABLE>
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1994 and 1993
GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
UNREALIZED GAIN/(LOSS) ON INVESTMENTS
_____________________________________
FOR THE YEAR FOR THE YEAR
ENDED 12/31/94 ENDED 12/31/93
___________________________________________________________________________________________
<S> <C> <C>
Trust Stock Index Portfolio:
End of Period $ (862,333) $ 2,144,041
Beginning of Period 2,144,041 60,132
---------------- ----------------
Net Change in Unrealized Gain/(Loss) on Investments $ (3,006,374) $ 2,083,909
___________________________________________________________________________________________
Fund Growth and Income Portfolio:
End of Period $ 284,978 $ 4,422,497
Beginning of Period 4,422,497 2,378,037
---------------- ----------------
Net Change in Unrealized Gain/(Loss) on Investments $ (4,137,519) $ 2,044,460
___________________________________________________________________________________________
Fund Global Equity Portfolio:
End of Period $ 146,997 $ 596,791
Beginning of Period 596,791 (22,110)
---------------- ----------------
Net Change in Unrealized Gain/(Loss) on Investments $ (449,794) $ 618,901
___________________________________________________________________________________________
</TABLE>
<PAGE>
7. ACCOUNT UNIT TRANSACTIONS:
<TABLE>
<CAPTION>
The change in the number of accumulation units resulting from account unit transactions is as follows:
VAN KAMPEN MERRITT LORD ABBETT
SERIES TRUST SERIES FUND, INC.
QUALITY HIGH GROWTH & MONEY STOCK GROWTH & GLOBAL
INCOME YIELD INCOME MARKET INDEX INCOME EQUITY TOTAL
---------- ---------- --------- ----------- ---------- ---------- -------- -----------
_______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1992 1,891,499 361,296 250,919 385,448 3,164,251 2,560,999 305,314 8,919,726
_______________________________________________________________________________________________________________________
Redemptions by
Xerox Life -- (146,100) (126,000) -- -- -- -- (272,100)
Units Sold 1,326,738 416,951 178,769 5,153,246 2,422,489 1,276,268 660 10,841,193
Units Redeemed (145,666) (28,997) (11,256) (41,568) (339,658) (158,192) (21,258) (776,667)
Units Transferred 551,085 442,665 255,211 (4,879,551) 2,444,069 1,315,507 (11,317) 117,669
_______________________________________________________________________________________________________________________
Balance at December 31,
1993 3,659,656 1,045,815 547,643 617,575 7,691,151 4,994,582 273,399 18,829,821
_______________________________________________________________________________________________________________________
</TABLE>
<PAGE>
XEROX VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1994 and 1993
7. ACCOUNT UNIT TRANSACTIONS, CONTINUED:
<TABLE>
<CAPTION>
VAN KAMPEN MERRITT LORD ABBETT
SERIES TRUST SERIES FUND, INC.
QUALITY HIGH GROWTH & MONEY STOCK GROWTH & GLOBAL
INCOME YIELD INCOME MARKET INDEX INCOME EQUITY TOTAL
----------- ---------- --------- ---------- ----------- ---------- -------- -----------
___________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1993 3,659,656 1,045,815 547,643 617,575 7,691,151 4,994,582 273,399 18,829,821
___________________________________________________________________________________________________________________________
Redemptions by Xerox Life -- -- -- -- -- (10,000) -- (10,000)
Units Sold 254,048 200,146 151,404 2,494,509 272,775 783,757 -- 4,156,639
Units Redeemed (226,584) (78,180) (25,238) (367,835) (345,996) (264,803) (36,859) (1,345,495)
Units Transferred (1,110,708) (10,139) 303,400 4,219,172 (4,466,487) 1,371,603 (3,354) 303,487
___________________________________________________________________________________________________________________________
Balance at December 31,
1994 2,576,412 1,157,642 977,209 6,963,421 3,151,443 6,875,139 233,186 21,934,452
___________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
XEROX FINANCIAL SERVICES
LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Financial Statements
December 31, 1994, 1993 and 1992
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Xerox Financial Services Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Xerox
Financial Services Life Insurance Company and consolidated subsidiaries (a
wholly owned subsidiary of Xerox Corporation) as of December 31, 1994 and
1993, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1994. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Xerox
Financial Services Life Insurance Company and consolidated subsidiaries as of
December 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1994,
in conformity with generally accepted accounting principles.
As discussed in notes 1 and 2 to the consolidated financial statements, the
Company changed its method of accounting for investments to adopt the
provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," at January 1, 1994.
Chicago, Illinois
January 30, 1995
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation
Consolidated Balance Sheets
December 31, 1994 and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
____________________________________________________________________________________
ASSETS 1994 1993
____________________________________________________________________________________
<S> <C> <C>
Investments:
Debt securities available for sale at market in 1994 and
at lower of aggregate cost or market in 1993
(cost: $2,163,588 in 1994, market: $3,530,946 in 1993) $1,901,642 $3,435,491
Equity securities at market (cost: $10,650 in 1994
and $10,250 in 1993) 8,754 9,756
Mortgage loans 6,825 13,520
Real Estate 26,735 30,811
Policy loans 17,691 15,451
Other invested assets 7,597 3,099
Short-term Investments at cost which approximates market 93,118 58,622
____________________________________________________________________________________
Total Investments 2,062,362 3,566,750
____________________________________________________________________________________
Cash and cash equivalents - interest bearing 1,133,999 106,793
Cash - non-interest bearing 2,328 9,837
Receivable from sale of securities 25,829 18,196
Accrued investment income 33,222 54,607
Due from affiliates 12,938 --
Deferred policy acquisition costs 213,362 146,504
Guaranty assessments recoverable (less allowance of $1,000
for unrecoverable amounts) 12,192 10,419
Federal and state income taxes recoverable 33,851 4,001
Deferred tax benefits 56,135 --
Reinsurance receivables 1,457 2,151
Other assets 2,080 1,607
Separate account assets 294,803 260,084
____________________________________________________________________________________
Total Assets $3,884,558 $4,180,949
</TABLE>
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Consolidated Balance Sheets (continued)
December 31, 1994 and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
____________________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
____________________________________________________________________________________
<S> <C> <C>
Policyholder deposits $3,401,053 $3,523,103
Future policy benefits 25,544 24,744
Payable on purchase of securities 46,285 79,329
Deferred Federal income taxes -- 8,933
Accounts payable and other liabilities 20,031 15,291
Accrued liability for Unrealized losses on off-balance-sheet
derivative instruments 18,398 --
Separate account liabilities 294,636 259,716
____________________________________________________________________________________
Total Liabilities $3,805,947 $3,911,116
____________________________________________________________________________________
Shareholders' equity:
Common stock, $2 par value. (Authorized 5,000,000 shares;
issued and outstanding 2,899,446 shares in 1994 and
2,816,090 shares in 1993) 5,799 5,632
Additional paid-in capital 136,534 120,763
Retained earnings 1,506 143,759
Net unrealized depreciation on securities (65,228) (321)
____________________________________________________________________________________
Total Shareholders' Equity 78,611 269,833
____________________________________________________________________________________
Total Liabilities and Shareholders' Equity $3,884,558 $4,180,949
____________________________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Consolidated Statements of Income
Years ended December 31, 1994, 1993, and 1992
(In thousands of dollars)
<TABLE>
<CAPTION>
__________________________________________________________________________________
1994 1993 1992
__________________________________________________________________________________
<S> <C> <C> <C>
Revenues:
Premiums (net of $231, $207, $162 premium
ceded in 1994, 1993 and 1992) $2,787 $4,002 $2,551
Net investment income 277,616 335,583 328,731
Net realized gain (loss) on sale of investments (101,361) 17,699 74,930
Other Income 6,705 3,604 1,819
__________________________________________________________________________________
Total Revenues 185,747 360,888 408,031
__________________________________________________________________________________
Benefits and expenses:
Interest on policyholder deposits 249,905 265,674 262,890
Current and future policy benefits (net of $4,888,
7,480, and 6,157 reinsurance recoveries
in 1994, 1993 and 1992) 5,259 6,054 5,168
Operating and other expenses 24,479 29,414 33,098
Amortization of deferred acquisition costs 125,357 38,308 25,077
__________________________________________________________________________________
Total Benefits and Expenses 405,000 339,450 326,233
__________________________________________________________________________________
Income/(loss) before taxes on income (219,253) 21,438 81,798
Taxes on income:
Current (46,882) 15,639 24,384
Deferred (30,118) (6,137) 4,030
__________________________________________________________________________________
Total Taxes on Income/(Loss) (77,000) 9,502 28,414
__________________________________________________________________________________
Net Income/(Loss) $(142,253) $11,936 $53,384
__________________________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1994, 1993 and 1992
(In thousands of dollars)
<TABLE>
<CAPTION>
______________________________________________________________________________________
1994 1993 1992
______________________________________________________________________________________
<S> <C> <C> <C>
Common stock ($2 par value common stock; Authorized
5,000,000 shares; issued and outstanding 2,899,446
in 1994, 2,816,090 in 1993, 2,696,100 in 1992)
Balance at beginning of year $5,632 $5,392 $5,392
Par value of additional shares issued 167 240 --
______________________________________________________________________________________
Balance at end of year 5,799 5,632 5,392
______________________________________________________________________________________
Additional paid-in capital:
Balance at beginning of year 120,763 116,003 116,003
Capital contribution 15,771 4,760 --
______________________________________________________________________________________
Balance at end of year 136,534 120,763 116,003
______________________________________________________________________________________
Retained earnings:
Balance at beginning of year 143,759 131,823 78,439
Net income/(loss) (142,253) 11,936 53,384
______________________________________________________________________________________
Balance at end of year 1,506 143,759 131,823
______________________________________________________________________________________
Net unrealized appreciation/(depreciation) of securities:
Balance at beginning of year (321) (277) --
Implementation of change in accounting for
marketable debt and equity securities, net of
effects of deferred taxes of $18,375 and deferred
acquisition costs of $42,955 34,125 -- --
Change in unrealized depreciation
of debt and equity securities (357,502) (74) (420)
Change in deferred Federal income taxes 53,324 30 143
Change in deferred acquisition costs attributable
to unrealized losses 205,146 -- --
Balance at end of year (65,228) (321) (277)
_______________________________________________________________________________________
Total Shareholders' Equity $78,611 $269,833 $252,941
_______________________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
___________________________________________________________________________________________
1994 1993 1992
___________________________________________________________________________________________
<S> <C> <C> <C>
Cash flows from operating activities:
Interest and dividend receipts $309,856 $343,122 $338,644
Premiums received 2,787 4,002 2,551
Insurance and annuity benefit payments (3,755) (3,465) (2,843)
Operating disbursements (26,023) (33,103) (27,408)
Taxes on income refunded (paid) 17,032 (15,414) (27,202)
Commissions and acquisition costs paid (26,454) (30,982) (33,589)
Other 836 (1,585) (104)
____________________________________________________________________________________________
Net cash provided by operating activities 274,279 262,575 250,049
____________________________________________________________________________________________
Cash flows from investing activities:
Cash used for the purchase of investment securities (1,935,353) (3,685,448) (3,179,045)
Proceeds from investment securities sold and matured 3,053,412 3,675,470 2,892,432
Other (8,185) 25,687 2,754
_____________________________________________________________________________________________
Net cash provided by/(used in) in investing activities 1,109,874 15,709 (283,859)
_____________________________________________________________________________________________
Cash flows from financing activities:
Policyholder deposits 274,960 348,392 377,335
Transfer to Separate Accounts (33,548) (132,340) (65,814)
Return of policyholder deposits (608,868) (446,396) (251,345)
Capital contributions received 3,000 5,000 --
_____________________________________________________________________________________________
Net cash provided by/(used in) financing activities (364,456) (225,344) 60,176
_____________________________________________________________________________________________
Increase in cash and cash equivalents 1,019,697 52,940 26,366
Cash and cash equivalents at beginning of year 116,630 63,690 37,324
_____________________________________________________________________________________________
Cash and cash equivalents at end of year $1,136,327 $116,630 $63,690
_____________________________________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Consolidated Statements of Cash Flows, Continued
(In thousands of dollars)
<TABLE>
<CAPTION>
_______________________________________________________________________________________________
1994 1993 1992
_______________________________________________________________________________________________
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income/(loss) $(142,253) $ 11,936 $ 53,384
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefits (net of reinsurance) 1,494 4,106 1,999
Increase/(decrease) in payables and accrued liabilities 3,830 (7,940) 5,022
Decrease/(increase) in accrued investment income 21,393 1,443 (4,921)
Amortization of intangible assets and costs 125,722 38,652 25,394
Amortization and accretion of securities
premiums and discounts 3,635 (97) 10,100
Deferral of premium taxes (340) (114) (47)
Net realized (gain)/loss on sale of investments 101,361 (17,699) (74,930)
Interest accumulated on policyholder deposits 249,905 265,674 262,890
Investment expenses paid 7,296 6,924 6,997
Increase in guaranty assessments (935) (4,076) (4,245)
Increase/(decrease) in current and deferred
Federal income taxes (59,263) (5,942) 813
Separate account net income/(loss) 2 (2,256) (2,948)
Deferral of acquisition costs (29,684) (27,741) (30,320)
Other (7,884) (295) 861
________________________________________________________________________________________________
Net cash provided by operating activities $274,279 $262,575 $250,049
________________________________________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
Xerox Financial Services Life Insurance Company and consolidated subsidiaries
(the Company) market and service single premium deferred annuities, immediate
annuities, variable annuities, and single premium whole-life insurance
policies. Most of the policies issued present no significant mortality nor
longevity risk to the Company, but rather represent investment deposits by the
policyholders. Life insurance policies provide policy beneficiaries with
mortality benefits amounting to a multiple, which declines with age, of the
original premium.
Under the deferred annuity contracts, interest rates credited to policyholder
deposits are guaranteed by the Company for periods from one to ten years, but
in no case may renewal rates be less than 4%. The Company may assess
surrender fees against amounts withdrawn prior to scheduled rate reset and
adjust account values based on current crediting rates. Policyholders also
may incur certain Federal income tax penalties on withdrawals.
ORGANIZATION
Xerox Financial Services, Inc. (XFSI) owns 2,154,216 shares of the Company.
Xerox Credit Corporation owns 745,230 shares of the Company. XFSI and Xerox
Credit Corporation are both wholly owned subsidiaries of Xerox Corporation.
On January 12, 1995 XFSI entered into a Stock Purchase Agreement for the sale
of the Company and its affiliates to a subsidiary of General American Life
Insurance Company (GALIC), a Missouri domiciled life insurance company. In
December of 1994, in anticipation of this agreement the Company established a
new subsidiary, OakRe Life Insurance Company (OakRe). Ownership of OakRe will
remain with XFSI after closing of the sale. The Company expects closing of
the sale to occur during the first half of 1995 (See note 10: Subsequent Event
- -- Purchase of Company).
INVESTMENTS
Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS #115) " Accounting for Certain Investments
in Debt and Equity Securities ". SFAS #115 requires that investments in all
debt securities and those equity securities with readily determinable market
values be classified into one of three categories: held-to-maturity, trading,
or available-for-sale. Classification of investments is based on management's
current intent. All debt and equity securities at December 31, 1994 were
classified as available-for-sale. Securities available-for-sale are carried at
market value, with unrealized holding gains and losses reported as a separate
<PAGE>
component of stockholders equity, net of deferred effects on tax and related
effects on deferred acquisition costs. Prior to January 1, 1994, debt
securities (bonds and sinking fund preferred stocks) were valued in aggregate
at the lower of amortized cost or market and equity securities were valued at
market.
A realized loss is recognized and charged against income if the Company's
carrying value in a particular investment in the available-for-sale category
has experienced a significant decline in market value that is deemed to be
other than temporary.
(Continued)
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
Mortgage loans and policy loans are carried at their unpaid principal
balances. Real estate is carried at cost less accumulated depreciation.
Other invested assets are carried at lower of cost or market.
When an investment supported by real estate collateral is deemed
"in-substance" foreclosed, the investment is reclassified as real estate and
recorded at its fair value, with any reduction in carrying value recorded as a
realized loss. The Company also records an estimated provision for
anticipated impairment of investments. The change in this valuation allowance
is recorded as a realized capital gain or loss in the statements of income.
Amortization of the discount or premium from the purchase of mortgage-backed
bonds is recognized using a level-yield method which considers the estimated
timing and amount of prepayments of the underlying mortgage loans. Actual
prepayment experience is periodically reviewed and effective yields are
recalculated when differences arise between the prepayments originally
anticipated and the actual prepayments received and currently anticipated.
When such a difference occurs, the net investment in the mortgage-backed bond
is adjusted to the amount that would have existed had the new effective yield
been applied since the acquisition of the bond, with a corresponding charge or
credit to interest income (the "retrospective method").
For investments in "high risk" (interest-only strips) collateralized mortgage
obligations (CMOs), the Company's accounting follows the provisions of the
Financial Accounting Standards Board's Emerging Issues Task Force Consensus
No. 89-4. A new effective yield is calculated for each individual high-risk
CMO based on the amortized cost of the investment and the current estimate of
future cash flows (the "prospective method"). The recalculated yield is then
used to accrue interest income in the subsequent period. In 1994, the Company
adopted Financial Accounting Standards Board's Emerging Issues Task Force
Consensus No. 93-18 which amends EITF 89-4 and requires impairment tests to be
performed using discounted cash flows at a risk free discount rate. If the
amortized cost of the security exceeds future cash flows discounted at the
risk free rate, then amortized cost should be written down to fair value. The
adoption of this Consensus resulted in no adjustments at January 1, 1994.
Investment income is recorded when earned. Realized capital gains and losses
on the sale of investments are determined on the basis of specific costs of
investments and are credited or charged to income. Gains or losses on
financial future or option contracts which qualify as hedges of investments
are treated as basis adjustments and are recognized in income over the life of
the hedged investments.
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency and demand deposits in banks, US.
Treasury bills, money market accounts, and commercial paper with maturities
under 90 days, which are not otherwise restricted.
SEPARATE ACCOUNT ASSETS
Separate accounts contain segregated assets of the Company that are
specifically assigned to variable annuity policyholders in the separate
accounts and are not available to other creditors of the Company. The
earnings of separate account investments are also assigned to the
policyholders in the separate accounts, and are not guaranteed or supported by
the other general investments of the Company. The Company earns mortality and
expense risk fees from the separate accounts and assesses withdrawal charges
in the event of early withdrawals.
Separate accounts assets invested in marketable securities are valued at fair
value.
(Continued)
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business which vary with and are directly related
to the production of new business, principally commissions, premium taxes,
sales costs, and certain policy issuance and underwriting costs, are deferred.
These deferred costs are amortized in proportion to estimated future gross
profits derived from investment income, realized gains and losses on sales of
securities, unrealized securities gains and losses recognized under SFAS #115,
interest credited to accounts, surrender fees, mortality costs, and policy
maintenance expenses. The estimated gross profit streams are periodically
reevaluated and the unamortized balance of deferred acquisition costs is
adjusted to the amount that would have existed had the actual experience and
revised estimates been known and applied from the inception of the policies
and contracts. The amortization and adjustments resulting from unrealized
gains and losses is not recognized currently in income but as an offset to the
unrealized gains and losses reflected as a separate component of equity.
POLICYHOLDER DEPOSITS
The Company recognizes its liability for policy amounts that are not subject
to policyholder mortality nor longevity risk at the stated contract value,
which is the sum of the original deposit and accumulated interest, less any
withdrawals.
FUTURE POLICY BENEFITS
Reserves are held for future annuity benefits that subject the Company to
risks to make payments contingent upon the continued survival of an individual
or couple (longevity risk). These reserves are valued at the present value of
estimated future benefits discounted for interest, expenses, and mortality.
The assumed mortality is the 1983 Individual Annuity Mortality Tables
discounted at 7.8% to 10.0%, depending upon year of issue.
Current mortality benefits payable are recorded for reported claims and
estimates of amounts incurred but not reported.
PREMIUM REVENUE
The Company recognizes premium revenue at the time of issue on annuity
policies that subject it to longevity risks.
The Company assesses no explicit life insurance premium for its commitment to
make payments in excess of its recorded liability that are contingent upon
policyholder mortality. Benefits paid in excess of the recorded liability are
recognized when incurred.
<PAGE>
Amounts collected on policies not subject to any mortality or longevity risk
are recorded as increases in the policyholder deposits liability.
FEDERAL INCOME TAXES
Revenues and expenses of the Company are included in a consolidated Federal
income tax return with its parent company and other affiliates. Allocations
of Federal income taxes are based upon separate return calculations.
(Continued)
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
The Company accounts for deferred income taxes according to Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS
#109).
Under the asset and liability method of SFAS #109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS #109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income to the period that includes the enactment
date.
RISKS AND UNCERTAINTIES
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
The following elements of the consolidated financial statements are most
affected by the use of estimates and assumptions:
- Investment market valuation
- Amortization of deferred policy acquisition costs
- Recoverability of guaranty fund assessments
The market value of the Company's investments is subject to the risk that
interest rates will change and cause a temporary increase or decrease in the
liquidation value of debt securities. To the extent that fluctuations in
interest rates cause the cash flows of assets and liabilities to change, the
Company might have to liquidate assets prior to their maturity and recognize a
gain or loss. Interest rate exposure for the investment portfolio is managed
through asset/liability management techniques which attempt to control the
risks presented by differences in the probable cash flows and reinvestment of
assets with the timing of crediting rate changes in the Company's policies and
contracts. Changes in the estimated prepayments of mortgage-backed securities
also may cause retrospective changes in the amortization period of securities
and the related recognition of income.
The amortization of deferred acquisition costs is based on estimates of
long-term future gross profits from existing policies. These gross profits
are dependent upon policy retention and lapses, the spread between investment
earnings and crediting rates, and the level of maintenance expenses. Changes
in circumstances or estimates may cause retrospective adjustment to the
periodic amortization expense and the carrying value of the deferred expense.
<PAGE>
Lapse assumptions used by the Company at December 31, 1994 assume continued
operation while being offered for sale with the objective of maintaining a
presence in the marketplace. If the Company's ownership and it's management
strategy are changed, the potential impact on future gross profits could be
material. See note 10 - Subsequent Event -- Purchase of Company.
The Company is subject to assessments in substantially all jurisdictions where
it is licensed to fund guaranteed benefits to policyholders of non-affiliated
insolvent insurers licensed in those jurisdictions. Such assessments
generally are limited to a percentage of the premiums written by the Company
and are fully or partially recoverable as credits against future premium tax
payments in the majority of jurisdictions. The Company is at risk to extent
that the Company may not incur sufficient premium taxes to permit full
recovery of available credits. See note 9 - Guaranty Fund Assessments.
(Continued)
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS #107) applies fair value disclosure
practices with regard to financial instruments, both assets and liabilities,
for which it is practical to estimate fair value. In cases where quoted
market prices are not readily available, fair values are based on estimates
that use present value or other valuation techniques.
These techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Although fair value
estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in the immediate settlement of the instruments. SFAS #107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Because of this, and further because a value of
a business is also based upon its anticipated earning power, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
Statement of Financial Accounting Standard No. 115, "Investments in Debt and
Equity Securities" takes SFAS #107 another step and requires balance sheet
adjustments of debt investments available for sale and equity investments to
fair value with a corresponding adjustment to shareholders' equity. The
Company adopted SFAS #115 in 1994 and classified all of its investments as
"available for sale". The effects of implementing SFAS #115 as of January 1,
1994 was a net increase in Shareholders' Equity of approximately $29.2
million.
The Company adopted Statement of Financial Accounting Standard No. 119
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments" (SFAS #119) as of December 31, 1994. SFAS #119 requires and
encourages increased disclosures about derivative financial instruments.
Disclosure includes the amount, nature, and terms of all derivative financial
instruments as well as disclosure of the purposes for which derivative
financial instruments are held, end-of-period fair values and any net gains or
losses arising from trading of derivative financial instruments.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
<PAGE>
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND ACCRUED INVESTMENT
INCOME:
The carrying values amounts reported in the balance sheets for these
instruments approximate their fair values. Short-term debt securities are
considered "available for sale."
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES):
Fair values for debt securities are based on quoted market prices, where
available. For debt securities not actively traded, fair value estimates are
obtained from independent pricing services. In some cases, such as private
placements and certain mortgage-backed securities, fair values are estimated
by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the investments. (See
note 2 for fair value disclosures).
INTEREST RATE SWAPS AND FINANCIAL FUTURES CONTRACTS:
The fair value of interest rate swaps and financial futures contracts are the
amounts the Company would receive or pay to terminate the contracts at the
reporting date, thereby taking into account the current unrealized gains or
losses of open contracts. Amounts are based on quoted market prices, or
pricing models or formulas using current assumptions. (See note 4 for fair
value disclosures).
(Continued)
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
INVESTMENT CONTRACTS:
The Company's policy contracts require the beneficiaries to commence receipt
of payments by the later of age 85 or 10 years after purchase, and
substantially all permit earlier surrenders, generally subject to fees and
adjustments. Fair values for the Company's liabilities for investment type
contracts (Policyholder Deposits) are estimated as the amount payable on
demand. As of December 31, 1994 and 1993 the cash surrender value of
policyholder funds on deposit were $129,404,638 and $71,663,670 respectively,
less than their stated carrying value. Of the contracts permitting surrender,
90% provide the option to surrender without fee or adjustment during the 30
days following reset of guaranteed crediting rates. The Company has not
determined a practical method to determine the present value of this option.
OTHER
Certain 1992 and 1993 amounts have been reclassified to conform to the 1994
presentation.
(Continued)
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
(2) INVESTMENTS
The Company's investments in debt and equity securities are considered
available for sale and carried at estimated fair value, with the aggregate
unrealized appreciation or depreciation being recorded as a separate component
of stockholder's equity. The carrying value and amortized cost of investments
at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994
________________________________________________________
GROSS GROSS ESTIMATED COST OR
CARRYING UNREALIZED UNREALIZED FAIR AMORTIZED
VALUE GAINS LOSSES VALUE COST
________________________________________________________
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
US. Government Treasuries $ 10,834 $ 80 $ (1,787) $ 10,834 $ 12,541
Mortgage-backed and
derivative securities:
GNMA 6,447 186 -- 6,447 6,261
FNMA & FHLMC 272 6 -- 272 266
Collateralized mortgage obligations 1,188,257 490 (185,964) 1,188,257 1,373,731
Foreign governments 27,947 -- (4,355) 27,947 32,302
Corporate, state, municipalities, and
political subdivisions 654,848 9,884 (80,583) 654,848 725,547
Redeemable preferred stocks 13,037 194 (97) 13,037 12,940
__________________________________________________________________________________________________
Total debt securities 1,901,642 10,840 (272,786) 1,901,642 2,163,588
__________________________________________________________________________________________________
Other invested assets 6,728(1) 466 (1,335) 6,728 7,597
Equity securities 8,754 -- -- 8,754 8,754
Real estate 26,735(1) 2,034 (153) 28,616 26,735
Mortgage loans 6,825 0 (1,245) 5,580 6,825
Policy loans 17,691 -- -- 17,691 17,691
Short term investments 93,118 4,060 (4,654) 93,118 93,712
__________________________________________________________________________________________________
Total investments $2,061,493 $17,400 $(280,173) $2,062,129 $2,324,902
__________________________________________________________________________________________________
Company's beneficial interest in
separate account assets $167 N/A N/A $167 N/A
<PAGE>
<FN>
(1) The Company has established valuation allowances of approximately
$200,000 and $400,000 as of December 31, 1994 for estimated potential losses
on real estate and other invested assets, respectively. Actual losses,
however, could be more or less.
</TABLE>
(Continued)
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
_______________________________________________________
1993
GROSS GROSS ESTIMATED COST OR
CARRYING UNREALIZED UNREALIZED FAIR AMORTIZED
VALUE GAINS LOSSES VALUE COST
___________________________________________________________________________________________________
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
U.S. Government Treasuries $ 24,115 $ 562 $ (1,230) $ 23,447 $ 24,115
Mortgage-backed and
derivative securities:
GNMA 60,301 6,066 -- 66,367 60,301
FNMA & FHLMC 1,075 82 -- 1,157 1,075
Collateralized mortgage obligations 2,073,630 79,188 (39,905) 2,112,913 2,073,630
Foreign governments 43,863 4,434 (173) 48,124 43,863
Corporate, state, municipalities, and
political subdivisions 1,232,401 58,105 (11,696) 1,278,810 1,244,801(1)
Redeemable preferred stocks 106 22 -- 128 106
_____________________________________________________________________________________________________
Total debt securities 3,435,491 148,459 (53,004) 3,530,946 3,447,891
_____________________________________________________________________________________________________
Other invested Assets 3,099 145 -- 3,244 3,099
Equity securities 9,756 -- -- 9,756 10,250
Real estate 30,811 1,628 (1,200) 31,239 32,211(1)
Mortgage loans 13,520 -- -- 13,520 13,720(1)
Policy loans 15,451 -- -- 15,451 15,451
Short term investments 58,622 -- -- 58,622 58,622
______________________________________________________________________________________________________
Total investments $3,566,750 $150,232 $(54,204) $3,662,778 $3,581,244
______________________________________________________________________________________________________
Company's beneficial interest in separate
account assets $368 $N/A $N/A $368 $N/A
______________________________________________________________________________________________________
<FN>
The Company had established valuation allowances of approximately $12,400,000,
$1,400,000 and $200,000 as of December 31, 1993 for estimated potential losses
on debt securities, real estate and mortgage loans, respectively. Actual
losses, however, could be more or less.
</TABLE>
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
_____________________________________________________________________________
The amortized cost and estimated market value of debt securities at December
31, 1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Maturities of mortgage-backed securities will be substantially shorter than
their contractual maturity because they require monthly principal installments
and mortgagees may prepay principal.
<TABLE>
<CAPTION>
______________________________________________________________________________
ESTIMATED
AMORTIZED MARKET
COST VALUE
______________________________________________________________________________
(in thousands of dollars)
<S> <C> <C>
Due after one year through five years $ 225,557 $ 207,206
Due after five years through ten years 285,560 254,155
Due after ten years 259,273 232,268
Mortgage-backed securities 1,380,258 1,194,976
Preferred Stock 12,940 13,037
______________________________________________________________________________
Total $2,163,588 $1,901,642
</TABLE>
At December 31, 1994, approximately 90% of the Company's debt securities are
investment grade or are non-rated but considered to be of investment grade.
Of the non-investment grade debt securities, approximately 3% are rated as BB
or its equivalent, less than 1% are of a lower grade, and approximately 6% are
not rated.
Included in debt securities are investments in interest-only mortgage-backed
stripped securities (IOs) and similar IOettes. Accounting for investments in
"high risk" (interest only) collateralized mortgage obligations (CMOs), is in
accordance with the provisions of the Financial Standards Board's Emerging
Issues Task Force Consensus Nos. 89-4 and 93-18. An effective yield is
calculated for each high risk CMO based on the current amortized cost of the
investment and the current estimate of future cash flow. The recalculated
effective yield is used to record interest income in subsequent periods (the
"prospective method"). If the anticipated cash flow for any "high risk" CMO
discounted at the comparable risk-free rate is less than the unamortized cost,
an impairment loss is recorded and the unamortized cost adjusted. The
write-down is treated as a realized loss. Write-downs of approximately
$3,341,163 and $51,120,276 were recorded in 1994 and 1993, respectively. At
December 31, 1994 the company held such securities with a carrying value of $
36,441,742. The weighted average of the effective yield that will be used to
accrue interest income is 11.88%.
<PAGE>
Debt securities with a recorded investment of $2,827,500, $22,036,000, and
$3,200,000 were non-income producing during the years ended December 31, 1994,
1993 and 1992, respectively.
Information related to troubled debt restructurings during 1994 is as follows:
<TABLE>
<CAPTION>
______________________________________________________________________________
DEBT MORTGAGE
SECURITIES LOANS TOTAL
______________________________________________________________________________
(in thousands of dollars)
<S> <C> <C> <C>
Aggregate carrying value at December 31, 1994 $3,306 -- $3,306
Gross interest income included in net income
during 1994 205 -- 205
Gross interest income that would have been
earned during 1994 if there had been no
restructuring 538 -- 538
______________________________________________________________________________
</TABLE>
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
______________________________________________________________________________
Information related to troubled debt restructurings during 1993 is as follows:
<TABLE>
<CAPTION>
______________________________________________________________________________
DEBT MORTGAGE
SECURITIES LOANS TOTAL
______________________________________________________________________________
(in thousands of dollars)
<S> <C> <C> <C>
Aggregate carrying value at December 31, 1993 $5,275 $6,405 $11,680
Gross interest income included in net income
during 1993 589 568 1,157
Gross interest income that would have been
earned during 1993 if there had been no
restructuring 904 712 1,616
______________________________________________________________________________
</TABLE>
The components of net investment income were as follows:
<TABLE>
<CAPTION>
______________________________________________________________________________
1994 1993 1992
______________________________________________________________________________
(in thousands of dollars)
<S> <C> <C> <C>
Income on debt securities $267,958 $327,489 $324,351
Income on equity securities 645 725 529
Income on short-term investments 11,705 4,624 6,210
Income on cash on deposit 316 1,711 90
Income on interest rate swaps (244) 3,365 1,172
Income on policy loans 1,376 1,147 898
Interest on mortgage loans 1,162 1,053 291
Income on foreign exchange (433) (281) --
Income of real estate 3,278 586 --
Income on separate account investments 2 2,256 3,027
Miscellaneous interest (853) (168) (840)
-- --
________________________________________________________________________________
Total investment income 284,912 342,507 335,728
Investment expenses (7,296) (6,924) (6,997)
________________________________________________________________________________
Net investment income $277,616 $335,583 $328,731
_______________________________________________________________________________
Realized capital gains/(losses) were as
follows:
<PAGE>
Debt securities $(79,300) $12,716 $80,843
Mortgage loans (3,452) (453) (6,100)
Equity securities (76) 2,489 --
Real estate 0 2,335 --
Short-term investments (282) 612 187
Other assets 147 -- --
Interest rates swaps (18,398) -- --
_______________________________________________________________________________
Net realized gains on investments $(101,361) $17,699 $74,930
_______________________________________________________________________________
</TABLE>
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
______________________________________________________________________________
1994 1993 1992
______________________________________________________________________________
<S> <C> <C> <C>
Unrealized gains/(losses) were as follows:
Debt securities $(261,946) $ -- $ --
Equity securities 494 (74) (420)
Short-term investments (594) -- --
Effects on deferred acquisition costs amortization 162,190 -- --
______________________________________________________________________________
Unrealized gains/(losses) before income taxes (99,856) (74) (420)
Unrealized income tax benefit 34,949 30 143
_______________________________________________________________________________
Net unrealized gains (losses) on investments $(64,907) $(44) $(277)
</TABLE>
Proceeds from sales of investments in debt securities during 1994 were
$3,081,863,341. Gross gains of $59,472,808 and gross losses of $136,394,109
were realized on those sales. Included in these amounts are $6,455,887 of
gross gains and $6,692,683 of gross losses realized on the sale of
non-investment grade securities.
Proceeds from sales of investments in debt securities during 1993 were
$3,635,309,534. Gross gains of $229,942,137 and gross losses of $198,648,778
were realized on those sales. Included in these amounts are $47,042,511 of
gross gains and $9,163,938 of gross losses realized on the sale of
non-investment grade securities.
Proceeds from sales of investments in debt securities during 1992 were
$2,889,714,896. Gross gains of $105,304,745 and gross losses of $17,820,792
were realized on those sales. Included in these amounts are $3,293,466 of
gross gains and $5,731,892 of gross losses realized on the sale of
non-investment grade securities.
Unrealized appreciation/(depreciation) of debt securities during the years
ended December 31, 1994, 1993 and 1992 were $(357,401,000), $15,171,000, and
$(110,519,000) respectively. Unrealized appreciation/ (depreciation) of debt
securities is calculated as the change between the cost and market values of
debt securities for the years then ended.
Securities with a book value of approximately $3,395,000 at December 31, 1994
were deposited with government authorities as required by law. Securities
with a book value of $377,266,725 were deposited in a trust account pursuant
to a financial reinsurance agreement.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
(3) SECURITIES GREATER THAN 10% OF SHAREHOLDERS' EQUITY
As of December 31, 1994 the Company held the following individual securities
which exceeded 10% of shareholders' equity:
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________
Long-term Debt Amortized Long-term Debt Amortized
Securities Cost Securities Cost
<S> <C> <C> <C>
PRU HOME MTG SEC 1994 SER 26-A $43,947,846 VIRGINIA STATE HOUSING DEV AUTH 1994-A $14,300,000
PRU HOME MTG SEC 1993 SER 19-A9 41,024,780 PRU HOME MTG SEC 1994 SER 8-A2 14,228,882
HOUSING SEC INC 1994 SER 1-A8 34,293,893 FHLMC MC MTG PRT CRT SER 1628-G 13,841,422
FNMA REMIC TR 1994-51 PE 34,079,290 FNMA REMIC TR 1993 SER 33-ZA 13,613,754
FHLMC MC MTG PRT CRT SER 1162-Z 34,029,681 FNMA REMIC TR 1994 SER 58-B 13,502,865
RES FUNDING CORP 1994 SER S7-A3 33,929,196 FNMA REMIC TR 1994 SER 58-A 13,402,600
RES FUNDING CORP 1993 SER S18-A6 30,771,180 TELEPHONE & DATA SYSTEMS 13,382,782
FHLMC MC MTG PRT CRT SER 1652-E 29,880,047 ARGENTINA FRB 13,051,979
G E CAPITAL 1994 SER 4-A6 29,587,419 FHA PROJECT LOAN 223-F(MANASSAS VA) 12,985,981
RES FUNDING CORP 1994 SER S10-A3 28,743,601 PARAMOUNT COMMUNICATIONS 12,985,579
FNMA REMIC TR 1993 SER 131-Z 26,821,993 FNMA REMIC TR 1993 SER G22-ZA 12,962,715
CITICORP MTG 1994 SER 11-A1 26,271,938 FNMA REMIC TR 1992 SER 184-X 12,815,453
COUNTRYWIDE MTG 1993 SER 13-A2 24,027,743 TELARG 12,458,038
G E CAPITAL KRONE LINKED (CI) 23,500,000 UNITED AIRLINES 1991 ETC SER A2 12,420,542
G E CAPITAL MTG 1994 SER 12-A4 23,480,685 PRU HOME MTG SEC 1994 SER 6-A5 12,400,623
GRUMA SA DE CV 23,335,945 SIGNET MASTER TR 1994-4A 11,986,616
FHLMC MC MTG PRT CRT SER 1108-K 23,146,222 GENERAL MOTORS CORP DEBENTURE 11,856,797
FHLMC MC MTG PRT CRT SER 1468-ZA 22,546,223 PRU HOME MTG SEC 1993 SER 43-10 11,791,582
G E CAPITAL MTG 1994 SER 10-A12 21,288,675 CENTRAL BANK OF ARGENTINA 11,695,148
RES FUNDING CORP 1993 SER S26-A8 21,225,227 FHLMC MC MTG PRT CRT SER 1697-PG 11,544,588
LOUISIANA POWER & LIGHT(WATERFORD 3) 20,909,267 FNMA REMIC TR 1993 SER 29-SK 11,316,353
SEARS MTG ACC CORP 1993 SER 11-A5 20,861,498 PRU HOME MTG SEC 1993 SER 41-A4 11,272,637
FEDERAL HOME LOAN BANK 20,716,221 FHLMC MC MTG PRT CRT SER 1513-AF 11,266,102
FHLMC MC MTG PRT CRT SER 1244-G 20,697,580 FNMA REMIC TRUST 1993 SER 4-HB 11,181,840
PRU HOME MTG SEC 1993 SER 30-A9 20,570,432 PHILLIPS PETROLEUM 11,120,220
G E CAPITAL MTG 1992 SER 7 20,423,860 INTERAMERICAN DEV BANK 10,751,421
CSR AMERICA INC 19,916,660 COUNRTYWIDE MTG 1994 SER L-AB 10,603,498
FHLMC MC MTG PRT CRT SER 1364-I 19,892,880 CHASE MTG SEC 1994SER F-A7 10,516,592
FHLMC MC MTG PRT CRT SER 1574-F 19,825,320 FNMA REMIC TR 1994 SER 3-SC 10,434,265
SEARS MTG SEC CORP 1993-7 T7 19,709,253 NEWS AMERICAN HOLDINGS 10,310,547
</TABLE>
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
______________________________________________________________________________________________
LONG-TERM DEBT AMORTIZED LONG-TERM DEBT AMORTIZED
SECURITIES COST SECURITIES COST
<S> <C> <C> <C>
CITICORP MTG SEC 1994 SER 6-A4 19,678,848 SAXON MTG SEC 1994 SER 4-1A-3 10,221,320
GREAT WESTERN FINANCIAL 19,652,990 SAXON MTG SEC 1994 SER 4B-2A5 10,204,144
FHLMC MC MTG PRT CRT SER 1544-S 19,577,464 USAT HOLDINGS 10,000,000
RES FUNDING CORP 1994 SER S7-A6 18,996,060 BANK OF CHINA 9,974,983
GE CAPITAL MTG SEC 1994 SER 27-A1 18,248,035 GUANGDONG ENTERPRISES 9,969,791
FNMA REMIC TR 1993 SER 73-Z 18,097,685 MLC LIFE LIMITED 9,959,800
SALOMON INC (MI) 17,753,500 STEERS 1994 R-15 9,813,727
TELECOM ARGENTINA 17,409,016 HOUSING SEC INC 1992 NATIONS 1-G 9,743,886
GE CAPITAL 1994-11 A5 17,170,206 BVPS FUNDING CORP 9,671,777
FNMA REMIC TR 1991 SER 160-ZA 16,835,090 MARINE MIDLAND 1992-2 TRANCHE A-6 9,630,475
SALOMON BROS MTG 1993 SER 5-A5 16,397,968 HOUSEHOLD SEC INC 1992C SER E 9,592,448
SHAWMUTT NATIONAL BANK 16,098,407 FNMA REMIC TR 1993 SER 26-KA 9,377,113
FHLMC MC MTG PRT CRT SER 1689-SE 15,753,873 DQU II FUNDING 9,086,596
G E CAPITAL MTG SEC 1994 SER 18-A3 15,602,016 FNMA REMIC TR 1994 SER 15-SH 9,075,588
TELECOMMUNICATIONS INC 15,479,653 SALOMON MTG SER 1993-3 A4 8,609,705
NORTH ATLANTIC ENERGY CORP 15,108,794 FNMA REMIC TR 1991 SER 59-LB 8,499,118
CHASE MTG FIN CORP 1993 SER J2-A8 15,047,400 FIRST INTERSTATE CORP 8,435,157
FHLMC MC MTG PRT CRT SER 1628-SC 15,015,523 PRU HOME MTG SEC 1993 SER 28-P7 8,220,615
PRU HOME MTG SEC 1993 SER 14-A14 14,936,175 GHIRARDELLI CHOCOLATE CO. 8,000,000
GE CAPITAL MTG 1994 SER 16-A6 14,357,490 ROGERS CABLE SYSTEMS LIMITED 8,000,000
</TABLE>
(4) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
FINANCIAL FUTURES CONTRACTS
The Company is a party to financial futures contracts under a program of
hedging with off-balance sheet risk in the normal course of business to meet
the needs of its policyholders and to reduce its own exposure to fluctuations
in interest rates. The contracts involve, to varying degrees, elements of
interest rate risk in excess of the amount recognized in the consolidated
balance sheet.
Futures contracts are contracts for delayed delivery of securities in which
the seller agrees to make delivery at a specified future date for a specific
price. Risks arise from the possible inability of counterparties to meet the
terms of their contracts and from movements in securities values and interest
rates. When futures contracts are designated as hedges additional risks arise
due to the possibility that the futures contract will provide an imperfect
correlation to the hedged security.
<PAGE>
As of December 31, 1994 the Company held 65 5Yr T-note futures, 190 10Yr
T-note futures and 50 T-bond futures contracts with a total notional face
amount of $30,500,000. The contracts mature in March, 1995. Collateral
requirements are set by the Chicago Board of Trade and averaged $1,121 per
contract as of December 31, 1994.
As of December 31, 1994 a deferred unrealized gain of $6,916 existed on the
contracts.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
STATUTORY CAPITAL AND SURPLUS GUARANTEE
The Company has guaranteed the maintenance of the capital and surplus at such
levels as shall be necessary of an affiliate, Xerox Financial Life Insurance
Company (XFLIC). The Company and XFLIC operate under common management and
control. The guarantee will remain in effect until the earlier of (i) the
cessation of XFLIC's business, (ii) the granting of a certificate of authority
to the Company by the California Department of Insurance and the subsequent
acquisition of substantially all the assets of XFLIC, or (iii) December 31,
1995. Statutory capital and surplus of XFLIC at December 31, 1994 amounted to
$10,875,380. The minimum statutory capital and surplus requirement for XFLIC
at December 31, 1994 was $2,500,000.
INTEREST RATE SWAPS
The Company is party to derivative financial instruments in the normal course
of business for the purposes of earning investment income and modifying the
interest rate-related risks of the portfolio.
The notional amounts of derivatives do not represent amounts exchanged by the
parties and, thus, are not a measure of the Company's exposure through the use
of derivatives. The amounts exchanged are determined by reference to the
notional amounts and the other terms of the instruments.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to financial instruments but does not expect any
counterparties to fail to meet their obligations. The Company deals only with
highly rated counterparties. At December 31, 1994, no credit exposure existed
because none of the instruments had a positive fair value. The following table
summarizes various information regarding these derivative financial
instruments as of December 31, 1994:
<TABLE>
<CAPTION>
FAIR MARKET LOSSES
NOTIONAL PURPOSE VALUE AT FROM
Amount Nature/Terms For Holding 12/31/94 Investment
- ----------- ----------------------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Open
- ---- ----------------------------- ----------- ------------- ------------
5,000,000 LIBOR/Mexican Par Bond Swap Investment
2/17/1995 receive 10% fixed,
pay 6 Month LIBOR $(5,460,000) $ 0
35,000,000 Zero Coupon Swap Spread/Yield Investment
Curve 8/19/1996 6 Month LIBOR (12,937,750) 0
<PAGE>
Closed
- ------
25,000,000 Lehman Corporate Index Swap Investment
1/1/1994 0 $ (77,305)
25,000,000 Lehman Corporate Index Swap Investment
1/1/1994 0 (77,305)
</TABLE>
The Libor/Mexican Par Bond swap causes the Company to receive or pay the net
of a fixed-rate of 10%, in exchange for paying 6 month LIBOR, times a
multiplier of six times the notional amount. The substance is as if the
Company owned $30 million par of the bonds using funds borrowed at six month
LIBOR. At maturity, the Company has committed to acquire the $30 million par
of the bonds if their market price is less than 72, for a payment of $21.6
million. The Company thereby has assumed the market risk below that price.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
______________________________________________________________________________
The Company will receive or pay at maturity of the Zero Coupon Swap
Spread/Yield Curve swap an amount derived from both the relationship between
the 6 month LIBOR and the 10 year constant maturity treasury rates, and a
function (swap spread) that usually correlates to corporate bond quality
spreads. The Company could lose money if the yield curve is flat or inverted
and the swap spread is small. The purpose of the instrument is to offset the
effects of holding very large amounts of cash equivalents in conjunction with
XFSI's plan to discontinue its ownership of the Company. Effective December
31, 1994, XFSI formally assumed the net obligation for this instrument,
resulting in a capital contribution to the Company.
The unrealized depreciation was recorded as a realized loss as of December 31,
1994 based on the current evolving accounting practices for derivative
instruments where as at December 31, 1993 the unrealized loss was treated as
an off-balance-sheet item.
(5) POST-RETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company has no direct employees and no retired employees. All personnel
used to support the operations of the Company are supplied by contract by
Xerox Life Management Company (XLMC), a wholly owned subsidiary of XFSI, or an
unaffiliated subcontractor. The Company is allocated a portion of certain
health care and life insurance benefits for future retired employees of XLMC
as determined in accordance with Financial Accounting Standards Board
Statement No. 106 (SFAS #106), "Employers' Accounting For Postretirement
Benefits Other Than Pensions". In 1994, the Company was allocated a portion
of benefit costs including severance pay, accumulated vacations, and
disability benefits as determined in accordance with Financial Accounting
Standards Board Statement No. 112 (SFAS #112), "Employers' Accounting for
Postemployment Benefits". At December 31, 1994 XLMC had no retired employees
nor any employees fully eligible for retirement and had no disbursements for
such benefit commitments. The expense arising from these obligations is not
material.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
(6) INCOME TAXES
The actual Federal income tax expense differed from the expected tax expense
computed by applying the US. Federal statutory rate to income before taxes on
income as follows:
<TABLE>
<CAPTION>
________________________________________________________________________________________
1994 1993 1992
________________________________________________________________________________________
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $(76,739) 35.0% $7,503 35.0% $27,811 34.0%
State income taxes, net (1,552) 0.7 1,631 7.6 840 1.0
Rate change effect on prior deferrals -- -- 456 2.1 -- --
Tax-exempt bond interest (1,208) 0.6 (123) (0.6) (68) (0.1)
Amortization of intangible assets 111 (0.1) 111 0.5 108 0.1
Other 2,388 (1.1) (76) (0.3) (277) (0.3)
________________________________________________________________________________________
$(77,000) 35.1 $9,502 44.3% $28,414 34.7%
________________________________________________________________________________________
</TABLE>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1994 &
1993 follows:
<TABLE>
<CAPTION>
________________________________________________________________________________________
1994 1993
________________________________________________________________________________________
<S> <C> <C>
Deferred tax assets:
Policy Reserves $26,602 $23,158
Permanent Impairments 4,934 4,927
Unrealized losses on investments 91,889 173
Book to tax differences on Investments 1,287 6,627
Other deferred tax assets 4,809 3,884
________________________________________________________________________________________
$129,521 38,769
________________________________________________________________________________________
Deferred tax liabilities:
Deferred Acquisition Costs $69,879 $46,360
Other deferred tax liabilities 3,507 1,342
_______________________________________________________________________________________
$73,386 47,702
<PAGE>
_______________________________________________________________________________________
Net Deferred Tax Asset/(Liability) $56,135 $(8,933)
_______________________________________________________________________________________
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
the deferred tax assets will be fully realized in the future based upon
consideration of the reversal of existing temporary differences, anticipated
future earnings, XFSI guarantees, and all other available evidence.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
_____________________________________________________________________________
(7) RELATED-PARTY TRANSACTIONS
The Company has entered into a management, operations and services agreement
with both affiliated and unaffiliated companies. Expenses and fees paid to
affiliated companies during the years 1994, 1993 and 1992 were approximately
$8,553,028, $7,986,999 and $11,118,347, respectively.
(8) STATUTORY SURPLUS AND DIVIDEND RESTRICTION
Generally accepted accounting principles (GAAP) differ in certain respects
from the accounting practices prescribed or permitted by insurance regulatory
authorities (statutory basis).
The major differences arise principally from the immediate expense recognition
of policy acquisition costs and intangible assets for statutory reporting,
determination of policy reserves based on different discount rates and
methods, the non-recognition of financial reinsurance for GAAP reporting, and
the establishment of an Asset Valuation Reserve as a contingent liability
based on the credit quality of the Company's investment securities and an
Interest Maintenance Reserve as an unearned liability to defer the realized
gains and losses of fixed income investments presumably resulting from changes
to interest rates and amortize them into income over the remaining life of the
investment sold. In addition, SFAS #115 adjustments to record the carrying
values of debt securities and certain equity securities at market are applied
only under GAAP reporting and capital contributions in the form of notes
receivable from an affiliated company are not recognized under GAAP reporting.
As of December 31, the differences between statutory capital and surplus and
shareholder's equity determined in conformity with generally accepted
accounting principles (GAAP) were as follows:
<TABLE>
<CAPTION>
______________________________________________________________________________________
1994 1993 1992
______________________________________________________________________________________
(in thousands of dollars)
<S> <C> <C> <C>
Statutory Capital and Surplus $ 100,071 $108,617 $112,742
Reconciling items:
GAAP investment valuation reserves (600) (14,076) (8,200)
Statutory Asset Valuation Reserves 45,470 43,060 51,449
Interest Maintenance Reserve 15,123 50,074 43,608
GAAP investment adjustments to fair value (274,222) -- --
Deferred policy acquisition costs 213,362 146,504 155,470
GAAP basis policy reserves 7,944 (45,784) (67,154)
Deferred federal income taxes 56,135 (8,933) (15,519)
<PAGE>
Modified coinsurance (10,534) (13,994) (18,000)
Elimination of notes contributed
to statutory surplus (72,000) -- --
Other (2,138) 4,365 (1,455)
______________________________________________________________________________________
GAAP Shareholders' Equity $78,611 $269,833 $252,941
______________________________________________________________________________________
</TABLE>
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
_____________________________________________________________________________
The statutory loss for the years ended December 31, 1994, 1993 and 1992 was
$(92,952,989), $(13,299,824), and $(8,472,760), respectively.
The maximum amount of dividends which can be paid by State of Missouri
insurance companies to shareholders without prior approval of the insurance
commissioner is the greater of 10% of statutory earned surplus or statutory
net gain from operations for the preceding year. Accordingly, the maximum
dividend permissible at December 31, 1994 was $ 0.
The National Association of Insurance Commissioners has developed certain Risk
Based Capital (RBC) requirements for life insurers. If prescribed levels of
RBC are not maintained, certain actions may be required on the part of the
Company or its regulators. At December 31, 1994 the Company's Total Adjusted
Capital and Authorized Control Level - RBC were, $145,541,015 and $48,729,420
respectively. This level of adjusted capital qualifies under all tests.
(9) GUARANTY FUND ASSESSMENTS
The Company participates with all life insurance companies licensed throughout
the United States, in associations formed to guarantee benefits to
policyholders of insolvent life insurance companies. Under state laws, the
Company is contingently liable for its share of claims covered by the guaranty
associations for insolvencies incurred through 1994, but for which assessments
have not yet been determined, to a maximum generally of 2% of statutory
premiums per annum. Most states then permit recovery of assessments as a
credit against premium or other state taxes over, most commonly, five years.
For assessments that have been received and paid or accrued by the Company, a
prepaid asset for such amounts has been recorded to the extent that the
amounts are estimated potentially recoverable from future premium taxes.
At December 31, 1994, the National Organization of Life and Health Guaranty
Associations (NOLHGA) distributed a study of the major outstanding industry
insolvencies, with estimates of future assessments by state. Based on this
study, the Company has accrued a liability for roughly $12 million in future
assessments on insolvencies that occurred before December 31, 1994. The
Company has accrued for and expensed that portion estimated attributable to
states in which partial or no tax credit is available, and is at risk for
additional amounts if taxable premiums are not sufficient for offset in states
and years corresponding to the future assessments.
(10) SUBSEQUENT EVENT -- PURCHASE OF COMPANY
On January 12, 1995, a subsidiary of General American Life Insurance Company
(GALIC) agreed to purchase the Company, and all of its affiliates except
OakRe, subject to regulatory approvals.
<PAGE>
In conjunction with this Agreement, the Company also agreed to enter into a
financing reinsurance transaction that would cause OakRe to assume the
benefits and risks of existing single premium deferred annuity deposits
(SPDAs) which had an aggregate carrying value at December 31, 1994 of $3,059.7
million. In exchange, the Company would transfer specifically identified
assets to OakRe which had a carrying value of $3,150.4 million at December 31,
1994. Ownership of OakRe will be retained by XFSI subsequent to the sale of
the Company and other affiliates. The receivable from OakRe to the Company
that is created by this transaction will be liquidated over the remaining
crediting rate guaranty periods (which all will be substantially expired in
five years) by the transfer of cash in the amount of the then current account
value, less a recapture fee to OakRe on policies retained beyond their 30-day
no-fee surrender window by the Company, upon the next crediting rate reset
date of each annuity policy. The Company may then reinvest that cash for
those policies that are retained and assume the benefits and risks of those
deposits thereafter.
<PAGE>
XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
(a wholly owned subsidiary of Xerox Corporation)
Notes to Consolidated Financial Statements
_____________________________________________________________________________
All of the Company's deposit obligations will be fully guaranteed by the
acquirer, GALIC, and the receivable from OakRe equal to the SPDA obligations
will be guaranteed by OakRe's parent, XFSI. In the event that both OakRe and
XFSI default on the receivable, the Company may draw funds from a standby bank
irrevocable letter of credit established by XFSI in the amount of $500
million.
In substance, this structure to the purchase allows the seller, XFSI, to
retain substantially all of the existing financial benefits and risks of the
existing business, while the purchaser, GALIC, obtains the corporate operating
and product licenses, marketing and administrative capabilities of the
Company, and access to the retention of the policyholder deposit base that
persists beyond the next crediting rate reset date. Accordingly, the future
gross profits, as defined in note 1, of the Company on existing business will
consist of the gross profits on Separate Accounts, single premium whole life,
and single premium immediate annuities commencing at the date of closing; plus
the gross profits from SPDA deposits commencing upon the expiration of their
current guaranteed crediting rate.
Upon closing of the sale, the Company will restate its financial statements in
accordance with "purchase accounting," which will allocate the net purchase
price of $42.8 million according to the fair values of the acquired assets and
liabilities, including the estimated Present Value of Future Profits. These
allocated values will be dependent upon policies in force and market
conditions at the time of closing.
<PAGE>
LORD ABBETT SERIES FUND, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Lord Abbett Series Fund, Inc.
We have audited the accompanying statements of net assets of the Growth and
Income Portfolio and the Global Equity Portfolio of Lord Abbett Series Fund,
Inc. as of December 31, 1994, the related statements of operations for the
year then ended, and of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented. These financial statements and the financial highlights are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1994 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Growth and
Income Portfolio and the Global Equity Portfolio of Lord Abbett Series Fund,
Inc. at December 31, 1994, the results of their operations, the changes in
their net assets and the financial highlights for the above-stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche ALP
New York, New York
January 27, 1995
<PAGE>
LORD ABBETT SERIES FUND - GROWTH AND INCOME PORTFOLIO
December 31, 1994
STATEMENT OF NET ASSETS
_______________________
Market Value
Security Number of Shares (Note 1a)
______________________________________________________________________________
INVESTMENTS IN COMMON AND CONVERTIBLE-PREFERRED STOCKS 91.22%
______________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C>
Aerospace-3.52%
Boeing Co............................................. 40,000 $1,870,000
Lockheed Corp......................................... 15,000 1,089,375
Rockwell International Corp........................... 30,000 1,072,500
Total................................................. 4,031,875
Airlines-2.47%
British Airways plc ADR............................... 50,000 2,831,250
Auto Parts-1.89%
Snap-On, Inc.......................................... 65,000 2,161,250
Automobiles-.80%
Ford Motor Co. $4.20 Conv. Pfd........................ 10,000 920,000
Banks: Regional-2.10%
AmSouth Bancorporation................................ 40,000 1,030,000
George Mason Bankshares Inc........................... 35,000 625,625
KeyCorp............................................... 30,000 750,000
Total................................................. 2,405,625
Beverages-1.33%
Anheuser-Busch Companies, Inc......................... 30,000 1,526,250
Building Materials-1.17%
Crane Co.............................................. 50,000 1,343,750
Chemicals-3.84%
Dow Chemical Co....................................... 25,000 1,681,250
Hanna, M.A. Co........................................ 60,000 1,425,000
Lyondell Petrochernical Co............................ 50,000 1,293,750
Total................................................. 4,400,000
Containers-1.68%
Sonoco Products Co. $2.25 Conv. Pfd................... 40,000 1,920,000
<PAGE>
Data Processing Equipment-3.46%
Hewlett-Packard Co.................................... 8,000 799,000
International Business Machines Corp.................. 20,000 1,470,000
Moore Corp. Ltd....................................... 90,000 1,698,750
Total................................................. 3,967,750
Data Processing Services-1.75%
General Motors Corp. $3.25 Conv. Pfd. (GME)........... 35,000 2,008,125
Drugs/Health Care Products-4.88%
Bristol-Myers Squibb Company.......................... 15,000 868,125
Merck & Co. Inc....................................... 70,000 2,668,750
SmithKline Beecham plc ADR............................ 60,000 2,055,000
Total................................................. 5,591,875
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND - GROWTH AND INCOME PORTFOLIO
December 31, 1994
STATEMENT OF NET ASSETS
_______________________ Market Value
Security Number of Shares (Note 1a)
_______________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C>
Electric Power-5.51%
CINergy Corp........................................ 100,000 $2,337,500
Ohio Edison Co...................................... 50,000 925,000
Potomac Electric Power Co........................... 70,000 1,286,250
Public Service Co. of Colorado...................... 60,000 1,762,500
Total............................................... 6,311,250
Electronics: Communications-1.48%
Harris Corp......................................... 40,000 1,700,000
Electronics: Components-1.59%
AMP Incorporated.................................... 25,000 1,818,750
Electronics: Equipment-2.74%
Perkin-Elmer Corp................................... 60,000 1,537,500
Raytheon Company.................................... 25,000 1,596,875
Total............................................... 3,134,375
Financial: Miscellaneous-2.81%
American Express Company............................ 50,000 1,475,000
Transamerica Corp................................... 35,000 1,741,250
Total............................................... 3,216,250
Food-8.66%
Archer-Daniels-Midland Co........................... 60,000 1,237,500
ConAgra Inc. $1.6875 Conv. Pfd...................... 50,000 1,637,500
Dean Foods Co....................................... 50,000 1,450,000
General Mills Inc................................... 35,000 1,995,000
Sara Lee Corp....................................... 70,000 1,767,500
Supervalu Inc....................................... 75,000 1,837,500
Total............................................... 9,925,000
Health Care Products-.99%
Baxter International Inc............................ 40,000 1,130,000
Insurance-4.90%
American General Corporation........................ 40,000 1,130,000
Cigna Corp.......................................... 40,000 2,545,000
Lincoln National Corp............................... 30,000 1,050,000
St. Paul Companies Inc.............................. 20,000 895,000
Total............................................... 5,620,000
<PAGE>
Machinery: Diversified-4.04%
Deere & Co.......................................... 30,000 1,987,500
Goulds Pumps, Inc................................... 80,000 1,730,000
Parker Hannifin Corp................................ 20,000 910,000
Total............................................... 4,627,500
Manufactured Housing-.65%
Fleetwood Enterprises, Inc.......................... 40,000 750,000
Metals: Miscellaneous-2.53%
Cyprus Amax Minerals $4.00 Conv. Pfd................ 30,000 1,758,750
Inco Ltd............................................ 40,000 1,145,000
Total............................................... 2,903,750
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND - GROWTH AND INCOME PORTFOLIO
December 31, 1994
STATEMENT OF NET ASSETS
______________________ Market Value
Security Number of Shares (Note 1a)
______________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C>
Miscellaneous-3.20%
Minnesota Mining & Mfg. Co.......................... 40,000 $2,135,000
National Service Industries, Inc.................... 60,000 1,537,500
Total............................................... 3,672,500
Natural Gas Diversified-1.66%
Equitable Resources, Inc............................ 70,000 1,898,750
Oil: Domestic-1.51%
Unocal Corp. $3.50 Conv. Pfd t...................... 35,000 1,732,500
Oil: International-3.29%
Chevron Corp........................................ 30,000 1,338,750
Exxon Corp.......................................... 40,000 2,430,000
Total............................................... 3,768,750
Paper and Forest Products-1.97%
Boise Cascade Corp.................................. 30,000 802,500
Champion International Corp......................... 40,000 1,460,000
Total............................................... 2,262,500
Photographic-1.25%
Eastman Kodak Co.................................... 30,000 1,432,500
Printing and Publishing-4.07%
Donnelley, R.R. & Sons Co........................... 90,000 2,655,000
Dow Jones & Co., Inc................................ 65,000 2,015,000
Total............................................... 4,670,000
Retail-3.99%
Dayton Hudson Corp.................................. 10,000 707,500
Kmart Corporation................................... 50,000 650,000
Sears, Roebuck & Co................................. 70,000 3,220,000
Total............................................... 4,577,500
Savings and Loan-1.96%
Ahmanson, H.F. & Co................................. 70,000 1,128,750
Great Western Financial Corp........................ 70,000 1,120,000
Total............................................... 2,248,750
Tire and Rubber Goods-1.05%
Standard Products Co................................ 50,000 1,200,000
<PAGE>
Waste Disposal-2.48%
Browning Ferris Industries Inc...................... 100,000 2,837,500
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND - GROWTH AND INCOME PORTFOLIO
December 31, 1994
STATEMENT OF NET ASSETS
_______________________ Market Value
Security Number of Shares (Note 1a)
______________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS IN
COMMON AND CONVERTIBLE-PREFERRED STOCKS (COST $103,680,363) $104,545,875
OTHER ASSETS, LESS LIABILITIES-8.78%
OTHER ASSETS
CORPORATE OBLIGATIONS, AT COST
Federal National Mortgage Association
5.77% due 1/3/95........................................... 2,500M 2,495,192
5.91% due 1/12/95.......................................... 2,050M 2,041,923
General Electric Capital Corp.
4.25% due 1/5/95........................................... 2,500M 2,500,000
Prudential Funding Corp.
5.25% due 1/4/95........................................... 1,900M 1,900,000
Total...................................................... 8,937,115
Cash on deposit............................................ 589,553
Receivable for
Dividends............................................. 461,095
Capital stock sold.................................... 158,187
Interest.............................................. 9,803
TOTAL OTHER ASSETS......................................... 10,155,753
LIABILITIES
Accrued Expenses........................................... 93,989
TOTAL OTHER ASSETS, LESS LIABILITIES 10,061,764
NET ASSETS 100.00%
(equivalent to $12.71 a share on 9,017,934 shares of $.001
par value capital stock outstanding; authorized,
50,000,000 shares) $114,607,639
<FN>
* Restricted security under Rule 144A
See Notes to Financial Statements.
</TABLE>
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENT OF OPERATIONS
_______________________
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 3,213,660
Interest 355,313
__________________________________________________________________________________
Total income $ 3,568,973
Expenses:
Management fee (Note 5) 518,190
Audit and tax 35,500
Legal 21,388
Registration 6,500
Organization (Note 1e) 3,300
Pricing 1,225
Shareholder servicing 1,225
Other 3,322
Total expenses 590,650
__________________________________________________________________________________
Net investment income 2,978,323
Realized and Unrealized Gain (Loss) on Investments
(Note 4)
Realized gain from security transactions
(excluding short-term securities):
Proceeds from sales 63,563,234
Cost of securities sold 59,640,124
__________________________________________________________________________________
Net realized gain 3,923,110
__________________________________________________________________________________
Unrealized appreciation(depreciation)of investments:
Beginning of year 4,905,953
End of year 865,512
__________________________________________________________________________________
Net unrealized depreciation (4,040,441)
__________________________________________________________________________________
Net realized and unrealized loss on investments (117,331)
__________________________________________________________________________________
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,860,992
- ----------------------------------------------------- -------------- ------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
___________________________________________________________________________________________
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 2,978,323 $ 1,593,418
Net realized gain from security transactions 3,923,110 3,820,342
Net unrealized appreciation (depreciation) of
investments (4,040,441) 2,292,234
___________________________________________________________________________________________
Net increase in net assets resulting from
operations 2,860,992 7,705,994
___________________________________________________________________________________________
Undistributed net investment income included in price
of shares sold and reacquired (Note 1d) 1,371,924 1,692,037
___________________________________________________________________________________________
Distributions to shareholders from (Note 2)
Net investment income (2,794,800) (1,571,797)
Net realized gain from security transactions (4,022,817) (3,900,387)
___________________________________________________________________________________________
Total distributions (6,817,617) (5,472,184)
___________________________________________________________________________________________
Capital share transactions
Net proceeds from sales of 2,524,309 and 2,913,177
shares, respectively 31,847,505 37,024,250
Net asset value of 536,398 and 415,189 shares
issued to shareholders in reinvestment of net
investment income and realized gain from
security transactions 6,817,617 5,472,184
___________________________________________________________________________________________
Total 38,665,122 42,496,434
Cost of 294,061 and 118,242 shares reacquired,
respectively (3,691,518) (1,510,193)
___________________________________________________________________________________________
Increase in net assets derived from capital share
transactions
(net increase of 2,766,646 and 3,210,124 shares,
respectively) 34,973,604 40,986,241
___________________________________________________________________________________________
Increase in net assets 32,388,903 44,912,088
NET ASSETS
Beginning of year 82,218,736 37,306,648
___________________________________________________________________________________________
End of year (including undistributed net investment
income of $4,409,150 and $1,713,658,respectively) $ 114,607,639 $ 82,218,736
</TABLE>
See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE: 1994 1993 1992 1991 1990
______________________________________________________________
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 13.15 $ 12.27 $ 11.61 $ 9.93 $ 10.07
INCOME FROM INVESTMENT OPERATIONS
Net investment income .41 .34 .45* .50* .41*
Net realized and unrealized gain
(loss) on investments (.045) 1.48 1.3575 2.18 (.19)
TOTAL FROM INVESTMENT OPERATIONS .365 1.82 1.8075 2.68 .22
____________________________________________________________________________________________________
DISTRIBUTIONS
Dividends from net investment income (.33) (.27) (.32) (.35) (.29)
Distributions from net realized gain (.475) (.67) (.8275) (.65) (.07)
NET ASSET VALUE, END OF YEAR $ 12.71 $ 13.15 $ 12.27 $ 11.61 $ 9.93
TOTAL RETURN 2.76% 14.80% 15.62% 27.00% 2.18%
RATIOS/SUPPLEMENTAL DATA:
____________________________________________________________________________________________________
Net assets, end of year (000) $ 114,608 $ 82,219 $ 37,307 $ 18,297 $ 10,754
____________________________________________________________________________________________________
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver .59% .57% .51% .13% .46%
Expenses, excluding waiver .59% .57% .65% .72% .91%
Net investment income 2.97% 2.76% 3.38% 4.20% 4.38
_____________________________________________________________________________________________________
PORTFOLIO TURNOVER RATE 68.94% 78.26% 107.30% 70.82% 49.06%
_____________________________________________________________________________________________________
<FN>
* Net of management fee waiver.
</TABLE>
See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
_____________________________
1. SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated under Maryland law on August 28, 1989 and is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Company currently consists of two active
Series. The Growth and Income Portfolio (the "Company") commenced operations
on December 11, 1989. Shares of the Company are currently issued and redeemed
only in connection with investment in, and payments under, certain variable
annuity contracts issued by Xerox Financial Services Life Insurance Company
("Xerox") and its affiliated insurance companies. The following is a summary
of significant accounting policies consistently followed by the Company. The
policies are in conformity with generally accepted accounting principles.
(A) Market value is determined as follows: Securities listed or admitted to
trading privileges on any national securities exchange are valued at the last
sales price on the principal securities exchange on which such securities are
traded, or, if there is no sale, at the mean between the last bid and asked
prices on such exchange. Securities traded in the over-the-counter market are
valued at the mean between the last bid and asked prices in such market,
except that securities admitted to trading on the NASDAQ National Market
System are valued at the last sales price if it is determined that such price
more accurately reflects the value of such securities. Securities for which
market quotations are not available are valued at fair value under procedures
approved by the Board of Directors. Short-term securities are carried at cost
which approximates market.
(B) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income in taxable distributions. Therefore, no federal
income tax provision is required.
(C) Security transactions are accounted for on the date that the securities
are purchased or sold (trade date). Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recorded
on the accrual basis.
(D) A portion of proceeds from sales and costs of repurchases of capital
shares, equivalent to the amount of distributable net investment income on the
date of the transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
repurchases of shares.
(E) The organization expenses of the Company were amortized evenly over a
period of five years.
<PAGE>
2. DISTRIBUTIONS
Net realized gain from security transactions, if any, is declared in December
and distributed to shareholders in the succeeding year. Accumulated
distributions in excess of net realized capital gain at December 31, 1994 for
financial reporting purposes, which is substantially the same as for federal
income tax purposes, aggregated $187,331. The excess distribution will be
utilized in determining the realized capital gain distribution in 1995.
Income and capital gains distributions are determined in accordance with
income tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles.
3. CAPITAL PAID IN
At December 31, 1994, capital paid in aggregated $109,520,308.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (other than short-term
investments) aggregated $92,467,192 and $63,563,234, respectively. Security
gains and losses are computed on the identified cost basis.
As of December 31, 1994, unrealized appreciation for federal income tax
purposes for the Company aggregated $865,512 of which $5,297,515 related to
appreciated securities and $4,432,003 related to depreciated securities. For
federal income tax purposes, the identified cost of investments owned at
December 31, 1994 was substantially the same as the cost for financial
reporting purposes.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Lord, Abbett & Co. received a management fee of $518,190 for which it provided
the Company with investment management services and executive and other
personnel, paid the remuneration of officers, provided of fine space and paid
for ordinary and necessary office and clerical expenses relating to research
and statistical work. The management fee paid to Lord, Abbett & Co. is based
on average daily net assets at the rate of 1/2 of 1% per annum. Certain of the
Company's officers and Directors have an interest in Lord, Abbett & Co.
The Company adopted a Rule 12b-1 Plan on April 20, 1994 which permits the
Company to make payments to Lord, Abbett & Co. for remittance to a Life
Insurance Company at the annual rate of .15% of the average daily net asset
value of shares of the Company attributable to such Life Insurance Company's
variable contract owners. No payments were made under the Plan during the
period ended December 31, 1994 to reimburse such Company for distribution
expenses.
<PAGE>
6. DIRECTORS' REMUNERATION
The Directors of the Company associated with Lord, Abbett & Co. and all
officers of the Company receive no compensation from the Company for acting as
such. Outside Directors' fees, including attendance fees for board and
committee meetings, and outside Directors' retirement costs, are allocated
among all funds in the Lord Abbett group based on net assets of each fund. The
direct remuneration accrued during the period for outside Directors of the
Company as a group was $1,250 (exclusive of expenses), which has been deemed
invested in shares of the Company under a deferred compensation plan
contemplating future payment of the value of those shares. As of December 31,
1994, the aggregate amount in Directors' accounts maintained under the plan
was $2,150. Retirement costs accrued during the year ended December 31, 1994
amounted to $920.
<PAGE>
LORD ABBETT SERIES FUND, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Lord Abbett Series Fund, Inc.
We have audited the accompanying statements of net assets of the Growth and
Income Portfolio and the Global Equity Portfolio of Lord Abbett Series Fund,
Inc. as of December 31, 1994, the related statements of operations for the
year then ended, and of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented. These financial statements and the financial highlights are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1994 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as wed as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in an material respects, the financial position of the Growth and
Income Portfolio and the Global Equity Portfolio of Lord Abbett Series Fund,
Inc. at December 31, 1994, the results of their operations, the changes in
their net assets and the financial highlights for the above-stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
January 27, 1995
<PAGE>
LORD ABBETT SERIES FUND - GLOBAL EQUITY PORTFOLIO
December 31, 1994
STATEMENT OF NET ASSETS
_______________________
<TABLE>
<CAPTION>
<S> <C> <C>
Market Value
Security Number of Shares Notes 1a& 1b)
______________________________________________________________________________________________
INVESTMENTS IN COMMON STOCKS AND WARRANTS 93.98%
______________________________________________________________________________________________
FOREIGN 77.41%
______________________________________________________________________________________________
Australia - 4.11%
Amcor............................................. 4,000 $ 28,904
Australian Gas Light Co........................... 8,000 26,984
Australian National Industries.................... 28,000 31,248
National Australia Bank........................... 3,000 24,051
News Corp......................................... 4,000 15,660
News Corp. Preference............................. 2,000 6.900
Total............................................. 133,747
France - 6.52%
AXA............................................... 575 26,655
Christian Dior.................................... 355 27,738
Christian Dior Warrants........................... 355 2,927
Elf-Aquitaine..................................... 340 23,947
Lafarge Coppee.................................... 407 28,979
Naf Naf........................................... 787 30,967
Naf Naf Warrants.................................. 87 192
Saint Gobain...................................... 338 38,885
Societe Generale.................................. 300 31,534
Total............................................. 211,824
Germany - 4.75%
BASF.............................................. 120 24,744
Bayer............................................. 110 25,770
Mannesmann........................................ 140 38,128
Preussag.......................................... 130 37,754
Veba.............................................. 80 27,880
Total............................................. 154,276
Italy - 2.52%
Italcementi....................................... 5,330 37,438
Italcementi Warrants.............................. 1,230 349
Montedisont....................................... 58,500 44,109
Total............................................. 81,896
<PAGE>
Japan - 31.13%
Canon Inc......................................... 3,000 50,913
Honda............................................. 3,000 53,325
Jusco............................................. 3,000 66,882
Kamigumi Co....................................... 5,000 53,225
Kurimoto Iron..................................... 4,000 43,384
Kyocera........................................... 1,000 74,212
Mitsubishi Heavy Industry......................... 7,000 53,424
Nippon Meat Packers............................... 2,300 30,256
Nippondenso....................................... 2,000 42,178
Nomura Securities................................. 2,000 41,574
Sansei Yusoki Co., Ltd............................ 4,000 66,280
Shikoku Electric Power............................ 1,600 38,080
Shin-Etsu Chemical................................ 3,000 59,652
Sho Bond Construction............................. 1,300 33,943
Sony Corp......................................... 1,000 56,738
Sumitomo Electric Industries...................... 3,000 42,780
Toray Industries.................................. 9,000 65,529
Toshiba Corp...................................... 8,000 58,088
Toshiba Engineering & Construction................ 3,000 28,923
77th Bank Ltd..................................... 5,000 52,720
Total............................................. 1,012,106
Malaysia - 1.74%
Alcom............................................. 15,000 19,860
Southern Bank..................................... 18,750 34,219
Southern Bank Nil Paid Rights..................... 4,500 2,610
Total............................................. 56,689
Mexico - 1.47%
Grupo Industrial Durango SA De CV ADS*............ 1,000 14,125
Grupo lusacell Series D ADS*...................... 500 8,000
Grupo lusacell Series L ADR*...................... 500 9,312
Telefonos de Mexico............................... 400 16,400
Total............................................. 47,837
Netherlands - 3.19%
Hunter Douglas.................................... 730 32,914
Philips Electronics............................... 830 24,598
Ver Ned Uitger Ver Bezit.......................... 445 46,235
Total............................................. 103,747
Singapore - 1.80%
United Overseas Bank.............................. 5,548 58,598
Spain - 2.24%
Banco Santander................................... 440 16,853
Compania Telefonica Nacional...................... 1,700 20,091
Europistas........................................ 1,995 16,451
Repsol............................................ 710 19,264
Total............................................. 72,659
<PAGE>
Sweden - 1.08%
Atlas Copco....................................... 2,750 35,189
Switzerland - 1.65%
Ciba Geigy........................................ 25 14,921
Ciba Geigy Warrants............................... 5 16
Roche Holdings.................................... 8 38,728
Total............................................. 53,665
United Kingdom - 14.43%
Barclays.......................................... 3,500 33,432
BPB Industries.................................... 6,000 27,696
British Petroleum................................. 7,500 49,935
British Telecom................................... 7,000 41,349
BTR............................................... 6,123 28,117
BTR Warrants 1998................................. 184 93
Bunzl............................................. 10,000 26,990
Cookson........................................... 7,500 26,872
Grand Metropolitan................................ 4,600 29,293
Greenalls Group................................... 4,000 26,912
Guardian Royal Exchange........................... 8,000 20,840
Mirror Group Newspapers........................... 10,000 20,180
North West Water.................................. 2,000 16,962
Peninsular and Oriental Steam Navigation Company.. 3,191 30,458
Siebe............................................. 2,600 22,680
SmithKline Beecham................................ 4,000 28,384
Tesco............................................. 10,000 38.960
Total............................................ 469,153
Venezuela - .78%
Banque Indosuez Warrantst**....................................... 4,000 187
Venprecar C.A. ADR**.............................. 4,000 25,000
Total............................................. 25,187
TOTAL INVESTMENTS IN
FOREIGN SECURITIES (COST $2,174,581) 2,516,573
UNITED STATES 16.57%
Anheuser-Busch Companies, Inc..................... 1,000 50,875
Dayton Hudson Corp................................ 300 21,225
Equitable Resources, Inc.......................... 2,000 54,250
Freeport-McMoRan Copper & Gold Inc................ 5,000 98,125
Fruit Of The Loom*................................ 1,000 27,000
International Paper Co............................ 1,000 75,375
National City Corp................................ 2,000 51,750
Standard Products Co.............................. 2,500 60,000
Thomas & Betts Corp............................... 1,000 67,125
TRW Inc........................................... 500 33,000
<PAGE>
TOTAL INVESTMENTS IN UNITED STATES
SECURITIES (COST $532,167) 538,725
TOTAL INVESTMENTS IN COMMON STOCKS AND
WARRANTS (COST $2,706,748) 3,055,298
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND - GLOBAL EQUITY PORTFOLIO
December 31, 1994
STATEMENT OF NET ASSETS
_______________________
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Market Value
Amount (Note 1a)
____________________________________________________________________________________
OTHER ASSETS, LESS LIABILITIES - 6.02%
OTHER ASSETS
CORPORATE OBLIGATION, AT COST
General Electric Capital Corp.
Yielding 5.51% due 1/16/95............................ $ 125M $ 125,000
Cash on deposit....................................... 79,333
Receivable for
Foreign Currency Contracts....................... 500,000
Dividends........................................ 10,030
Interest......................................... 38
Deferred organization expenses........................ 312
TOTAL OTHER ASSETS.................................... 714,713
LIABILITIES
Payable for
Foreign Currency Contracts....................... 502,757
Accrued Expenses................................. 13,846
Capital Stock Reacquire.......................... 2,486
Total liabilities..................................... 519,089
TOTAL OTHER ASSETS, LESS LIABILITIES.................. 195,624
NET ASSETS 100.00%
(equivalent to $11.22 a share on 289,826 shares of
.001 par value capital stock outstanding; authorized,
50,000,000 shares) $ 3,250,922
<FN>
* Non-income producing.
** Restricted security under Rule 144A.
</TABLE>
See Notes to Financial Statements.
<PAGE>
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 69,111
Interest 15,520
Foreign taxes withheld (8,653)
____________________________________________________________________________________
Total income $ 75,978
Expenses:
Management fee (Note 5) 17,889
Pricing 10,100
Custodian 9,850
Audit and tax 7,750
Organization 1,140
Legal 685
Management fee waived and expenses assumed by
Lord, Abbett & Co. (Note 5) (44,129)
____________________________________________________________________________________
Net expenses 3,285
____________________________________________________________________________________
Net investment income 72,693
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS (NOTE 4)
Realized gain from security transactions
(excluding short-term securities): 1,714,275
Proceeds from sales
Cost of securities sold 1,355,144
____________________________________________________________________________________
Net realized gain on securities sold 359,131
Realized loss from foreign currency transactions (32,616)
____________________________________________________________________________________
Net realized gain from securities
and foreign currency transactions 326,515
____________________________________________________________________________________
Unrealized appreciation (depreciation) of investments
and foreign currency holdings
Beginning of year 667,679
End of year 345,793
Net unrealized depreciation of investments
and foreign currency holdings (321,886)
____________________________________________________________________________________
Net realized and unrealized gain on investments
and foreign currency transactions 4,629
____________________________________________________________________________________
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 77,322
</TABLE>
See Notes to Financial Statements.
<PAGE>
GLOBAL EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31,
1994 1993
------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 72,693 $ 79,674
Net realized gain from security transactions and
foreign currency holdings 326,515 84,460
Net unrealized appreciation (depreciation) of
investments and foreign currency holdings (321,886) 668,597
_______________________________________________________________________________________
Net increase in net assets resulting
from operations 77,322 832,731
_______________________________________________________________________________________
Undistributed net investment income included in
price of shares sold and reacquired (Note 1e) (11,166) (10,620)
_______________________________________________________________________________________
Distributions to shareholders from (Note 2)
Net investment income (73,774) (93,065)
Net realized gain from security transactions (326,261) (23,993)
Total distributions (400,035) (117,058)
_______________________________________________________________________________________
Capital share transactions
Net proceeds from sales of 10,522 and 21,889
shares, respectively 134,118 256,016
Net asset value of 35,654 and 9,305 shares issued
to shareholders in reinvestment of net investment
income and realized gain from security transactions 400,035 117,058
_______________________________________________________________________________________
Total 534,153 373,074
Cost of 56,482 and 59,111 shares reacquired,
respectively (724,448) (665,033)
_______________________________________________________________________________________
Decrease in net assets derived from capital share
transactions (net decrease of 10,306 and 27,917
shares, respectively) (190,295) (291,959)
_______________________________________________________________________________________
Increase (decrease) in net assets (524,174) 413,094
NET ASSETS
Beginning of year 3,775,096 3,362,002
_______________________________________________________________________________________
End of year (including over distributed net
investment income of $1,551 and $26,204,
respectively) $ 3,250,922 $ 3,775,096
_______________________________________________________________________________________
</TABLE>
* See Notes to Financial Statements.
<PAGE>
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
April 9, 1990
Commencement)
Year Ended Dec. 31, of Operations)
PER SHARE OPERATING PERFORMANCE: 1994 1993 1992 1991 to Dec. 31. 1990
_____________________________________________________________________
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.58 $ 10.25 $ 10.75 $ 9.73 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income* .27 .26 .29 .28 .24
Net realized and unrealized gain
(loss) on investments (.0575) 2.4725 (.4575) 1.03 (.35)
TOTAL FROM INVESTMENT OPERATIONS .2125 2.7325 (.1675) 1.31 (.11)
___________________________________________________________________________________________________________
DISTRIBUTIONS
Dividends from net investment
income (.29) (.32) (.24) (.22) (.16)
Distributions from net realized
gain (1.2825) (.0825) (.0925) (.07) ------
____________________________________________________________________________________________________________
NET ASSET VALUE, END OF PERIOD $ 11.22 $ 12.58 $ 10.25 $ 10.75 $ 9.73
____________________________________________________________________________________________________________
TOTAL RETURN 1.69% 26.67% (1.54)% 13.48% (1.10)%*
____________________________________________________________________________________________________________
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 3,251 $ 3,775 $ 3,362 $ 4,407 $ 2,683
____________________________________________________________________________________________________________
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver .09% .09% .10% .10% .21%*
Expenses, excluding waiver 1.33% 1.62% 1.39% 2.15% 2.49%*
Net investment income 2.04% 2.24% 2.72% 2.69% 2.40%*
_____________________________________________________________________________________________________________
PORTFOLIO TURNOVER RATE 50.63% 131.51% 128.59% 60.84% 25.59%
_____________________________________________________________________________________________________________
<FN>
* Net of management fee waiver.
** Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE>
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated under Maryland law on August 28, 1989 and is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Company currently consists of two active
Series. The Global Equity Portfolio (the "Company") commenced operations on
April 9, 1990. Shares of the Company are currently issued and redeemed only in
connection with investment in, and payments under, certain variable annuity
contracts issued by Xerox Financial Services Life Insurance Company ("Xerox")
and its affiliated insurance companies. Shares of the Company are no longer
offered for sale. The following is a summary of significant accounting
policies consistently followed by the Company. The policies are in conformity
with generally accepted accounting principles.
(A) Market value is determined as follows: Securities listed or admitted to
trading privileges on any national securities exchange are valued at the last
sales price on the principal securities exchange on which such securities are
traded, or, if there is no sale, at the mean between the last bid and asked
prices on such exchange. Securities traded in the over-the-counter market are
valued at the mean between the last bid and asked prices in such market,
except that securities admitted to trading on the NASDAQ National Market
System are valued at the last sales price if it is determined that such price
more accurately reflects the value of such securities. Securities for which
market quotations are not available are valued at fair value under procedures
approved by the Board of Directors. Short-term securities are carried at cost
which approximates market.
(B) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income in taxable distributions. Therefore, no federal
income tax provision is required.
(C) Security transactions are accounted for on the date that the securities
are purchased or sold (trade date). Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recorded
on the accrual basis.
(D) A portion of proceeds from sales and costs of repurchases of capital
shares, equivalent to the amount of distributable net investment income on the
date of the transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
repurchases of shares.
(E) The organization expenses of the Company are amortized evenly over a
period of five years. If any of the 20,000 initial shares of the Company
issued to Lord, Abbett & Co. and Xerox are redeemed during the amortization
period, the proceeds of any such redemption will be reduced by the
proportionate amount of the unamortized organization expenses which the number
of shares redeemed bears to the number of shares then outstanding.
<PAGE>
(F) The Company enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. A forward contract is a commitment to purchase or sell a
foreign currency at a future date (usually the security transaction settlement
date) at a negotiated forward rate. The contracts are valued daily at current
exchange rates and any unrealized gain or loss is included in net unrealized
appreciation or depreciation of investments and foreign currency holdings. The
gain or loss, if any, arising from the difference between the settlement value
of the forward contract and the closing of such contract, is included in net
realized gain or loss from security and foreign currency transactions. Risks
may arise due to changes in the value of the foreign currency and as a result
of the potential inability of the counter parties to meet the terms of their
contracts.
(G) Foreign Currency Translation Effective January 1, 1994, the Fund adopted
Statement of Position (SOP) 93-4: Foreign Currency Accounting and Financial
Statement Presentation for Investment Companies. In accordance with this SOP,
reported net realized gains and losses from foreign currency transactions
represent net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and the
U.S. dollar amount actually received. Further, as permitted under the SOP, the
effects of changes in foreign currency exchange rates on investments in
securities are not segregated in the Statement of Operations from the effects
of changes in market prices of those securities.
2. DISTRIBUTIONS
Net realized gain from security transactions, if any, is declared in December
and distributed to shareholders in the succeeding year. Undistributed net
realized capital gain at December 31, 1994 for financial reporting purposes,
which is substantially the same as for federal income tax purposes, aggregated
$28,265.
Income and capital gains distributions are determined in accordance with
income tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles.
3. CAPITAL PAID IN
At December 31, 1994, capital paid in aggregated $2,878,415.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (other than short-term
investments and foreign currency transactions) aggregated $1,590,924 and
$1,714,275, respectively. Security gains and losses, if any, are computed on
the identified cost basis.
<PAGE>
As of December 31, 1994, unrealized appreciation on investment securities for
federal income tax purposes aggregated $348,550 of which $469,910 related to
appreciated securities and $121,360 related to depreciated securities. For
federal income tax purposes, the identified cost of investments owned at
December 31, 1994 was substantially the same as the cost for financial
reporting purposes.December 31, 1994, the Global Equity Portfolio had
outstanding forward currency contracts to sell foreign currencies as follows:
<TABLE>
<CAPTION>
VALUE AT
FOREIGN CURRENCY SETTLEMENT DATE CURRENT
SELL RECEIVABLE VALUE (DEPRECIATION)
______________________________________________________________
<S> <C> <C> <C>
DEUTSCHE MARKS,
expiring 3/7/95 $ 100,000 $101,657 $ (1,657)
______________________________________________________________
JAPANESE YEN,
expiring 11/16/95 400,000 401,100 (1,100)
______________________________________________________________
$ 500,000 $502,757 $ (2.757)
===========================================
</TABLE>
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Lord, Abbett & Co. provided the Company with investment management services
and executive and other personnel, paid the remuneration of officers, provided
office space and paid for ordinary and necessary office and clerical expenses
relating to research and statistical work. Lord Abbett has entered into a
subadvisory agreement with Dunedin Fund Managers Ltd. ("Dunedin"); Dunedin
furnishes investment advisory services in connection with the management of
the Company. Lord Abbett pays for the cost of Dunedin's services. For the year
ended December 31, 1994, Lord, Abbett & Co. waived the Company's management
fee of $17,889. The management fee paid to Lord, Abbett & Co. is based on
average daily net assets at the rate of 3/4 of 1 % per annum. Lord, Abbett &
Co. has subsidized the Company for $26,240 for the year ended December 31,
1994. Certain of the Company's officers and Directors have an interest in
Lord, Abbett & Co.
<PAGE>
