As filed with the Securities and Exchange Commission on, April 30, 1996.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _____
Post-Effective Amendment No. 11 __x__
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _____
Amendment No. 12 __x__
COMPOSITE DEFERRED VARIABLE ACCOUNT
(Exact Name of Registrant)
EMPIRE LIFE INSURANCE COMPANY
1201 Third Avenue, Suite 600
Seattle, Washington 98101-3015
(Name and Address of Depositor)
Depositor's Telephone Number: (206) 461-2500
Mr. Robert W. Eschrich, President
Empire Life Insurance Company
1201 Third Avenue, Suite 600
Seattle, Washington 98101-3015
(Name and Complete Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
- ------------------------------
It is proposed that this filing will become effective (check appropriate box):
[ ]immediately upon filing pursuant to paragraph (b) [x] on April 30, 1996
pursuant to paragraph (b) [ ]60 days after filing pursuant to paragraph (a)
(i) [ ] on ___ pursuant to paragraph (a)(i) [ ]75 days after filing pursuant
to paragraph (a)(ii) of Rule 485.
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Page 1 of ___ pages (exhibit index on page ___)
The registrant is not required to file a Rule 24f-2 Notice for the fiscal
year ending December 31, 1995, because it did not sell any securities during
that year.
<PAGE>
CROSS REFERENCE SHEET
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement Required By Form N-4
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Introduction
4. Condensed Financials
(a) Chart Not Applicable
(b) MM Yield Not Applicable
(c) Location of Others Financial Statements
5. General
(a) Depositor Empire Life Insurance Company
(b) Registrant Variable Account
(c) Portfolio Company Composite Deferred Series, Inc.
(d) Fund Prospectus Composite Deferred Series, Inc.
(e) Voting Rights Voting Rights
(f) Administrators Charges and Other Deductions - Contract
Maintenance Charge
6. Deductions & Expenses
(a) General Charges and Other Deductions
(b) Sales Load % Contingent Deferred Sales Charge
(c) Special Purchase Plans N/A
(d) Commissions Sales Commission
(e) Expenses - Registrant Variable Account Expenses
(f) Fund Expenses Composite Deferred Series, Inc.,
Expenses
(g) Organizational Expenses N/A
7. Contracts
(a) Persons with Rights The Contracts; Benefits; Income
Payments; Voting Rights; Assignments;
Beneficiaries; Contract Owners
(b) (i) Allocation of Allocation of Purchase Payments
Purchase Payments
(ii) Transfers Transfers
(iii) Exchanges N/A
(c) Changes Modification
(d) Inquiries Customer Inquiries
8. Annuity Period Income Payments
(a) Material Factors N\A
(b) Dates N\A
(c) Frequency, duration & level N\A
(d) AIR N\A
(e) Minimum N\A
(f) - Change Options Transfers
- Transfer
9. Death Benefit Death Benefits
10. Purchase & Contract Value
(a) Purchases Purchase of Contracts; Crediting of
Purchase Payments
(b) Valuation Value of Variable Account Accumulation
Units
(c) Daily Calculation Value of Variable Account Accumulation
Units; Allocation of Purchase Payments
(d) Underwriter Murphey Favre, Inc.
11. Redemptions
(a) - By Owners Surrenders and Withdrawals
(b) - By Annuitant Annuity Option 3
(c) Texas ORP N/A
(d) Lapse N/A
(e) Free Look Introduction
12. Taxes Federal Tax Matters
13. Legal Proceedings N/A
14. SAI Contents SAI Table of Contents
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information & History
(a) Depositor's Name Empire Life Insurance Company
(b) Assets of Sub-Account Variable Account
(c) Control of Depositor Empire Life Insurance Company
18. Services
(a) Fees & Expenses of
Registrant Contract Maintenance Charge
(b) Management Contracts Contract Maintenance Charge - Sales
Commission
(c) Custodian SAI: Safekeeping of Variable Account's
Assets
Independent Public SAI: Independent Auditors
Accountants
(d) Assets of Registrant SAI: Safekeeping of Variable Account
Assets
(e) Affiliated Persons N/A
(f) Principal Underwriter Murphey Favre, Inc.
19. Purchase of Securities Being
Offered
(a) Offering SAI: Purchase of Contracts
(b) Sales load SAI: Sales Commissions
20. Underwriters
(a) Principal Underwriter SAI: Murphey Favre, Inc.
(b) Continuous offering SAI: Purchase of Contracts
(c) Commissions SAI: Sales Commissions; Murphey Favre,
Inc.
(d) Unaffiliated Underwriters N/A
21. Calculation of Yield Quotations SAI: Money Market Yield Calculation
of Money Market Sub-Account
22. Annuity Payments SAI: Income Payments
23. Financial Statements
(a) Financial Statements Composite Deferred Variable Account
of Registrant Financial Statements
(b) Financial Statements Empire Life Insurance Company
of Depositor Financial Statements
24a. Financial Statements Part C: Financial Statements
24b. Exhibits Part C: Exhibits
25. Directors and Officers Part C: Directors & Officers of
Depositor
26. Persons Controlled By or Part C: Persons Controlled By or Under
Under Common Control with Common Control with Depositor or
Depositor or Registrant Registrant.
27. Number of Contract Owners Part C: Number of Contract Owners
28. Indemnification Part C: Indemnification
29a. Relationship of Principal Part C: Relationship of Principal
Underwriter to Other Underwriter to Other Investment
Companies Companies
29b. Principal Underwriters Part C: Principal Underwriters
29c. Compensation of Underwriter Part C: Compensation of Murphey Favre
30. Location of Accounts & Records Part C: Location of Accounts & Records
31. Management Services Part C: Management Services
32. Undertakings Part C: Undertakings
<PAGE>
COMPOSITE DEFERRED VARIABLE ACCOUNT
of
EMPIRE LIFE INSURANCE COMPANY
1201 THIRD AVENUE, SUITE 600
SEATTLE, WA 98101-3015
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
Distributed By
Murphey Favre, Inc.
1201 Third Avenue
Suite 780
Seattle, Washington 98101-3015
(800) 543-8072
This prospectus describes the Flexible Premium Deferred Variable Annuity
Contract ("Contract") offered by Empire Life Insurance Company ("Company").
Murphey Favre, Inc., ("Murphey Favre") or other authorized representatives
("distributor") are the distributors of the Contracts. Both the Company and
Murphey Favre are wholly owned direct or indirect subsidiaries of Washington
Mutual, Inc. and are affiliates of Washington Mutual Bank and Washington Mutual,
a Federal Savings Bank.
The Contract is primarily designed to aid you in long-term financial
planning and generally can be used for retirement planning regardless of whether
your plan qualifies for special federal income tax treatment. It has the
flexibility to allow you to shape an annuity to fit your particular needs. Under
the Contract you can allocate your cash value to the Composite Deferred Variable
Account ("Variable Account"), where it will reflect the investment experience of
one or more selected mutual fund portfolios, or to the Fixed Account, where it
will earn at least a guaranteed minimum rate.
This prospectus is a concise statement of the relevant information about
the Variable Account which you should know before making a decision to purchase
the Contract.
The Company has prepared and filed a Statement of Additional Information
dated April 30, 1996, with the Securities and Exchange Commission. If you wish
to receive the Statement of Additional Information, you may obtain a free copy
by calling or writing Murphey Favre at the address above. Before ordering, you
may wish to review the Table of Contents of the Statement of Additional
Information on page __ of this Prospectus. The Statement of Additional
Information has been incorporated by reference into this Prospectus. This
Prospectus and the Statement of Additional Information generally describe only
the variable portion of the Contract.
Administrative Service Center:
Empire Life Insurance Company
1201 Third Avenue
Suite 600
Seattle, Washington 98101-3015
(206) 461-2500
This Prospectus is valid only when accompanied by a current prospectus for
the Composite Deferred Series, Inc. Contract Owners may have voting rights in
that mutual fund.
Contracts are not deposits or obligations of, or endorsed or guaranteed by,
any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. Contracts involve
certain investment risks including possible loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Please Read This Prospectus Carefully
and Retain It For Future Reference
The Date of This Prospectus is April 30, 1996
The Contracts Are Not Available In All States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
<PAGE>
TABLE OF CONTENTS
PAGE
Glossary ..............................................
Introduction ..........................................
Condensed Financial Information .......................
Financial Statements...................................
Empire Life Insurance Company and the Variable Account.
Empire Life Insurance Company ......................
Murphey Favre, Inc..................................
The Variable Account ...............................
Composite Deferred Series, Inc. ....................
Voting Rights .........................................
The Contracts .........................................
Purchase of the Contracts ..........................
Crediting of Purchase Payments .....................
Allocation of Purchase Payments ...................
Value of Variable Account Accumulation Units .......
Transfers ..........................................
Surrenders and Withdrawals ........................
Default ...........................................
Charges and Other Deduction ...........................
Deductions from Purchase Payments...................
Contract Maintenance Charge .......................
Mortality and Expense Risk Charge .................
Contingent Deferred Sales Charge ...................
Sales Commission ..................................
Taxes .............................................
Composite Deferred Series, Inc., Expenses ..........
Income Payments .......................................
Income Starting Date ...............................
Annuity Options ....................................
Fixed Income Payment................................
Performance Data ......................................
General Matters .......................................
Contract Owner .....................................
Beneficiary ........................................
Death Benefits .....................................
Required Distributions .............................
Delay of Payments ..................................
Assignments ........................................
Modifications ......................................
Customer Inquiries .................................
Federal Tax Matters ...................................
Introduction........................................
Taxation of Annuities in General....................
Other Considerations................................
Statement of Additional Information....................
Table of Contents...................................
This Prospectus generally describes only the Contracts and the Variable
Account, and not the Fixed Account. The Statement of Additional Information
contains more information regarding the Fixed Account.
<PAGE>
GLOSSARY
Accumulation Unit--An accounting unit used to calculate the Contract Value
prior to the Income Starting date. The Fixed Account and each Sub-Account of the
Variable Account have their own distinct Accumulation Unit values.
Age--Age on last birthday.
Annuitant--A person whose life determines the duration of annuity payments
involving life contingencies. "Annuitant" may include a Joint Annuitant.
Beneficiary--The person to whom benefits will be paid upon the Owner's
death. In the event a beneficiary is not named, the Company will treat the
estate of the Contract Owner as the beneficiary.
Company--The issuer of the Contract, Empire Life Insurance Company, which
is a wholly owned subsidiary of WM Life Insurance Company, which is a wholly
owned subsidiary of Washington Mutual, Inc.
Contingent Deferred Sales Charge--The charge that may be assessed by the
Company on surrender or partial withdrawals of the Contract Value.
Contract--The Flexible Premium Deferred Variable Annuity Contract, known as
the "Composite Deferred Annuity", that is described in this prospectus.
Contract Anniversary--An anniversary of the date that the Contract was
issued to the Contract Owner.
Contract Owner ("Owner")--Unless otherwise provided by notice to the
Company, the Owner is as stated in the application. The Owner may, during his or
her lifetime and while this policy is in force:
(a) Assign or surrender the policy;
(b) Amend the policy, with the Company's consent;
(c) Exercise any right conferred by the policy;
(d) Exchange the policy for another annuity policy issued by the Company,
subject to the Company's requirements;
(e) Within thirty days of the death of any Annuitant prior to the Annuity
Date, name a new Annuitant upon notice to the Company. If an Annuitant
is not named in this time, the Owner will be deemed the Annuitant.
Contract Value--The sum of the value of all Accumulation Units under a
Contract.
Contract Year--The year commencing on either the Issue Date or a Contract
Anniversary.
Death Benefit--The amount payable to the Beneficiary on the death of the
Owner so long as the death occurs on or before the Income Starting Date.
Designated Beneficiary--The Internal Revenue Code may require distribution
of the Contract Value to the Designated Beneficiary. This is the person who is
a) the named Beneficiary, or b) if no Beneficiary is named, the Joint Owner who
becomes Owner, or c) if neither of the above, the Owner's estate.
Due Proof of Death--One of the following:
(a) A copy of a certified death certificate.
(b) A copy of a certified decree of a court of competent jurisdiction as to the
finding of death.
(c) A written statement by a medical doctor who attended the deceased.
(d) Any other proof satisfactory to the Company.
Eligible Portfolios--The mutual fund portfolios of the Composite Deferred
Series, Inc. The Composite Deferred Series, Inc., currently offers three
eligible portfolios: The Growth and Income Portfolio, the Northwest Portfolio,
and the Income Portfolio. A fourth portfolio, the Money Market Portfolio,
currently is not available for new investments.
Fixed Account--All assets of the Company other than those in a separate
investment account.
Fixed Annuity--An annuity with payments having a guaranteed amount.
Income Payments--A series of periodic annuity payments made by the Company
to the Annuitant or Beneficiary.
Income Starting Date--The date Income Payments are to begin under the
Contract.
Investment Alternative--The Fixed Account or any of the available
Sub-Accounts of the Variable Account.
Joint Annuitant--The person, along with the Annuitant, whose life
determines the duration of annuity payments under a joint and last survivor
annuity. The Joint Annuitant is the person who will become the Annuitant if the
Annuitant dies prior to the Income Starting Date.
Net Investment Factor--The factor for a particular Sub-Account used to
determine the value of an Accumulation Unit in any Valuation Period.
Non-Qualified Contracts--Contracts that do not qualify for special federal
income tax treatment.
Purchase Payments--The amounts paid by the Contract Owner to the Company.
Qualified Contracts--Contracts issued under plans that qualify for special
federal income tax treatment. Sub-Account--A sub-division of the Variable
Account. Each Sub-Account invests exclusively in shares of an Eligible
Portfolio.
Transfer Charge--Applies only to transfers from the Fixed Account. Equals
6% of amounts transferred in excess of the 25% which may be transferred without
charge under certain circumstances.
Valuation Date--Each day that the New York Stock Exchange is open for
trading.
Valuation Period--The period between successive Valuation Dates, commencing
at the close of business of each Valuation Date (1:00 p.m. Pacific Time) and
ending at the close of business of the next succeeding Valuation Date.
Variable Account--Composite Deferred Account, a separate investment account
established by the Company to receive and invest the Purchase Payments paid
under the Contracts.
<PAGE>
INTRODUCTION
1. What is the purpose of the Contract?
The Contract allows you to accumulate funds at rates that reflect the
investment performance of one or more mutual fund portfolios and to receive
annuity payments ("Income Payments"), if desired. THERE IS NO ASSURANCE THAT
THIS GOAL WILL BE ACHIEVED. In attempting to achieve this goal, the Contract
Owner can allocate Purchase Payments to the Fixed Account or to one or more of
the Variable Account Eligible Portfolios.
Because Contract Values may depend on the investment experience of selected
Eligible Portfolios, the Contract Owner may bear the entire investment risk
under this contract. See "Value of Variable Account Accumulation Units" page __
2. What types of investments underlie the Variable Account?
The Variable Account invests exclusively in shares of the Composite
Deferred Series, Inc., (the "Fund"), a mutual fund managed by Composite Research
& Management Co. ("Composite Research"), a wholly owned subsidiary of WM
Financial, Inc. The Fund has three currently Eligible Portfolios: The Growth and
Income Portfolio, the Northwest Portfolio, and the Income Portfolio. The assets
of each Portfolio are held separately from the other Portfolios and each has
distinct investment objectives and policies which are described in the
accompanying prospectus for the Fund.
3. How do I purchase a Contract?
You may purchase the Contract from Murphey Favre, or any other authorized
sales representative. The first Purchase Payment must be at least $1,000.
Subsequent Purchase Payments must be $100 or more and may be made at any time.
4. How do I allocate Purchase Payments?
On your application, you will allocate your Purchase Payment among the
Fixed Account and the three available Sub-Accounts (i.e., Growth and Income,
Northwest, and Income). All allocations must be in whole numbers and must total
100%. Allocations may be changed by notifying the Company in writing. See
"Allocation of Purchase Payments," page __.
5. Can I transfer amounts between the Investment Alternatives?
Prior to the Income Starting Date, unlimited free transfers may be made
from the Sub-Accounts of the Variable Account at any time. These transfers must
be at least $1,000 or the entire amount in that Sub-Account if it is less than
$1,000. Limited free transfers may also be made from the Fixed Account. Any time
six months after the issue date and once each policy year, up to 25% of the
Fixed Account portion of the Contract Value may be transferred to the Variable
Account free of charge, so long as no transfer from the Fixed Account has
occurred in the previous six month period. Other transfers from the Fixed
Account will be subject to a 6% Transfer Charge.
No transfers may be made after the Income Starting Date. See "Transfers"
page ___.
6. Can I get my money if I need it?
All or part of the Contract Value can be withdrawn at any time prior to or
at the earlier of the Owner's death or the Income Starting Date. Amounts
withdrawn may be subject to a contingent deferred sales charge of 0% to 7%
("Contingent Deferred Sales Charge") depending on the year of withdrawal. Up to
ten percent of the total Contract Value may be withdrawn without a contingent
deferred sales charge once per Contract Year each year after the first.
Withdrawals may be taxable and a penalty tax may be imposed on withdrawals.
See "Surrenders and Withdrawals," page __, and "Taxation of Annuities in
General," page __.
7. What are the charges and deductions under the Contract?
The Company currently does not deduct sales charges at the time of
investment. However, a contingent deferred sales charge of up to 7% may apply to
certain withdrawals.
The Company deducts an annual charge of $30.00 for maintaining the Contract
("Contract Maintenance Charge"). See "Contract Maintenance Charge," page __, for
how and when this charge is deducted.
To meet its death benefit obligations and to pay expenses not covered by
the Contract Maintenance Charge, the Company deducts a daily charge equal on an
annual basis to 1.20% of the Contract's daily net assets of the contract. See
"Mortality and Expense Risk Charge," page __.
Transfers from the Fixed Account may be subject to a charge equal to 6% of
the amount transferred. See "Transfers," page ___.
Additional deductions may be made for premium taxes at the time such taxes
are incurred. The Company reserves the right to deduct charges for other types
of taxes, although currently no such deductions are made. See "Taxes," page __.
Composite Variable Annuity Fee Table
The following table estimates these charges and deductions, as well as the
fees and expenses of the Fund. These figures assume the entire Contract Value is
in the Variable Account.
Growth
and Income Northwest Income
Owner Transaction Expenses Portfolio Portfolio Portfolio
- -------------------------- ---------- --------- ---------
Sales Load Imposed on Purchases 0 0 0
Maximum Contingent Deferred
Sales Load (as a % of Purchase
Payments Withdrawn) 7% 7% 7%
Surrender Fees 0 0 0
Transfer Fees (Transfers from
the Fixed Account may be
subject to a fee of 6%
of the amount transferred.) 0 0 0
--------------------------------------------
Contract Maintenance Charge $30 Per Contract
--------------------------------------------
Variable Account Annual Expenses
(as a % of average account value)
- ---------------------------------
Mortality and Expense Risk Fees 1.20% 1.20% 1.20%
Account Fees and Expenses 0% 0% 0%
Total Variable Account Annual
Expenses 1.20% 1.20% 1.20%
Fund Annual Expenses
(as a % of average net assets)
- ------------------------------
Advisory Fees .50% .50% .50%
Other Expenses .20% .40% .26%
Total Portfolio Annual Expenses .70% .90% .76%
The purpose of this Table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly and indirectly. The
Table reflects historical charges and expenses of the Growth and Income,
Northwest, and Income Portfolios for the year ended December 31, 1995. Charges
and expenses may be higher or lower in future years. Additional deductions may
be made for taxes. For more information on the charges described in this Table,
see "Charges and Deductions" on page ____ and the Fund Prospectus which
accompanies this prospectus.
Examples
An Owner would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
1. If you surrender your Policy at the end of the applicable time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Growth and Income Sub-Account $90.62 $129.24 $164.72 $293.07
Northwest Sub-Account $92.69 $135.83 $176.32 $319.61
Income Sub-Account $91.16 $130.97 $167.76 $300.05
2. If you annuitize at the end of the applicable time period, or if you do not
surrender or annuitize your Policy:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Growth and Income Sub-Account $20.62 $ 66.87 $120.05 $293.07
Northwest Sub-Account $22.69 $ 73.42 $132.04 $319.61
Income Sub-Account $21.16 $ 68.59 $123.53 $300.05
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESSER THAN THOSE SHOWN.
THE $30 ANNUAL CONTRACT MAINTENANCE CHARGE IS REFLECTED IN THESE EXAMPLES AS A
CHARGE OF 0.069%, BASED ON AN AVERAGE CONTRACT VALUE OF $50,380 DURING 1995.
8. What Annuity Options are available under the Contract?
The Annuitant must receive annuity payments ("Income Payments") on a
completely fixed basis. The Contract Owner has some flexibility in choosing when
Income Payments begin. Payments must begin by the later of the month following
the Annuitant's 85th birthday or the 10th Contract Anniversary. See "Income
Payments", page __, and "Income Starting Date," page __.
Three Annuity Options are listed in the Contract: 1) payments for life but
with 120 monthly payments certain; 2) payments for the life of the Annuitant and
Joint Annuitant; and 3) payments for a specified period. Other options are
available at the Company's discretion; however, Contingent Deferred Sales
Charges may apply if Income Payments are made for a specified period of less
than 120 months.
Federal tax law may limit the availability of annuity options. See "Annuity
Options," page __.
9. Does the Contract pay any death benefits?
Death benefits will be paid to the Beneficiary if the Owner dies before the
Income Starting Date. Death benefits after the Income Starting Date, if any,
depend on the Annuity Option chosen. See "Death Benefits," page __.
10. Is there any time when the Contract Value must be distributed prior to the
Income Starting Date?
If any Contract Owner dies prior to the Income Starting Date and the
Designated Beneficiary is not the spouse of the deceased owner, federal tax laws
generally require distribution of the Contract Value within five years after the
death of the Contract Owner. Contingent Deferred Sales Charges may apply to
distributions not qualifying as a death benefit. See "Required Distributions,"
page __.
11. Are there any short-term cancellation rights?
Contract Owners may cancel a Contract any time within 10 days after receipt
(or longer, if required by law) of the Contract. Subject to the requirements of
any tax-qualified plan, and in accordance with applicable state law, the Company
will return either the Purchase Payment or any Purchase Payments allocated to
the Fixed Account, plus any Purchase Payments allocated to the Variable Account,
adjusted to reflect net investment gain or loss that occurred from the date of
allocation through the date of cancellation.
12. Does the Contract Owner have any voting rights under the Contract?
The Contract Owner can instruct the Company how to vote shares of any
Eligible Portfolio attributable to the Contract. See "Voting Rights," page __.
FINANCIAL STATEMENTS
The financial statements of Empire Life Insurance Company are not part of
this prospectus, but may be found in the Statement of Additional Information,
which is available upon request. No financial statements are included for the
Composite Deferred Variable Account because as of the date hereof, it has not
commenced operations, had no assets or liabilities, and received no income and
incurred no expenses.
EMPIRE LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT
Empire Life Insurance Company
- -----------------------------
The Company is the issuer of the Contract. Incorporated in 1962 as a stock
life insurance company under the laws of Nebraska, the Company sells individual
annuities. In 1989 the Company changed its state of incorporation and domicile
from Nebraska to Washington. The Company is currently licensed to operate in
twenty-six states. The Company's executive office is located at 1201 Third
Avenue, Seattle, Washington. The Company is a wholly owned subsidiary of WM Life
Insurance Company, which is a wholly owned subsidiary of Washington Mutual, Inc.
Murphey Favre, Inc.
- -------------------
Murphey Favre, Inc., ("Murphey Favre") is the principal distributor of the
Contract. It is a wholly owned subsidiary of WM Financial, Inc., a subsidiary of
Washington Mutual, Inc. Murphey Favre is located at 1201 Third Avenue, Suite
780, Seattle, Washington. Murphey Favre is a member of the National Association
of Securities Dealers, and is registered with the Securities and Exchange
Commission as a broker-dealer.
The Variable Account
- --------------------
The Variable Account was established on July 23, 1987, and is registered
with the Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940 and meets the definition of a Separate Account
under Federal Securities Laws. Such registration does not signify that the
Commission supervises the management or investment practices or policies of the
Variable Account. The investment performance of the Variable Account is entirely
independent of both the investment performance of the Company's general account
and the performance of any other separate account.
The assets of the Variable Account are held separately from the other
assets of the Company. They are not chargeable with liabilities incurred in the
Company's other business operations (except to the extent that they exceed the
reserves and other liabilities of the Account). Accordingly, the income, capital
gains and capital losses, realized or unrealized, incurred on the assets of the
Variable Account are credited to or charged against the assets of the Variable
Account, without regard to the income, capital gains or capital losses arising
out of any other business the Company may conduct.
The Variable Account currently has three active Sub-Accounts- Growth and
Income, Northwest, and Income--each of which invests solely in its corresponding
Portfolio of the Composite Deferred Series, Inc. Additional Sub-Accounts may be
added at the discretion of the Company.
The Composite Deferred Series, Inc.
- -----------------------------------
The Variable Account will invest exclusively in the Composite Deferred
Series, Inc., (the "Fund"). The Fund has three Eligible Portfolios available for
investment: the Growth and Income Portfolio, the Northwest, and the Income
Portfolio. Each Portfolio has different investment objectives and policies and
operates as a separate investment fund.
The Growth and Income Portfolio seeks, as its primary objective, growth of
capital through investments in common stock and as a secondary objective income
when consistent with its primary objective.
The Northwest Portfolio invests in a portfolio of common stocks selected
from companies doing business in or located in the Northwest (Alaska, Idaho,
Montana, Oregon, and Washington).
The Income Portfolio seeks, as its primary objective, to earn a high level
of current income by investing in a professionally managed portfolio consisting
principally of fixed-income securities and, as a secondary objective, capital
appreciation when consistent with its primary objective.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES. Fund shares are not deposits or obligations of, or
endorsed or guaranteed by, any bank, nor are they insured or guaranteed by the
Federal Deposit Insurance Corporation, the United States government, or any
other agency. Additional information concerning the investment objectives and
policies of the Portfolios can be found in the current Prospectus for the Fund
accompanying this Prospectus.
THE PROSPECTUS OF THE FUND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR PORTFOLIO.
Composite Research & Management Co., ("Composite Research"), an affiliate
of the Company, is the investment manager of the Composite Deferred Series, Inc.
As compensation for investment management services, the Fund pays Composite
Research a monthly advisory fee at an annual rate of 0.5% of the daily net
assets of the respective Portfolios. These expenses are more fully described in
the Fund's Prospectus attached to this Prospectus.
VOTING RIGHTS
The Contract Owner or anyone with a voting interest in the Sub-Account of
the Variable Account may instruct the Company on how to vote at shareholder
meetings of the Fund. The Company will solicit and cast each vote according to
the procedures set up by the Fund and to the extent required by law. The Company
reserves the right to vote the Eligible Shares in its own right, if subsequently
permitted by the Investment Company Act of 1940, its regulations or
interpretations thereof.
Before the Income Starting Date, the Contract Owner holds the voting
interest in the Sub-Account. (The number of votes for the Contract Owner will be
determined by dividing the Contract Value attributable to a Sub-Account by the
net asset value per share of the applicable Eligible Portfolio.) There are no
voting rights attributable to Contract Value in the Fixed Account or after the
Income Starting Date.
THE CONTRACTS
Purchase of the Contracts
- -------------------------
The Contracts may be purchased through sales representatives of Murphey
Favre or other broker-dealers authorized by Murphey Favre. The first Purchase
Payment must be at least $1,000. All subsequent Purchase Payments must be $100
or more and may be made at any time. Purchase Payments allocated to the Fixed
Account may exceed $100,000 in any Contract Year only with prior approval of the
Company. The Contracts can be purchased for both non-qualified and qualified
retirement plans or for other financial planning purposes, except that the
Contracts cannot be purchased for Section 403(b) Tax Sheltered Annuities.
Crediting of Purchase Payments
- ------------------------------
A Purchase Payment accompanied by a duly completed application will be
credited to the Contract within two business days of receipt by the Company at
its home office. If an application is not duly completed, the Company will
credit the Purchase Payments to the Contract within five business days or return
it at that time unless the applicant specifically consents to the Company
holding the Purchase Payment until the application is complete. The Company
reserves the right to reject any application. Subsequent Purchase Payments will
be credited to the Contract at the close of the Valuation Period during which
the Purchase Payment is received.
Allocation of Purchase Payments
- -------------------------------
On the application the Contract Owner instructs the Company how to allocate
the Purchase Payment among the Fixed Account and the three currently available
Sub-Accounts--Growth and Income, Northwest, and Income (the four "Investment
Alternatives"). Purchase Payments may be allocated in whole percents, from 0% to
100%, to any Investment Alternative so long as the total allocation equals 100%.
Unless the Contract Owner notifies the Company otherwise, subsequent Purchase
Payments are allocated according to the instructions in the application.
Each Purchase Payment will be credited to the Contract as Fixed Account or
Variable Account Accumulation Units equal to the amount of Purchase Payment
allocated to each Investment Alternative divided by the Accumulation Unit value
for that Investment Alternative next computed after the Purchase Payment is
credited to the Contract. For example, if a $10,000 Purchase Payment is credited
to the Contract when the Accumulation Value equals $10, then 1,000 Accumulation
Units would be credited to the Contract. The Variable Account, in turn,
purchases shares of the corresponding Portfolio.
Value of Variable Account Accumulation Units
- --------------------------------------------
The Accumulation Units in each Sub-Account of the Variable Account are
valued separately. The value of Accumulation Units may change each Valuation
Period according to the investment performance of the shares purchased by each
Sub-Account and the deduction of certain expenses and charges.
A Valuation Period is the period between successive Valuation Dates. It
begins at the close of business of each Valuation Date and ends at the close of
business of the next succeeding Valuation Date. A Valuation Date is each day
that the New York Stock Exchange is open for business.
The value of an Accumulation Unit in a Sub-Account for any Valuation Period
equals the value of the Accumulation Unit as of the immediately preceding
Valuation Period, multiplied by the Net Investment Factor for that Sub-Account
for the current Valuation Period. The Net Investment Factor is a number
representing the change on successive Valuation Dates in the value of
Sub-Account assets due to investment income, realized or unrealized capital
gains or loss, deductions for taxes, if any, and deductions for the Mortality
and Expense Risk charge. The Net Investment Factor is described in detail in the
Statement of Additional Information.
The value of Fixed Account Accumulation Units is also discussed in detail
in the Statement of Additional Information.
Transfers
- ---------
The Contract Owner may transfer funds from the three Sub- Accounts without
charge. These transfers must be at least $1,000 or the total amount in the
Sub-Account, whichever is less. THE COMPANY GUARANTEES THAT NO CHARGE WILL EVER
BE IMPOSED FOR TRANSFERS FROM THE VARIABLE ACCOUNT.
Once each policy year a portion of Contract Value in the Fixed Account may
be transferred to the Variable Account without charge at any time six months
after the Issue Date (and prior to the Income Starting Date). Up to 25% may be
transferred without charge so long as no transfer from the Fixed Account has
occurred in the previous six month period. Otherwise, amounts transferred from
the Fixed Account will be charged a Transfer Charge of 6% of the amount
transferred.
Transfers may be pursuant to telephone instructions if the Contract Owner
completes the telephone authorization form provided by the Company. Telephone
transfers received before 1:00 p.m. Pacific Time are effected the same day (at
that time). Telephone transfers received after 1:00 p.m. Pacific Time are
effected at 1:00 p.m. the following day (at the next computed value). Transfer
requests may also be made in writing on a form provided by the Company. No
transfers may be made after the Income Starting Date.
Transfers from the Fixed Account or from Sub-Accounts of the Variable
Account will be made based on the Accumulation Unit values next computed after
the Company receives the transfer request at its Administrative Service Center.
Surrenders and Withdrawals
---------------------------
The Contract Owner may withdraw all or part of the Contract Value at any
time prior to or at the earlier of the Owner's death or the Income Starting
Date. The amount available for withdrawal is the Contract Value next computed
after the Company receives the request for a withdrawal at its Administrative
Service Center, less any Contingent Deferred Sales Charges and any remaining
charge for premium taxes. Withdrawals from the Variable Account will be paid
within seven days of receipt of the request, subject to postponement in certain
circumstances (see "Delay of Payments," see page __).
The minimum partial withdrawal is $1,000. If the Contract Value is less
than $1,000, or if the Contract Value after a partial withdrawal would be less
than $1,000, then the Company will treat the request as one for a total
surrender of the Contract and the entire Contract Value, less any charges and
any premium taxes, will be paid out.
Withdrawals and surrenders may be taxable and subject to 10% tax penalty.
This tax is explained in "Federal Tax Matters" on page __.
The total amount paid at surrender may be more or less than the total
Purchase Payments due to prior withdrawals, any deductions, and investment
performance.
To complete the partial withdrawals, the Company will cancel Accumulation
Units in an amount equal to the withdrawal and any Contingent Deferred Sales
Charge and premium taxes. The Contract Owner must name the Investment
Alternative from which the withdrawal is to be made. If none is named, then the
withdrawal will be made first from the Investment Alternative with the largest
value, then successively from the next largest Investment Alternative.
Default
- -------
So long as the Contract Value is not reduced to zero or a withdrawal does
not reduce it to less than $1,000, the Contract will stay in force until the
Income Starting Date even if no Purchase Payments are made after the first
Purchase Payment.
CHARGES AND OTHER DEDUCTIONS
Deductions from Purchase Payments
- ---------------------------------
No deductions other than premium taxes, if any, are currently made from
Purchase Payments. Therefore, except for any premium taxes, the full amount of
every Purchase Payment is invested in the Investment Alternatives to increase
the potential for investment gain. Partial withdrawals or full surrenders,
however, may be subject to a Contingent Deferred Sales Charge, as described on
page ___ of this prospectus.
Contract Maintenance Charge
- ---------------------------
A Contract Maintenance Charge of $30.00 is deducted annually on each
Contract Anniversary from the Contract Value to reimburse the Company for its
costs in maintaining each Contract and the Variable Account. The Contract
Maintenance Charge will also be deducted in full if the Contract is surrendered
in its entirety. Prior to the Income Starting Date, the Contract Maintenance
Charge will be deducted as follows: (a) If the Contract contains one or more
Sub-Accounts of the Variable Account, the Contract Maintenance Charge will be
deducted from the Sub-Account with the largest value; or (b) If the Contract
contains only a Fixed Account, the Contract Maintenance Charge will be deducted
from the Fixed Account, provided Purchase Payments or transferred amounts have
been applied to the Fixed Account during the Contract Year. THE COMPANY
GUARANTEES THAT THE AMOUNT OF THIS CHARGE WILL NOT INCREASE OVER THE LIFE OF THE
CONTRACT. Maintenance costs include, but are not limited to, expenses incurred
in billing and collecting Purchase Payments; keeping records; processing death
benefit claims and cash surrender; policy changes and proxy statements;
calculating Accumulation Unit values; and issuing reports to owners and
regulatory agencies.
Mortality and Expense Risk Charge
- ---------------------------------
A Mortality and Expense Risk Charge will be deducted daily prior to the
Income Starting Date at a rate equal on an annual basis to 1.20% of the assets
in the Variable Account and the Fixed Account allocable to your Contract.
Interest rates declared by the Company for the Fixed Account are net of the
1.20% Mortality and Expense Risk Charge. There will be no Mortality and Expense
Risk Charge after the Income Starting Date. THE COMPANY GUARANTEES THAT THE
AMOUNT OF THIS CHARGE WILL NOT INCREASE OVER THE LIFE OF THE CONTRACT. The
mortality risk arises from the Company's guarantee to cover all death benefits
and to make Income Payments in accordance with the annuity tables, thus
relieving the Annuitants of the risk of outliving funds accumulated for
retirement. The mortality risk accounts for approximately two-thirds of the
Charge, or 0.80%.
The expense risk arises from the possibility that the Contract Maintenance
and Contingent Deferred Sales Charges, both of which are guaranteed not to
increase, will be insufficient to cover maintenance and distribution costs.
Since the Company anticipates these charges will fail to cover all the
distribution expenses, any deficiency will be met from the Company's general
corporate funds, including amounts derived from the Mortality and Expense Risk
Charge. The expense risk accounts for approximately one-third of the Charge, or
0.40%.
Contingent Deferred Sales Charge
- --------------------------------
The Contract Owner may withdraw the Contract Value at any time before the
Income Starting Date or the death of the Owner. Amounts surrendered may be
subject to a Contingent Deferred Sales Charge. Up to ten percent of the total
Contract Value (on the date of withdrawal) may be withdrawn without Contingent
Deferred Sales Charge once each Contract Year after the first. This free partial
withdrawal only applies to the first withdrawal of each contract year, and not
using any or all of the free partial withdrawal in one year does not increase
the amount that can be withdrawn free of charge in subsequent years. Contingent
Deferred Sales Charges, if any, will be deducted from the amount paid.
In certain cases, distributions required by federal tax law (see "Required
Distribution" on page __) and Income Payments under Annuity Options with a
specified period of less than 120 months may be subject to a Contingent Deferred
Sales Charge.
Except as provided under the "Penalty Free Partial Withdrawal" section of
the Contract, a Contingent Deferred Sales Charge will be applied to amounts
withdrawn as set forth below until the total amounts withdrawn equal the total
amount of the Purchase Payments under this contract:
Applicable Contingent Deferred
Elapsed Time Since Issue Date Sales Charge Percentage
----------------------------- ------------------------------
Less than 3 years ...................................7%
3 years, but less than 4 years ......................6%
4 years, but less than 5 years ......................5%
5 years, but less than 6 years ......................3%
6 years, but less than 7 years ......................1%
7 years or more .....................................0%
Contingent Deferred Sales Charges will be used to pay sales commissions and
other promotional or distribution expenses associated with the marketing of the
Contracts.
Certain surrenders or withdrawals may also be taxable and subject to a
federal tax penalty. See "Federal Tax Matters," page --.
Sales Commission
- ----------------
From its profits the Company may pay a maximum sales commission of 6% of
Purchase Payments to Murphey Favre, the principal Distributor of the Contracts.
Taxes
- -----
The Company will deduct state premium taxes or other taxes relative to the
Contract (collectively referred to as "premium taxes") when incurred by the
Company. Premium taxes vary from 0% to 4%, although many states do not impose a
premium tax on annuities.
If incurred at the Income Starting Date, the charge for premium taxes will
be deducted from each Investment Alternative in the proportion that the Contract
Owner's interest in the Investment Alternative bears to the total Contract
Value.
The Company reserves the right to deduct charges for other types of taxes
or any other economic burden resulting from such taxes, although currently no
such deductions are made.
Composite Deferred Series, Inc., ("Fund") Expenses
- --------------------------------------------------
A complete description of the expenses and deductions from the Portfolios
are found in the Fund's prospectus which is attached to this Prospectus.
INCOME PAYMENTS
Income Starting Date
- --------------------
The Income Starting Date is the day that Income Payments will start under
the Contract. The Contract Owner may change the Income Starting Date at any time
by notifying the Company in writing of the change at least 30 days before the
current Income Starting Date. The Income Starting Date must be (a) at least a
month after the Issue Date; and (b) no later than the first day of the calendar
month after the Annuitant reaches age 85, or the 10th anniversary date, if
later.
Unless the Contract Owner notifies the Company in writing otherwise, the
Income Starting Date will be the later of the first day of the calendar month
after the Annuitant reaches age 85 or the 10th anniversary date.
Annuity Options
- ---------------
The Annuitant must receive annuity payments ("Income Payments") on a
completely fixed basis. If no election has been made by the Contract Owner, a
fixed annuity for life with payments for 120 months certain will automatically
apply. Up to 30 days before the Income Starting Date, the Contract Owner may
change the Annuity Option or request any other form of annuity agreeable to both
the Company and the Owner. If the Contract Value to be applied to an Annuity
Option is less than $2,000, or if the monthly payments determined under the
Annuity Option are less than $60, the Company may pay the Contract Value in a
lump sum or change the payment frequency to an interval which results in Income
Payments of at least $60. If an Annuity Option is chosen which depends on the
Annuitant's or Joint Annuitant's life, proof of age will be required before
Income Payments begin. Premium taxes may be assessed. The Annuity Options
include:
ANNUITY OPTION 1 - LIFE WITH PAYMENTS FOR 120 MONTHS CERTAIN
Monthly payments beginning on the Income Starting Date will be made for
as long as the Annuitant is living. However, if the Annuitant dies
before 120 monthly payments have been made, the remainder of the 120
guaranteed payments will be made to the Beneficiary, if living;
otherwise to the Annuitant's estate.
ANNUITY OPTION 2 - JOINT AND LAST SURVIVOR
The Owner must select a Joint Annuitant. Monthly payments beginning on
the Starting Date will be made for as long as either the Annuitant or
Joint Annuitant is living. No Income Payments will be made after the
deaths of both the Annuitant and Joint Annuitant. It is possible under
this option that only one monthly payment will be made if the Annuitant
and Joint Annuitant both die before the second payment is made, or only
two monthly payments will be made if they both die before the third
payment, and so forth.
ANNUITY OPTION 3 - PAYMENTS FOR A SPECIFIED PERIOD
Monthly payments beginning on the Income Starting Date will be made
during the specified period which must be at least 120 months
(otherwise, Income Payments may be subject to a Contingent Deferred
Sales Charge). Such payments do not depend on the continuation of the
life of the Annuitant.
At the Company's discretion, other Annuity Options may be available. The
Company currently uses sex-distinct annuity tables. However, if legislation is
passed by Congress or the states, the Company reserves the right to use annuity
tables which do not distinguish on the basis of sex.
The level of annuity payments will not be affected by the mortality
experience (death rate) of persons receiving such payments or of the general
population. The Company assumes the "mortality risk" by virtue of annuity rates
incorporated in the Contract. In addition, the Company guarantees that it will
not increase charges for maintenance of the Contracts regardless of its actual
expenses.
Fixed Income Payments
- ---------------------
A fixed annuity is an annuity with payments which are guaranteed by the
Company as to dollar amount during the annuity payment period. The amount of the
annuity payments, if any, will be determined by applying the Contract Value to
the applicable Annuity Table in accordance with the Annuity Option elected. This
will be done at the Income Starting Date. Accordingly, Fixed Income Payments
have a fixed and guaranteed amount that is not in any way dependent upon the
investment experience of the Fund. The amount of the monthly payments depends
only on the Annuity Option chosen, the age (and possibly sex) of the Annuitant,
and the total amount applied to purchase the annuity.
The Company does not credit discretionary interest to fixed annuity
payments during the annuity payment period. The annuitant must rely on the
Annuity Tables contained in the Contracts to determine the guaranteed amount of
such fixed annuity payments. However, if you could obtain a larger Fixed Annuity
Income Payment on the basis of our rates then in effect on the Income Starting
Date for fully guaranteed Single Premium Immediate Annuities, the Company will
provide such higher payments.
PERFORMANCE DATA
Yields and total returns are used to measure the performance of the various
Sub-Accounts. Yield is calculated for the Income Sub-Account; total returns are
calculated for the Income, Growth and Income, and Northwest Sub-Accounts. Both
yields and total returns are calculated in accordance with rules adopted by and
required by the Securities and Exchange Commission. In addition to these
standardized yields and total returns, the Company may calculate a current
distribution yield and a total return for continuing contracts. All yields and
total returns are based on historical earnings and are not intended to indicate
future performance. In all cases, current distribution yields and total returns
for continuing contracts will be accompanied by corresponding yields and total
returns calculated in accordance with the rules of the Securities and Exchange
Commission.
Both the SEC standardized yield and the current distribution yield for the
Income Sub-Account refer to annualized current income generated by an investment
in the Sub-Account over a specified thirty-day period. In the SEC calculation,
current income is calculated according to a formula prescribed by the SEC. The
current distribution yield calculated by the Company substitutes current
distributable income for the SEC prescribed current income. Current
distributable income differs from current income in the following respects: (1)
it may include distributions to shareholders from sources other than dividends
and interest, such as short-term capital gains, (2) it may be calculated over a
different time period, and (3) it does not include deductions for portfolio
expenses. Both the SEC standardized yield and the current distribution yield are
calculated by assuming that the current income for the specified thirty-day
period is generated for each thirty-day period over a twelve-month period. The
yield is the annualized income expressed as a percentage of the investment.
Total returns are calculated for the Income, Growth and Income, and
Northwest Sub-Accounts for various specified periods. A hypothetical initial
payment of $1,000 is invested in the Sub- Account. At the end of the specified
period, the redeemable value of the $1,000 payment is compared to the original
$1,000. The total return is the average annual compounded rate at which the
initial payment must increase in order to equal the redeemable value at the end
of the period. The total return for continuing contract substitutes the full
value in the Sub-Account for the redeemable value. The full value differs from
the redeemable value by the amount of the Contingent Deferred Sales Charge at
the end of the specified period.
Performance data may be provided for periods prior to commencement of
operations of the Sub-Accounts, if the corresponding Portfolio has a prior
operating history. In that event, the Portfolio's performance would be adjusted
to reflect the Variable Account and Contract Charges.
Performance data calculations are discussed in detail in the Statement of
Additional Information.
GENERAL MATTERS
Contract Owner
- --------------
The Contract Owner, which may be a person or entity, has the sole right to
exercise all rights and privileges under the Contract, except as otherwise
provided in the Contract.
Beneficiary
- -----------
The Beneficiary is the person named as such in the application. Subject to
the terms of any existing assignment or the rights of any irrevocable
Beneficiary, the Contract Owner may change the Beneficiary by notifying the
Company in writing. Any change will be effective when it is endorsed in the
Company's records but will relate back and take effect as of the date the Owner
signed it. The Company will not, however, be liable as to any payment or
settlement made prior to receiving the written notice.
Unless otherwise provided in the Beneficiary designation, the right of any
Beneficiary predeceasing the Owner will revert to the Contract Owner. Multiple
Beneficiaries may be named. Unless otherwise provided in the Beneficiary
designation, if more than one Beneficiary survives, the surviving Beneficiaries
will share equally in any amounts due.
Death Benefits
- --------------
If any Owner under age 80 dies prior to the Income Starting Date, the Death
Benefit will be:
(a) The Contract Value as of the date the Company receives Due Proof of
Death; or
(b) The total amount of Purchase Payments less withdrawals and any
applicable Charges; or
(c) The sum of:
1. The total amount of Purchase Payments, less withdrawals and any
applicable Charges, as of the Specified Contract Anniversary
immediately preceding the date of the Owner's death; plus
2. Fifty Percent of the excess, if any, of the Contract Value over the
total amount of Purchase Payments, less withdrawals and any
applicable Charges, as of the Specified Contract Anniversary
immediately preceding the date of the Owner's death; plus
3. The total amount of Purchase Payments, less withdrawals and any
applicable Charges, after the Specified Contract Anniversary
immediately preceding the date of the Owner's death.
Whichever is greatest. For purposes of this section, Specified Contract
Anniversary means every fifth Contract Anniversary.
If any Owner age 80 and over dies prior to the Income Starting Date, the
Death Benefit will be the Contract Value or the total of the Purchase Payments,
determined as of the date of the Owner's death, reduced by any previous
withdrawals and any applicable Charges, whichever is greater. All Death Benefits
arising prior to the Income Starting Date will be paid upon the Company's
receipt of Due Proof of Death and a request for a lump sum payment or an Annuity
Option. Federal law may limit the availability of Annuity Options. The Company
will not pay any Death Benefits until it receives Due Proof of Death.
We will determine the value of the Death Benefit at the end of the
Valuation Period coinciding with or next following the earlier of the date we
receive the Beneficiary's election or the ninetieth day following our receipt of
Due Proof of Death. Interest will be paid on the Death Proceeds from this date
to the date of settlement at a rate not less than that required by law.
If an Annuity Option is not elected within 90 days of our receipt of
notification and proof of death, we will make a lump sum settlement to the
Beneficiary at the end of the 90 day period. We guarantee that the Death Benefit
within this 90-day period will never be less than the total of the Purchase
Payments, determined as of the date of the Owner's death, reduced by any
previous withdrawals, any previous Contract Maintenance Charges and any
Contingent Deferred Sales Charge.
If the Annuitant and any Joint Annuitant(s) dies(s) after the Income
Starting Date, the Death Benefit, if any, will be as provided in the Annuity
Option elected. Payments will be made in conformity with applicable laws or
regulations.
Required Distributions
- ----------------------
Federal tax law requires that if the Owner or any Joint Owner of the
Contract dies before the Income Starting Date, the entire value of the Contract
must be distributed within five (5) years of the date of death of the Owner.
Special rules may apply to spouses of the deceased owner. See the Statement of
Additional Information or the Contract for a detailed description of these
rules. Other required distribution rules apply to Qualified Contracts.
Delay of Payments
- -----------------
Payment of any amounts due from the Variable Account under the Contract
will occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted; or
2. An emergency exists as defined by the Securities and Exchange
Commission; or
3. The Securities and Exchange Commission permits delay for the protection
of the security holders.
The Company reserves the right to postpone payments or transfers from the
Fixed Account for up to six months.
Assignments
- -----------
The contract may be assigned prior to the Income Starting Date and during
the Owner's lifetime, subject to the rights of any irrevocable Beneficiary. Any
assignment will not be binding until received in writing by the Company. The
Company will not be responsible for deciding if an assignment is valid or the
extent of an assignee's interest. An assignment may result in income tax
liability to the Owner.
No Beneficiary may assign benefits under the Contract until they are due
and, to the extent permitted by law, payments are not subject to the debts of
any Beneficiary or to any judicial process for payment of the Beneficiary's
debts.
Modifications
- -------------
The Company may not modify the Contract without the consent of the Contract
Owner except to make the Contract meet the requirements of the Investment
Company Act of 1940, or to make the Contracts conform with any changes in the
Internal Revenue Code or required by the Code or by any other applicable law in
order to continue treatment of the Contract as an annuity.
Customer Inquiries
- ------------------
The Contract Owners or any other persons with an interest in the Contract
may make inquiries regarding the Contract by calling or writing the Company or
Murphey Favre.
FEDERAL TAX MATTERS
Introduction
- ------------
The ultimate effect of federal income taxes on Contracts or the individuals
with rights under the Contracts depends on the purpose for which the Contract is
purchased, on the tax and employment status of the individual concerned and on
the Company's tax status. THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT
INTENDED AS TAX ADVICE. If you are concerned about these tax implications, you
should consult a competent tax adviser.
Taxation of Annuities in General
- --------------------------------
The following discussion assumes that the Contract will qualify as an
annuity contract for federal income tax purposes. The Statement of Additional
Information discusses such qualifications.
Generally, an annuity contract owner who is a natural person is not taxed
on increases in the Contract Value until a distribution occurs. For federal
income tax purposes, distributions include the receipt of proceeds from loans
and an assignment or pledge of any portion of the value of the Contract, as well
as withdrawals, surrenders, Income Payments, or Death Benefits. Contract Owners
who are not natural persons generally must include in income any increase during
the taxable year in the excess of the Contract Value over the Contract Owner's
investment in the contract. However, there are exceptions to this exception and
you should discuss these with your tax counsel. The following discussion only
applies to Contracts owned by natural persons.
Generally, in the case of a surrender or withdrawal under a Non-Qualified
Contract, amounts received are first treated as taxable income to the extent
that the cash value of the Contract immediately before the surrender exceeds the
"investment in the contract" at that time. Any additional amount is not taxable.
The "investment in the contract" equals the portion, if any, of any Purchase
Payments paid by or on behalf of an individual under a Contract that was not
excluded from the individual's gross income.
In case of a surrender or withdrawal under a Qualified Contract, the
portion of the amount received which bears the same ratio to the total amount
received that the "investment in the contract" bears to the total Contract
Value, can be excluded from income. For Contracts issued in connection with
qualified plans, the "investment in the contract" can be zero.
In the case of Income Payments, although the tax consequences may vary
depending on the Annuity Option elected under the Contract, until the investment
in the contract is recovered generally, only the portion of the Income Payment
that represents the amount by which the Contract Value exceeds the "investment
in the contract" will be taxed; after the investment in the contract is
recovered, the full amount of any additional Income Payments is taxable. For
Fixed Income Payments, until recovery of the investment in the Contract,
generally there is no tax on the amount of each payment which represents the
same ratio that the "investment in the contract" bears to the total expected
value of the Income Payments for the term of the payments; however, the
remainder of each Income Payment is taxable until recovery of the investment in
the Contract, and thereafter the full amount of each Income Payment is taxable.
Amounts may be distributed from a Contract because of the death of an
Owner. Generally, such amounts are includable in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender of the Contract, as described above, or (2) if distributed
under an Annuity Option, they are taxed in the same manner as annuity payments,
as described above. For these purposes, the investment in the Contract is not
affected by the owner's death. That is, the investment in the Contract remains
the amount of any purchase payments paid which were not excluded from gross
income.
The taxable portion of a distribution (in the form of an annuity or a lump
sum payment) is taxed as ordinary income. All non-qualified annuity contracts
issued by the Company, or an affiliated insurance company, to the same Contract
Owner during any calendar year will be treated as one annuity contract, and
therefore aggregated for purposes of determining the amount includable in gross
income.
Premature distributions from both Qualified and Non-Qualified Contracts may
be subject to a penalty tax. For Non-Qualified Contracts, the penalty tax is
equal to ten (10%) percent of the amount treated as taxable income. However, for
Non-Qualified Contracts there should be no penalty tax on distributions to
Contract Owners (1) made on or after the owner attains age 59-1/2; (2) made as a
result of the Owner's death or disability; or (3) received in substantially
equal installments as a life annuity. Other tax penalties may apply to
distributions pursuant to a Qualified Contract.
The Company is required to withhold federal and, where required, state
income taxes on all distributions unless the recipient elects not to have taxes
withheld and properly notifies the Company of that election. However, certain
distributions from Section 401(a), 403(a) and 403(b) annuity contracts or plans
are subject to mandatory withholding.
In past years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. Although as of the date of this prospectus Congress is not
considering any legislation regarding taxation of annuities, there is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any change could be retroactive (that
is, effective prior to the date of the change).
Other Considerations
- --------------------
It should be understood that the foregoing comments on the federal tax
consequences under the Contract are not exhaustive and that special rules apply
to other tax situations not discussed in this Prospectus. Before making an
investment, a qualified tax adviser should be consulted.
STATEMENT OF ADDITIONAL INFORMATION
More detailed information is available from the Company. The following is
the Table of Contents of that more detailed information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
Introduction .........................................
Empire Life Insurance Company ......................
Murphey Favre, Inc. ................................
Composite Deferred Series, Inc. ....................
Additions, Deletions or Substitutions of Investments
Reinvestment .......................................
Performance Data.......................................
Money Market Sub-Account Yield Calculation ........
Income Sub-Account Yield Calculation ...............
Average Annual Total Return Calculations ..........
Calculation Assumptions ...........................
The Contract...........................................
Purchase of Contracts...............................
Value of Variable Account Accumulation Units .......
The Fixed Account...................................
Value of Fixed Account Accumulation Units...........
Tax-Free Exchanges (Section 1035) ..................
Required Distributions..............................
Charges and Other Deductions...........................
Contract Maintenance Charge.........................
Premium Taxes ......................................
Tax Reserves ......................................
Income Payments........................................
Legal Developments Regarding Annuity Tables .......
Proof of Survival .................................
General Matters ......................................
Incontestability ...................................
Settlements .......................................
Safekeeping of the Variable Account's Assets .......
Independent Auditors ..............................
Legal Matters .....................................
Federal Tax Matters ...................................
Taxation of Empire Life Insurance Company ..........
Tax Status of the Contracts .......................
Qualified Plans.. ..................................
Voting Rights..........................................
Financial Statements...................................
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
COMPOSITE DEFERRED VARIABLE ACCOUNT
of
EMPIRE LIFE INSURANCE COMPANY
1201 Third Avenue
Suite 600
Seattle, Washington 98101-3015
Distributed by
Murphey Favre, Inc.
1201 Third Avenue
Suite 780
Seattle, Washington 98101-3015
(800) 543-8072
This Statement of Additional Information supplements the information in the
prospectus for the Flexible Premium Deferred Variable Annuity Contract
("Contract") offered by Empire Life Insurance Company ("Company"), a wholly
owned subsidiary of WM Life Insurance Company, which in turn is a wholly owned
subsidiary of Washington Mutual, Inc. The Contract is primarily designed to aid
individuals in long-term financial planning, and it can be used for retirement
planning regardless of whether your plan qualifies for special federal income
tax treatment.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY WITH THE COMPOSITE DEFERRED VARIABLE ACCOUNT PROSPECTUS FOR THE
CONTRACT.
You may obtain a copy of the prospectus from Murphey Favre, Inc., ("Murphey
Favre"), the principal distributor of the Contract, by calling or writing
Murphey Favre at the address listed above.
The prospectus, dated April 30,1996 has been filed with the Securities and
Exchange Commission.
Dated April 30, 1996
<PAGE>
TABLE OF CONTENTS
Page
Introduction ..................................................
Empire Life Insurance Company ..............................
Murphey Favre, Inc. ........................................
Composite Deferred Series, Inc. ............................
Additions, Deletions or Substitutions of Investments .......
Reinvestment ...............................................
Performance Data ...............................................
Money Market Sub-Account Yield Calculation...................
Income Sub-Account Yield Calculation ........................
Average Annual Total Return Calculations ....................
Calculation Assumptions .....................................
The Contract ..................................................
Purchase of Contracts ......................................
Value of Variable Account Accumulation Units.................
The Fixed Account ..........................................
Value of Fixed Account Accumulation Units ..................
Tax-Free Exchanges (Section 1035) ..........................
Required Distributions .....................................
Charges and Other Deductions ..................................
Contract Maintenance Charges ...............................
Premium Taxes ..............................................
Tax Reserves ...............................................
Income Payments ................................................
Legal Developments Regarding Annuity Tables ................
Proof of Survival ..........................................
General Matters ...............................................
Incontestability.. ..........................................
Settlements ................................................
Safekeeping of the Variable Account's Assets ...............
Independent Auditors .......................................
Legal Matters ..............................................
Federal Tax Matters ...........................................
Taxation of Empire Life Insurance Company....................
Tax Status of the Contracts ................................
Qualified Plans ............................................
Voting Rights .................................................
Financial Statements ..........................................
<PAGE>
INTRODUCTION
Empire Life Insurance Company
- -----------------------------
The Company is the issuer of the Contract. It was incorporated in 1962 as a
stock life insurance company under the laws of Nebraska. In 1989 the Company
changed its state of incorporation and domicile from Nebraska to Washington. The
Company sells individual annuities. It is currently licensed to operate in
twenty-six states. The Company's Administrative Service Center is located at
1201 Third Avenue, Seattle, Washington. The Company is a wholly owned subsidiary
of WM Life Insurance Company, which is a wholly owned subsidiary of Washington
Mutual, Inc.
Murphey Favre, Inc.
- -------------------
Murphey Favre, Inc., ("Murphey Favre") is the principal distributor of the
Contract, and its affiliate, Composite Research & Management Co., ("Composite
Research") is the investment manager of the Composite Deferred Series, Inc. Both
Murphey Favre and Composite Research are wholly owned subsidiaries of Washington
Mutual, Inc. Murphey Favre is located at 1201 Third Avenue, Suite 780, Seattle,
Washington. Murphey Favre is a member of the National Association of Securities
Dealers, and is registered with the Securities and Exchange Commission as a
broker-dealer.
Composite Deferred Series, Inc., ("Fund")
- -----------------------------------------
The Variable Account invests exclusively in the Composite Deferred Series,
Inc. (the "Fund"), a mutual fund managed by Composite Research & Management Co.
and registered with the Securities and Exchange Commission. The Fund has three
currently eligible portfolios: the Growth and Income Portfolio, the Northwest
Portfolio, and the Income Portfolio. A fourth portfolio, the Money Market
Portfolio, currently is not available for new investments. As compensation for
investment management services, the Fund pays Composite Research a monthly
advisory fee at an annual rate of 0.5% of the daily net assets of the respective
Portfolios. These expenses are more fully described in the Fund's prospectus
attached to the prospectus.
Additions, Deletions or Substitutions of Investments
- ----------------------------------------------------
The Company cannot guarantee and does not represent that shares of the
currently Eligible Portfolios will always be available for new investments or
for transfers. The Company retains the right, subject to any applicable law, to
make additions to, deletions from or substitutions for the Portfolio shares held
by any Sub-Account of the Variable Account. The Company reserves the right to
eliminate the shares of any of the Portfolios and to substitute shares of
another Portfolio of the Fund, or of another open-end, registered investment
company, if the shares of the Portfolio are no longer available for investment,
or if, in the Company's judgment, investment in any Portfolio would become
inappropriate in view of the purposes of the Variable Account. Substitutions of
shares attributable to a Contract Owner's interest in a Sub-Account will not be
made until the Owner has been notified of the change, and until the Securities
and Exchange Commission has approved the change, to the extent such notification
and approval is required by the Investment Company Act of 1940. Nothing
contained in the prospectus or Statement of Additional Information shall prevent
the Variable Account from purchasing other securities for other series or
classes of contracts, or from effecting a conversion between series or classes
of contracts on the basis of requests made by Contract Owners.
The Company may also establish additional Sub-Accounts of the Variable
Account. Each additional Sub-Account would purchase shares in a new portfolio of
the Fund or in another mutual fund. New Sub-Accounts may be established when, in
the sole discretion of the Company, marketing needs or investment conditions
warrant. Any new Sub-Accounts will be made available to existing Contract Owners
on a basis to be determined by the Company. The Company may also eliminate one
or more Sub-Accounts, if, in its sole discretion, marketing, tax, investment or
other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in this and other contracts as may be
necessary or appropriate to reflect such substitution or change. If deemed to be
in the best interests of persons having voting rights under the policies, the
Variable Account may be operated as a management company under the Investment
Company Act of 1940 or it may be de-registered under such Act in the event such
registration is no longer required.
Reinvestment
- ------------
All dividends and capital gain distributions from Eligible Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value.
PERFORMANCE DATA
Money Market Sub-Account Yield Calculation
- ------------------------------------------
In accordance with regulations adopted by the Securities and Exchange
Commission, Empire Life is required to compute the Money Market Sub-Account's
current annualized yield for a seven-day period in a manner that does not take
into consideration any realized or unrealized gains or losses on shares of the
Money Market Portfolio or on its portfolio securities. This current annualized
yield is computed by determining the net change (exclusive of realized gains and
losses on the sale of securities and unrealized appreciation and depreciation)
in the value of a hypothetical account having a balance of one unit of the Money
Market Sub-Account at the beginning of such seven-day period, dividing such net
change in account value by the value of the account at the beginning of the
period to determine the base period return and annualizing this quotient on a
365-day basis. The net change in account value reflects the deductions for
administrative expenses, the mortality and expense risk charge, and income and
expenses accrued during the period. Because of these deductions, the yield for
the Money Market Sub-Account of the Separate Account will be lower than the
yield for the Money Market Portfolio of the Fund.
The Securities and Exchange Commission also permits Empire Life to disclose
the effective yield of the Money Market Sub- Account for the same seven-day
period, determined on a compounded basis. The effective yield is calculated by
compounding the annualized base period return by adding one to the base period
return, raising the sum to a power equal to 365 divided by 7, and subtracting
one from the result. The yield figures do not reflect the contingent deferred
sales charge.
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio, and its operating expenses.
Income Sub-Account Yield Calculation
- ------------------------------------
Yields for the Income Sub-Account will be calculated based on a one month
period. The computation is accomplished by dividing the net investment income
per accumulation unit earned during the period by the price per unit on the last
day of the period, according to the following formula:
6
YIELD = 2 [(a - b + 1) - 1]
-----
cd
Where:
a = dividends and interest earned during the period.
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.
Interest earned will be determined in accordance with rules established by
the Securities and Exchange Commission. Accrued expenses will include all
recurring fees that are charged to all contract owner accounts. The yield figure
does not reflect the contingent deferred sales charge.
The Securities and Exchange Commission also permits the Company to
calculate and disclose a Current Distribution Yield for the Income Sub-Account.
The Current Distribution Yield is calculated using the same formula used in the
Income Sub- Account yield calculation, except that current distributable income
during the period is substituted for the current income calculated according to
the rules prescribed by the SEC. Current distributable income differs from
current income in the following respects: (1) it may include distributions to
shareholders from sources other than dividends and interest, such as short-term
capital gains, (2) it may be calculated over a different time period, and (3) it
does not include deductions for portfolio expenses. Disclosures of the Current
Distribution Yield will always be accompanied by the SEC prescribed yield.
Average Annual Total Return Calculations
- ----------------------------------------
An average annual total return may be calculated for a given period. It is
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the redeemable value, according
to the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years in the period
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of the period
All recurring fees that are charged to all contract owner accounts are
recognized in the ending redeemable value.
The Securities and Exchange Commission also permits the Company to disclose
an Average Annual Total Return for Continuing Contracts. The Average Annual
Total Return for Continuing Contracts is calculated using the same formula as
the Average Annual Total Return except that EV, the Ending Value of the account,
is substituted for ERV, the Ending Redeemable Value of the Account. The EV is
equal to the ERV plus the Contingent Deferred Sales Charge. The Average Annual
Total Return for Continuing Contracts will always be accompanied by the SEC
standardized Average Annual Total Return.
Calculation Assumptions
- -----------------------
The Contract Maintenance Charge of $30.00 is deducted annually from the
Investment Alternative with the largest value. When Money Market Sub-Account or
Income Sub-Account yields are calculated, this charge is recognized as an
accrued expense. For a period of an exact number of months, the accrued expense
is calculated as (a) x (b) x (c) x (d) where:
(a) = number of months in period
(b) = 1 year per 12 months
(c) = $30.00 per contract per year
(d) = number of contracts, as of the end of the period, for which the
Sub-Account is largest.
For any period not an exact number of months, the accrued expense will be
calculated as (e) x (f) x (c) x (d) where (c) and (d) are as above and
(e) = number of days in period
(f) = 1 year per 365 days
To calculate Income Sub-Account yield for a given month, the accrued
Mortality and Expense Risk Charge is calculated to be .000032877, times the
number of days in the month, times the average number of dollars in the
Sub-Account attributable to annuity holders.
THE CONTRACT
Purchase of Contracts
- ---------------------
The Contracts are offered to the public through brokers or other sales
representatives licensed under the federal securities laws or state insurance
laws. The offering of the Contracts is continuous and the Company does not
anticipate discontinuing the offering of the Contracts. The Company reserves the
right to discontinue the offering of the Contracts.
Value of Variable Account Accumulation Units
- --------------------------------------------
The value of Variable Account Accumulation Units will vary in accordance
with investment experience of the Eligible Portfolio in which the Sub-Account
invests. The number of such Accumulation Units credited to a Contract will not,
however, change as a result of any fluctuations in the value of the Accumulation
Unit. The Accumulation Units in each Sub-Account of the Variable Account are
valued separately. The value of Accumulation Units in any Valuation Period will
depend upon the investment performance of the shares purchased by each
Sub-Account in a particular Eligible Portfolio. The value of an Accumulation
Unit in a Sub-Account for any Valuation Period equals the value of such a unit
as of the immediately preceding Valuation Period, multiplied by the "Net
Investment Factor" for that Sub-Account for the current Valuation Period. The
Net Investment Factor for each Sub-Account for any Valuation Period is
determined by dividing (A) by (B) and subtracting (C), where:
(A) is calculated to be:
(1) the value of the Sub-Account's assets at the end of the prior
Valuation Period after any allocations to, or withdrawals from, the
Sub-Account at the end of the prior Valuation Period; plus
(2) the sum of any investment income and realized or unrealized capital
gains credited to the Sub-Account during the current Valuation
Period; minus
(3) any realized or unrealized capital losses charged against the
Sub-Account during the current Valuation Period; minus
(4) any amount charged for taxes associated with the operation of the
Variable Account during the current Valuation Period; plus (or
minus)
(5) the decrease (or increase) in amounts, if any, set aside as a
reserve for taxes associated with the operation of the Variable
Account during the current Valuation Period.
(B) is the value of the Sub-Account's assets at the end of the prior
Valuation Period after any allocations to, or withdrawals from, the
Sub-Account at the end of the prior Valuation Period.
(C) is the daily charge of 0.000032877 times the number of calendar days in
the current Valuation Period for assuming the mortality and expense
risks under the Contract.
The Fixed Account
- -----------------
Contributions under the fixed portion of the annuity contracts and
transfers to the fixed portion become part of the general account of the
Company, which supports insurance and annuity obligations. Because of exemptive
and exclusionary provisions, interests in the general account have not been
registered under the Securities Act of 1933 ("1933 Act"), nor is the general
account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the general account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus which relate to
the fixed portion.
The Company will credit the amounts allocated to the Fixed Account in the
form of Fixed Account Accumulation Units. The interest factors declared on any
day are guaranteed to be equivalent to at least an effective annual yield of
4.2%. For a given Contract, interest factors are guaranteed for one year and may
change only on the Contract Anniversary. A daily charge for the mortality and
expense risks equivalent to an annual yield of 1.2% applies to the Fixed
Account. Hence, the Company guarantees that the value of Fixed Account
Accumulation Units will increase at an effective annual yield of at least 3%.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS
OF THE GUARANTEED YIELD OF 4.2% PER YEAR WILL BE DETERMINED IN THE SOLE
DISCRETION OF THE COMPANY.
The Contract Owner assumes the risk that interest credited to Fixed Account
Accumulation Units may not exceed the guaranteed minimum yield of 4.2% per year.
The Company guarantees that, at any time prior to the Income Starting Date,
the Contract Value in the Fixed Account will not be less than the amount of the
Purchase Payments allocated or transferred to the Fixed Account, plus interest
at the yield of 4.2% per year, plus any excess interest which the Company
credits to the Fixed Account Accumulation Units, less the sum of all Contract
Maintenance Charges, Mortality and Expense Risk Charges, and any applicable
premium taxes allocable to the Fixed Account, and less any amounts deducted from
the Fixed Account, in connection with partial surrenders or transfers to the
Variable Account.
Value of Fixed Account Accumulation Units
- -----------------------------------------
The value of Fixed Account Accumulation Units will vary in accordance with
the Company's declared interest factor. At the end of any Valuation Period, the
value is calculated by multiplying the prior value by the declared Net Interest
Factor during the Valuation Period. The value of Fixed Account Accumulation
Units is guaranteed to increase at an effective annual yield of at least 3%.
The Net Interest Factor for any Valuation Period is (A) minus (B) where:
(A) is 1.0 plus the number of days in the current Valuation Period times the
declared interest factor for the current Valuation Period, and
(B) is the daily charge of .000032877 for assuming the mortality and expense
risks under this Contract times the number of days in the current
Valuation Period.
The interest factor declared on any day is guaranteed to be equivalent to
at least an effective annual yield of 4.2%, resulting in a Net Interest Factor
equivalent to at least an effective annual yield of 3% (because the daily charge
in (B) above is equivalent to an annual yield of 1.2%). Different interest
factors may be declared, and different Net Interest Factors may be used for
different Accumulation Units based upon the date(s) of your Purchase Payment(s).
Tax-Free Exchanges (Section 1035)
- ---------------------------------
The Company accepts Purchase Payments which are the proceeds of a Contract
in a transaction qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code. Except as required by federal law in calculating the
basis of the Contract, the Company does not differentiate between Section 1035
Purchase Payments and non-Section 1035 Purchase Payments.
The Company also accepts "rollovers" from Contracts qualifying as
individual retirement annuities or accounts (IRAs), or any other qualified
contract which is eligible to "rollover" into an IRA (except 403(b) contracts).
The Company differentiates between non-qualified Contracts and IRAs to the
extent necessary to comply with federal tax laws. For example, the Company
restricts the assignment, transfer or pledge of IRAs to anyone except the
Company, so the Contracts will continue to qualify for special tax treatment.
Required Distributions
- ----------------------
If the Owner or any Joint Owner of the Contract dies before the Income
Starting Date, the entire value of the Contract must be distributed to the
Designated Beneficiary as described in this section so that the Contracts
qualify as annuities under the Internal Revenue Code.
Where a Death Benefit is payable, unless prohibited by federal tax laws,
the Company will make a lump sum settlement to the Designated Beneficiary if the
Designated Beneficiary does not select an Annuity Option as described in this
section within 90 days of the Company's receipt of notification and proof of
death.
The Company must make a required distribution as described in this section.
In such instances, the Designated Beneficiary must select an Annuity Option
within one (1) year of the Owner's death, or surrender the Contract no later
than five (5) years after the death of the Owner or Joint Owner. A Contingent
Deferred Sales Charge may be imposed on each surrender.
If the Designated Beneficiary selects an Annuity Option, payments must
start within one year of the death of the Owner or Joint Owner and must be
payable for the life of the Designated Beneficiary or for a period not exceeding
the life expectancy of the Designated Beneficiary.
The distribution rules described in this section shall not apply if the
Designated Beneficiary is the spouse of the deceased Owner or Joint Owner. If
the spouse becomes the designated Beneficiary, that person may continue the
Contract as Owner without regard to the required distribution rules.
CHARGES AND OTHER DEDUCTIONS
Contract Maintenance Charge
- ---------------------------
Recordkeeping and operations functions are performed by and are the
responsibility of the Company. These functions include, but are not limited to:
billing and collecting Purchase Payments, recordkeeping, processing death
claims, processing surrenders and withdrawals, processing policy changes,
preparing proxy statements, calculating Accumulation Unit values, and issuing
reports to Owners and regulatory agencies. The Contract Maintenance Charge is
designed to reimburse the Company for the expenses of performing these
maintenance functions. The expenses of the Manager of the Fund (Composite
Research & Management Co.) and the Fund's administrator (Murphey Favre
Securities Services, Inc.) are neither added to nor are deducted from the
Contract Maintenance Charge.
As an alternative to performing recordkeeping and operations functions, the
Company may secure similar services from other sources. At the Company's sole
discretion, these services will be purchased on a basis which affords the best
service at the lowest cost. The Company reserves the right to select a purveyor
of services which it deems best able to perform these services in a satisfactory
manner, even though the costs for these services may be higher than would
prevail elsewhere. The Company may also elect to perform all or any part of the
maintenance services directly or through a subsidiary or an affiliate.
Premium Taxes
- -------------
Applicable premium tax rates on Purchase Payments depend on the Contract
Owner's state of residence, and the insurance laws and status of the Company in
those states where premium taxes are incurred. Premium tax rates may be changed
by legislation, administrative interpretations or judicial acts.
Tax Reserves
- ------------
Currently, the Company does not establish capital gains tax reserves for
the Sub-Account nor deduct charges for tax reserves because the Company believes
that capital gains attributable to the Variable Account will not be taxable.
However, the Company reserves the right to establish tax reserves for potential
taxes on realized or unrealized capital gains. If such reserves are established,
then Sub-Account Values would be reduced to reflect deductions for maintaining
any such reserves.
INCOME PAYMENTS
Legal Developments Regarding Annuity Tables
- -------------------------------------------
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that annuity benefits provided by employers' retirement and fringe
benefit plans may not vary on the basis of sex. The Norris decision expressly
applies only to employment practices, not to insurance or annuity practices.
However, it is unclear at this time which employment benefit plans may be
subject to Norris. The Contracts offered by this Prospectus contain life annuity
tables that provide for different benefit payments to men and women of the same
age. Nevertheless, in accordance with Norris, in certain employment related
situations annuity tables that do not vary on the basis of sex may be used.
Accordingly, if the Contract is to be used in connection with an employment-
related retirement or benefit plan, consideration should be given, in
consultation with legal counsel, to the impact of Norris on any such plan before
making any contributions under these Contracts.
In addition, legislation has been introduced in Congress and some states,
which, if enacted, could require the use of tables that do not vary on the basis
of sex for some or all annuity contracts.
Proof of Survival
- -----------------
If an Annuity Option which depends on one or more persons being alive on a
payment date is elected, satisfactory proof of survival may be required before
any Income Payments or death benefits will be paid.
GENERAL MATTERS
Incontestability
- ----------------
The Contract will not be contested after it is issued.
Settlements
- -----------
The Contract must be returned to the Company prior to any settlement. Due
proof of death must be received prior to settlement of a death claim.
Safekeeping of the Variable Account's Assets
- --------------------------------------------
The Company holds title to the assets of the Variable Account. The assets
are kept physically segregated and held separate and apart from the Company's
general corporate assets. Records are maintained of all purchases and
redemptions of the Portfolio shares held by each of the Sub-Accounts.
The Composite Deferred Series, Inc., does not issue certificates and,
therefore, the Company holds the Account's assets in open account in lieu of
stock certificates.
Independent Auditors
- --------------------
Empire Life Insurance Company's financial statements as of December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, are included herein and have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing elsewhere herein, and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
Legal Matters
- -------------
Messrs. Sutherland, Asbill & Brennan, Washington, D.C., have provided legal
advice regarding certain matters relating to the federal securities laws and
have passed upon certain other legal matters relating to the validity of the
Contracts.
FEDERAL TAX MATTERS
The ultimate effect of federal income taxes on the Contract Value, on
Income Payments and on the economic benefit to the Contract Owner, the Annuitant
or the Beneficiary depends on the type of retirement plan for which the Contract
is purchased, on the tax and employment status of the individual concerned, and
on the Company's tax status. THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT
INTENDED AS TAX ADVICE. Any person concerned about these tax implications should
consult a competent tax adviser. This discussion is based upon the Company's
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service. No representation is made as to the
likelihood of continuation of these present federal income tax laws or of the
current interpretations by the Internal Revenue Service. Moreover, no attempt
has been made to consider any applicable state or other tax laws.
Taxation of Empire Life Insurance Company
- -----------------------------------------
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. Since the Variable Account is not an entity
separate from the Company, and its operations form a part of the Company, it
will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized capital gains are
automatically applied to increase reserves under the Contract. Under existing
federal income tax law, the Company believes that the Variable Account
investment income and realized net capital gains will not be taxed to the extent
that such income and gains are applied to increase the reserves under the
Contract.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account, and therefore the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to the Variable Account, then the
Company may impose a charge against the Variable Account (with respect to some
or all Contracts) in order to set aside provisions to pay such taxes.
Tax Status of the Contract
- --------------------------
Section 817(h) of the Code provides that a variable annuity based on a
separate account (such as the Contracts) will not qualify as an annuity contract
under section 72 of the Code unless the investments of the separate account are
"adequately diversified" in accordance with Treasury regulations. The Variable
Account, through the Fund, intends to comply with the diversification
requirements prescribed by the Treasury in Treas. Reg. 1.817-5 which affect how
the Fund's assets may be invested.
Although the Fund's investment adviser and the Company are both direct or
indirect subsidiaries of Washington Mutual Bank, the Company does not have
control over the Fund or its investments. However, the Company believes that the
Fund will meet the diversification requirements.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control over the investments of a
segregated asset account may cause the investor (i.e., the Owner), rather than
the insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that owners were not owners of separate account assets. For example,
the Owner has additional flexibility in allocating premium payments and account
values. These differences could result in an Owner being treated as the owner of
a pro rata portion of the assets of the Variable Account. In addition, the
Company odes not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department might issue in the Future.
The Company, therefore, reserves the right to modify the Contract as necessary
to attempt to prevent an Owner from being considered the the owner of a pro rata
share of the assets of the Variable Account.
Federal tax laws also require that annuity contracts contain specific
provisions for distribution of the policy proceeds upon the death of the
contract holder. The Company believes that because of the Required Distribution
provision of the Contracts (see "Required Distributions," above), it has
complied with the federal tax laws, and the Contracts will qualify as annuities
under section 72 of the Internal Revenue Code. The sales representative may use
sales literature which contains charts or other illustrations demonstrating the
effects of tax-deferral applicable to the contract.
Qualified Plans
- ---------------
The Contract is designed for use with several types of Qualified Plans. The
tax rules applicable to participants in such Qualified Plans vary according to
the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions (including certain lump sum distributions). Adverse tax
consequences may result from contributions in excess of specified limits,
distributions prior to age 59 1/2 (subject to certain exceptions), distributions
that do not conform to specified minimum distribution rules, aggregate
distributions in excess of a specified annual amount, and in certain other
circumstances. Therefore, the Company makes no attempt to provide more than
general information about the use of the Contracts with the various types of
Qualified Plans. Contract Owners and participants under Qualified Plans as well
as Annuitants and Beneficiaries, are cautioned that the right of any person to
any benefits under Qualified Plans may be subject to the terms and conditions of
the plans themselves, regardless of the terms and conditions of the Contract
issued in connection therewith. Those purchasing Contracts for use with any
Qualified Plan should seek competent advice regarding the suitability of the
Contract therefore. The Contracts cannot be used for Section 403(b) plans.
(a) H.R. 10 Plans. The Self-Employed Individuals Tax Retirement Act of
1962, as amended, commonly referred to as "H.R. 10", or "Keogh" permits
self-employed individuals to establish Qualified Plans for themselves and their
employees. These plans are limited by law to maximum permissible contributions,
distribution dates, and nonforfeitability of interests. In order to establish
such a plan, a plan document, usually in a form approved in advance by the
Internal Revenue Service, is adopted and implemented by the employer.
(b) Individual Retirement Annuities. Sections 219 and 408 of the Code
permit individuals or their employers to contribute to an individual retirement
program known as an "Individual Retirement Annuity." Individual Retirement
Annuities are subject to limitations on the amount which may be contributed, and
on the time when distributions may commence. In addition, distributions from
certain other types of Qualified Plans may be placed into an Individual
Retirement Annuity on a tax deferred basis. The Internal Revenue Service has not
reviewed the Contract for qualification as an IRA, and has not addressed in a
ruling of general applicability whether a death benefit provision such as the
provision in the Contract comports with IRA qualification requirements.
(c) Corporate Pension and Profit-Sharing Plans. Sections 401(a) and 403(a)
of the Code permit corporate employers to establish various types of retirement
plans for employees. Such retirement plans may permit the purchase of the
Contracts to provide benefits under the plans. Adverse tax consequences to the
plan, to the participant or to both may result if this Contract is assigned or
transferred to any individual as a means to provide benefit payments.
(d) Certain deferred Compensation Plans. Section 457 of the Code, while not
actually providing for a Qualified Plan as that term is normally used, provides
for certain Deferred Compensation Plans with respect to service for state
governments, local governments and political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and certain tax exempt
organizations which enjoy special treatment. The Contracts can be used with such
plans. Under such plans, a participant may specify the form of investment in
which his or her participation will be made. All such investments, are owned by,
and subject to, the claims of general creditors of the sponsoring employer.
Depending on the terms of the particular plan, the employer may be entitled to
draw on deferred amounts for purposes unrelated to its section 457 plan
obligations. In general, all amounts received under a section457 plan are
taxable.
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Contracts or under the terms
of the plans in respect of which Qualified Contracts are issued.
VOTING RIGHTS
The number of votes which a person has the right to instruct will be
calculated separately for each Sub-Account. That number will be determined by
applying his/her percentage interest, if any, in a particular Sub-Account to the
total number of votes attributable to the Sub-Account.
The number of votes of the Portfolio which a Contract Owner has a right to
instruct will be determined as of the date coincident with the date established
by that Portfolio for determining shareholders eligible to vote at the meeting
of the Fund. Voting instructions will be solicited by written communication
prior to such meeting, in accordance with procedures established by the Fund.
The Company reserves the right to vote Eligible Shares in its own right, if
subsequently permitted by the Investment Company Act of 1940, its regulations or
interpretations thereof. The Company may control a majority of the Eligible
Shares through its ownership of seed money used to establish the Fund.
Fund shares, as to which no timely instructions are received, will be voted
in proportion to the voting instructions which are received with respect to all
Contracts participating in that Sub- Account. Voting instructions to abstain on
any item to be voted upon will be applied on a pro-rata basis to reduce the
votes eligible to be cast.
Each person having a voting interest in a Sub-Account will receive proxy
material, reports and other materials relating to the appropriate Eligible
Portfolio.
FINANCIAL STATEMENTS
The financial statements of the Company, which are included in this
Statement of Additional Information, should be considered as bearing only on the
ability of the Company to meet its obligations under the Contracts. They should
not be considered as bearing on the investment performance of the Variable
Account.
EMPIRE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of WM Life Insurance Company)
STATUTORY BASIS FINANCIAL STATEMENTS FOR
THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND INDEPENDENT'S AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Empire Life Insurance Company
Seattle, Washington
We have audited the accompanying statutory basis balance sheets of Empire
Life Insurance Company (a wholly owned subsidiary of WM Life Insurance
Company)(the Company) as of December 31, 1995 and 1994, and the related
statutory basis statements of operations, changes in capital and surplus, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits of the accompanying statutory basis financial
statements in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note A to the financial statements, the Company
prepared these financial statements in conformity with the accounting practices
prescribed or permitted by the Insurance Commissioner of the State of
Washington, which practices differ form generally accepted accounting
principles. These effects on such financial statements of the differences
between the statutory basis of accounting and generally accepted accounting
principles are described in Note H.
In our opinion, because of the effects of the matter discussed in the
preceding paragraph the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as of December 31, 1995 and 1994, or the
results of its operations or its cash flows for each of the three years in the
period ended December 31, 1995.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities, and surplus of the
Company as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, on the basis of accounting described in Note A.
/s/Deloitte & Touche LLP
March 29, 1996
<PAGE>
EMPIRE LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of WM Life Insurance Company)
STATUTORY BASIS BALANCE SHEETS
ADMITTED ASSETS
December 31,
----------------------------------------
1995 1994
------------------ ------------------
Cash and Invested Assets:
Debt Securities $ 20,613,598 $ 20,832,064
Mortgage Loans 8,722,534 9,440,869
Cash and Short-term Investments 488,947 238,209
------------------ ------------------
29,825,079 30,511,142
Investment Income Due and Accrued 372,286 378,344
Other Assets 71,151 62,586
------------------ ------------------
Total Assets $ 30,268,516 $ 30,952,071
================== ==================
LIABILITIES AND CAPITAL AND SURPLUS
December 31,
----------------------------------------
1995 1994
------------------ ------------------
Liabilities:
Aggregate Reserve for Life Policies
and Contracts $ 22,904,115 $ 23,904,364
Policy and Contract Claims 55,841 271,630
General Expenses Due and Accrued 19,551 19,466
Taxes, Licenses and Fees Due and
Accrued 26,000 77,526
Interest Maintenance Reserve 111,765 124,746
Asset Valuation Reserve 250,797 231,815
Other 807 50,010
------------------ ------------------
Total Liabilities 23,368,875 24,679,556
Capital and Surplus:
Capital Stock, $10 par value -
Authorized, 150,000 shares
Issued and Outstanding, 120,000
shares 1,200,000 1,200,000
Gross Paid-In and Contributed
Surplus 4,050,000 4,050,000
Unassigned Surplus 1,649,641 1,022,515
------------------ ------------------
Total Capital and Surplus 6,899,641 6,272,515
------------------ ------------------
Total Liabilities and Capital
and Surplus $ 30,268,516 $ 30,952,071
================== ==================
<PAGE>
<TABLE>
EMPIRE LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of WM Life Insurance Company)
STATUTORY BASIS STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993
------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
REVENUES:
Premiums and Annuity Considerations 1,067,782 1,316,063 7,653,294
Investment Income, Net 2,179,934 1,847,054 1,708,354
Other 56,464 15,381 11,075
------------------ ------------------ -----------------
Total Revenues 3,304,181 3,178,497 9,372,723
BENEFITS AND EXPENSES:
Annuity Benefits 595,475 839,832 458,880
Surrender Benefits 2,732,984 2,339,686 975,486
Increase (Decrease) in Aggregate Reserves
for Life Policies and Contracts (1,000,249) (452,429) 7,163,948
Interest on Policy Funds 11 150 (2,196)
Commissions 62,287 78,789 347,384
General Insurance Expenses 186,029 186,756 206,310
Taxes, Licenses and Fees 68,096 64,882 48,866
------------------ ------------------ -----------------
Total Benefits and Expenses 2,644,633 3,057,666 9,198,678
------------------ ------------------ -----------------
INCOME FROM OPERATIONS 659,548 120,831 174,045
INCOME TAX PROVISION 179,126 59,297 84,277
------------------ ------------------ -----------------
NET INCOME $ 480,422 $ 61,534 $ 89,768
================== ================== =================
</TABLE>
<PAGE>
<TABLE>
EMPIRE LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of WM Life Insurance Company)
STATUTORY BASIS STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993
------------------ ------------------ -----------------
<S> <C> <C> <C>
OPERATIONAL ITEMS PROVIDING CASH:
Premiums and Annuity Considerations $ 1,067,782 1,316,063 7,653,294
Investment Income Received 2,213,883 1,878,301 1,651,908
Other Income Received 41,668 0 0
------------------ ------------------ -----------------
3,323,333 3,194,364 9,305,202
OPERATIONAL ITEMS APPLYING CASH:
Surrender Benefits Paid 2,732,984 2,339,686 975,486
Other Benefits Paid 811,275 582,587 500,513
Commissions, Other Expenses and Taxes Paid 335,082 310,374 598,007
Federal Income Taxes Paid 212,256 32,675 70,431
------------------ ------------------ -----------------
NET CASH PROVIDED BY (USED IN) OPERATIONS (768,264) (70,959) 7,160,765
PROCEEDS FROM INVESTMENTS SOLD,
MATURED OR PREPAID 1,310,917 2,594,708 4,568,683
OTHER CASH PROVIDED 160,073 3,783,751 14,697
COST OF INVESTMENTS ACQUIRED 400,438 6,335,815 13,018,789
OTHER CASH APPLIED 51,550 19,173 26,057
------------------ ------------------ -----------------
Net Increase (decrease) in Cash and
Short-term Investment 250,738 (47,488) (1,300,701)
CASH AND SHORT-TERM INVESTMENTS:
Beginning of Year 238,209 285,697 1,586,398
------------------ ------------------ -----------------
End of Year 488,948 238,209 285,697
================== ================== =================
</TABLE>
<PAGE>
EMPIRE LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of WM Life Insurance Company)
STATUTORY BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
Balance, January 1, 1993 $ 2,510,103
Net Income 89,768
Capital Contribution 0
Change in Asset Valuation Reserve (3,799)
Other Decreases, Net (61,299)
-----------------
Net Change in Capital and Surplus 24,670
-----------------
Balance, December 31, 1993 2,534,773
Net Income 61,534
Capital Contribution 3,750,000
Change in Asset Valuation Reserve (68,452)
Other Decreases, Net (5,340)
----------------
Net Change in Capital and Surplus 3,737,742
----------------
Balance, December 31, 1994 6,272,515
Net Income 480,422
Capital Contribution 0
Change in Asset Valuation Reserve (18,982)
Other Increases, Net 165,686
----------------
Net Change in Capital and Surplus 627,126
----------------
Balance, December 31, 1995 $ 6,899,641
================
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Affiliation -
The Company is a wholly-owned subsidiary of WM Life Insurance Company (WM
Life), which is a wholly-owned subsidiary of Washington Mutual, Inc.
The Company concentrates its activities in the annuity market. The Company
issues flexible and single premium deferred annuities and single premium
immediate annuities. These products are distributed to individuals primarily
through the various distribution channels of Washington Mutual Bank, Inc. (the
Bank). The Company is currently licensed in 27 states, primarily in the western,
midwestern and southwestern regions of the United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Financial Statement Presentation -
The statutory basis financial statements have been prepared in conformity
with accounting practices prescribed or permitted by the Insurance Commissioner
of the State of Washington, (The Commissioner). Such statutory insurance
accounting practices differ in certain respects from generally accepted
accounting principles. The most significant differences are:
Commissions and other acquisition costs relating to the issuance of new
policies are charged to expense as incurred except to the extent allowed for in
the calculation of the provision for policy benefit reserves.
Reserves for future policy benefits are based on statutory mortality,
morbidity, and interest requirements without consideration of withdrawals,
rather than on estimates reflecting historical experience.
Guaranty fund assessments are recognized as levied by the respective state
guaranty funds. Assessments are reported as an admitted asset and amortized in
accordance with applicable state regulations.
Substantially all realized capital gains and losses are excluded from
statutory income and are charged to either the Asset Valuation Reserve or the
Interest Maintenance Reserve, depending on their classification. The Interest
Maintenance Reserve is reported as a liability and is amortized into income over
a period of up to thirty (30) years. The Asset Valuation Reserve is reported as
a liability and as an appropriation of surplus.
The provision for income taxes is based upon income that is estimated to
currently taxable.
Certain assets designated as "non-admitted" have been charged against
unassigned surplus.
Premiums are recognized as revenue when due from policyholders.
Investments -
Investments are valued in accordance with the requirements of the National
Association of Insurance Commissioners (NAIC). Bonds eligible for amortization
are valued at amortized cost. Bonds which the NAIC determines are ineligible for
amortization are valued as determined by the NAIC.
Bonds not backed by other loans are valued at amortized cost using the
scientific method. Loan-backed bonds and structured securities are valued at
amortized cost using the interest method including anticipated prepayments at
the date of purchase. Significant changes in estimated cash flows or prepayment
rates are incorporated quarterly and are accounted for using the retrospective
adjustment method.
Mortgage loans are stated at the aggregate unpaid balance less unaccreted
discounts plus unamortized premiums. All loans are fully collateralized by a
deed of trust on residential real property with a maximum loan to value ratio on
any individual loan at inception of 75%. Substantially all of the collateral for
the Company's mortgage loans is located in the Pacific Northwest.
Unrealized investment gains and losses were accounted for as direct
increases or decreases in the Company's surplus. Income tax effects of the
unrealized gains and losses were not recognized. Unrealized Investment Gains and
Losses have been determined based on values prescribed by valuation procedures
established by the NAIC and differ from those amounts disclosed in notes B and
C.
Aggregate Reserve for Life Policies and Contracts -
The reserve for annuity contracts is calculated using the Commissioner's
Annuity Reserve Valuation Method (CARVM) on an issue year basis with interest
rates ranging from 5.00% to 8.40% as prescribed or permitted by state regulatory
authorities.
Asset Valuation Reserve -
The Asset Valuation Reserve is maintained as prescribed by the NAIC for the
purpose of stabilizing the Company's surplus against realized capital gains and
losses on disposition of bonds for which the asset quality has deteriorated and
unrealized losses from bonds ineligible for amortization. The change in Asset
Valuation Reserve is reflected as a direct increase or decrease in the Company's
surplus.
Interest Maintenance Reserve -
The Interest Maintenance Reserve is maintained as prescribed by the NAIC
for the purpose of stabilizing the Company's net income for realized capital
gains and losses on disposition of the bonds for which the interest rate has
fluctuated since they were purchased. The change in the Interest Maintenance
Reserve is reflected as a direct charge against realized gains or losses.
Amortization of the Interest Maintenance Reserve is included in other income on
the statutory statement of operations.
<PAGE>
NOTE B - DEBT SECURITIES:
The statement value and estimated fair values of investments in debt
securities are as follows:
Year Ended December 31, 1995
--------------------------------------------------------
Gross Gross
Statement Unrealized Unrealized Fair
Value Gains (Losses) Value
--------------------------------------------------------
US Treasury Notes and
Obligations of US
Government Agencies $ 2,718,156 $ 68,294 $ 2,786,450
Debt Securities Issued
by the Canadian
Government 664,402 64,456 728,858
Corporate and Public
Utility Debt
Securities 11,591,685 718,287 12,309,972
Mortgage-backed
Securities
- US Government
Agencies 4,953,595 426,271 5,379,866
- Privately
Issued 685,760 14,421 (12,884) 687,297
----------------------------------------------------------
Total $ 20,613,598 $ 1,291,729 $ (12,884) $ 21,892,443
==========================================================
Year Ended December 31, 1994
----------------------------------------------------------
Gross Gross
Statement Unrealized Unrealized Fair
Value Gains (Losses) Value
----------------------------------------------------------
US Treasury Notes and
Obligations of US
Government Agencies $ 2,319,781 $ 3,569 $ (107,805) $ 7,451,628
Debt Securities
Issued by the
Canadian Government 667,311 5,280 (12,070) 660,521
Corporate and Public
Utility Debt
Securities 11,344,357 46,905 (782,666) 11,008,596
Mortgage-backed
Securities
- US Government
Agencies 5,236,083 - (70,699) 5,165,384
- Privately Issued 864,532 13,218 (6,619) 871,131
----------------------------------------------------------
Total $ 20,832,064 $ 68,972 $ (909,160) $ 19,991,876
==========================================================
The statement value and estimated fair value of debt securities at December
31, 1995, 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 prepayment penalties.
Statement Fair
Cost Value
-------------------------------
Due in One Year or Less $ 1,230,116 $ 1,239,897
Due After One Year Through Five Years 5,165,672 5,444,057
Due after Five Years Through Ten Years 5,589,959 5,854,550
Due After Ten Years 2,988,496 3,286,776
-------------------------------
14,974,243 15,825,280
Mortgage-backed
Securities 5,639,355 6,067,163
-------------------------------
$ 20,613,598 $ 21,892,443
===============================
Proceeds from sales of investments in debt securities during 1995, 1994,
and 1993 were $592,000, $1,040,000, and $2,904,000, respectively. Gross gains of
$2,750, $10,600 and $104,600 were recognized in 1995, 1994 and 1993,
respectively. No losses were recognized in any of those years.
Due and accrued income was excluded from investment income on mortgage
loans and bonds where interest is past due more than 90 days. The total amount
excluded was $6,087 for 1995. There was no past due interest for 1994 and 1993.
Investment Income is recorded net of Investment Expenses of $85,600,
$92,900 and $87,800, for the years ended 1995, 1994 and 1993, respectively.
<PAGE>
NOTE C: FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and / or estimation methodologies may have a material effect on the estimated
fair value amounts.
The fair value of financial instruments were as follows:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------
Statement Fair Statement Fair
(dollars in thousands) Value Value Value Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and Short-term Investments $ 489 $ 489 $ 238 $ 238
Debt Securities 20,614 21,892 20,832 19,992
Mortgage Loans 8,722 8,662 9,441 8,849
- -----------------------------------------------------------------------------------------------------------
29,825 31,043 30,511 29,079
Financial Liabilities
Aggregate Reserve for Life
Policies and Contracts 22,904 22,887 23,904 23,764
- -----------------------------------------------------------------------------------------------------------
22,904 22,887 23,904 23,764
- -----------------------------------------------------------------------------------------------------------
Net Financial Instruments $ 6,921 $ 8,156 $ 6,607 $ 5,315
===========================================================================================================
</TABLE>
The following methods and assumptions were used to estimate fair value of
each class of financial instrument as of December 31, 1995 and 1994:
Cash and Short-term Investments - The statement value represented fair
value.
Debt Securities - The fair value of debt securities were based on quoted
market prices or dealer quotes. If a quoted price was not available, fair value
was estimated using quoted market prices for similar securities.
Mortgage Loans - The fair value of conforming residential first mortgage
loans was determined by using the market price for loans with similar coupons
and maturities. For nonconforming or "JUMBO" loans with maturities similar to
conforming loans, an additional adjustment was made for credit risk.
Aggregate Reserve for Life Policies and Contracts - The aggregate reserve
for life policies and contracts is comprised substantially of annuities. The
fair value of annuities with defined maturities is estimated by discounting
projected cash flows using rates that would be offered for similar contracts
with the same remaining maturities. For annuities with no defined maturities,
fair value is estimated to be the present surrender value.
NOTE D - TRANSACTIONS WITH AFFILIATES:
The Company has entered into an agreement to share the cost of certain
administrative services and overhead with WM Life. Under the terms of the
agreement, the Company paid fees aggregating $150,000 in each of the years ended
December 31, 1995, 1994, and 1993.
The Company pays commissions to Murphey Favre, Inc., an affiliate through
common ownership, for sales of the Company's annuity products. Such commissions
totaled $5,900, $13,200, and $228,700 for the years ended December 31, 1995,
1994, and 1993, respectively.
The Company has retained both Washington Mutual Bank, (The Bank) and
Composite Research & Management Co., affiliates through common ownership, to
provide investment advisory and management services. The fees for these services
totaled $17,200, $20,500, and $20,000 for the years ended December 31, 1995,
1994, and 1993, respectively.
The Company maintains some of its cash accounts with the Bank. Interest
earned from funds on deposit with the Bank totaled $20,800, $21,700, and $25,900
for the years ended December 31, 1995, 1994, and 1993, respectively.
The Company purchased all of its investments in mortgage loans from the
Bank. Service fees on mortgage loans totaled $59,400, $64,000, and $59,100 for
the years ended December 31, 1995, 1994, and 1993, respectively.
There were no amounts due to affiliates as of December 31, 1995 and 1994.
NOTE E - FEDERAL INCOME TAXES:
Empire Life qualifies as a life insurance company under current tax
regulations. Beginning with 1993, Empire Life joined in the filing of a
consolidated income tax return with the Bank.
The difference between taxes as provided at statutory rates and the current
effective rate is caused primarily by differences in conventions under which
policy and contract reserves are established on a tax basis as compared to those
utilized in preparing statutory basis financial statements, along with
differences in timing of recognition of policy acquisition costs.
NOTE F - DIVIDEND AVAILABILITY:
The amount of dividends which can be paid by the Company without prior
approval of the Insurance Commissioner is the lesser of 10% of the Company's
unassigned surplus or the net gain from operations.
NOTE G - PERMITTED STATUTORY ACCOUNTING PRACTICES:
The Company, which is domiciled in Washington State, prepares its statutory
financial statements in accordance with accounting principles and practices
prescribed or permitted by the Washington State Insurance Department. Prescribed
statutory accounting practices include state laws, regulations, and general
administrative rules, as well as a variety of publications of the National
Association of Insurance Commissioners (NAIC). Permitted statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices differ from state to state, may differ from company to company within
a state, and may change in the future. Furthermore, the NAIC has a project to
codify statutory accounting practices, the result of which is expected to
constitute the only source of "prescribed" statutory accounting practices.
Accordingly, that project, which is expected to be completed in near future,
will likely change the definitions of what comprises prescribed statutory
accounting practices, and may result in changes to the accounting policies the
insurance enterprises use to prepare their statutory financial statements.
<PAGE>
NOTE H - RECONCILIATION OF STATUTORY NET INCOME AND EQUITY TO
GAAP NET INCOME AND EQUITY:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1995 1994 1993
----------------- ----------------- ------------------
<S> <C> <C> <C>
Statutory Net Income
as Reported $ 480,422 $ 61,534 $ 89,768
Adjustments Concerning:
Deferred Policy Acquisition Costs (198,612) (195,643) 210,932
Deferred Federal Income Taxes (103,746) (29,573) 101,280
Future Policy Benefits 208,981 357,666 (233,748)
Write-off of Guaranty
Assessments and Other (7,962) (683) (20,060)
Interest Maintenance Reserve (14,796) (8,405) 57,986
Realized Gains and Losses 2,750 15,569 104,638
Other, Net 193,278 (21,059) (108,499)
Net Income in Conformity with
Generally Accepted Accounting
----------------- ----------------- ------------------
Principles $ 560,315 $ 179,406 $ 202,297
================= ================= ==================
Year Ended December 31,
---------------------------------------------------------------
1995 1994 1993
----------------- ----------------- ------------------
Statutory Capital and Surplus
as Reported $ 6,899,641 $ 6,272,515 $ 2,534,773
Adjustment Concerning:
Deferred Policy Acquisition Costs 751,266 1,474,826 1,593,036
Deferred Federal Income Taxes (200,381) 97,776 101,280
Future Policy Benefits (722,763) (931,745) (1,289,411)
Asset Valuation and Interest
Maintenance Reserve 362,562 356,561 296,514
Investment Loss Reserve (37,000) (37,000) (42,000)
Write-off of Guaranty
Assessments and Other (168,391) (179,586) (173,902)
Unrealized Gains / (Losses)
Available for Sale 945,394 (154,100)
8,486 51 202
Stockholder's Equity in Conformity
with Generally Accepted
================= ================= ==================
Accounting Principles $ 7,838,814 $ 6,899,298 $ 3,020,492
================= ================= ==================
</TABLE>
<PAGE>
EMPIRE LIFE INSURANCE COMPANY
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE OF ASSETS AND
LIABILITIES
- -------------------------------------------------------------------------------
Our audits were conducted for the purpose of forming an opinion on the basic
statutory financial statements taken as a whole. The supplemental schedule of
selected financial data for the year ended December 31, 1995, is presented for
complying with National Association of Insurance Commissioners' instructions to
annual Audited Financial Reports and is not a required part of the basic
statutory financial statements. This additional information is the
responsibility of Empire Life Insurance Company's management. Such information
has been subjected to the auditing procedures applied in our audit of the basic
statutory financial statements and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic statutory financial
statements taken as a whole.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
March 29, 1996
<PAGE>
EMPIRE LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of WM Life Insurance Company)
Supplemental Schedule of Selected Financial Data
Year Ended December 31, 1995
Investment Income Earned
Government Bonds $ 403,846
---------------
Other Bonds (unaffiliated) 1,145,596
---------------
Bonds of Affiliates -
---------------
Preferred Stocks (unaffiliated) -
---------------
Preferred Stocks of Affiliates -
---------------
Common Stocks (unaffiliated) -
---------------
Common Stocks of Affiliates -
---------------
Mortgage Loans 695,302
---------------
Real Estate -
---------------
Premium Notes, Policy Loans and Liens -
---------------
Collateral Loans -
---------------
Cash on Hand and on Deposit 7,532
---------------
Short-term Investments 13,223
---------------
Other Invested Assets -
---------------
Derivatives Instruments -
---------------
Aggregate Write-ins for Investment Income -
---------------
Gross Investment Income 2,265,499
===============
Real Estate Owned - Book Value less Encumbrances -
===============
Mortgage Loans - Book Value
Farm Mortgages -
---------------
Residential Mortgages 8,722,534
---------------
Commercial Mortgages -
---------------
Total Mortgages 8,722,534
===============
Mortgage Loans By Standing - Book Value
Good Standing 8,626,966
===============
Good Standing with Restructured Terms -
===============
Interest Overdue More Than 3 Months,
Not in Foreclosure 6,087
===============
Foreclosure in Process 95,566
===============
Other Long Term Assets - Statement Value -
===============
Collateral Loans -
===============
Bonds and Stocks of Parents,
Subsidiaries and Affiliates - Book Value
Bonds -
===============
Preferred Stock -
===============
Common Stocks -
===============
Bonds by Class and Maturity
Bonds by Maturity - Statement Value
Due Within One Year or Less 1,689,161
---------------
Over 1 Year Through 5 Years 6,800,765
---------------
Over 5 Year Through 10 Years 7,746,686
---------------
Over 10 Year Through 20 Years 3,766,662
---------------
Over 20 Years 610,324
---------------
Total by Maturity 20,613,598
===============
Bonds by Class - Statement Value
Class 1 18,143,623
---------------
Class 2 2,469,975
---------------
Class 3 -
---------------
Class 4 -
---------------
Class 5 -
---------------
Class 6 -
---------------
Total by Class 20,613,598
===============
Total Bonds Publicly Traded 20,613,598
===============
Total Bonds Privately Traded -
===============
Preferred Stocks - Statement Value -
===============
Common Stocks - Market Value -
===============
Short Term Investments - Book Value 373,434
===============
Financial Options Owned - Statement Value -
===============
Financial Options Written and In
Force - Statement Value -
===============
Financial Contracts Open - Current Price -
===============
Cash on Deposit 115,513
===============
Life Insurance In Force
Industrial -
================
Ordinary -
================
Credit Life -
================
Group Life -
================
Amount of Accidental Death Insurance
In Force Under Ordinary Policies -
================
Life Insurance Polices with Disability
Provisions In Force
Industrial -
================
Ordinary -
================
Credit Life -
================
Group Life -
================
Supplementary Contracts In Force
Ordinary - Not Involving
Life Contingencies -
=================
Amount on Deposit -
=================
Income Payable -
=================
Ordinary - Involving Life Contingencies
Income Payable -
=================
Group - Not Involving Life Contingencies
Amount of Deposit -
=================
Income Payable -
=================
Group - Involving Life Contingencies
Income Payable -
=================
Annuities:
Ordinary
Immediate - Amount of Income Payable 327,358
=================
Deferred - Fully Paid Account Balance 22,161,975
=================
Deferred - Not Fully Paid - Account Balance -
=================
Group
Amount of Income Payable -
=================
Fully Paid Account Balance -
=================
Not Fully Paid - Account Balance -
=================
Accident and Health Insurance -
Premiums In Force
Ordinary -
=================
Group -
=================
Credit -
=================
Deposit Funds and Dividend Accumulations:
Deposit Funds - Account Balance -
=================
Dividend Accumulations - Account Balance -
=================
Claim Payments 1995, 1994 & 1993
Group Accident and Health Year -
Ended December 31,
1995 -
=================
1994 -
=================
1993 -
=================
Other Accident & Health
1995 -
=================
1994 -
=================
1993 -
=================
Other Coverages That Use Developmental
Methods to Calculate Claims Reserves
1995 -
=================
1994 -
=================
1993 -
=================
PART C
OTHER INFORMATION
24a. FINANCIAL STATEMENTS
PART A: Condensed Financial Information
PART B: Composite Deferred Variable Account Empire Life Insurance Company
24b. EXHIBITS
(1) Resolution of the Board of Directors of Empire Life Insurance Company
authorizing establishment of the Composite Deferred Variable
Account. 1/
(2) Not applicable.
(3) Agent Agreement. 1/
(4) Specimen Contract. 4/
(5) Form of application for a Contract. 4/
(6) (a) Amended Certificate of Incorporation of Empire Life Insurance
Company. 3/
(b) By-laws of Empire Life Insurance Company. 3/
(7) Not applicable.
(8) Not Applicable.
(9) (a) Opinion of Sutherland, Asbill & Brennan. 2/
(b) Consent of Sutherland, Asbill & Brennan.
(10) Consent of Deloitte & Touche.
(11) Not Applicable.
(12) Agreement to Purchase Shares. 2/
(13) Not Applicable.
1/ Filed with the initial Registration Statement (File No. 33-16968) on
September 2, 1987, and incorporated herein by reference.
2/ Filed with Pre-Effective Amendment No. 1 (File No. 33-16968) on November
18, 1987, and incorporated herein by reference.
3/ Filed with Post-Effective Amendment No. 3 (File No. 33-16968) on April 26,
1990, and incorporated herein by reference.
4/ Filed with Post-Effective Amendment No. 10 (File No. 33-16968) on April
28, 1995, and incorporated herein by reference.
25. Directors and Officers of the Depositor
Unless otherwise noted, the address of each director and officer is
Empire Life Insurance Company, 1201 Third Avenue, Suite 600, Seattle,
Washington 98101
Name and Principal Position and Offices
Business Address With Depositor
Robert William Eschrich President, Chief Executive Officer and
Director
James Ronald Hearldson Senior Vice President
Charles William Dishion Vice President, Treasurer and Controller
Kerry Kent Killinger Director
Brian Frederick Kreger Vice President, General Counsel and
Secretary
Charles Henry Leber, III Vice President
Glen Edward Manheim Senior Vice President and Director
Wayland Michael Hubbart Vice President and Actuary
Craig Elliott Tall Director
Lawrence Eugene Devall Vice President
Thomas J. Kappock Director
26. Persons Controlled by or Under Common Control With Depositor or Registrant
Excluding inactive or dormant subsidiaries:
Date Organized State of Percentage of
Or Acquired Entity Incorporation Ownership
--------------- ------------------------- ------------- --------------
1994 Washington Mutual, Inc Washington N/A
1994 Washington Mutual Bank Washington 100%
1985 WM Financial, Inc. Washington 100%
1985 Benefit Service Corp. Washington 100%
1982 Composite Research & Washington 100%
Management Co.
1982 Murphey Favre, Inc. Washington 100%
1986 Murphey Favre Securities Washington 100%
Services, Inc.
1983 WM Life Insurance Co. Arizona 100%
1987 Empire Life Insurance Co. Washington 100%
1984 Murphey Favre Properties, Inc. Washington 100%
1987 Murphey Favre Housing Managers Washington 100%
Inc.
1982 Washington Mutual Insurance Washington 100%
Services, Inc.
1980 Preston Ridge Financial Washington 100%
Services Corp.
1989 Preston Properties Arizona, Washington 100%
Inc.
1983 Preston Property Management Washington 100%
Company
1992 Preston Properties California Washington 100%
Inc.
1992 Preston Properties Texas, Inc. Washington 100%
1988 Washington Mutual, a Federal Federal 100%
Savings Bank
1988 Columbia Services, Inc. Washington 100%
1988 North American Acceptance Corp.Washington 100%
1991 VanFed Mortgage Co. Washington 100%
1991 Mill Plain One, Inc. Washington 100%
1991 Mill Plain Three, Inc. Washington 100%
1991 Mill Maple Properties, Inc. Oregon 100%
27. Number of Contract Owners
As of December 31, 1995:
Qualified contracts, 0.
Nonqualified contracts, 0.
28. Indemnification
The Company may, by action of its board of directors, indemnify and hold
harmless, officers, employees, and agents of the corporation, and pay
expenses associated with a proceeding, to the extent allowed under the
Washington Business Corporation Act. The rights to indemnification are
considered a contract right and amendment or repeal of the article or bylaw
granting such right will not adversely affect any right or protection with
respect to acts or omissions occurring prior to such amendment or repeal.
29a. Relationship of Principal Underwriter to Other Investment Companies
Murphey Favre, Inc., the principal underwriter of the Depositor, is also
principal underwriter for the following investment companies:
Composite Deferred Series, Inc.
Composite Growth and Income Fund, Inc.
Composite Income Fund, Inc.
Composite Bond & Stock Fund, Inc.
Northwest Fund, Inc.
Composite Tax-Exempt Bond Fund, Inc.
Composite U.S. Government Securities, Inc.
Composite Cash Management Company
29b. Principal Underwriters
The principal underwriter for the Registrant is Murphey Favre which also
serves in the same capacity for seven (7) other investment companies
identified in Item 29a.
Business and other connection of the underwriter were most recently filed
on Form BD, CRD 599, with the National Association of Securities Dealers on
March 12, 1996, and are incorporated herein by reference.
29c. Compensation of Murphey Favre, Inc.
The following commissions and other compensation were received by each
principal underwriter, directly or indirectly, from the Registrant during
the Registrant's last fiscal year (1994):
(1) (2) (3) (4) (5)
Net
Name of Underwriting
Principal Discount and Compensation Brokerage
Underwriter Commissions On Redemption Commissions Compensation
Murphey 0 0 0 0
Favre, Inc.
30. Location of Accounts and Records
Glen E. Manheim, Senior Vice President
Empire Life Insurance Company
1201 Third Avenue, Suite 600
Seattle, WA 98101
31. Management Services
No management related services are provided to the Registrant, except as
discussed in Parts A and B.
32. Undertakings
(a) A post-effective amendment to this registration statement will be filed
as frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Any application to purchase a contract offered by the prospectus will
include a space that an applicant can check to request a Statement of
Additional Information.
(c) Any Statement of Additional Information and any financial statements
required to be made available under this form will be delivered
promptly upon written or oral request.
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Rule 485(b) for
immediate effectiveness and has caused this Registration Statement to be signed
on its behalf, in the City of Seattle, and State of Washington, on this 30th day
of April, 1996.
COMPOSITE DEFERRED VARIABLE ACCOUNT
(Registrant)
EMPIRE LIFE INSURANCE COMPANY
(Depositor)
(SEAL)
Attest: /s/Brian F. Kreger By: /s/Robert W. Eschrich
--------------------------- ---------------------
Brian F. Kreger Robert W. Eschrich
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following Directors
and Officers of Empire Life Insurance Company.
/s/Kerry K. Killinger 4/30/96 Director
- -----------------------------------
Kerry K. Killinger Date
/s/Craig E. Tall 4/30/96 Director
- -----------------------------------
Craig E. Tall Date
/s/Robert W. Eschrich 4/30/96 President and Director
- ----------------------------------- (Chief Executive Officer)
Robert W. Eschrich Date (Chief Financial Officer)
/s/Glen E. Manheim 4/30/96 Senior Vice President and
- ----------------------------------- Director
Glen E. Manheim
/s/Charles W. Dishion 4/30/96 Treasurer and Controller
- ----------------------------------- (Chief Accounting Officer)
Charles W. Dishion
/s/Thomas J. Kappock 4/30/96 Director
- -----------------------------------
Thomas J. Kappock
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number
23.9-b Consent of Sutherland, Asbill & Brennan
23.10 Consent of Deloitte & Touche
EXHIBIT 9(b)
Consent of Sutherland, Asbill & Brennan
April 17, 1996
Empire Life Insurance Company
1201 Third Avenue
Suite 600
Seattle, WA 98101-3105
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "legal
Matters" in the Prospectus filed as part of the Post Effective Amendment No. 11
to Form N-4 for the Composite Deferred Variable Account of Empire Life Insurance
Company (File No. 33-16968). In giving this consent, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/Fred R. Bellamy
--------------------
Frederick R. Bellamy
EXHIBIT 10
Consent of Deloitte & Touche
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 11 to Form N-4
under the Securities Act of 1933 to the Registration Statement No. 33-16968 of
the Composite Deferred Variable Account of Empire Life Insurance Company (the
Registrant) of our report dated March 29, 1996, on the audit of the statutory
basis balance sheets of Empire Life Insurance Company as of December 31, 1995
and 1994, and the related and the related statutory basis statements of
operations, changes in capital and surplus, and cash flows for each of the three
years in the period ended December 31, 1995, and to the reference to us as
experts under the heading Independent Auditors in the Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Seattle, Washington
April 29, 1996
