File No. 33-91358
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST -EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNITED COMPANIES LIFE INSURANCE COMPANY
______________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Louisiana
____________________________________________________________
(State or Other Jurisdiction or Incorporation or Oganization)
________________________________________________________
(Primary Standard Industrial Classification Code Number)
72-0475131
________________________________________________________
(I.R.S. Employer Identification No.)
III United Plaza, 8545 United Plaza Blvd.,
Baton Rouge, Louisiana 70809-2251
(800) 825-7568
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Robert B. Thomas, Jr.
United Companies Life Insurance Company
III United Plaza
8545 United Plaza Blvd.
Baton Rouge, LA 70809-2251
(800) 825-7568
________________________________________________________
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code of Agent For Service)
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
Approximate date of commencement of proposed sale to the public...
As soon as practicable after the effective date.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box (X).
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering ( ).
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering ( ).
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box ( ).
=============================================================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
=============================================================================
CROSS REFERENCE PAGE
ITEM IN FORM S-1 CAPTION IN PROSPECTUS
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Forepart of the Registration Face Page of Registration,
Statement and Outside Front Cross Reference Page and
Cover Page of Prospectus Cover Page of Prospectus
Item 2. Inside Front and Outside Cover Page of Prospectus
Back Cover Pages of
Prospectus
Item 3. Summary Information, Risk Summary
Factors and Ratio of
Earnings to Fixed Charges
Item 4. Use of Proceeds Description of the Contracts
and Certificates
Item 5. Determination of Offering Description of Contracts
Price and Certificates
Item 6. Dilution Not Applicable
Item 7. Selling Security Holders Not Applicable
Item 8. Plan of Distribution Distribution of the Contracts
and Certificates
Item 9. Description of Securities Description of the Contracts
to be Registered and Certificates
Item 10. Interests of Named Experts Not Applicable
and Counsel
Item 11. Information with Respect to
the Registrant
(a) Information required by Additional Information About the
Item 101 of Regulation S-K, Company
description of the business
(b) Information required by Additional Information About the
Item 102 of Regulation S-K, Company
description of property
(c) Information required by Additional Information About the
Item 103 of Regulation S-K, Company
legal proceedings
(d) Where common equity securi- Not Applicable
ties are being offered, infor-
mation required by Item 201 of
Regulation S-K, market price of
and dividends on the regis-
trant's common equity and
related stockholder matters
(e) Financial statements Financial Statements
meeting the requirements of
Regulation S-X, as well as any
financial information required
by Rule 3-05 and Article 11 of
Regulation S-X
(f) Information required by Selected Financial Data
Item 301 of Regulation S-K,
selected financial data
(g) Information required by Not Applicable
Item 302 of Regulation S-K,
supplementary financial
information
(h) Information required by Management's
Item 303 of Regulation Discussion and Analysis
S-K, management's discussion of Financial Condition
and analysis of financial and Results of Oper-
condition and results of ations
operations
(i) Information required by Not Applicable
Item 304 of Regulation S-K,
changes in and disagreements
with accountants on accounting
and financial disclosure
(j) Information required by Additional Information
Item 401 of Regulation S-K, About the Company
directors and executive
officers
(k) Information required by Additional Information
Item 402 of Regulation S-K, About the Company
executive compensation
(l) Information required by Additional Information
Item 403 of Regulation S-K, About the Company
security ownership of certain
beneficial owners and
management
(m) Information required by Financial Statements
Item 404 of Regulation S-K,
certain relationships and
related transactions
</TABLE>
UNITED COMPANIES LIFE INSURANCE COMPANY
Home Office:
III United Plaza
8545 United Plaza Blvd.
Baton Rouge, Louisiana 70809-2251
(800) 825-7568
INDIVIDUAL AND GROUP FIXED AND VARIABLE
DEFERRED ANNUITY CONTRACTS AND CERTIFICATES
issued by
UNITED COMPANIES SEPARATE ACCOUNT ONE
and
UNITED COMPANIES LIFE INSURANCE COMPANY
The Individual and Group Fixed and Variable Deferred Annuity Contracts and
Certificates (collectively, the "Contracts") described in this Prospectus
provide for accumulation of values on a fixed and variable basis and payment
of annuity payments on a fixed basis. The Contracts are designed for use by
individuals in retirement plans on a Qualified or Non-Qualified basis. (See
"Definitions.")
Purchase Payments for the Contracts will be allocated to a segregated
investment account of United Companies Life Insurance Company (the "Company")
which account has been designated United Companies Separate Account One (the
"Separate Account") or to the Company's Fixed Account or Market Value
Adjustment Account ("MVA Account"). Under certain circumstances, however,
Purchase Payments may initially be allocated to the Scudder Money Market
Sub-Account of the Separate Account. Currently, an Owner or Certificate Holder
may not be invested in more than ten investment options at any time (an
investment option is each Sub-Account of the Separate Account, the Fixed
Account, and each MVA Account Guarantee Period). The Separate Account invests
in shares of the following: MFS Variable Insurance Trust (MFS Emerging Growth
Series and MFS Total Return Series); Federated Insurance Series (Federated
High Income Bond Fund II, Federated Utility Fund II and Federated Fund for
U.S. Government Securities II); Dreyfus Stock Index Fund; Dreyfus Variable
Investment Fund (Growth and Income Portfolio); Scudder Variable Life
Investment Fund (Money Market Portfolio and International Portfolio); Van Eck
Worldwide Insurance Trust (Gold and Natural Resources Fund); and The Alger
American Fund (Alger American Growth Portfolio).
THE CONTRACTS AND CERTIFICATES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK
THAT MAY CAUSE THE VALUE OF THE OWNER'S OR CERTIFICATE HOLDER'S INVESTMENT TO
FLUCTUATE, AND WHEN THE CONTRACTS ARE SURRENDERED, THE VALUE MAY BE HIGHER OR
LOWER THAN THE PURCHASE PAYMENTS.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts and
Certificates is contained in the Statement of Additional Information which is
available at no charge. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The Table of Contents of the Statement of Additional Information
can be found on Page __ of this Prospectus. For the Statement of Additional
Information, call (800) 825-7568 or write to the Company at P.O. Box
3257, 8545 United Plaza Boulevard, Baton Rouge, LA 70821-3257.
INQUIRIES:
Any inquiries can be made by telephone or in writing to the Company at
the address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus and the Statement of Additional Information are dated May
1, 1996.
This Prospectus should be kept for future reference.
TABLE OF CONTENTS
PAGE
DEFINITIONS
HIGHLIGHTS
General
Separate Account
MVA Account
Right to Examine Period
Charges
Contingent Deferred Sales Charges
Free Withdrawal
Mortality and Expense Risk Charge
Administrative Charge
Contract and Certificate Maintenance Charges
Transfer Fee
Premium Taxes
Taxes
Fixed Account and MVA Account
FEE TABLE
CONDENSED FINANCIAL INFORMATION
THE COMPANY
THE SEPARATE ACCOUNT
ELIGIBLE FUNDS AND PORTFOLIOS
MFS Variable Insurance Trust
MFS Emerging Growth Series
MFS Total Return Series
Federated Insurance Series
Federated High Income Bond Fund II
Federated Utility Fund II
Federated Fund for U.S. Government Securities II
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund
Growth and Income Portfolio
Scudder Variable Life Investment Fund
Money Market Portfolio
International Portfolio
Van Eck Worldwide Insurance Trust
Gold and Natural Resources Fund
The Alger American Fund
Alger American Growth Portfolio
Voting Rights
Substitution of Securities
FIXED ACCOUNT OPTIONS
General
Fixed Account Option
Market Value Adjustment Account
CHARGES AND DEDUCTIONS
Deduction for Contingent Deferred Sales Charge (Sales Load)
Reduction or Elimination of the Contingent Deferred Sales Charge
Deduction for Mortality and Expense Risk Charge
Deduction for Administrative Charge
Deduction for Contract and Certificate Maintenance Charges
Deduction for Transfer Fee
Deduction for Premium and Other Taxes
Deduction for Expenses of the Eligible Funds
THE CONTRACTS AND CERTIFICATES
Owner/Certificate Holder
Joint Owners/Joint Certificate Holders
Contract Owner
Annuitant
Assignment
PURCHASE PAYMENTS, CONTRACT VALUE AND CERTIFICATE HOLDER'S ACCOUNT VALUE
Purchase Payment
Allocation of Purchase Payments
Dollar Cost Averaging
Rebalancing
Contract Value
Certificate Holder's Account Value
Accumulation Units
Accumulation Unit Value
TRANSFERS
Transfers During the Accumulation Period
WITHDRAWALS
Systematic Withdrawal Program
Suspension or Deferral of Payments
PROCEEDS PAYABLE ON DEATH
Death of Owner or Certificate Holder During the Accumulation Period
Death Benefit Amount During the Accumulation Period
Death Benefit Options During the Accumulation Period
Death of Owner/Certificate Holder During the Annuity Period
Death of Annuitant
Payment of Death Benefit
Beneficiary
Change of Beneficiary
ANNUITY PROVISIONS
General
Annuity Date
Selection or Change of an Annuity Option
Frequency and Amount of Annuity Payments
Fixed Annuity
Annuity Options
OPTION A. LIFE ANNUITY
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 60, 120, 180 or 240 MONTHS
OPTION C. JOINT AND SURVIVOR ANNUITY
DISTRIBUTOR
PERFORMANCE INFORMATION
Money Market Sub-Account
Other Sub-Accounts
Hypothetical Performance
TAX STATUS
General
Diversification
Contracts and Certificates Owned by Other than Natural Persons
Multiple Contracts/Certificates
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts and Certificates
Qualified Contracts and Certificates
Tax Treatment of Withdrawals - Qualified Contracts and Certificates
Tax-Sheltered Annuities -- Withdrawal Limitations
Section 457 - Deferred Compensation Plans
ADDITIONAL INFORMATION ABOUT THE COMPANY
Business
General
Recent Developments
Principal Products
Distribution
Reinsurance
Life Insurance and Annuity Reserves
Investments
Fixed Maturity Investments
Mortgage Loans on Real Estate
Investment Real Estate
Insurance Ratings
Government Regulation and Legislation
General Regulation
Regulation at Federal Level
Regulation of Dividends and Other Payments
Insurance Regulatory Changes
Insurance Regulatory Information System
Risk-Based Capital Requirements
Assessments Against Insurers
Competition
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Revenues
The Company's Directors and Executive Officers
Executive Compensation
LEGAL PROCEEDINGS
EXPERTS
REGISTRATION STATEMENT
LEGAL OPINIONS
FINANCIAL STATEMENTS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
APPENDIX
DEFINITIONS
ACCUMULATION PERIOD: The period prior to the Annuity Date during which
Purchase Payments may be made.
ACCUMULATION UNIT: A unit of measure used to determine the value of the
Owner's or Certificate Holder's interest in a Sub-Account of the Separate
Account during the Accumulation Period.
ADJUSTED CONTRACT VALUE: The Contract Value less any applicable Premium Tax
and Contract Maintenance Charge, if any. This amount is applied to the
applicable Annuity Tables to determine Annuity Payments under an Individual
Contract.
AGE: The age of any Owner, Certificate Holder or Annuitant on his/her last
birthday.
ANNUITANT: The natural person on whose life Annuity Payments to an Owner or
Certificate Holder are based. On or after the Annuity Date, the Annuitant
shall also include any Joint Annuitant.
ANNUITY DATE: The date on which Annuity Payments begin.
ANNUITY OPTIONS: Options available for Annuity Payments.
ANNUITY PAYMENTS: The series of payments made to the Owner or Certificate
Holder or any named payee after the Annuity Date under the Annuity Option
selected.
ANNUITY PERIOD: The period of time beginning with the Annuity Date during
which Annuity Payments are made.
BENEFICIARY: The person(s) or entity(ies) who will receive the death benefit
payable under a Contract or Certificate.
CERTIFICATE: The document issued to a Certificate Holder to evidence a
Certificate Holder's Account established under a group Contract.
CERTIFICATE ANNIVERSARY: An anniversary of the Certificate Issue Date.
CERTIFICATE ISSUE DATE: The date a Certificate is issued to a Certificate
Holder.
CERTIFICATE HOLDER: A person who has established a Certificate Holder's
Account under a group Contract.
CERTIFICATE HOLDER'S ACCOUNT: A record established for each Certificate Holder
to maintain values under a Group Contract.
CERTIFICATE HOLDER'S ACCOUNT VALUE: The dollar value as of any Valuation
Period of all amounts accumulated in a Certificate Holder's Account.
CERTIFICATE HOLDER'S ADJUSTED ACCOUNT VALUE: A Certificate Holder's Account
Value less any applicable Premium Tax and Certificate Maintenance Charge.
This amount is applied to the applicable Annuity Tables to determine Annuity
Payments under a Certificate.
CERTIFICATE WITHDRAWAL VALUE: The Certificate Holder's Account Value less any
applicable Premium Tax, less any Contingent Deferred Sales Charge, less any
applicable Certificate Maintenance Charge and plus or minus any Market Value
Adjustment.
CERTIFICATE YEAR: The first Certificate Year is the annual period which begins
on the Certificate Issue Date. Subsequent Certificate Years begin on each
anniversary of the Certificate Issue Date.
COMPANY: United Companies Life Insurance Company.
CONTRACT ANNIVERSARY: An anniversary of the Issue Date.
CONTRACT ISSUE DATE: The date on which an individual Contract became
effective.
CONTRACT OWNER: The person or entity to which a group Contract is issued.
CONTRACT VALUE: The dollar value as of any Valuation Period of all amounts
accumulated in an individual Contract.
CONTRACT WITHDRAWAL VALUE: The Contract Value of an individual Contract less
any applicable Premium Tax, less any Contingent Deferred Sales Charge, less
any applicable Contract Maintenance Charge and plus or minus any Market Value
Adjustment.
CONTRACT YEAR: The first Contract Year is the annual period which begins on
the Issue Date. Subsequent Contract Years begin on each anniversary of the
Issue Date.
CURRENT INTEREST RATE: The interest rate credited to a Certificate Holder's
Account Value by the Company for any given Guarantee Period in the MVA Account
or the Fixed Account.
EFFECTIVE DATE: The Effective Date of a Guarantee Period with a Current
Interest Rate.
ELIGIBLE FUND: An investment entity into which assets of the Separate Account
will be invested.
FIXED ACCOUNT: An investment option within the General Account.
FIXED ANNUITY: A series of payments made during the Annuity Period which are
guaranteed as to dollar amount by the Company.
GENERAL ACCOUNT: The Company's general investment account which contains all
the assets of the Company with the exception of the Separate Account and other
segregated asset accounts.
GUARANTEE PERIOD: The period for which the Current Interest Rate is credited
in either the MVA Account or the Fixed Account.
GUARANTEED INTEREST RATE: The interest rate credited to the Contract Value or
Certificate Holder's Account Value by the Company for any given Guarantee
Period.
INTEREST RATES: All stated interest rates are effective annual yields.
MARKET VALUE ADJUSTMENT: An adjustment to the amount withdrawn or transferred
from the MVA Account prior to the end of the applicable Guarantee Period. The
adjustment reflects the change in the value of the funds withdrawn or
transferred due to the change in the interest rates since the beginning of the
Guarantee Period.
MVA ACCOUNT: An investment option where the Company guarantees the rate of
interest for a specified period and where withdrawals or transfers may be
subject to a Market Value Adjustment.
NET PURCHASE PAYMENT: A Purchase Payment less any applicable Premium Tax.
NON-QUALIFIED CONTRACTS AND CERTIFICATES: Contracts and Certificates issued
under non-qualified plans which do not receive favorable tax treatment under
Sections 401, 403(b), 408 or 457 of the Internal Revenue Code of 1986, as
amended (the "Code").
OWNER: The person or entity entitled to the ownership rights stated in an
individual Contract.
PORTFOLIO: A segment of an Eligible Fund which constitutes a separate and
distinct class of shares which may also sometimes be referred to herein as a
Series or a Fund.
PREMIUM TAX: Any premium taxes paid to any governmental entity assessed
against Purchase Payments, Contract Values under individual Contracts or
Certificate Holders' Account Values.
QUALIFIED CONTRACTS AND CERTIFICATES: Contracts and Certificates issued under
qualified plans which receive favorable tax treatment under Sections 401,
403(b), 408 or 457 of the Code.
SEPARATE ACCOUNT: The Company's Separate Account designated as United
Companies Separate Account One.
SUB-ACCOUNT: Separate Account assets are divided into Sub-Accounts. Assets of
each Sub-Account will be invested in shares of an Eligible Fund or a Portfolio
of an Eligible Fund.
VALUATION DATE: Each day on which the Company and the New York Stock Exchange
("NYSE") are open for business.
VALUATION PERIOD: The period of time beginning at the close of business of
the NYSE on each Valuation Date and ending at the close of business for the
next succeeding Valuation Date.
WRITTEN REQUEST: A request in writing, in a form satisfactory to the Company,
which is received by the Company.
HIGHLIGHTS
GENERAL
The Contracts and Certificates offered by this Prospectus are combined fixed
and variable deferred annuity contracts and certificates issued by United
Companies Life Insurance Company (the "Company"). Pursuant to selections made
by the Owner or Certificate Holder, Net Purchase Payments are allocated to (i)
a segregated investment account of the Company which has been designated
United Companies Separate Account One (the "Separate Account"), (ii) the Fixed
Account, which is an investment option within the General Account of the
Company; and (iii) the MVA Account, which is an investment option within the
General Account where the Company guarantees the rate of interest for a
specified period and where withdrawals or transfers may be subject to a Market
Value Adjustment. Under certain circumstances, however, Net Purchase Payments
may initially be allocated to the Scudder Money Market Sub-Account of the
Separate Account (see "Right to Examine Period" below).
SEPARATE ACCOUNT
The Separate Account is divided into Sub-Accounts. The Sub-Accounts invest in
the following:
MFS Variable Insurance Trust
MFS Emerging Growth Series
MFS Total Return Series
Federated Insurance Series
Federated High Income Bond Fund II
Federated Utility Fund II
Federated Fund for U.S. Government Securities II
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund
Growth and Income Portfolio
Scudder Variable Life Investment Fund
Money Market Portfolio
International Portfolio
Van Eck Worldwide Insurance Trust
Gold and Natural Resources Fund
The Alger American Fund
Alger American Growth Portfolio
Owners and Certificate Holders bear the investment risk for all amounts
allocated to the Separate Account.
MVA ACCOUNT
The MVA Account offers investment options which pay fixed rates of interest
declared by the Company for specified periods (currently, 3 years, 5 years and
7 years) from the date amounts are allocated to the MVA Account. Please
contact the Company or the agent from whom this Prospectus was obtained for
information as to currently available options.
Such declared rates will vary from time to time but will not be less than 3%
per annum, and, once established for a particular allocation, will not change
during the Guarantee Period. However, withdrawals, transfers or annuitization
prior to the end of the Guarantee Period may be subject to a Market Value
Adjustment. Owners and Certificate Holders bear the risk that amounts
reallocated within, or prematurely withdrawn, transferred or annuitized from
the MVA Account prior to the end of their respective Guarantee Period could
result in the Owner or Certificate Holder receiving less than the Purchase
Payments or amounts so allocated.
RIGHT TO EXAMINE PERIOD
The individual Contract or the Certificate may be returned to the Company
for any reason within ten (10) calendar days, or longer in states where
required, (30 days if purchased by individuals who are 60 years of age or
older in California, or twenty (20) calendar days from the date of receipt
with respect to the circumstances described in (c) below) after its receipt
by the Owner or Certificate Holder ("Right to Examine Period"). It may be
returned to the Company. When the Contract or Certificate is received by
the Company, it will be voided as if it had never been in force. Upon its
return, the Company will refund the Contract Value or Certificate Holder's
Account Value next computed after receipt of the Contract or Certificate by
the Company except in the following circumstances: (a) where the Contract
or Certificate is purchased pursuant to an Individual Retirement Annuity; (b)
in those states which require the Company to refund Purchase Payments,
less withdrawals; or (c) in the case of Contracts or Certificates which are
deemed by certain states to be replacing an existing annuity or insurance
contract and which require the Company to refund Purchase Payments, less
withdrawals. With respect to the circumstances described in (a), (b) and (c)
above, the Company will refund the greater of Purchase Payments, less any
withdrawals, or the Contract Value or Certificate Holder's Account Value,
and will allocate all Purchase Payments made during the Right to Examine
Period to the Scudder Money Market Sub-Account until the expiration of
fifteen days from the Issue Date or Certificate Issue Date (or twenty-five
days in the case of Contracts or Certificates described under (c) above).
Upon the expiration of the fifteen day period (or twenty-five day period with
respect to Contracts or Certificates described under (c)), the Sub-Account
value of the Scudder Money unt, the Fixed Account and the MVA Account in
accordance with the election made by the Owner or Certificate Holder at the
time the Contract or Certificate is issued.
CHARGES
CONTINGENT DEFERRED SALES CHARGES . A Contingent Deferred Sales Charge
is assessed against Purchase Payments withdrawn. The Charge is calculated at
the time of each withdrawal and will be deducted from the account value
remaining in an individual Contract or Certificate. The Contingent Deferred
Sales Charge is based upon the length of time from receipt of Purchase
Payments to the date of withdrawal. Each Purchase Payment is tracked as to
its date of receipt and withdrawals thereof are determined in accordance with
the following:
CONTINGENT DEFERRED SALES CHARGE:
<TABLE>
<CAPTION>
<S> <C>
Number of Complete
Years Since Receipt of
Purchase Payments Charge
- ---------------------------------------- -------
0 years 8.5%
1 years 8.0%
2 years 7.5%
3 years 7.0%
4 years 6.5%
5 years 6.0%
6 years 5.0%
7 years 4.0%
8 years 3.0%
9 years 2.0%
10 years or more 0.0%
</TABLE>
FREE WITHDRAWAL . On each Contract or Certificate Anniversary, the Free
Withdrawal amount is equal to the greater of: (a) the cumulative earnings in
the Owner's Contract Value or the Certificate Holder's Account Value or (b)
10% of Purchase Payments as of the beginning of the current Contract or
Certificate Year. On other than Contract and Certificate Anniversaries, the
Free Withdrawal amount is equal to the Free Withdrawal amount at the beginning
of the Contract or Certificate Year less amounts withdrawn without deduction
of Contingent Deferred Sales Charges during the current Contract or
Certificate Year. (See "Charges and Deductions - Deduction for Contingent
Deferred Sales Charge.")
MORTALITY AND EXPENSE RISK CHARGE . Each Valuation Period, the Company
deducts a Mortality and Expense Risk Charge from the Separate Account which is
equal, on an annual basis, to 1.52% of the average daily net asset value of
each Sub-Account of the Separate Account. This Charge compensates the Company
for assuming the mortality and expense risks under the Contracts and
Certificates. (See "Charges and Deductions -Deduction for Mortality and
Expense Risk Charge.")
ADMINISTRATIVE CHARGE . Each Valuation Period, the Company deducts an
Administrative Charge from the Separate Account which is equal, on an annual
basis, to .15% of the average daily net asset value of each Sub-Account of
the Separate Account. This Charge compensates the Company for costs
associated with the administration of the Contracts, Certificates and the
Separate Account. (See "Charges and Deductions -Deduction for Administrative
Charge.")
CONTRACT AND CERTIFICATE MAINTENANCE CHARGES . The Company makes a
deduction of $30.00 each Contract or Certificate year. However, during the
Accumulation Period if the Owner's Contract Value or the Certificate Holder's
Account Value on the Contract or Certificate Anniversary is at least $75,000,
then no Contract or Certificate Maintenance Charge is deducted. If a total
withdrawal is made on other than a Contract or Certificate Anniversary and the
Owner's Contract Value or the Certificate Holder's Account Value for the
Valuation Period during which the total withdrawal is made is less than
$75,000, the full Contract or Certificate Maintenance Charge will be deducted
at the time of the total withdrawal. During the Annuity Period, no Contract or
Certificate Maintenance Charge is deducted. (See "Charges and Deductions -
Deduction for Contract and Certificate Maintenance Charges.")
TRANSFER FEE . Under certain circumstances, a Transfer Fee may be
assessed when an Owner or Certificate Holder transfers Contract Values or
Certificate Holder's Account Value between Sub-Accounts or to or from the
Fixed Account. (See "Charges and Deductions - Deduction for Transfer Fee.")
PREMIUM TAXES . Some state and other jurisdictions assess Premium Taxes
at the time Purchase Payments are made; others assess premium taxes at the
time annuity payments begin. The Company currently deducts Premium Taxes when
they are due. (See "Charges and Deductions - Deduction for Premium and Other
Taxes.")
TAXES
There is a ten percent (10%) federal income tax penalty that may be applied
to the taxable income portion of any distribution from the individual
Contracts and the Certificates. However, the penalty is not imposed under
certain circumstances. See "Tax Status - Tax Treatment of Withdrawals -
Non-Qualified Contracts and Certificates" and "Tax Treatment of Withdrawals -
Qualified Contracts and Certificates." For a further discussion of the
taxation of the Contracts and Certificates, see "Tax Status."
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) are limited
to the following circumstances when the Owner/Certificate Holder: (a) attains
age 59 1/2; (b) separates from service; (c) dies; (d) becomes disabled (within
the meaning of Section 72(m)(7) of the Code); or (e) in the case of hardship.
Withdrawals for hardship are restricted to the portion of the Owner's Contract
Value/Certificate Holder's Account Value which represents contributions made
by the Owner/Certificate Holder and does not include any investment results.
The limitations on withdrawals became effective on January 1, 1989, and apply
only to: (1) salary reduction contributions made after December 31, 1988; (2)
income attributable to such contributions; and (3) income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or transfers between certain Qualified Plans. Tax penalties
may also apply. (See "Tax Status - Tax Treatment of Withdrawals - Qualified
Contracts.") Owners/Certificate Holders should consult their own tax counsel
or other tax adviser regarding any distributions. ( See "Tax Status
- -Tax-Sheltered Annuities - Withdrawal Limitations.")
See "Tax Status - Diversification" for a discussion of owner control of the
underlying investments in a variable annuity contract.
FIXED ACCOUNT AND MVA ACCOUNT
Because of certain exemptive and exclusionary provisions, interests in the
Fixed Account are not registered under the Securities Act of 1933 and the
Fixed Account and the MVA Account are not registered as investment companies
under the Investment Company Act of 1940, as amended ("1940 Act").
Accordingly, neither the Fixed Account nor any interests therein are subject
to the provisions of these Acts, and the MVA Account is not registered under
the 1940 Act, and the Company has been advised that the staff of the
Securities and Exchange Commission has not reviewed the disclosures in the
Prospectus relating to the Fixed Account. Disclosures regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
UNITED COMPANIES SEPARATE ACCOUNT ONE
FEE TABLE
OWNER AND CERTIFICATE HOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
Contingent Deferred Sales Charge
(see Note 1 below) Number of Complete
Years Since Receipt
of Purchase Payment Charge
------------------- -------
0 years 8.5%
1 years 8.0%
2 years 7.5%
3 years 7.0%
4 years 6.5%
5 years 6.0%
6 years 5.0%
7 years 4.0%
8 years 3.0%
9 years 2.0%
10 years or more 0.0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Transfer Fee (see Note 2 below) No charge for first 12 transfers in a Contract
or Certificate Year; thereafter the fee is the
lesser of $25 or 2% of the amount transferred.
</TABLE>
Contract and Certificate $30 per individual Contract or Certificate per
Maintenance Charges Contract or Certificate Year.
(see Note 3 below)
<TABLE>
<CAPTION>
<S> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.52%
Administrative Charge .15%
-----
Total Separate Account Annual Expenses 1.67%
</TABLE>
ELIGIBLE FUND ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Management Other Total
Fees Expenses Annual Expenses
----------- --------- ----------------
MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth Series(a) .75% .25% 1.00%
MFS Total Return Series(a) .75% .25% 1.00%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II .00% .80% .80%
Federated Utility Fund II .00% .85% .85%
Federated Fund for
U.S. Government Securities II .00% .80% .80%
DREYFUS STOCK INDEX FUND(e) .27% .12% .39%
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio .75% .17% .92%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Money Market Portfolio .37% .13% .50%
International Portfolio .875% .205% 1.08%
VAN ECK WORLDWIDE INSURANCE TRUST
Gold and Natural Resources Fund .75% .21% .96%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio .75% .21% .96%
</TABLE>
(a) The adviser has agreed to bear expenses for the MFS Emerging Growth
Series and the MFS Total Return Series such that a Series' aggregate operating
expenses shall not exceed, on an annualized basis, 1.00% of the average daily
net assets of the Series from November 2, 1994 through December 31, 1996,
1.25% of the average daily net assets of the Series from January 1, 1997
through December 31, 1998, and 1.50% of the average daily net assets of the
Series from January 1, 1999 through December 31, 2004; provided, however, that
this obligation may be terminated or revised at any time. To the extent that
actual Series' expenses do not reach the limit, the Series will reimburse MFS
for prior expenses paid by MFS on behalf of the Series such that such series'
expense ratio does not exceed 1.00% of its average daily net assets. Absent
this expense arrangement, "Other Expenses" and "Total Annual Expenses" would
be 2.16% and 2.91%, respectively for the MFS Emerging Growth Series and 2.02%
and 2.77%, respectively for the MFS Total Return Series.
(b) The management fee has been reduced to reflect the voluntary waiver
of the management fee. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is .60%. The total
operating expenses were 4.20% absent the voluntary waiver of the management
fee and the voluntary reimbursement of certain other operating expenses.
(c) The management fee has been reduced to reflect the voluntary waiver
of the management fee. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is .75%. The total
operating expenses were 3.09% absent the voluntary waiver of the management
fee and the voluntary reimbursement of certain other operating expenses.
(d) The management fee has been reduced to reflect the voluntary waiver
of the management fee. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is .60%. The total
operating expenses were 5.61% absent the voluntary waiver of the management
fee and the voluntary reimbursement of certain other operating expenses.
(e) The fees and expenses shown above take into account an arrangement
pursuant to which the manager and/or administrator for Dreyfus Stock Index
Fund waive fees and/or assume expenses so that aggregate expenses for a fiscal
year (excluding brokerage commissions, transaction fees and extraordinary
expenses) do not exceed .40%. This arrangement is in effect until the manager
and the administrator give Dreyfus Stock Index Fund at least 180 days' prior
notice to the contrary. Absent such arrangements, the "Management Fees,"
"Other Expenses" and "Total Annual Expenses" would be .30%, .12% and
.42%, respectively.
EXAMPLES (See Note 4 below)
An Owner/Certificate Holder would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets: (a) if the
Contract/Certificate is surrendered at the end of each time period; (b) if the
Contract/Certificate is not surrendered or if the Contract/Certificate is
annuitized.
<TABLE>
<CAPTION>
Time Periods
1 year 3 years
--------------- --------------
<S> <C> <C> <C>
MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth Series a) $113 a) $162
b) $ 28 b) $ 87
MFS Total Return Series a) $113 a) $162
b) $ 28 b) $ 87
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II a) $111 a) $156
b) $ 26 b) $ 81
Federated Utility Fund II a) $112 a) $157
b) $ 27 b) $ 82
Federated Fund for
U.S. Government Securities II a) $111 a) $156
b) $ 26 b) $ 81
DREYFUS STOCK INDEX FUND
a) $107 a) $143
b) $ 22 b) $ 68
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio a) $112 a) $159
b) $ 27 b) $ 84
SCUDDER VARIABLE LIFE INVESTMENT FUND
Money Market Portfolio a) $108 a) $147
b) $ 23 b) $ 72
International Portfolio a) $114 a) $164
b) $ 29 b) $ 89
VAN ECK WORLDWIDE INSURANCE TRUST
Gold and Natural Resources Fund a) $113 a) $160
b) $ 28 b) $ 85
THE ALGER AMERICAN FUND
Alger American Growth Portfolio a) $113 a) $160
b) $ 28 b) $ 85
</TABLE>
THE ANNUAL EXPENSES OF THE ELIGIBLE FUNDS AND THE EXAMPLES ARE BASED ON DATA
PROVIDED BY THE RESPECTIVE ELIGIBLE FUNDS. THE COMPANY HAS NOT INDEPENDENTLY
VERIFIED SUCH DATA.
NOTES TO FEE TABLE AND EXAMPLES
The Fee Table is provided to assist Owners and Certificate Holders in
understanding the various costs and expenses that they will bear directly or
indirectly. The Fee Table reflects expenses of both the Separate Account and
the Eligible Funds. For more complete descriptions of the various costs and
expenses involved, see "Charges and Deductions" in this Prospectus and the
Prospectuses for each of the Eligible Funds. Premium Taxes may also be
applicable, although they do not appear in this table.
1. Under certain circumstances a Free Withdrawal can be made which is
not subject to a Contingent Deferred Sales Charge.
2. Transfers made at the end of the Right to Examine Period and any
transfers made pursuant to an approved Dollar Cost Averaging Program and/or
Rebalancing Program will not be counted in determining the application of the
Transfer Fee.
3. During the Accumulation Period, if the Owner's Contract Value or the
Certificate Holder's Account Value on the Contract or Certificate Anniversary
is at least $75,000, then no Contract or Certificate Maintenance Charge is
deducted. If a total withdrawal is made on other than a Contract or
Certificate Anniversary and the Owner's Contract Value or Certificate Holder's
Account Value for the Valuation Period during which the total withdrawal is
made is less than $75,000, the full Contract or Certificate Maintenance Charge
will be deducted at the time of the total withdrawal. During the Annuity
Period, no Contract or Certificate Maintenance Charges are deducted.
4. The Examples assume an estimated $25,000 Contract Value or Certificate
Holder's Account Value so that the Contract and Certificate Maintenance
Charges per $1,000 of net asset value in the Separate Account are $1.20. Such
charge would be higher for smaller values and lower for higher values.
5. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values
The following schedule includes Accumulation Unit Values for the periods
indicated. This data has been extracted from the Separate Account's Financial
Statements. This information should be read in conjunction with the Separate
Account's Financial Statements and related notes thereto which appear
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Period from commencement of
operations (November 28,
1995) through 12-31-95
ALGER AMERICAN GROWTH SUB-ACCOUNT
Unit value at beginning of period $ 10.00
Unit value at end of period $ 10.05
Number of Units outstanding at end of period 6,521
DREYFUS STOCK INDEX FUND SUB-ACCOUNT
Unit value at beginning of period $ 10.00
Unit value at end of period $ 10.15
Number of Units outstanding at end of period 4,041
FEDERATED HIGH INCOME BOND FUND II SUB-ACCOUNT*
Unit value at beginning of period $ 10.00
Unit value at end of period $ 10.16
Number of Units outstanding at end of period 456
MFS EMERGING GROWTH SUB-ACCOUNT
Unit value at beginning of period $ 10.00
Unit value at end of period $ 10.19
Number of Units outstanding at end of period 100
MFS TOTAL RETURN SUB-ACCOUNT
Unit value at beginning of period $ 10.00
Unit value at end of period $ 10.25
Number of Units outstanding at end of period 2,346
MONEY MARKET SUB-ACCOUNT
Unit value at beginning of period $ 10.00
Unit value at end of period $ 10.04
Number of Units outstanding at end of period 7,407
INTERNATIONAL SUB-ACCOUNT
Unit value at beginning of period $ 10.00
Unit value at end of period $ 10.11
Number of Units outstanding at end of period 6
</TABLE>
As of December 31, 1995, the Utility, U.S. Government Bond, Growth and Income
and Gold and Natural Resources Sub-Accounts had not yet commenced operations.
* Formerly, the Corporate Bond Sub-Account.
THE COMPANY
United Companies Life Insurance Company (the "Company") is a stock life
insurance company domiciled in Louisiana and organized in 1955. It is
currently authorized to conduct business in 47 states, the District of
Columbia and Puerto Rico. The Company is a wholly-owned subsidiary of United
Companies Financial Corporation ("UCFC").
On February 2, 1996, UCFC signed a stock purchase agreement ("Agreement")
dated as of January 30, 1996, for the sale of all of the outstanding capital
stock of the Company to UC Life Holding Corp., a new Delaware corporation
formed by Knightsbridge Capital Fund I, L.P. ("Knightsbridge"), for $164
million plus earnings of the Company from January 1, 1996, to closing of the
transaction. Knightsbridge, which is a private investment partnership with
institutional partners, was formed in 1995 to make equity investments in
companies engaged primarily in the life insurance industry. Knightsbridge is a
Delaware limited partnership, the limited partners of which are primarily
affiliates of leading domestic and international banking organizations. The
general partner is Knightsbridge Management L.L.C. Under the terms of the
Agreement, the sales price is comprised of cash, estimated, as of January
30, 1996, to be $109 million, and real estate and other assets owned by the
Company to be distributed to UCFC prior to the closing. The real estate to
be distributed includes portions of the United Plaza office park, including
UCFC's home office. In addition, UCFC will purchase a convertible promissory
note from an affiliate of the purchaser for $15 million in cash. The purchaser
also agreed that the Company would continue to be an investor in first lien home
equity loans originated by UCFC's lending operations and that the purchaser
would use commercially reasonable efforts to maintain the Company's home office
operations in its present location in Baton Rouge, Louisiana following the
closing for at least two years. The Agreement is subject to approval by UCFC's
shareholders and regulatory authorities and the satisfaction of other
conditions, and provides that the closing will occur on or before July 31,
1996.
For more detailed information about the Company, see "Additional Information
About the Company."
THE SEPARATE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to Louisiana insurance law on November 2,
1994. This segregated asset account has been designated United Companies
Separate Account One (the "Separate Account"). The Company has caused the
Separate Account to be registered with the Securities and Exchange Commission
as a unit investment trust pursuant to the provisions of the Investment
Company Act of 1940.
The assets of the Separate Account are the property of the Company. However,
the assets of the Separate Account, equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business the Company may conduct.
Income, gains and losses, whether or not realized, are, in accordance with the
Contracts and Certificates, credited to or charged against the Separate
Account without regard to other income, gains or losses of the Company. The
Company's obligations arising under the Contracts and Certificates are general
obligations.
The Separate Account meets the definition of a "separate account" under
federal securities laws.
The Separate Account is divided into Sub-Accounts. Each Sub-Account invests
in one Eligible Fund or a Portfolio of an Eligible Fund.
ELIGIBLE FUNDS AND PORTFOLIOS
The Separate Account invests in the shares of the Eligible Funds and
Portfolios as described below. The description below contains a short
discussion of the investment objective(s) and the investment advisers. See the
Prospectuses for the Eligible Funds for more complete discussions.
There is no assurance that the investment objective of any of the Eligible
Funds or Portfolios will be met. Owners and Certificate Holders bear the
complete investment risk for Purchase Payments allocated to an Eligible Fund
or Portfolio. Contract Values and Certificate Holder's Account Values will
fluctuate in accordance with the investment performance of the Portfolios to
which Purchase Payments are allocated, and in accordance with the imposition
of the fees and charges assessed under the Contracts and Certificates.
DETAILED INFORMATION ABOUT THE ELIGIBLE FUNDS IS CONTAINED IN THE ACCOMPANYING
CURRENT PROSPECTUSES OF THE ELIGIBLE FUNDS. THE PROSPECTUSES OF THE ELIGIBLE
FUNDS MAY CONTAIN PORTFOLIOS NOT CURRENTLY AVAILABLE IN CONNECTION WITH THE
CONTRACTS AND CERTIFICATES. AN INVESTOR SHOULD CAREFULLY READ THESE
PROSPECTUSES BEFORE ALLOCATING AMOUNTS TO BE INVESTED IN THE SEPARATE ACCOUNT.
MFS VARIABLE INSURANCE TRUST . The Trust is comprised of twelve Series, of
which only the MFS Emerging Growth Series and the MFS Total Return Series are
available under the Contracts and Certificates. Massachusetts Financial
Services Company is the investment adviser to each Series.
MFS EMERGING GROWTH SERIES . The investment objective of the MFS
Emerging Growth Series is to provide long-term growth of capital. Dividend and
interest income from portfolio securities, if any, is incidental to the
Series' investment objective of long-term growth of capital. The Series'
policy is to invest primarily (at least 80% of its assets under normal
circumstances) in common stocks of small and medium-sized companies that are
early in their life cycle but which have the potential to become major
enterprises (emerging growth companies).
MFS TOTAL RETURN SERIES . The MFS Total Return Series' primary
investment objective is to obtain above-average income (compared to a
portfolio entirely invested in equity securities) consistent with the prudent
employment of capital and its secondary objective is to provide a reasonable
opportunity for growth of capital and income, since many securities offering
better than average yield may also possess growth potential. Generally, at
least 40% of the Series' assets are invested in equity securities.
FEDERATED INSURANCE SERIES (formerly, Insurance Management Series). The
Trust has seven separate Funds, of which the Federated High Income Bond
Fund II, Federated Utility Fund II, and Federated Fund for U.S. Government
Securities II are available under the Contracts and Certificates.
Federated Advisers is the investment adviser to each Series.
FEDERATED HIGH INCOME BOND FUND II (formerly, Corporate Bond Fund).
The investment objective of the Federated High Income Bond Fund II is to
seek high current income. The Fund endeavors to achieve its objective by
investing primarily in a professionally managed, diversified portfolio of
fixed income securities. The fixed income securities in which the Fund
intends to invest are lower-rated corporate debt obligations, which are
commonly referred to as "junk bonds," and involve a significant degree of
risk. Some of these fixed income securities may involve equity features.
Capital growth will be considered, but only when consistent with the
investment objective of high current income. Prior to investing in
this Fund, purchasers are cautioned to read the sections entitled
"INVESTMENTS RISKS" and "REDUCING RISKS OF LOWER-RATED SECURITIES" in
the Corporate Bond Fund Prospectus for information regarding the risks
associated with an investment in this Fund.
FEDERATED UTILITY FUND II (formerly, U.S. Government Bond Fund).
The investment objective of the Federated Utility Fund II is to
achieve high current income and moderate capital appreciation. The Fund
endeavors to achieve its objective by investing primarily in a
professionally managed and diversified portfolio of equity and debt
securities of utility companies. Under normal market conditions, the
Fund will invest at least 65% of its total assets in securities of
utility companies.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II (formerly, U.S.
Government Bond Fund). The investment objective of the Federated Fund
for U.S. Government Securities II is to provide current income. Under
normal circumstances, the Fund pursues its investment objective by
investing at least 65% of the value of its total assets in securities
issued or guaranteed as to payment of principal and interest by the
U.S. Government, its agencies or instrumentalities.
DREYFUS STOCK INDEX FUND . The investment objective of the Dreyfus Stock
Index Fund is to provide investment results that correspond to the price and
yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index (the
"Index"). The Dreyfus Stock Index Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation. The Fund attempts to duplicate the
investment results of the Index, which is comprised of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Fund
attempts to be fully invested at all times in the stocks that comprise the
Index and stock index futures and, in any event, at least 80% of the Fund's
net assets will be so invested. Mellon Equity Associates serves as the Fund's
index fund manager.
DREYFUS VARIABLE INVESTMENT FUND . The Fund is comprised of eight Portfolios,
of which only the Growth and Income Portfolio is available under the Contracts
and Certificates. The Dreyfus Corporation serves as the investment adviser.
GROWTH AND INCOME PORTFOLIO . The Growth and Income Portfolio is a
nondiversified portfolio, the goal of which is long-term capital growth,
current income and growth of income, consistent with reasonable investment
risk. The Portfolio invests in equity and debt securities and money market
instruments of domestic and foreign issuers.
SCUDDER VARIABLE LIFE INVESTMENT FUND. The Fund is comprised of seven
Portfolios, of which the Money Market Portfolio and the International
Portfolio are available under the Contracts and Certificates. Scudder, Stevens
& Clark, Inc. is the investment adviser to the Fund.
MONEY MARKET PORTFOLIO . The investment objective of the Money Market
Portfolio is to maintain the stability of capital and, consistent therewith,
to maintain the liquidity of capital and to provide current income. The Money
Market Portfolio seeks to maintain a constant net asset value of $1.00 per
share, although there can be no assurance that this will be achieved. An
investment in the Money Market Portfolio is neither insured nor guaranteed by
the U.S. Government.
INTERNATIONAL PORTFOLIO . The investment objective of the International
Portfolio is long-term growth of capital primarily through diversified
holdings of marketable foreign equity investments. The Portfolio invests in
companies, wherever organized, which do business primarily outside the United
States. The Portfolio intends to diversify investments among several
countries and to have represented in its holdings business activities in not
less than three different countries. The Portfolio does not intend to
concentrate investments in any particular industry. Investing in foreign
securities generally involves risks not ordinarily associated with investing
in securities of domestic issuers. Purchasers are cautioned to read "POLICIES
AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS - FOREIGN SECURITIES" in the
Prospectus of Scudder Variable Life Investment Fund.
VAN ECK WORLDWIDE INSURANCE TRUST . The Trust is comprised of seven separate
funds, of which only the Gold and Natural Resources Fund is available under
the Contracts and Certificates. Van Eck Associates Corporation is the
investment adviser to the Fund.
GOLD AND NATURAL RESOURCES FUND . The investment objective of the Gold
and Natural Resources Fund is to seek long-term capital appreciation by
investing in equity and debt securities of companies engaged in the
exploration, development, production and distribution of gold and other
natural resources, such as strategic and other metals, minerals, forest
products, oil, natural gas and coal. Current income is not an investment
objective.
THE ALGER AMERICAN FUND . The Trust is comprised of six portfolios of which
only the Alger American Growth Portfolio is available under the Contracts and
Certificates. Fred Alger Management, Inc. is the investment manager.
ALGER AMERICAN GROWTH PORTFOLIO - The investment objective of the Alger
American Growth Portfolio is long-term capital appreciation. Except during
temporary defensive periods, the Portfolio invests at least 65% of its total
assets in equity securities of companies that, at the time of purchase of the
securities, have total market capitalization of $1 billion or greater.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote
the shares of the Eligible Funds held in the Separate Account at special
meetings of the shareholders in accordance with instructions received from
persons having the voting interest in the Separate Account attributable to
that option. The Company will vote shares for which it has not received
instructions, as well as shares attributable to it, in the same proportion as
it votes shares for which it has received instructions. None of the Eligible
Funds hold regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by the Company not more than sixty (60) days prior to a
shareholder meeting of the Eligible Fund. Voting instructions will be
solicited by written communication at least ten (10) days prior to the
meeting.
SUBSTITUTION OF SECURITIES
If the shares of an Eligible Fund (or any Portfolio within an Eligible Fund or
any other Eligible Fund or Portfolio), are no longer available for investment
by the Separate Account or, if in the judgment of the Company's Board of
Directors, further investment in the shares should become inappropriate in
view of the purpose of the Contracts or Certificates, the Company may limit
further purchase of such shares or may substitute shares of another Eligible
Fund or Portfolio for shares already purchased under the Contracts and
Certificates. No substitution of securities may take place without prior
approval of the Securities and Exchange Commission and under the requirements
it may impose.
Shares of the Eligible Funds are issued and redeemed in connection with
investments in an payments under certain variable annuity contracts and (with
respect to certain of the Eligible Funds) variable life insurance policies of
various life insurance companies which may or may not be affiliated. The
Eligible Funds do not foresee any disadvantage to Owners and Certificate
Holders arising out of the fact that the Eligible Funds offer their shares for
products offered by life insurance companies which are not affiliated.
Nevertheless, the Boards of Trustees or the Boards of Directors, as
applicable, of the Eligible Funds intend to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken in response thereto. If such a
conflict were to occur, one or more insurance company separate accounts might
withdraw its investments in an Eligible Fund. An irreconcilable conflict
might result in the withdrawal of a substantial amount of a Portfolio's assets
which could adversely affect such Portfolio's net asset value per share.
FIXED ACCOUNT OPTIONS
GENERAL
In addition to the Sub-Accounts of the Separate Account, Owners and
Certificate Holders may also allocate Net Purchase Payments or transfer values
to the Fixed Account or to the MVA Account, which are investment options
within the General Account. An Owner or Certificate Holder may not be invested
in more than ten investment options at any time (an investment option is each
Sub-Account of the Separate Account, the Fixed Account, and each MVA Account
Guarantee Period).
FIXED ACCOUNT OPTION
There is a one year Guarantee Period available as a Fixed Account Option. An
Owner or Certificate Holder may elect to allocate Net Purchase Payments to the
Fixed Account. Each such allocation (to the extent it is not withdrawn,
transferred or annuitized prior to the end of the one year Guarantee Period),
will earn interest, compounded daily, at the Guaranteed Interest Rate. The
Guaranteed Interest Rate is the interest rate credited to the Contract Value
or the Certificate Holder's Account Value by the Company for the Guarantee
Period. The Guaranteed Interest Rate is based on the Current Interest Rate
established for the Guarantee Period. The Current Interest Rates are set at
the sole discretion of the Company. Interest Rates after the first year will
not change more frequently than once per Contract or Certificate Year. OWNERS
BEAR THE RISK THAT CURRENT INTEREST RATES AVAILABLE AT FUTURE TIMES MAY BE
MORE OR LESS THAN THOSE CURRENTLY OR INITIALLY AVAILABLE. THEY ALSO BEAR THE
RISK THAT SUCH RATES MAY NOT EXCEED THE GUARANTEED MINIMUM INTEREST RATE OF
3%. Additional payments made during the Guarantee Period will all be credited
with the same interest rate as the initial payment for the Guarantee Period.
During the Accumulation Period, the Owner or Certificate Holder may: a)
transfer up to 25% of the Owner's Contract Value or the Certificate Holder's
Account Value to the Separate Account in any one Contract/Certificate Year
and/or b) make a partial withdrawal of up to 25% of the Owner's Contract Value
or the Certificate Holder's Account Value in any one Contract/Certificate
Year.
MARKET VALUE ADJUSTMENT ACCOUNT ("MVA Account")
Net Purchase Payments may be allocated to one or more of the MVA Account
Guarantee Period Options. Currently, the Company offers three MVA Account
Guarantee Periods -3 years, 5 years and 7 years. In addition, during the
Accumulation Period, Contract Values and Certificate Holder's Account Values
can be transferred from the Separate Account and/or the Fixed Account to one
or more of the MVA Account Guarantee Period Options on the next Contract or
Certificate Anniversary. There will be an initial Current Interest Rate for
the initial Guarantee Period of the MVA Account. After the initial Guarantee
Period, the Current Interest Rate for any subsequent Guarantee Period of the
MVA Account may change. All interest payable under a Contract or Certificate
is compounded daily. In no event will the Current Interest Rate be less than
the Minimum Guaranteed Interest Rate, prior to the application of the Market
Value Adjustment.
During the thirty (30) days prior to the end of a current Guarantee Period,
the Owner or Certificate Holder may elect to renew for the same or any other
Guarantee Period at the then Current Interest Rate or may elect to transfer
all or a portion of the amount to the Fixed Account or to the Separate
Account. Any transfer elected during the 30 days prior to the end of a current
Guarantee Period will be made as of the last Valuation Date of a current
Guarantee Period and will not be subject to the Market Value Adjustment.
If the Owner or Certificate Holder does not specify a Guarantee Period at the
time of renewal, the Company will select the same Guarantee Period as has just
expired, so long as such Guarantee Period does not extend beyond the latest
Annuity Date that can be selected by an Owner or Certificate Holder. If such
Guarantee Period does extend beyond the latest Annuity Date, the Company will
choose the longest period that will not extend beyond such date. If a renewal
occurs within one year of the latest Annuity Date, the Company will choose the
1-year Fixed Account option and will credit interest up to the Annuity Date at
the Current Interest Rate for the one year Guarantee Period as of the renewal
date.
The Owner or Certificate Holder may elect one or more Guarantee Periods
subject to the Company's underwriting rules. Multiple Guarantee Periods are
treated separately for purposes of applying the Market Value Adjustment. The
Company reserves the right to credit different Current Interest Rates to the
Contract Value or the Certificate Holder's Account Value attributable:
1. to different Guarantee Periods; and
2. to Guarantee Periods of the same duration with different Effective
Dates.
The Owner or Certificate Holder may upon Written Request change to any
Guarantee Period then being offered by the Company with respect to Contracts
and Certificates. The Market Value Adjustment will apply to a change made at
any time other than at the end of a Guarantee Period. The Market Value
Adjustment will not apply to a change made at the end of a Guarantee Period if
a Written Request is received by the Company within thirty (30) days prior to
the end of the Guarantee Period. The Market Value Adjustment will be an
addition to or deduction from the remaining amount of Contract Value or the
Certificate Holder's Account Value except in the case of a full surrender.
Except on the latest Annuity Date, any amount withdrawn, transferred or
annuitized prior to the end of that Guarantee Period may be subject to a
Market Value Adjustment. Owners and Certificate Holders bear the risk that
amounts reallocated within, or prematurely withdrawn, transferred or
annuitized from the MVA Account prior to the end of their respective Guarantee
Period could result in the Owner or Certificate Holder receiving less than the
Purchase Payments or amounts so allocated. The Market Value Adjustment will be
calculated by multiplying the amount withdrawn, transferred or annuitized by
the formula set forth below. (See the "Appendix" for examples of how the
Market Value Adjustment is computed.)
There will be no Market Value Adjustment on withdrawals from the MVA Account
in the following situations: (1) payment of a death benefit under the Contract
or Certificate; (2) amounts withdrawn to pay fees or charges; and (3) amounts
withdrawn or transferred from the MVA Account at the end of the Guarantee
Period.
The Market Value Adjustment factor is equal to:
LEFT [~~(1~+~i~) OVER (1~+~j~+~.005)~ RIGHT ] ^ n/12~-~1
<TABLE>
<CAPTION>
<S> <C>
where i = Current Interest Rate credited to the Owner's Contract Value
or the Certificate Holder's Account Value allocated to a
Guarantee Period as of the beginning of the Guarantee Period.
j = Current Interpolated U.S. Constant Maturity Treasury Rate
("CITR") for the time remaining in the current Guarantee
Period plus the difference between i and the corresponding
CITR at the time of purchase.
n = Number of full months remaining in the Guarantee Period.
</TABLE>
WITHDRAWALS, TRANSFERS OR ANNUITIZATION OF AMOUNTS FROM A GUARANTEE PERIOD
PRIOR TO THE END OF THAT GUARANTEE PERIOD MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT. THE MARKET VALUE ADJUSTMENT MAY BE POSITIVE OR NEGATIVE AND MAY
RESULT IN THE OWNER OR CERTIFICATE HOLDER RECEIVING LESS THAN HIS OR HER
PURCHASE PAYMENT OR CONTRACT VALUE/CERTIFICATE HOLDER'S ACCOUNT VALUE
ALLOCATED TO THE MVA ACCOUNT.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Owner's Contract Value and
Certificate Holders' Account Value, the Separate Account and the MVA Account.
These charges and deductions are:
DEDUCTION FOR CONTINGENT DEFERRED SALES CHARGE (SALES LOAD)
The Contracts and Certificates do not provide for a front-end sales charge.
However, if all or a portion of an Owner's Contract Value or a Certificate
Holder's Account Value is withdrawn within the first ten Contract or
Certificate Years, a Contingent Deferred Sales Charge (sales load) will be
assessed. This charge reimburses the Company for expenses incurred in
connection with the promotion, sale and distribution of the Contracts and
Certificates. The Charge is calculated at the time of each withdrawal and will
be deducted from the account value remaining in the Contract or Certificate.
The Contingent Deferred Sales Charge is based upon the length of time from
receipt of each Purchase Payment to the date of withdrawal. Each Purchase
Payment is tracked as to its date of receipt and withdrawals thereof are
determined in accordance with the following:
CONTINGENT DEFERRED SALES CHARGE:
<TABLE>
<CAPTION>
<S> <C>
Number of Complete
Years Since Receipt
of Purchase Payment Charge
- --------------------------------------- -------
0 years 8.5%
1 years 8.0%
2 years 7.5%
3 years 7.0%
4 years 6.5%
5 years 6.0%
6 years 5.0%
7 years 4.0%
8 years 3.0%
9 years 2.0%
10 years or more 0.0%
</TABLE>
FREE WITHDRAWAL - On each Contract or Certificate Anniversary, the Free
Withdrawal amount is equal to the greater of: (a) the cumulative earnings in
the Owner's Contract Value or the Certificate Holder's Account Value or (b)
10% of Purchase Payments as of the beginning of the current Contract or
Certificate Year. On other than Contract and Certificate Anniversaries, the
Free Withdrawal amount is equal to the Free Withdrawal amount at the beginning
of the Contract or Certificate Year less amounts withdrawn without deduction
of Contingent Deferred Sales Charges during the current Contract or
Certificate Year. In the event of a full withdrawal, the Free Withdrawal
provision is not available.
In addition, in certain states, after the first Contract/Certificate Year,
the Owner/Certificate Holder is permitted to make a total or partial
withdrawal without the imposition of the Contingent Deferred Sales Charge if
the Annuitant is confined to a skilled nursing home facility for 90
consecutive days.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge may be reduced or
eliminated when sales of the Contracts or Certificates are made to individuals
or to a group of individuals in a manner that results in savings of sales
expenses. The entitlement to reduction of the Contingent Deferred Sales
Charge will be determined by the Company after examination of all the relevant
factors such as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than
for a smaller group because of the ability to implement large numbers of
Contracts or Certificates with fewer sales contacts.
2. The total amount of Purchase Payments to be received will be
considered. Per Contract or Certificate sales expenses are likely to be less
on larger Purchase Payments than on smaller ones.
3. Any prior or existing relationship with the Company will be
considered. Per Contract or Certificate sales expenses are likely to be less
when there is a prior existing relationship because of the likelihood of
implementing the Contract or Certificate with fewer sales contacts.
4. There may be other circumstances, of which the Company is not
presently aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be reduction in sales expenses, the Company may provide for a
reduction or elimination of the Contingent Deferred Sales Charge.
The Contingent Deferred Sales Charge may be eliminated when the Contracts or
Certificates are issued to an officer, director or employee of the Company or
any of its affiliates. In no event will reductions or elimination of the
Contingent Deferred Sales Charge be permitted where reductions or elimination
will be unfairly discriminatory to any person.
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE
Each Valuation Period, the Company deducts an aggregate Mortality and Expense
Risk Charge from the Separate Account which is equal, on an annual basis, to
1.52% of the average daily net asset value of each Sub-Account of the Separate
Account. Approximately 1.25% of the Mortality and Expense Risk Charge is for
the standard death benefit and approximately .27% for the enhanced death
benefit. See "Proceeds Payable on Death - Death Benefit Amount During
Accumulation Period." The portion of the Mortality and Expense risk Charge
attributable to the enhanced death benefit (.27%) will be assessed against
Separate Account allocations pursuant to all Contracts and Certificates
issued, whether or not applicable state law permits the Contract/Certificate
to offer the enhanced death benefit. Therefore, purchasers of Contracts/
Certificates in states where the enhanced death benefit is not permitted and
who allocate Contract Value or Certificate Holder's Account Value to the
Separate Account will be paying for a benefit they will not receive. The
standard death benefit is available in all states where the Contract or
Certificate is approved. The mortality risks assumed by the Company arise from
its contractual obligation to make Annuity Payments after the Annuity Date
(determined in accordance with the Annuity Option chosen by the Owner)
regardless of how long all Annuitants live. This assures that neither an
Annuitant's own longevity, nor an improvement in life expectancy greater than
that anticipated in the mortality tables, will have any adverse effect on the
Annuity Payments the Annuitant will receive under the Contract. Further, the
Company bears a mortality risk in that it guarantees the annuity purchase
rates for the Annuity Options under the Contracts and Certificates. Also, the
Company bears a mortality risk with respect to the death benefit and with
respect to the waiver of the Contingent Deferred Sales Charge if Purchase
Payments have been held in the Contract or Certificate less than ten (10)
years. The expense risk assumed by the Company is that all actual expenses
involved in administering the Contracts and Certificates, including Contract
and Certificate maintenance costs, administrative costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees and the costs of
other services may exceed the amount recovered from the Contract and
Certificate Maintenance Charges and the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to the
Company. The Company expects a profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot
be increased.
To the extent that the Contingent Deferred Sales Charge is insufficient to
cover the actual costs of distribution, the Company may use any of its
corporate assets, including potential profit which may arise from the
Mortality and Expense Risk Charge, to provide for any difference.
DEDUCTION FOR ADMINISTRATIVE CHARGE
Each Valuation Period, the Company deducts an Administrative Charge from the
Separate Account which is equal, on an annual basis, to .15% of the average
daily net asset value of each Sub-Account of the Separate Account. This
charge, together with the Contract and Certificate Maintenance Charges (see
below), is to reimburse the Company for the expenses it incurs in the
establishment and maintenance of the Contracts, Certificates and the Separate
Account. These expenses include but are not limited to: preparation of the
Contracts and Certificates, confirmations, annual reports and statements,
maintenance of Owner and Certificate Holder records, maintenance of Separate
Account records, administrative personnel costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees, the costs of other
services necessary for Owner and Certificate Holder servicing and all
accounting, valuation, regulatory and reporting requirements. Since this
charge is an asset-based charge, the amount of the charge attributable to a
particular Contract or Certificate may have no relationship to the
administrative costs actually incurred by that Contract or Certificate. The
Company does not intend to profit from this charge. This charge will be
reduced to the extent that the amount of this charge is in excess of that
necessary to reimburse the Company for its administrative expenses. Should
this charge prove to be insufficient, the Company will not increase this
charge and will incur the loss.
DEDUCTION FOR CONTRACT AND CERTIFICATE MAINTENANCE CHARGES
During the Accumulation Period, on each Contract or Certificate Anniversary,
the Company deducts a Contract and Certificate Maintenance Charge from the
Owner's Contract Value or the Certificate Holder's Account Value by reducing
the Certificate Holder's Account Value in the Fixed Account and/or the MVA
Account and by cancelling Accumulation Units from each applicable Sub-Account
to reimburse it for expenses relating to the maintenance of the Contracts and
Certificates. The Company makes a deduction of $30.00 each Contract or
Certificate Year. However, during the Accumulation Period if the Owner's
Contract Value or the Certificate Holder's Account Value on the Contract or
Certificate Anniversary is at least $75,000, then no Contract or Certificate
Maintenance Charges are deducted. If a total withdrawal is made on other than
a Contract or Certificate Anniversary and the Owner's Contract Value or the
Certificate Holder's Account Value for the Valuation Period during which the
total withdrawal is made is less than $75,000, the full Contract or
Certificate Maintenance Charge will be deducted at the time of the total
withdrawal. During the Annuity Period, no Contract or Certificate Maintenance
Charge is deducted. The Contract and Certificate Maintenance Charges will be
deducted from the Fixed Account and/or the MVA Account and the Sub-Accounts in
the Separate Account in the same proportion that the amount of the Owner's
Contract Value or Certificate Holder's Account Value in the Fixed Account
and/or MVA Account and each applicable Sub-Account bears to the total Owner's
Contract Value or Certificate Holder's Account Value. The Company has set this
charge at a level so that, when considered in conjunction with the
Administrative Charge (see above), it will not make a profit from the charges
assessed for administration.
DEDUCTION FOR TRANSFER FEE
An Owner or Certificate Holder may transfer all or part of the Owner's or
Certificate Holder's interest in a Sub-Account, the Fixed Account or the MVA
Account (subject to Fixed Account and MVA Account provisions) after the
expiration of any Right to Examine Period, without the imposition of any fee
or charge if there have been no more than 12 transfers made in a Contract or
Certificate Year. A transfer made at the end of the Right to Examine Period
from the Scudder Money Market Sub-Account will not count in determining the
application of the Transfer Fee. If more than twelve transfers have been made
in a Contract or Certificate Year, the Company will deduct a Transfer Fee
which is equal to the lesser of $25 or 2% of the amount transferred. However,
if the Owner or Certificate Holder is participating in an approved Dollar Cost
Averaging Program or Rebalancing Program, such transfers are not counted
toward the number of transfers for the year and are not taken into account in
determining any Transfer Fee.
DEDUCTION FOR PREMIUM AND OTHER TAXES
Any taxes, including any Premium Taxes, paid to any governmental entity
relating to the Contracts and Certificates may be deducted from the Purchase
Payment or Contract Value or Certificate Holder's Account Value when incurred.
The Company will, in its sole discretion, determine when taxes have resulted
from: the investment experience of the Separate Account; receipt by the
Company of the Purchase Payments; or commencement of Annuity Payments. The
Company may, at its sole discretion, pay taxes when due and deduct that amount
from the Contract Value or Certificate Holder's Account Value at a later date.
Payment at an earlier date does not waive any right the Company may have to
deduct amounts at a later date. The Company's current practice is to pay any
Premium Taxes when they become due and payable to the states. Premium taxes
generally range from 0% to 4%.
While the Company is not currently maintaining a provision for federal income
taxes with respect to the Separate Account, the Company has reserved the right
to establish a provision for income taxes if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of the
Separate Account. Currently, the Company does not incur any federal income
taxes as a result of the operation of the Separate Account. However, the
Company reserves the right to provide for the deduction from the Separate
Account for any income taxes which may be incurred as a result of the
operation of the Separate Account.
The Company will deduct any withholding taxes required by applicable law.
DEDUCTION FOR EXPENSES OF THE ELIGIBLE FUNDS
There are other deductions from and expenses (including management fees paid
to the investment advisers) paid out of the assets of the Eligible Funds which
are described in the Prospectuses for the Eligible Funds.
THE CONTRACTS AND CERTIFICATES
OWNER/CERTIFICATE HOLDER
The Owner or Certificate Holder has all interest and rights to amounts held in
his or her Contract or amounts held in his or her Certificate Holder's
Account. The Owner or Certificate Holder is the person designated as such on
the Issue Date or Certificate Issue Date, unless changed.
The Owner may change owners of the Contract at any time prior to the Annuity
Date by Written Request. The Certificate Holder may change holders of the
Certificate at any time prior to the Annuity Date by Written Request. A
change of Owner or Certificate Holder will automatically revoke any prior
designation of Owner or Certificate Holder. The change will become effective
as of the date the Written Request is signed. A new designation of Owner or
Certificate Holder will not apply to any payment made or action taken by the
Company prior to the time it was received.
For Non-Qualified Contracts and Certificates, in accordance with Code
Section 72(u), a deferred annuity contract held by a corporation or other
entity that is not a natural person is not treated as an annuity contract for
tax purposes. Income on the contract is treated as ordinary income received
by the owner during the taxable year. However, for purposes of Code Section
72(u), an annuity contract held by a trust or other entity as agent for a
natural person is considered held by a natural person and treated as an
annuity contract for tax purposes. Tax advice should be sought prior to
purchasing a Contract/Certificates which is to be owned by a trust or other
non-natural person.
JOINT OWNERS/JOINT CERTIFICATE HOLDERS
The Contract can be owned by Joint Owners. A Certificate may be owned by Joint
Certificate Holders. If Joint Owners or Joint Certificate Holders are named,
any Joint Owner or Joint Certificate Holder must be the spouse of the other
Owner or Joint Certificate Holder. Upon the death of either Owner/ Certificate
Holder, the surviving Joint Owner/surviving Joint Certificate Holder will be
the Primary Beneficiary. Any other Beneficiary designation will be treated as
a Contingent Beneficiary unless otherwise indicated in a Written Request.
Unless otherwise specified in the application for the Contract or Certificate,
if there are Joint Owners/ Joint Certificate Holders both signatures will be
required for all Owner/ Certificate Holders transactions except telephone
transfers. If the telephone transfer option is elected and there are Joint
Owners or Joint Certificate Holders, either Joint Owner or Joint Certificate
Holder can give telephone instructions.
CONTRACT OWNER (Group Contracts Only)
The Contract Owner has title to the group Contract. The Contract and any
amounts accumulated thereunder are not subject to the claims of the Contract
Owner nor any of its creditors. The Contract Owner may transfer ownership of
the group Contract. Any transfer of ownership terminates the interest of any
existing Contract Owner. It does not change the rights of any Certificate
Holder.
ANNUITANT
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated by the Owner or Certificate Holder at the
Issue Date or Certificate Issue Date, unless changed prior to the Annuity
Date. The Annuitant may not be changed on or after the Annuity Date and in a
Contract or Certificate which is owned by a non-natural person. Any change of
Annuitant is subject to the Company's underwriting rules then in effect.
ASSIGNMENT
A Written Request specifying the terms of an assignment of the Contract or
Certificate must be provided to the Company. Until the Written Request is
received, the Company will not be required to take notice of or be responsible
for any transfer of interest in the Contract or Certificate by assignment,
agreement, or otherwise.
The Company will not be responsible for the validity or tax consequences of
any assignment. Any assignment made after the death benefit has become payable
will be valid only with the Company's consent.
If the Contract or Certificate is assigned, the Owner's or Certificate
Holder's rights may only be exercised with the consent of the assignee of
record.
If the Contract or Certificate is issued pursuant to a retirement plan
which receives favorable tax treatment under the provisions of Sections 401,
403(b), 408 or 457 of the Code, it may not be assigned, pledged or otherwise
transferred except as may be allowed under applicable law.
PURCHASE PAYMENTS, CONTRACT VALUE AND CERTIFICATE HOLDER'S ACCOUNT VALUE
PURCHASE PAYMENT
The initial Purchase Payment is due on the Issue Date/Certificate Issue Date.
The minimum initial Purchase Payment is $5,000 (except for Qualified Contracts
and Certificates, the minimum initial Purchase Payment is $2,000). The
minimum subsequent Purchase Payment is $500, or if the automatic premium check
option is elected $100. The maximum total Purchase Payments the Company will
accept without Company approval are $500,000. The Company reserves the right
to reject any application or Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
Net Purchase Payments are allocated to the Fixed Account or the MVA Account
Guarantee Period and/or to one or more Sub-Accounts of the Separate Account in
accordance with the selections made by the Owner or Certificate Holder.
However, under certain circumstances, the Company will allocate all Net
Purchase Payments made during the Right to Examine Period to the Scudder Money
Market Sub-Account until the expiration of the Right to Examine Period. (See
"Highlights - Right to Examine Period.") The allocation of the initial Net
Purchase Payment is made in accordance with the selection made by the Owner or
Certificate Holder at the Issue Date or Certificate Issue Date. Unless
otherwise changed by the Owner or Certificate Holder, subsequent Net Purchase
Payments are allocated in the same manner as the initial Net Purchase Payment.
Allocation of the Net Purchase Payment is subject to the terms and conditions
imposed by the Company. CURRENTLY, THE OWNER OR CERTIFICATE HOLDER CAN SELECT
UP TO TEN INVESTMENT OPTIONS, INCLUDING SUB-ACCOUNTS, THE FIXED ACCOUNT AND
EACH MVA ACCOUNT GUARANTEE PERIOD. Allocations must be in whole percentages
with a minimum allocation of 5% of each purchase payment or transfer or $500,
whichever is greater.
For initial Net Purchase Payments, if the forms required to issue a Contract
or Certificate are in good order, the Company will apply the Net Purchase
Payment to the Separate Account and credit the Contract or Certificate with
Accumulation Units and/or to the Fixed Account or MVA Account and credit the
Contract or Certificate with dollars within two business days of receipt.
In addition to the underwriting requirements of the Company, good order
means that the Company has received federal funds (monies credited to a bank's
account with its regional Federal Reserve Bank). If the forms required to
issue a Contract or Certificate are not in good order, the Company will
attempt to get them in good order or the Company will return the forms and the
Purchase Payment within five business days. The Company will not retain the
Purchase Payment for more than five business days while processing incomplete
forms unless it has been so authorized by the purchaser. For subsequent Net
Purchase Payments (except those allocated to the Scudder Money Market
Portfolio (see "Highlights")), the Company will apply Net Purchase Payments to
the Separate Account and credit the Contract or Certificate with Accumulation
Units and/or to the Fixed Account or MVA Account and credit the Contract or
Certificate with dollars as of the end of the Valuation Period during which
the Purchase Payment was received in good order.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected, permits an Owner or
Certificate Holder to systematically transfer amounts monthly, quarterly or
semi-annually from the Scudder Money Market Sub-Account or the Fixed Account
to one or more Sub-Accounts. By allocating amounts on a regularly scheduled
basis as opposed to allocating the total amount at one particular time, an
Owner or Certificate Holder may be less susceptible to the impact of market
fluctuations. The minimum amount which may be transferred is $50 per transfer
(per Sub-Account). Transfers to the Fixed Account are not permitted. If at any
time the value in the Scudder Money Market Sub-Account or the Fixed Account is
insufficient to make the transfer requested, the Owner or Certificate Holder
will be notified for specific instructions. The Company reserves the right,
at any time and without prior notice to any party, to terminate, suspend or
modify its Dollar Cost Averaging program.
There is no current charge for participating in the Dollar Cost Averaging
program. However, the Company reserves the right to charge for Dollar Cost
Averaging in the future. Transfers are made anytime prior to the 29th of a
calendar month. Dollar Cost Averaging will begin on the first transfer date
elected by the Owner or Certificate Holder following the expiration of the
Right to Examine Period (if the program has been selected on the Issue
Date/Certificate Issue Date). The minimum duration of participation in the
Dollar Cost Averaging Program is currently at least one year. Transfers made
pursuant to the Dollar Cost Averaging program are not taken into account in
determining any Transfer Fee. An Owner or Certificate Holder participating in
the Dollar Cost Averaging Program may not also participate in the Rebalancing
Program.
REBALANCING
Rebalancing is a program, which if elected, provides for periodic
pre-authorized automatic transfers among the Sub-Accounts pursuant to written
instructions from the Owner or Certificate Holder. Such transfers are made to
maintain a particular percentage allocation among the Portfolios as selected
by the Owner or Certificate Holder. Any amounts in the Fixed Account or the
MVA Account will not be transferred pursuant to the Rebalancing Program. The
Contract Value must be at least $5,000 to have transfers made pursuant to the
Program. An Owner or Certificate Holder may select that Rebalancing occur on
a quarterly, semi-annual or annual basis. Transfers made pursuant to the
Rebalancing Program are not taken into account in determining the number of
transfers per year and therefore are not counted in determining any Transfer
Fee. An Owner or Certificate Holder participating in the Rebalancing Program
may not also participate in the Dollar Cost Averaging Program.
ASSET ALLOCATION PROGRAMS
The Company has recognized the value to Owners/Certificate Holders of having
available on a continuous basis advice for the selection of the Sub-Accounts
under the Contracts/Certificates. Certain investment advisers have made
arrangements with the Company to make their services available to certain
Owners/Certificate Holders. The Company has made no independent investigation
of these investment advisers, their services or the costs for such services.
The Company has only established that these investment advisers have
represented that their asset allocation programs are compatible with the
Company's administrative systems and rules. The Company is not endorsing such
programs and has not conducted an examination of the background or skill of
the investment advisers. An Owner/Certificate Holder may enter into an
advisory agreement with such investment advisers. Compensation for the
services of the investment advisers is a matter between them and the
Owners/Certificate Holders.
Under certain asset allocation programs, if the Owner/Certificate Holder is
under 59 1/2, the Owner/Certificate Holder will be billed for the services of
the investment adviser. If the Owner/Certificate Holder is 59 1/2 or older,
the Company, pursuant to an agreement with the Owner/Certificate Holder, will
make a partial withdrawal from the Owner's Contract Value or the Certificate
Holder's Account Value to pay for the services of the investment adviser
pursuant to such asset allocation programs. If the Contract/Certificate is
issued pursuant to a Non-Qualified Contract/Certificate, the withdrawal will
be treated like any other distribution and will be includible in gross income
for federal tax purposes. See "Tax Status - Tax Treatment of Withdrawals -
Non-Qualified Contracts and Certificates."
CONTRACT VALUE
The Contract Value for any Valuation Period is the sum of the Contract Value
in each of the Sub-Accounts of the Separate Account and the Contract Value in
the Fixed Account and the MVA Account.
The Contract Value in a Sub-Account of the Separate Account is determined by
multiplying the number of Accumulation Units allocated to the Contract Value
for the Sub-Account by the Accumulation Unit value. Withdrawals will result in
the cancellation of Accumulation Units in a Sub-Account or a reduction in the
Fixed Account or the MVA Account, as applicable.
CERTIFICATE HOLDER'S ACCOUNT VALUE
The Certificate Holder's Account Value for any Valuation Period is the sum of
the Certificate Holder's Account Value in each of the Sub-Accounts of the
Separate Account, the Certificate Holder's Account Value in the MVA Account
and the Certificate Holder's Account Value in the Fixed Account.
The Certificate Holder's Account Value in a Sub-Account of the Separate
Account is determined by multiplying the number of Accumulation Units
allocated to the Certificate Holder's Account for the Sub-Account by the
Accumulation Unit Value. Withdrawals will result in the cancellation of
Accumulation Units in a Sub-Account or a reduction in the Fixed Account or the
MVA Account, as applicable.
ACCUMULATION UNITS
Accumulation Units will be used to account for all amounts allocated to or
withdrawn from the Sub-Accounts of the Separate Account as a result of Net
Purchase Payments, withdrawals, transfers, or fees and charges. The Company
will determine the number of Accumulation Units of a Sub-Account purchased or
canceled. This will be done by dividing the amount allocated to (or the amount
withdrawn from) the Sub-Account by the dollar value of one Accumulation Unit
of the Sub-Account as of the end of the Valuation Period during which the
request for the transaction is received by the Company.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value for each Sub-Account was arbitrarily set initially
at $10. Subsequent Accumulation Unit Values for each Sub-Account are
determined by multiplying the Accumulation Unit Value for the immediately
preceding Valuation Period by the Net Investment Factor for the Sub-Account
for the current period.
The Net Investment Factor for each Sub-Account is determined by dividing A by
B and subtracting C where:
<TABLE>
<CAPTION>
<S> <C>
A is (i) the net asset value per share of the Eligible Fund or
Portfolios of an Eligible Fund held by the Sub-Account for the
current Valuation Period; plus
(ii) any dividend or capital gains per share declared on behalf
of such Eligible Fund or Portfolio that has an ex-dividend
date within the current Valuation Period; plus or minus
(iii) the cumulative per share charge or credit for taxes
reserved which is determined by the Company to have resulted
from the operation or maintenance of the Sub-Account.
B is the net asset value per share of the Eligible Fund or
Portfolio held by the Sub-Account for the immediately
preceding Valuation Period; plus or minus the cumulative per
share charge or credit for taxes reserved for the immediately
preceding Valuation Date.
C is the factor representing the cumulative unpaid charge for the
Mortality and Expense Risk Charge and for the Administrative
Charge.
</TABLE>
The Accumulation Unit Value may increase or decrease from Valuation Period to
Valuation Period.
TRANSFERS
TRANSFERS DURING THE ACCUMULATION PERIOD
Subject to any limitation imposed by the Company on the number of transfers
(currently, unlimited) that can be made during the Accumulation Period, the
Owner or Certificate Holder may, after the expiration of the Right to Examine
Period, transfer all or part of the Contract Value or Certificate Holder's
Account Value in a Sub-Account, the Fixed Account or the MVA Account by
Written Request without the imposition of any Transfer Fee if there have been
no more than the number of free transfers (currently, twelve). All transfers
are subject to the following:
1. If more than the number of free transfers have been made in a
Contract or Certificate Year, the Company will deduct a Transfer Fee for each
subsequent transfer permitted. The Transfer Fee is the lesser of $25 or 2% of
the amount transferred. However, if the Owner or Certificate Holder is
participating in an approved Dollar Cost Averaging Program or Rebalancing
Program, such transfers currently are not counted toward the number of
transfers for the year and are not taken into account in determining any
Transfer Fee. The Transfer Fee will be deducted from the amount which is
transferred.
2. The minimum amount which can be transferred is $250 (from any
Account) or the Owner's or Certificate Holder's entire interest in any
Account, if less. This requirement is waived if the transfer is made pursuant
to the Dollar Cost Averaging program. The minimum amount which must remain in
each Account after a transfer is $500 per Account, or $0 if the entire amount
in any Account is transferred. The maximum amount which can be transferred
from the Fixed Account to the Separate Account during the Accumulation Period
is 25% of the Contract Value or the Certificate Holder's Account Value in the
Fixed Account in any one Contract or Certificate Year. This requirement is
waived if the remaining balance in the Fixed Account is less than 25% of the
original deposit to the Fixed Account and is made pursuant to the Dollar Cost
Averaging program.
3. The Company reserves the right, at any time and without prior notice
to any party, to terminate, suspend or modify the transfer privilege described
above.
Owners and Certificate Holder's can elect to make transfers by telephone. To
do so Owners and Certificate Holders must complete a Written Request. The
Company will use reasonable procedures to confirm that instructions
communicated by telephone are genuine. If it does not, the Company may be
liable for any losses due to unauthorized or fraudulent instructions. The
Company may tape record all telephone instructions. The Company will not be
liable for any loss, liability, cost or expense incurred by the Owner or
Certificate Holder for acting in accordance with such telephone instructions
believed to be genuine. The telephone transfer privilege may be discontinued
at any time by the Company.
If there are Joint Owners or Joint Certificate Holders, unless the Company is
informed to the contrary, telephone instructions will be accepted from either
of the Joint Owners or Joint Certificate Holders.
Neither the Separate Account nor the Eligible Funds are designed for
professional market timing organizations or other entities using programmed
and frequent transfers. A pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to a Portfolio. The Company reserves the
right to restrict the transfer privilege or reject any specific Purchase
Payment allocation request for any person whose transactions seem to follow a
timing pattern.
WITHDRAWALS
During the Accumulation Period, the Owner or Certificate Holder may, upon a
Written Request, make a total or partial withdrawal of the
Contract/Certificate Withdrawal Value.
Unless the Owner or Certificate Holder instructs the Company otherwise, a
partial withdrawal will be made from the Separate Account. A partial
withdrawal will result in the cancellation of Accumulation Units from each
applicable Sub-Account in the ratio that the Owner's Contract Value or
Certificate Holder's Account Value in the Sub-Account bears to the total
Contract Value or Account Value in all Sub-Accounts. The Owner or Certificate
Holder must specify by Written Request in advance which Sub-Account
Accumulation Units are to be cancelled if other than the above method is
desired.
A partial withdrawal from the Fixed Account or the MVA Account is made for a
Contract or Certificate with Multiple Guarantee Periods by a withdrawal first
from the one year Fixed Account and next from the Guarantee Period of the
shortest remaining duration and then from the Guarantee Period with the
earliest Effective Date where the Guarantee Periods are of the same duration.
A partial withdrawal is taken first from the Contract Withdrawal Value or the
Certificate Withdrawal Value for which the Free Withdrawal Provision applies
and then from the Withdrawal Value for which there is no waiver. A withdrawal
from the MVA Account may be subject to a Market Value Adjustment.
The Company will pay the amount of any withdrawal from the Separate Account
within seven (7) days of receipt of a request in good order unless the
Suspension or Deferral of Payments provision is in effect.
Each partial withdrawal must be for at least $500 (unless the withdrawal is
made pursuant to the Systematic Withdrawal Option). The minimum Contract Value
or Certificate Holder's Account Value which must remain in the Contract or
Certificate after a partial withdrawal is $2,000. The minimum Contract Value
or Certificate Holder's Account Value which must remain in any Account after a
partial withdrawal is $500.
Certain tax withdrawal penalties and restrictions may apply to withdrawals
from the Contracts and Certificates. (See "Tax Status"). For Contracts and
Certificates purchased in connection with 403(b) plans, the Code limits the
withdrawal of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) to
circumstances only when the Owner/Certificate Holder: (1) attains age 59 1/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship.
However, withdrawals for hardship are restricted to the portion of the Owner's
Contract Value or Certificate Holder's Account Value which represents
contributions made by the Owner/Certificate Holder and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989, and apply only to salary reduction contributions made after December
31, 1988, to income attributable to such contributions and to income
attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers or transfers between certain Qualified
Plans. Owners and Certificate Holder's should consult their own tax counsel or
other tax adviser regarding any distributions.
SYSTEMATIC WITHDRAWAL PROGRAM
Company offers a Systematic Withdrawal Program which enables an Owner or
Certificate Holder to pre-authorize a periodic exercise of the contractual
withdrawal rights described above. Owners and Certificate Holders entering
into such a program instruct the Company to withdraw an amount specified in
dollars. The minimum withdrawal amount is $100 per payment. The Systematic
Withdrawal Program is available if the Owner's Contract Value or Certificate
Holder's Account Value is at least $12,000 as of the Valuation Date this
option is requested. The Owner, the Certificate Holder or the Company may
terminate systematic withdrawals upon 30 days' prior written notice. There is
currently no charge for systematic withdrawals. However, the Company reserves
the right to charge for systematic withdrawals in the future. The total
permitted systematic withdrawals in a Contract or Certificate Year are limited
to not more than twelve. The Systematic Withdrawal Option can be exercised at
any time, including during the first Contract/Certificate Year.
Systematic withdrawals are available for Qualified and Non-Qualified Contracts
and Certificates. (See "Tax Status - Tax Treatment of Withdrawals -
Non-Qualified Contracts and Certificates.") Certain tax penalties and
restrictions may apply to systematic withdrawals from the Contracts. (See "Tax
Status - Tax Treatment of Withdrawals -Qualified Contracts and Certificates".)
SUSPENSION OR DEFERRAL OF PAYMENTS
The Company reserves the right to suspend or postpone payments from the
Separate Account for a withdrawal or transfer for any period when:
1. The New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. Trading on the New York Stock Exchange is restricted;
3. An emergency exists as a result of which disposal of securities held
in the Separate Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets; or
4. During any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Owners or Certificate Holders;
provided that applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in (2) and (3)
exist.
The Company further reserves the right to postpone payments from the Fixed
Account and the MVA Account for a period of up to six months.
PROCEEDS PAYABLE ON DEATH
DEATH OF OWNER OR CERTIFICATE HOLDER DURING THE ACCUMULATION PERIOD
Upon the death of the Owner or Certificate Holder or Joint Owner or Joint
Certificate Holder during the Accumulation Period, the death benefit will be
paid to the Beneficiary(ies) designated by the Owner or Certificate Holder.
Upon the death of a Joint Owner or Joint Certificate Holder, the surviving
Joint Owner or Joint Certificate Holder, if any, will be treated as the
primary Beneficiary. Any other Beneficiary designation on record at the time
of death will be treated as a contingent Beneficiary.
A Beneficiary may request that the death benefit be paid under one of the
Death Benefit Options below. If the Beneficiary is the spouse of the Owner or
Certificate Holder, he or she may elect to continue the Contract or
Certificate at the then current Contract Value or Certificate Holder's Account
Value in his or her own name and exercise all the Owner's or Certificate
Holder's rights under the Contract or Certificate.
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD
The death benefit will be the Contract Value or the Certificate Holder's
Account Value in the Fixed Account and in the MVA Account plus the greater of
(a), (b) or (c) where:
(a) is the Contract Value or the Certificate Holder's Account Value in
the Separate Account as of the end of the Valuation Period during which the
Company receives both due proof of death and an election of the payment.
(b) is the Purchase Payments allocated to the Separate Account, less any
withdrawals and transfers from the Separate Account and any related Contingent
Deferred Sales Charge and Transfer Fees(referred to as "net purchase
payments"), accumulated at 6% per annum up to the first Contract/Certificate
Anniversary after the Owner/Certificate Holder attains age 75, up to a maximum
of two times the net purchase payments.
(c) is the highest Reset Value up to the date of death. The Reset Value
is equal to the Contract Value or the Certificate Holder's Account Value in
the Separate Account on each 10th Contract or Certificate Anniversary prior to
the Owner or Certificate Holder attaining age 85, plus Purchase Payments made
after such Contract or Certificate Anniversary and allocated to the Separate
Account less any withdrawals and transfers from the Separate Account after
such Anniversary and any related Contingent Deferred Sales Charges and
Transfer Fees.
In states where the death benefit endorsement (enhanced death benefit) to the
Contract/Certificate is not approved, the death benefit during the
Accumulation Period will be the greater of (i) the Purchase Payments, less any
withdrawals and related Contingent Deferred Sales Charges; or (ii) the Owner's
Contract Value or the Certificate Holder's Account Value determined as of the
end of the Valuation Period during which the Company receives both due proof
of death and an election for the payment method.
Owners/Certificate Holders should refer to their Contract/Certificate for the
applicable Death Benefit provision.
The portion of the Mortality and Expense Risk Charge attributable to the
enhanced death benefit (.27%) will be assessed against Separate Account
allocations pursuant to all Contracts and Certificates issued, whether or not
applicable state law permits the Contractto offer the enhanced death benefit.
Therefore, purchasers of Contractsin states where the enhanced death benefit
is not permitted and who allocate Contract Value or Certificate Holder Account
Value to the Separate Account will be paying for a benefit they will not
receive. The standard death benefit is available in all states where the
Contract or Certificate is approved.
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PERIOD
A non-spousal Beneficiary must elect the death benefit to be paid under one of
the following options in the event of the death of the Owner or Certificate
Holder during the Accumulation Period:
OPTION 1 - lump sum payment of the death benefit; or
OPTION 2 - the payment of the entire death benefit within 5 years of
the date of the death of the Owner or Certificate Holder; or
OPTION 3 - payment of the death benefit under an Annuity Option over
the lifetime of the Beneficiary or over a period not extending beyond the life
expectancy of the Beneficiary with distribution beginning within one year of
the date of death of the Owner/Certificate Holder or any Joint Owner/Joint
Certificate Holder.
Any portion of the death benefit not applied under Option 3 within one year of
the date of the Owner's or Certificate Holder's death, must be distributed
within five years of the date of death.
A spousal Beneficiary may elect to continue the Contract or Certificate in his
or her own name at the then current Contract Value or Certificate Holder's
Account Value, elect a lump sum payment of the death benefit or apply the
death benefit to an Annuity Option.
If a lump sum payment is requested, the amount will be paid within seven (7)
days of receipt of proof of death and the election, unless the Suspension or
Deferral of Payments provision is in effect.
Payment to the Beneficiary, other than in a lump sum, may only be elected
during the sixty-day period beginning with the date of receipt of proof of
death.
DEATH OF OWNER/CERTIFICATE HOLDER DURING THE ANNUITY PERIOD
If the Owner/Certificate Holder or a Joint Owner/Joint Certificate Holder, who
is not the Annuitant, dies during the Annuity Period, any remaining payments
under the Annuity Option elected will continue at least as rapidly as under
the method of distribution in effect at such Owner's/Certificate Holder's
death. Upon the death of the Owner/Certificate Holder during the Annuity
Period, the Beneficiary becomes the Owner/Certificate Holder.
DEATH OF ANNUITANT
Upon the death of the Annuitant, who is not the Owner or Certificate Holder,
during the Accumulation Period, the Owner/Certificate Holder may designate a
new Annuitant, subject to the Company's underwriting rules then in effect. If
no designation is made within 30 days of the death of the Annuitant, the Owner
or Certificate Holder, as applicable will become the Annuitant. If the Owner
or Certificate Holder is a non-natural person, the death of the Annuitant will
be treated as the death of the Owner or Certificate Holder and a new Annuitant
may not be designated.
Upon the death of the Annuitant during the Annuity Period, the death benefit,
if any, will be as specified in the Annuity Option elected. Death benefits
will be paid at least as rapidly as under the method of distribution in effect
at the Annuitant's death.
PAYMENT OF DEATH BENEFIT
The Company will require due proof of death before any death benefit is paid.
Due proof of death will be:
1. a certified death certificate;
2. a certified decree of a court of competent jurisdiction as to the
finding of death; or
3. any other proof satisfactory to the Company.
All death benefits will be paid in accordance with applicable law or
regulations governing death benefit payments.
BENEFICIARY
The Beneficiary designation in effect on the Issue Date or Certificate Issue
Date will remain in effect until changed. The Beneficiary is entitled to
receive the benefits to be paid at the death of the Owner or Certificate
Holder. Unless the Owner or Certificate Holder provides otherwise, the death
benefit will be paid in equal shares to the survivor(s) as follows:
1. to the Primary Beneficiary(ies) who survive the Owner's or
Certificate Holder's and/or the Annuitant's death, as applicable; or if there
are none
2. to the Contingent Beneficiary(ies) who survive the Owner's or
Certificate Holder's and/or the Annuitant's death, as applicable; or if there
are none
3. to the estate of the Owner or Certificate Holder.
CHANGE OF BENEFICIARY
Subject to the rights of any irrevocable Beneficiary(ies), the Owner or
Certificate Holder may change the Primary Beneficiary(ies) or Contingent
Beneficiary(ies). Any change must be made by Written Request received by the
Company. The change will take effect as of the date the Written Request is
signed. The Company will not be liable for any payment made or action taken
before it records the change.
ANNUITY PROVISIONS
GENERAL
On the Annuity Date, the Adjusted Contract Value or Certificate Holder's
Adjusted Account Value, as applicable, will be applied under the Annuity
Option selected by the Owner or Certificate Holder. Annuity Payments will be
made on a fixed basis only.
ANNUITY DATE
The Annuity Date is selected by the Owner/Certificate Holder on the Issue
Date/Certificate Issue Date. The Annuity Date must be at least three years
after the Issue Date/Certificate Issue Date. The Annuity Date may not be
later than when the Annuitant reaches attained Age 85 or 10 years after the
Issue Date/Certificate Issue Date for Annuitant issue ages after Age 75.
Prior to the Annuity Date, the Owner/Certificate Holder, subject to the above,
may change the Annuity Date by Written Request. Any change must be requested
at least thirty (30) days prior to the previously selected Annuity Date and
thirty (30) days prior to the new Annuity Date.
SELECTION OR CHANGE OF AN ANNUITY OPTION
An Annuity Option is selected by Written Request by the Owner/Certificate
Holder. If no Annuity Option is selected, Option B with 120 Monthly Payments
guaranteed will automatically be applied. Prior to the Annuity Date, the Owner
or Certificate Holder can change the Annuity Option selected by Written
Request. Any change must be requested at least thirty (30) days prior to the
Annuity Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity Payments are paid in monthly installments. The Adjusted Contract
Value or the Certificate Holder's Adjusted Account Value is applied to the
Annuity Table for the Annuity Options selected. If the Adjusted Contract
Value or the Certificate Holder's Adjusted Account Value to be applied under
an Annuity Option is less than $2,000, the Company reserves the right to make
a lump sum payment in lieu of Annuity Payments. If the Annuity Payment would
be or become less than $200, the Company reserves the right to reduce the
frequency of payments to an interval which will result in each payment being
at least $200.
FIXED ANNUITY
The Adjusted Contract Value or the Certificate Holder's Adjusted Account Value
is allocated to the General Account and the Annuity is paid as a Fixed
Annuity. Unless the Owner or Certificate Holder specifies otherwise, the
payee of the Annuity Payments will be the Owner or Certificate Holder.
The Adjusted Contract Value or the Certificate Holder's Adjusted Account Value
will be applied to the applicable Annuity Table contained in the Contract or
Certificate based upon the Annuity Option selected by the Owner or Certificate
Holder. The amount of the first payment for each $1,000 of Adjusted Contract
Value or Certificate Holder's Adjusted Account Value is shown in the Annuity
Tables. The dollar amount of each Fixed Annuity Payment shall be determined
in accordance with Annuity Tables contained in the Contract or Certificate.
ANNUITY OPTIONS
The following Annuity Options or any other Annuity Option acceptable to the
Company may be selected:
OPTION A. LIFE ANNUITY : Monthly Annuity Payments during the life of the
Annuitant.
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 60, 120, 180 OR 240 MONTHS :
Monthly Annuity Payments during the lifetime of the Annuitant and in any
event for sixty (60), one hundred twenty (120), one hundred eighty (180) or
two hundred forty (240) months as selected.
OPTION C. JOINT AND SURVIVOR ANNUITY : Monthly Annuity Payments payable
during the joint lifetime of the Annuitant and a Joint Annuitant and then
during the lifetime of the survivor.
DISTRIBUTOR
United Variable Services, Inc. ("UVS"), a wholly-owned subsidiary of the
Company, is the distributor of the Contracts. UVS is registered as a
broker-dealer with the Securities and Exchange Commission and is a member of
the National Association of Securities Dealers, Inc.
PERFORMANCE INFORMATION
MONEY MARKET SUB-ACCOUNT
From time to time, the Money Market Sub-Account of the Separate Account may
advertise its "current yield" and "effective yield." Both yield figures are
based on historical earnings and are not intended to indicate future
performance. The "current yield" of the Money Market Sub-Account refers to the
income generated by Contract Values or Certificate Holder's Account Value in
the Money Market Sub-Account over a seven-day period ending on the date of
calculation (which period will be stated in the advertisement). This income
is "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period
and is shown as a percentage of the Contract Value or Certificate Holder's
Account Value in the Money Market Sub-Account. The "effective yield" is
calculated similarly. However, when annualized, the income earned by Contract
Value or Certificate Holders Account Value is assumed to be reinvested. This
results in the "effective yield" being slightly higher than the "current
yield" because of the compounding effect of the assumed reinvestment. The
yield figure will reflect the deduction of any asset-based charges and any
applicable Contract and Certificate Maintenance Charges.
OTHER SUB-ACCOUNTS
From time to time, the Company may advertise performance data for the various
other Sub-Accounts. Such data will show the percentage change in the value of
an Accumulation Unit based on the performance of an investment medium over a
period of time, usually a calendar year, determined by dividing the increase
(decrease) in value for that Unit by the Accumulation Unit value at the
beginning of the period. This percentage figure will reflect the deduction of
any asset-based charges and any applicable Contract and Certificate
Maintenance Charges under the Contracts.
Any advertisement will also include total return figures calculated as
described in the Statement of Additional Information. The total return
figures will reflect the deduction of all charges and deductions under the
Contracts and Certificates and the fees and expenses of the Portfolios. The
Company may, in addition, advertise total return performance information
computed on a different basis
The Company may make available yield information with respect to some of the
Sub-Accounts. Such yield information will be calculated as described in the
Statement of Additional Information. The yield information will reflect the
deduction of all charges and deductions under the Contracts and Certificates
and the fees and expenses of the Portfolios.
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.addition, the Company may distribute sales
literature which compares the percentage change in Accumulation Unit values
for any of the Sub-Accounts against established market indices such as the
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average or other management investment companies which have investment
objectives similar to the underlying Portfolio being compared. The Standard &
Poor's 500 Composite Stock Price Index is an unmanaged, unweighted average of
500 stocks, the majority of which are listed on the New York Stock Exchange.
The Dow Jones Industrial Average is an unmanaged, weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange. Both
the Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average assume quarterly reinvestment of dividends.
In addition, the Company may, as appropriate, compare each Sub-Account's or
Portfolio's performance to that of other types of investments such as
certificates of deposit, savings accounts and U.S. Treasuries, or to certain
interest rate and inflation indices, such as the Consumer Price Index, which
is published by the U.S. Department of Labor and measures the average change
in prices over time of a fixed "market basket" of certain specified goods and
services. Similar comparisons of Sub-Account and/or Portfolio performance may
also be made with appropriate indices measuring the performance of a defined
group of securities widely recognized by investors as representing a
particular segment of the securities markets. For example, Sub-Account and/or
Portfolio performance may be compared with Donoghue Money Market Institutional
Averages (money market rates), Lehman Brothers Corporate Bond Index (corporate
bond interest rates) or Lehman Brothers Government Bond Index (long-term U.S.
Government obligation interest rates).
The Company may also distribute sales literature which compares the
performance of the Accumulation Unit values of the Contracts issued through
the Separate Account with the unit values of variable annuities issued through
the separate accounts of other insurance companies. Such information will be
derived from the Lipper Variable Insurance Products Performance Analysis
Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is
published by Lipper Analytical Services, Inc., a publisher of statistical data
which currently tracks the performance of almost 4,000 investment companies.
The rankings compiled by Lipper may or may not reflect the deduction of
asset-based insurance charges. The Company's sales literature utilizing these
rankings will indicate whether or not such charges have been deducted. Where
the charges have not been deducted, the sales literature will indicate that if
the charges had been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Atlanta and published by Financial
Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. Where the charges have not been
deducted, the sales literature will indicate that if the charges had been
deducted, the rankings might have been lower.
Morningstar rates a variable annuity Sub-Account against its peers with
similar investment objectives. Morningstar does not rate any Sub-Account that
has less than three years of performance data. The Morningstar rankings may
or may not reflect the deduction of charges. Where charges have not been
deducted, the sales literature will indicate that if the charges had been
deducted, the rankings might have been lower.
HYPOTHETICAL PERFORMANCE
Although the Sub-Accounts of the Separate Account are relatively new and
therefore have little or no investment performance history, the corresponding
Portfolios of the Eligible Funds have been in existence for some time and
consequently have investment performance history. In order to demonstrate how
the actual investment experience of the various Portfolios of the Eligible
Funds affects Accumulation Unit values, the Company may present hypothetical
performance information. The information will be based upon the historical
experience of the Portfolios and will be for the periods shown.
The performance of the various Sub-Accounts will vary and the hypothetical
results shown are not necessarily representative of future results.
Performance for periods ending after those shown may vary substantially. The
performance of the various Sub-Accounts is calculated for a specified period
of time by assuming an initial Purchase Payment of $1,000 allocated to each of
the Sub-Accounts and a deduction of all charges and deductions (see "Charges
and Deductions" for more information). The hypothetical performance figures
will also reflect the actual fees and expenses paid by the Portfolios of the
Eligible Funds. The percentage increases are determined by subtracting the
initial Purchase Payment from the ending value and dividing the remainder by
the beginning value.
TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS OR CERTIFICATES. PURCHASERS BEAR THE COMPLETE RISK THAT THE
CONTRACTS OR CERTIFICATES MAY NOT BE TREATED AS "ANNUITY CONTRACTS" UNDER
FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING
DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT DESCRIBED IN THIS
PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO ATTEMPT HAS
BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An owner is
not taxed on increases in the value of a Contract or Certificate until
distribution occurs, either in the form of a lump sum payment or as annuity
payments under the Annuity Option selected. For a lump sum payment received
as a total withdrawal (total surrender), the recipient is taxed on the portion
of the payment that exceeds the cost basis of the Contract. For Non-Qualified
Contracts, this cost basis is generally the purchase payments, while for
Qualified Contracts there may be no cost basis. The taxable portion of the
lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments
based on a Fixed Annuity Option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period certain
or refund feature) bears to the expected return under the Contract or
Certificate. The taxable portion is taxed at ordinary income tax rates. For
certain types of Qualified Plans there may be no cost basis in the Contract or
Certificate within the meaning of Section 72 of the Code. Owners, Certificate
Holder's, Annuitants and Beneficiaries under the Contracts and Certificates
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification
of the Contracts or Certificates as annuity contracts would result in
imposition of federal income tax to the Contract Owner or Certificate Holder
with respect to earnings allocable to the Contract or Certificate prior to the
receipt of payments under the Contract or Certificate. The Code contains a
safe harbor provision which provides that annuity contracts such as the
Contracts or Certificates meet the diversification requirements if, as of the
end of each quarter, the underlying assets meet the diversification standards
for a regulated investment company and no more than fifty-five percent (55%)
of the total assets consist of cash, cash items, U.S. Government securities
and securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts and
Certificates. The Regulations amplify the diversification requirements for
variable contracts set forth in the Code and provide an alternative to the
safe harbor provision described above. Under the Regulations, an investment
portfolio will be deemed adequately diversified if: (1) no more than 55% of
the value of the total assets of the portfolio is represented by any one
investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that the Eligible Funds underlying the Contracts and
Certificates will be managed by the investment adviser(s) for the Eligible
Funds in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner or Certificate
Holder control of the investments of the Separate Account will cause the Owner
or Certificate Holder to be treated as the owner of the assets of the Separate
Account, thereby resulting in the loss of favorable tax treatment for the
Contract or Certificate. At this time it cannot be determined whether
additional guidance will be provided and what standards may be contained in
such guidance.
The amount of Owner or Certificate Holder control which may be exercised under
the Contract or Certificate is different in some respects from the situations
addressed in published rulings issued by the Internal Revenue Service in which
it was held that the policy owner was not the owner of the assets of the
separate account. It is unknown whether these differences, such as the
Owner's/Certificate Holder's ability to transfer among investment choices or
the number and type of investment choices available, would cause the
Owner/Certificate Holder to be considered as the owner of the assets of the
Separate Account resulting in the imposition of federal income tax to the
Owner/Certificate Holder with respect to earnings allocable to the Contract or
Certificate prior to receipt of payments under the Contract or Certificate.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owner
or Certificate Holder being retroactively determined to be the owner of the
assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract or Certificate in an attempt to maintain favorable tax
treatment.
CONTRACTS AND CERTIFICATES OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts and Certificates will be taxed currently to the Owner/Certificate
Holder if the Owner/Certificate Holder is a non-atural person, e.g., a
corporation, or certain other entities. Such Contracts generally will not be
treated as annuities for federal income tax purposes. However, this treatment
is not applied to Contracts/Certificates held by a trust or other entity as an
agent for a natural person nor to Contracts/Certificates held by Qualified
Plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract/Certificate to be owned by a non-natural person.
MULTIPLE CONTRACTS/CERTIFICATES
Section 72(e)(11) of the Code provides that multiple non-qualified annuity
contracts and/or certificates which are issued within a calendar year to the
same contract owner or certificate holder by one company or its affiliates are
treated as one annuity contract and/or certificate for purposes of determining
the tax consequences of any distribution. Such treatment may result in
adverse tax consequences including more rapid taxation of the distributed
amounts from such combination of contracts and/or certificates. Owners and
Certificate Holders should consult a tax adviser prior to purchasing more than
one non-qualified annuity contract and/or certificate in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract or Certificate may be a taxable event.
Owners and Certificate Holders should therefore consult competent tax
advisers should they wish to assign or pledge their Contracts or Certificates.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the Owner or Certificate Holder are subject to federal income tax
withholding. Generally, amounts are withheld from periodic payments at the
same rate as wages and at the rate of 10% from non-periodic payments.
However, the Owner or Certificate Holder, in most cases, may elect not to have
taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a
mandatory 20% withholding for federal income tax. The 20% withholding
requirement generally does not apply to: a) a series of substantially equal
payments made at least annually for the life or life expectancy of the
participant or joint and last survivor expectancy of the participant and a
designated beneficiary; or distributions for a specified period of 10 years or
more; or b) distributions which are required minimum distributions; or c)the
portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions). Participants under such plans should consult their
own tax counsel or other tax advisor regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS AND CERTIFICATES
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value or Certificate Holder's
Account Value exceeds the aggregate purchase payments made, any amount
withdrawn will be treated as coming first from the earnings and then, only
after the income portion is exhausted, as coming from the principal.
Withdrawn earnings are includible in gross income. It further provides that a
ten percent (10%) penalty will apply to the income portion of any
distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (b) after the death of the Owner or
Certificate Holder; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or for the joint lives (or
joint life expectancies) of the taxpayer and his or her Beneficiary; (e) under
an immediate annuity; or (f) which are allocable to purchase payments made
prior to August 14, 1982.
The above information does not apply to Qualified Contracts and Certificates.
However, separate tax withdrawal penalties and restrictions may apply to such
Qualified Contracts and Certificates. (See "Tax Treatment of Withdrawals -
Qualified Contracts and Certificates", below.)
QUALIFIED CONTRACTS AND CERTIFICATES
The Contracts and Certificates offered by this Prospectus are designed to
be suitable for use under various types of Qualified Plans. IN CERTAIN
STATES, THE CONTRACTS/CERTIFICATES MAY NOT BE AVAILABLE FOR USE IN
CONNECTION WITH SECTION 401 PLANS. Taxation of participants in each Qualified
Plan varies with the type of plan and terms and conditions of each specific
plan. Owners, Certificate Holders, Annuitants and Beneficiaries are
cautioned that benefits under a qualified plan may be subject to the terms
and conditions of the plan regardless of the terms and conditions of the
Contracts or Certificates issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Owners, Certificate
Holders, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts and Certificates comply with applicable law. Following are general
descriptions of the types of qualified plans with which the Contracts and
Certificates may be used. Such descriptions are not exhaustive and are for
general informational purposes only. The tax rules regarding Qualified
Contracts and Certificates are very complex and will have differing
applications depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract or
Certificate issued under a qualified plan.
Contracts and Certificates issued pursuant to qualified plans include special
provisions restricting Contract and Certificate provisions that may otherwise
be available as described in this Prospectus. Generally, Contracts and
Certificates issued pursuant to qualified plans are not transferable except
upon surrender or annuitization. Various penalty and excise taxes may apply
to contributions or distributions made in violation of applicable limitations.
Furthermore, certain withdrawal penalties and restrictions may apply to
surrenders from Qualified Contracts and Certificates. (See "Tax Treatment of
Withdrawals - Qualified Contracts and Certificates", below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. Qualified Contracts sold by the Company will
utilize annuity tables which do not differentiate on the basis of sex. Such
annuity tables will also be available for use in connection with certain
non-qualified deferred compensation plans.
A. H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" plans. Contributions made to the Plan for the benefit of
the employees will not be included in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as: amount
of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and non-forfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. (See "Tax Treatment of Withdrawals
- -- Qualified Contracts and Certificates" below.) Purchasers of
Contracts/Certificates for use with an H.R. 10 Plan should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
B. TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts/Certificates for
the benefit of their employees. Such contributions are not includible in the
gross income of the employees until the employees receive distributions from
the Contracts/Certificates. The amount of contributions to the tax-sheltered
annuity is limited to certain maximums imposed by the Code. Furthermore, the
Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals -- Qualified Contracts" and "Tax-Sheltered Annuities
- -- Withdrawal Limitations" below.) Any employee should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
C. INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions, transferability
and distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts
and Certificates" below.) Under certain conditions, distributions from other
IRAs and other qualified plans may be rolled over or transferred on a
tax-deferred basis into an IRA. Sales of Contracts and Certificates for use
with IRAs are subject to special requirements imposed by the Code, including
the requirement that certain informational disclosure be given to persons
desiring to establish an IRA. Purchasers of Contracts and Certificates to be
qualified as Individual Retirement Annuities should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
D. CORPORATE PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts/Certificates to provide
benefits under the Plan. Contributions to the Plan for the benefit of
employees will not be includible in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places
limitations and restrictions on all plans, including on such items as: amount
of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and non-forfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. (See "Tax Treatment of Withdrawals
- -- Qualified Contracts and Certificates" below.) Purchasers of
Contracts/Certificates for use with Corporate Pension or Profit Sharing
Plans should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS AND CERTIFICATES
In the case of a withdrawal under a Qualified Contract or Certificate, a
ratable portion of the amount received is taxable, generally based on the
ratio of the individual's cost basis to the individual's total accrued benefit
under the retirement plan. Special tax rules may be available for certain
distributions from a Qualified Contract/Certificate. Section 72(t) of the Code
imposes a 10% penalty tax on the taxable portion of any distribution from
qualified retirement plans, including Contracts and Certificates issued and
qualified under Code Sections 401 (H.R. 10 and Corporate Pension and Profit
Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (Individual
Retirement Annuities). To the extent amounts are not includible in gross
income because they have been rolled over to an IRA or to another eligible
qualified plan, no tax penalty will be imposed. The tax penalty will not
apply to the following distributions: (a) if distribution is made on or after
the date on which the Owner/Certificate Holder or Annuitant (as applicable)
reaches age 59 1/2; (b) distributions following the death or disability of the
Owner/Certificate Holder or Annuitant (as applicable) (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (c) distributions
that are part of substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy) of the
Owner/Certificate Holder or Annuitant (as applicable) or the joint lives (or
joint life expectancies) of such Owner/Certificate Holder or Annuitant (as
applicable) and his or her designated Beneficiary; (d) distributions to an
Owner/Certificate Holder or Annuitant (as applicable) who has separated from
service after he has attained age 55; (e) distributions made to the
Owner/Certificate Holder or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner/Certificate Holder or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; and (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order.
The exceptions stated in (d), (e) and (f) above do not apply in the case of an
Individual Retirement Annuity. The exception stated in (c) above applies to an
Individual Retirement Annuity without the requirement that there be a
separation from service.
Generally, distributions from a Qualified Contract/Certificate must commence
no later than April 1 of the calendar year, following the year in which the
Owner/Certificate Holder attains age 70 1/2. Required distributions must be
over a period not exceeding the life expectancy of the individual or the joint
lives or life expectancies of the individual and his or her designated
beneficiary. If the required minimum distributions are not made, a 50%
penalty tax is imposed as to the amount not distributed. In addition,
distributions in excess of $150,000 per year may be subject to an additional
15% excise tax unless an exemption applies.
TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions
made pursuant to a salary reduction agreement (as defined in Section
403(b)(11) of the Code) to circumstances only when the Owner/Certificate
Holder: (1) attains age 59 1/2; (2) separates from service; (3) dies; (4)
becomes disabled (within the meaning of Section 72(m)(7) of the Code); or (5)
in the case of hardship. However, withdrawals for hardship are restricted to
the portion of the Owner's Contract Value or Certificate Holder's Account
Value which represents contributions made by the Owner/Certificate Holder
and does not include any investment results. The limitations on withdrawals
became effective on January 1, 1989, and apply only to salary reduction
contributions made after December 31, 1988, to income attributable to such
contributions and to income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect rollovers or transfers
between certain qualified plans. Owners/Certificate Holders should consult
their own tax counsel or other tax adviser regarding any distributions.
SECTION 457 - Deferred Compensation Plans
Under Section 457 of the Code, governmental and certain other tax-exempt
employers may establish deferred compensation plans for the benefit of their
employees which may invest in annuity contracts. The Code, as in the case of
qualified plans, establishes limitations and restrictions on eligibility,
contributions and distributions. Under these Plans, contributions made for the
benefit of the employees will not be includible in the employee's gross income
until distributed from the Plan. However, under a Section 457 Plan, all the
assets remain solely the property of the employer, subject only to the claims
of the employer's general creditors until such time as made available to the
participant or beneficiary. IN CERTAIN STATES, THE CONTRACTS/CERTIFICATES MAY
NOT BE AVAILABLE FOR USE IN CONNECTION WITH SECTION 457 PLANS.
ADDITIONAL INFORMATION ABOUT THE COMPANY
SELECTED FINANCIAL DATA
The selected financial data set forth below is derived from the
Company's audited consolidated financial statements.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1995 1994 1993 1992 1991
------------- --------------- --------------- ----------- -----------
(in thousands)
Income Statement Data:
Net investment income $ 123,107 $ 114,380 $ 109,661 $ 104,814 $ 103,894
Net insurance premiums 8,508 11,373 18,684 22,860 36,269
Realized investment gains (losses) (3,498) (4,811) (19,393) 1,486 (2,349)
------------- --------------- --------------- ----------- -----------
Total revenues 128,117 120,942 108,952 129,160 137,814
Total expenses 116,017 111,862 121,317 123,695 135,737
------------- --------------- --------------- ----------- -----------
Income (loss) before income taxes 12,100 9,080 (12,365) 5,465 2,077
Provision (benefit) for income taxes 4,065 3,194 (4,107) 1,438 173
------------- --------------- --------------- ----------- -----------
Net income (loss) $ 8,035 $ 5,886 $ (8,258) $ 4,027 $ 1,904
------------- --------------- --------------- ----------- -----------
Balance Sheet Data - Period End:
Total investments(1) $ 1,631,723 $ 1,453,094 $ 1,428,405 $1,253,915 $1,154,486
Due from reinsurance 33,583 34,985 36,577 37,716 38,600
Deferred policy acquisition costs 90,703 91,915 83,495 80,007 78,599
Total assets 1,789,608 1,658,154 1,625,718 1,464,475 1,343,076
Annuity reserves 1,417,803 1,425,973 1,294,983 1,147,555 1,014,649
Policy benefit reserves 111,209 116,501 123,328 125,177 125,908
Total liabilities 1,603,083 1,555,975 1,482,591 1,327,610 1,211,080
Stockholder's equity(1) 186,525 102,179 143,127 136,385 132,358
Other Data:
Annuity sales $ 135,534 $ 249,737 $ 207,682 $ 187,050 $ 175,796
Net interest spread on annuities 2.37% 2.73% 2.20% 1.84% 1.88%
Investment grade bonds as % of
invested assets 68.0% 69.6% 59.6% 54.3% 25.1%
<FN>
_________________________
(1) During the first quarter of 1994, the Company implemented the provisions of FASB Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), which revised the method of accounting for certain of the Company's
investments. Prior to adoption of SFAS 115, the Company reported its investments in fixed income investments at
amortized cost, adjusted for declines in value considered to be other than temporary, SFAS 115 requires the
classification of securities in one of three categories: "available-for-sale," "held-to-maturity" or "trading
securities." Securities classified as held-to-maturity are carried at amortized cost, whereas securities
classified as trading securities or available-for-sale are recorded at fair value. Effective with the adoption of
SFAS 115, the Company determined the appropriate classification of its investments and, if necessary, adjusted the
carrying value of such securities accordingly as if the unrealized gains or losses had been realized. The
adjustment, net of applicable income taxes, for investments classified as available-for-sale is recorded in "Net
unrealized loss on securities" and is included in Stockholders' equity and the adjustment for investments
classified as trading is recorded in "Investment Income" in the Statement of income. In accordance with the
provisions of SFAS 115, prior year investments were not restated.
</TABLE>
BUSINESS
GENERAL . United Companies Life Insurance Company ("the Company"),
domiciled in Louisiana and organized in 1955, is currently authorized to
conduct business in 47 states, the District of Columbia and Puerto Rico. The
Company is a wholly-owned subsidiary of United Companies Financial Corporation
("UCFC" or "Parent"), a financial services holding company with mortgage and
insurance operations. The primary products of the Company are deferred
annuities marketed on a commission basis principally through financial
institutions and independent general agents and generally sold to middle
income customers seeking tax deferred insurance products, primarily to provide
savings for retirement. The Company added variable annuity products to its
annuity line of business during 1995 and began sales during the fourth quarter
of 1995.
The Company produced $136 million, $250 million and $208 million in sales
of annuity products during the years ended December 31, 1995, 1994 and 1993,
respectively. At December 31, 1995, total annuity reserves were $1.4 billion.
At December 31, 1995, the invested assets of the Company consisted of $1.1
billion in investment grade fixed maturity securities (at amortized cost),
$168.9 million of home equity mortgage loans (which were primarily originated
by its affiliate, United Companies Lending Corporation ("UC Lending"), and
$167.4 million of commercial mortgage loans (also primarily originated by UC
Lending). At December 31, 1995, the weighted average rating of its publicly
traded bond portfolio was "AA," the assets allocated to investments in
mortgage-backed securities were $777.7 million and the amount of
non-investment grade publicly traded bonds in the portfolio was $22 million or
1.9% of the portfolio. During the year ended December 31, 1995, the net
interest spread on the Company's annuity business was 2.37% compared to 2.73%
for the same period in 1994.
Reserves for annuity policies constitute the Company's primary
liabilities. The duration of these liabilities is affected by a number of
factors, including interest rates, surrender penalties, ratings, public
confidence in the insurance industry generally and in the Company
specifically, governmental regulations and tax laws. Since insurance
commissions incurred at the origination of annuity policies are generally
deferred and recognized over the estimated life of the policies, any
unexpected increase in surrenders of annuity contracts would require more
rapid recognition of these expenses, thereby adversely impacting
profitability.
In the second quarter of 1995, A.M. Best Company ("Best"), an independent
rating organization, reaffirmed its "A-" (Excellent) rating of the Company.
The Company's claims paying ability, which has been rated "A+" (Single-A-Plus)
by Duff & Phelps Credit Rating Company ("Duff & Phelps"), has been put on its
"Rating Watch-Uncertain" list as a result of the Parent's announcement that it
was considering strategic alternatives regarding the Company, including a
possible sale thereof. Duff & Phelps reported that the Company's claims
paying ability would remain on "Rating Watch-Uncertain" until more information
becomes known about the Company's ultimate position within the organization or
another organization. See "Recent Developments" and "Insurance Ratings".
During 1995, Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("Standard & Poor's"), revised the rating scale used in assigning its
qualified solvency ratings of insurance companies and, as a result, revised
its rating assigned to the Company from "BBq" to "Aq."
RECENT DEVELOPMENTS . On February 2, 1996, UCFC signed a stock purchase
agreement ("Agreement") dated as of January 30, 1996, for the sale of all of
the outstanding capital stock of the Company to UC Life Holding Corp, a new
Delaware corporation formed by Knightsbridge Capital Fund I, L.P.,
("Knightsbridge") for $164 million plus earnings of the Company from January
1, 1996, to closing of the transaction. Knightsbridge, which is a private
investment partnership with institutional partners, was formed in 1995 to
make equity investments in companies engaged primarily in the life insurance
industry. Knightsbridge, which is a private investment partnership with
institutional partners, was formed in 1995 to make equity investments in
companies engaged primarily in the life insurance industry. Knightsbridge
is a Delaware limited partnership, the limited partners of which are
primarily affiliates of leading domestic and international banking
organizations. The general partner is Knightsbridge Management L.L.C.
Under the terms of the Agreement, the sales price is comprised of cash,
estimated, as of January 30, 1996, to be approximately $109 million, and real
estate and other assets owned by the Company to be distributed to UCFC prior
to the closing. The real estate to be distributed includes portions of the
United Plaza office park, including UCFC's home office. In addition, UCFC
will purchase a convertible promissory note from an affiliate of the purchaser
for $15 million in cash.
The purchaser also agreed that the Company would continue to be an
investor in first lien home equity loans originated by UCFC's lending
operations and that the purchaser would use commercially reasonable efforts
to maintain the Company's home office operations in its present location in
Baton Rouge, Louisiana following the closing for at least two years. The
Agreement is subject to approval by UCFC's shareholders and regulatory
authorities and the satisfaction of other conditions, and provides that the
closing will occur on or before July 31, 1996.
PRINCIPAL PRODUCTS . The principal products marketed by the Company
since 1978 have been deferred annuities. During the year of 1995, the average
premium received on the sale of these policies was approximately $21,000. The
annuities typically guarantee an interest crediting rate for the first policy
year. Thereafter, the interest crediting rate generally may be adjusted by
the Company at any time (subject to certain minimum crediting rates stated in
the policy). A policyholder is permitted at any time to withdraw all or part
of the accumulated premium plus the amount of interest credited on the policy,
less a surrender charge if applicable. The initial surrender charge typically
ranges from 9% - 10% of the initial premium and decreases to zero during a
penalty period of from five to ten years. Approximately 78% of the Company's
annuity policies at December 31, 1995, were subject to a surrender penalty.
The Company produced $136 million and $250 million in sales of annuity
products during the years ended December 31, 1995 and 1994, respectively. The
Company believes that the decrease in annuity sales in 1995 is due in part to
the interest rate environment, particularly the relative relationship between
short term and intermediate term interest rates, and to the focus of the
Company's resources on development of the variable annuity product. In
addition, a financial institution which produced approximately 10% of UCLIC's
annuity sales in 1994 discontinued the sale of annuities for UCLIC in 1995
subsequent to the merger of such financial institution.
The interest earned on the annuity policy accumulates on a tax-deferred
basis until withdrawal by the policyholder. The deferred annuity policies
written by the Company generally provide a death benefit equal to the amount
of the initial premium plus accumulated interest earned less the amount of any
prior withdrawals.
The following table presents the Company's annuity sales by state by
percent of total premiums for the periods indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
1995 1994
----------- ------------
State
- --------------------
Florida 21.8% 28.9%
Missouri 20.9 10.3
Louisiana 9.8 13.7
Illinois 9.8 8.6
Texas 7.3 5.8
All Others 30.4 32.7
----------- ------------
Total 100.0% 100.0%
=========== ============
</TABLE>
No other state individually accounted for more than 7% of premium income
during 1995 or 1994.
DISTRIBUTION . The Company's strategy of marketing through financial
institutions and independent general agents allows it to avoid substantial
sales management office expense and to expand its sales efforts without
significant development expense. Because financial institutions and
independent general agents usually offer the products of several insurance
companies, the Company must continue to provide products with competitive
terms, interest crediting rates, commissions and service to both policyholders
and the selling institutions and independent general agents. During 1995 and
1994, the Company focused on expanding the independent general agent share of
its distribution network. Of the annuity policies sold during 1995 and 1994,
approximately 55% and 46%, respectively, of the total dollar amount were
attributable to sales by independent general agents.
REINSURANCE . The Company generally limits the amount of insurance risk
that it assumes with respect to any one insured to $100,000 and for larger
policies follows industry practice of reinsuring that portion of the risk in
excess of established retention limits. The Company, however, remains
contingently liable for insurance ceded to reinsurers and remains liable to
the policyholder in the event the reinsurer is unable to meet the obligations
assumed under the reinsurance agreement. Reinsurance is currently ceded
primarily to the following companies: First Capital Life Insurance Company of
Louisiana ("First Capital")(not affiliated with First Capital Holding Company
of California), Aetna Life Insurance Company ("Aetna"), Continental Assurance
Company ("Continental"), American United Life Insurance Company ("American
United") and Transamerica Occidental Life Insurance Company ("Transamerica").
American United and Transamerica are rated "A+" (Superior) by Best at December
31, 1995. Aetna and Continental are rated "A" (Excellent"). First Capital is
rated "B" (Adequate). In the case of First Capital, the dollar amount of
reserve credit taken by the Company is held in trust for the benefit of the
Company.
LIFE INSURANCE AND ANNUITY RESERVES . In accordance with applicable
insurance regulations, the Company records as liabilities in its statutory
financial statements actuarially determined reserves that are calculated to
meet future obligations under outstanding insurance. The reserves are based
on statutorily recognized methods using prescribed morbidity and mortality
tables and interest rates. Reserves include unearned premiums, premium
deposits, claims that have been reported but are not yet paid, claims that
have been incurred but have not been reported, and claims in the process of
settlement. The Company's reserves satisfy minimum statutory requirements.
The annuity reserves reflected in the consolidated financial statements
are calculated based on generally accepted accounting principles ("GAAP"). As
of December 31, 1995, annuity reserves were $1.4 billion, policy benefit
reserves were $111.2 million, and unearned premium reserves related to credit
insurance were $1.8 million. These reserves are based upon the Company's best
estimates of mortality, persistency, expenses and investment income, with
appropriate provisions for adverse statistical deviation and the use of the
net level premium method for all non-interest sensitive products and the
retrospective deposit method for interest-sensitive products. GAAP reserves
differ from statutory reserves due to the use of different assumptions
regarding mortality and interest rates and the introduction of lapse
assumptions into the GAAP reserve calculation. See Note 1 of Notes to
consolidated financial statements for additional information regarding reserve
assumptions under GAAP.
INVESTMENTS . The investment function of the Company is overseen by an
investment committee comprised of senior management, with the assistance of
outside investment advisors in the management of certain assets. The
Company's investment policy seeks to achieve attractive returns on a low to
moderate risk portfolio of investments. These investments, primarily bonds
and mortgage loans, must be within regulatory constraints to qualify as
permitted assets, and within the yield, risk and maturity limitations
established by the Company as necessary for meeting its objectives.
The investment strategy continues to focus on maintaining the percentage
of the Company's invested assets committed to commercial and residential
mortgages and to investment grade corporate bonds and mortgage-backed
securities.
The following table sets forth, at December 31, 1995, certain information
regarding the Company's invested assets:
<TABLE>
<CAPTION>
<S> <C> <C>
Amortized Percent of
Cost Total
------------ -----------
(dollars in thousands)
Fixed Maturity Securities(1)
U.S. Government, government agencies & authorities $ 11,504 0.7%
Foreign governments & other 20,819 1.3
Corporate bonds 335,238 21.2
Mortgage-backed 777,744 49.0
------------ -----------
Total 1,145,305 72.2
------------ -----------
Mortgage loans on real estate 336,269 21.2
Investment real estate 32,423 2.0
Short-term investments 22,804 1.4
Investment in limited partnership 25,594 1.6
Policy loans 20,291 1.3
Common and preferred stocks 1,012 0.1
Other invested assets 2,469 0.2
------------ -----------
Total $ 1,586,167 100.0%
============ ===========
<FN>
_________________
(1) Generally stated at amortized cost adjusted for permanent impairment in
value. Total fair value of held-to-maturity and available-for-sale Fixed
Maturity Securities at December 31, 1995, was approximately $1.2 billion,
representing net unrealized gains of $44.5 million.
</TABLE>
As reflected in the following table, the carrying value of the Company's
investments classified as investment grade at December 31, 1995, was
approximately $1.1 billion or 94.4% of the fixed maturity portfolio:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percent of
Amortized Fair Carrying Carrying
Cost Value Value Value
------------ ------------ ------------ -----------
(dollars in thousands)
Investment Quality(1)
Aaa $ 734,721 $ 756,251 $ 756,251 63.5%
Aa 25,255 26,768 26,768 2.2
A 227,800 244,562 244,434 20.5
Baa 91,322 97,728 97,306 8.2
------------ ------------ ------------ -----------
Total Investment Grade 1,079,098 1,125,309 1,124,759 94.4
Ba and below 21,980 22,093 22,093 1.9
Not rated 44,227 42,369 44,227 3.7
------------ ------------ ------------ -----------
Total Fixed Maturity Securities $ 1,145,305 $ 1,189,771 $ 1,191,079 100.0%
============ ============ ============ ===========
<FN>
_______________
(1) Fixed maturity investments are classified according to the ratings assigned by
Moody's Investors Service, Inc., or, in the absence of such rating, by the National
Association of Insurance Commissioners ("NAIC") whose ratings operate as follows: NAIC
Class 1 was assumed equivalent to an A rating; NAIC Class 2, BBB/Baa; and NAIC Classes 3-6,
BB/Ba and below.
</TABLE>
As a significant percentage of the Company's investment portfolio is
invested in fixed rate, fixed maturity investments, the fair value of these
investments is sensitive to changes in market rates of interest. In a rising
interest rate environment, the fair value of these investments would be
expected to decrease in value. An unanticipated increase in policy surrenders
or claims could impact the Company's liquidity and require the sale of certain
assets, such as bonds, prior to their maturity at a loss.
FIXED MATURITY INVESTMENTS . As of December 31, 1995, the amortized cost
of the Company's fixed maturity investments totaled $1.1 billion or
approximately 72.2% of the Company's invested assets. The fair value of fixed
maturity investments at that date exceeded its amortized cost by approximately
$44.5 million. In accordance with the provisions of Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards No. 115
("SFAS 115"), the Company classifies its securities in one of three
categories: "available-for-sale," "held-to-maturity" or "trading."
Securities classified as held-to maturity are carried at amortized cost,
whereas securities classified as trading securities or available-for-sale are
recorded at fair value. The adjustment, net of applicable income taxes, for
investments classified as available-for-sale is recorded in "Net unrealized
gains (losses) on securities" and is included in stockholder's equity on the
balance sheet and the adjustment for investments classified as trading is
recorded in "Net investment income" in the statement of income. The Company
may for business or regulatory reasons be required to sell certain of its
investments prior to maturity, and in some cases these sales may be made at
times when the fair value is less than carrying value, thereby resulting in a
loss in the statements of income for financial and statutory reporting
purposes.
At December 31, 1995, 49.0% of the Company's total invested assets were
invested in mortgage-backed securities. These mortgage-backed securities
consist principally of collateralized mortgage obligations and mortgage-backed
pass-through securities. Mortgage-backed securities generally are
collateralized by mortgages backed by GNMA, FNMA and FHLMC. Only GNMA
mortgages are backed by the full faith and credit of the United States
Government. Certain mortgage-backed securities are subject to significant
prepayment risk. In periods of declining interest rates, mortgages may be
repaid more rapidly than scheduled as individuals refinance higher-rate
mortgages to take advantage of lower interest rates. As a result, holders of
mortgage-backed securities may receive large prepayments on their investments
that cannot be reinvested at an interest rate comparable to the rate on the
prepaid mortgage. In addition to decreased investment yields, earnings could
also be affected by capital gains or losses realized on these prepayments
since the carrying value of securities purchased at a discount or premium may
be different than the amount received upon prepayment. The Company has
reduced the prepayment risk associated with mortgage-backed securities by
investing in planned amortization class ("PAC") instruments. These
instruments are designed to amortize in a predictable manner by shifting the
primary risk of prepayment of the underlying collateral to other investors.
PAC instruments represented approximately 54% of the Company's investments in
mortgage-backed securities at December 31, 1995.
MORTGAGE LOANS ON REAL ESTATE . At December 31, 1995, the Company's
investment in mortgage loans on real estate was comprised of $168.9 million in
residential home equity mortgage loans and $167.4 million in commercial real
estate mortgage loans, substantially all of which were originated by UC
Lending. During 1995, the Company funded $21.3 million in new commercial real
estate loans which were originated by UC Lending and refinanced $18.2 million
of existing commercial real estate mortgage loans. The mortgage loan
portfolio of the Company is serviced by UC Lending. The Company has full
credit recourse to UC Lending with respect to substantially all of the home
equity mortgage loans acquired from UC Lending. The servicing of the
commercial loan portfolio will be transferred from UC Lending to the Company
under the terms of the proposed sale of the Company. See "Recent
Developments" above.
The Company has purchased on an interim basis a substantial portion of
the first mortgage home equity loans originated by UC Lending. These loans
are typically held by the Company for short time periods (typically no longer
than 90 days) and then sold back to UC Lending prior to their sale in public
securitization transactions by an affiliate of UC Lending. UC Lending, not
the Company, retains the contingent credit risk in connection with these
transactions. A portion of the home equity loans are held by the Company in
its portfolio and are not sold by the Company to UC Lending.
Mortgage loans are carried at amortized cost less valuation adjustments
for permanently impaired value where appropriate. Commercial mortgages range
in size up to approximately $1.9 million with an average loan size of
approximately $.6 million. At origination, substantially all of the mortgages
were on existing leased properties rather than on properties in construction
or on start-up properties. The origination of commercial mortgages was
subject to underwriting procedures, including: (i) maximum loan to value ratio
of 75% of the property's appraised value; (ii) specified debt coverage
requirements; (iii) on-site inspections; (iv) third-party appraisals; and (v)
personal guarantees of borrowers. For these reasons, the Company does not
consider its commercial loans to be high risk. The weighted average interest
rate on the Company's commercial mortgage loan portfolio was 9.83% and 10.07%
at December 31, 1995 and 1994, respectively.
The following table provides information at December 31, 1995, regarding
the Company's commercial mortgage loans on real estate by property type, state
and contractual maturity (excluding loan loss reserves and discount):
<TABLE>
<CAPTION>
<S> <C> <C>
Percent of
Amount Total
------------ -----------
(dollars in thousands)
Commercial Mortgage Loans by Property Type
Retail $ 74,321 43.9%
Office 43,527 25.7
Office and warehouse 38,888 22.9
Other 12,775 7.5
------------ -----------
Total $ 169,511 100.0%
============ ===========
Commercial Mortgage Loans by State
Florida $ 37,475 22.1%
Georgia 32,530 19.2
Colorado 21,428 12.6
Virginia 13,873 8.2
Tennessee 12,316 7.3
Texas 9,750 5.8
All others 42,139 24.8
------------ -----------
Total $ 169,511 100.0%
============ ===========
Commercial Mortgage Loans by Contractual Maturity
1995 $ 26,316 15.5%
1996 17,781 10.5
1997 19,633 11.6
1998 16,387 9.7
After 1998 89,394 52.7
------------ -----------
Total $ 169,511 100.0%
============ ===========
</TABLE>
INVESTMENT REAL ESTATE . At December 31, 1995, the Company's investment
real estate was $32.4 million. Investment real estate included two office
buildings, adjacent land, and related improvements utilized by its Parent,
other affiliates, and unrelated third party tenants. In addition, it included
property acquired through foreclosure on commercial mortgage loans. At
December 31, 1995, the Company owned $13.6 million of commercial properties
obtained through foreclosure. For substantially all commercial mortgages
which the Company has foreclosed, an independent appraisal was obtained and,
if warranted, the Company established a specific reserve based on its judgment
as to the amount which may not be recoverable. As of December 31, 1995, the
specific reserve amounted to $4.0 million. During 1995 the Company moved from
its previous home office property into an office building owned by an
affiliate.
The Company also establishes a general reserve for all commercial
mortgages where a specific reserve or write-down has not been established. As
of December 31, 1995, the general reserve amounted to $1.0 million.
INSURANCE RATINGS . The ability of an insurance company to compete
successfully depends in part on its financial strength, operating performance
and claims-paying ability as rated by Best and other rating agencies. The
Company is presently rated "A-" (Excellent) by Best. Best's 15 categories of
ratings for insurance companies currently range from "A++" (Superior) to "F"
(In Liquidation). According to Best, an "A" or "A-" rating is assigned to
companies which, in Best's opinion, have achieved excellent overall
performance when compared to the standards of the life insurance industry and
generally have demonstrated a strong ability to meet their obligations to
policyholders over a long period of time. In evaluating a company's statutory
financial and operating performance, Best reviews the company's statutory
profitability, leverage and liquidity, as well as the company's spread of
risk, quality and appropriateness of its reinsurance program, quality and
diversification of assets, the adequacy of its policy reserves and surplus,
capital structure and the experience and competency of its management. Best
ratings are based upon factors of concern to policyholders, agents and
intermediaries and are not directed toward the protection of investors.
On October 24, 1995, Duff & Phelps placed its "A+" (Single-A-Plus) rating
of the Company on Rating Watch-Uncertain because of the October 20, 1995,
announcement by the Company's Parent that the Parent was considering
strategic alternatives regarding the Company, including the pending sale of
the Company (see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Pending Sale of the Company"). Duff & Phelps
reported that the claims paying ability rating would remain on Rating
Watch-Uncertain until more information becomes known about the Company's
ultimate position within the organization or another organization. In 1995,
Standard & Poor's revised the rating scale used in assigning its qualified
solvency ratings of insurance companies and, as a result, revised the
Company's rating from "BBq" to "Aq." Ratings such as those held by the Company
are important to maintaining public confidence in the Company and its ability
to market its annuity products. Any lowering of the Company's ratings could
materially and adversely affect the Company's ability to market its products,
particularly the sale of annuities through financial institutions, and could
increase the surrender of its annuity policies. Both of these consequences
could, depending upon the extent thereof, have a materially adverse effect on
the Company's liquidity and, under certain circumstances, net income. The
Company believes that its present ratings will enable it to continue to
compete successfully.
GOVERNMENT REGULATION AND LEGISLATION
GENERAL REGULATION . The Company is subject to regulation by the State
of Louisiana, its state of domicile, and the other states in which it
transacts business. The laws of such states are designed for the protection
of policyholders rather than security-holders. The Company is a member of a
holding company system in Louisiana. All transactions within a holding
company system affecting insurers must be both reasonable in relation to its
outstanding liabilities and adequate for its needs. State laws also require
prior notice or regulatory agency approval of changes in control of an insurer
or its holding company and of material intercorporate transfers of assets
within the holding company structure. Generally, under insurance holding
company statutes, a state insurance authority must approve in advance the
direct or indirect acquisition of 10% or more of the voting securities of an
insurance company chartered in its state.
The laws of the various states establish regulatory agencies with broad
administrative powers to approve policy forms, grant and revoke licenses to
transact business, regulate trade practices, license agents, and prescribe the
type and amount of investments permitted. Insurance companies are required to
file detailed annual statements with the state insurance regulators in each of
the states in which they do business, and their business and accounts are
subject to examination by such agencies at any time. In addition, insurance
regulators periodically examine the insurer's financial condition, adherence
to statutory account practices, and compliance with insurance department rules
and regulations.
As part of their routine regulatory oversight process, state insurance
departments conduct detailed examinations periodically (generally once every
three years) of the books, records and accounts of insurance companies
domiciled in their states. Such examinations are generally conducted in
cooperation with the departments of two or three other states under guidelines
promulgated by the National Association of Insurance Commissions ("NAIC").
The Company's last examination occurred during 1994 for the three year period
ended December 31, 1993. Final reports issued by the Louisiana Commissioner
of Insurance did not raise any significant issues or adjustments.
REGULATION AT FEDERAL LEVEL . Although the federal government generally
does not directly regulate the insurance business, federal initiatives often
have an impact on the business in a variety of ways. Current and proposed
federal measures that may significantly affect the insurance business include
limitations on antitrust immunity, minimum solvency requirements and the
removal of barriers restricting banks from engaging in the insurance and
mutual fund business.
Congress has from time to time in the past considered possible
legislation that would adversely affect the federal income tax treatment of
certain annuity products offered by the Company. There can be no assurance
that future tax legislation will not contain provisions that may result in
adverse effects on the Company's products.
A substantial amount of the Company's annuity policies are marketed
through financial institutions. In a recent decision, the United States
Supreme Court upheld the United States Comptroller of the Currency's decision
to permit national banks to sell annuities in towns with more than 5,000
inhabitants.
REGULATION OF DIVIDENDS AND OTHER PAYMENTS . As a Louisiana domiciled
insurance company, the Company is subject to Louisiana requirements relating
to dividends and restrictions on payments to affiliates. The Louisiana
Insurance Code (the "Insurance Code") provides that no Louisiana stock
insurance company shall declare and pay any dividends to its stockholders
unless (i) its capital is fully paid in cash and is unimpaired and (ii) it has
a surplus beyond its capital stock and the initial minimum surplus required
and all other liabilities equal to 15% of its capital stock, provided that
this restriction shall not apply to an insurance company when its paid-in
capital and surplus exceed the minimum required by the Insurance Code by 100%
or more. Additional dividend restrictions are imposed by the Louisiana
Insurance Holding Company System Regulatory Law (the "Insurance Holding
Company Law"). Specifically, extraordinary dividends by insurance companies
are subject to a prior approval requirement by the Louisiana Commissioner of
Insurance (the "Louisiana Commissioner") and an insurance company's surplus as
regards policyholders following any dividends or distributions to affiliates
must be reasonable to the insurance company's outstanding liabilities and
adequate to its financial needs. An extraordinary dividend is defined as an
amount in excess of the lesser of (a) 10% of surplus as of the preceding
December 31, or (b) the net gain from operations for the preceding calendar
year. The Insurance Holding Company Law also subjects all transactions
between a Louisiana insurance company and its affiliates to certain fairness
and reasonableness standards, and, furthermore, certain types of transactions
with its affiliates are subject to prior notice to the Louisiana Insurance
Commissioner who may disapprove the transaction if it is determined that such
transaction does not meet certain fairness and reasonableness standards or if
it may adversely affect the interests of policyholders. If insurance
regulators determine that payment of a dividend or any other payment to an
affiliate (such as a payment under a tax allocation agreement or for employee
or other services or pursuant to a surplus debenture) would, because of the
financial condition of the paying insurance company or otherwise, be hazardous
to such insurance company's policyholders or creditors, the regulators may
block payment of such dividend or such other payment to the affiliate that
would otherwise be permitted without prior approval. Under the current
statutory and regulatory scheme in Louisiana, the Company has, as of December
31, 1995, the capacity to pay dividends of $9.2 million. No dividends were
paid during 1993, 1994 or 1995 in order to retain capital in the Company.
INSURANCE REGULATORY CHANGES . The NAIC and insurance regulators have
undertaken a process of re-examining existing laws and regulations and their
application to insurance companies. In particular, this re-examination has
focused on insurance company investment and solvency issues and, in some
instances, has resulted in new interpretations of existing law, the
development of new laws and the implementation of non-statutory guidelines.
The NAIC has formed committees to study and formulate regulatory proposals on
such diverse issues as the use of surplus debentures, accounting for
reinsurance transactions and the adoption of risk-based capital rules. It is
not possible to predict the future impact of changing state and federal
regulation on the operations of the Company.
Statutory filings require classifications of investments and require the
establishment of an Asset Valuation Reserve ("AVR") account which consists of
two main components: a "default component" to provide for future
credit-related losses on fixed income investments and an "equity component" to
provide for losses on all types of equity investments, including real estate.
The AVR at December 31, 1995, was $20.9 million. Also required is the
establishment of a reserve called the Interest Maintenance Reserve ("IMR"),
which is a reserve for fixed income realized capital gains and losses, net of
taxes, related to changes in interest rates. The IMR is required to be
amortized into statutory earnings on a basis reflecting the remaining period
to maturity of the fixed income securities sold. The deferred realized gains
and losses included in the IMR at December 31, 1995, was $2.7 million, net of
taxes.
INSURANCE REGULATORY INFORMATION SYSTEM . The NAIC has developed the
Insurance Regulatory Information System ("IRIS") which involves calculation of
ratios covering eleven (11) categories of financial data with defined "usual
ranges" for each category. The ratios are designed to provide regulators
"early warnings" as to when a given company might warrant special attention.
The Company had only two ratios outside the usual range in 1995. These two
relate to the decrease in premiums in 1995 and the effect on reserves of the
continued run-off of the credit life business.
RISK-BASED CAPITAL REQUIREMENTS . The NAIC has developed risk-based
capital ("RBC") requirements for life insurance companies. The formula, which
is set forth in instructions adopted by the NAIC, is designed to take into
account asset risks, insurance risks, interest rate risks and other relevant
risks with respect to the insurer's business. The NAIC has further provided
for categorization of life insurance companies according to the extent to
which they meet specified RBC thresholds, with increasing degrees of
regulatory scrutiny or intervention provided for companies in categories of
lesser RBC compliance. The following degrees or levels of regulatory action
are triggered by certain events with respect to an insurer's RBC compliance as
follows: (I) a "company action level event" (requiring the insurer to file
and obtain approval of a comprehensive financial plan for the improvement of
its RBC compliance): (ii) a "regulatory action level event" (resulting in, in
addition to the requirement of a financial plan, regulatory actions including
examination of the insurer's assets, liabilities and operations followed by an
order specifying such corrective actions as are determined to be required);
(iii) an "authorized control level event" (resulting in, in addition to the
regulatory actions specified above, such actions as are necessary to cause the
insurer to be placed under regulatory control under the applicable
rehabilitation and/or liquidation statutes if deemed to be in the best
interests of policyholders, creditors and the public): and (iv) a "mandatory
control level event" (resulting in, on a mandatory basis, such actions as are
necessary to cause the insurer to be placed under regulatory control under the
applicable rehabilitation and/or liquidation statutes). The Company is
adequately capitalized under the RBC requirements and believes that the
thresholds will not have any significant regulatory effect on it. However,
should the Company's RBC position decline in the future, its continued ability
to pay dividends and the degree of regulatory supervision or control to which
it is subject may be affected. At December 31, 1995, the Company's risk-based
capital ratio was approximately 229%.
ASSESSMENTS AGAINST INSURERS . Guaranty laws exist in all states, the
District of Columbia and Puerto Rico. Life insurers doing business in any of
these regions can be assessed for policyholder losses incurred by insolvent
life insurance companies. The amount and timing of any future assessment on
the Company under these laws cannot be reasonably estimated and are beyond its
control. Regulatory actions against life insurers encountering financial
difficulty have prompted the various state guaranty associations to assess
life insurance companies for the deemed loss. A large part of the assessments
paid by the Company pursuant to these laws may be used as credits for a
portion of premium taxes.
COMPETITION
As a marketer of annuity products, the Company faces intense competition.
Competitors include an increasing number of insurance companies which have
begun to offer annuity products. Many of the Company's competitors are
substantially larger and have more capital and other resources than the
Company. Competition can take many forms including convenience in obtaining
an annuity, customer service, marketing and distribution channels as well as
crediting rates.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following analysis should be read in conjunction with the Company's
Consolidated financial statements and accompanying notes presented elsewhere
herein.Companies Life Insurance Company ("the Company") is a wholly-owned
subsidiary of United Companies Financial Corporation ("UCFC"), a financial
services holding company founded in 1946. UCFC has mortgage operations that
are focused on the origination, sale and servicing of first mortgage,
nonconventional, home equity loans; and insurance operations that are focused,
principally on the sale of deferred annuities. On February 2, 1996, UCFC
entered into an agreement to sell all of the outstanding capital stock of the
Company, subject to approval of UCFC's stockholders and regulatory authorities
and satisfaction of certain other conditions. See "Pending Sale of the
Company" and Note 9 to Notes to Consolidated financial statements.
The Company, a life insurance company domiciled in Louisiana and organized in
1955, is currently authorized to conduct business in 47 states, the District
of Columbia and Puerto Rico. The primary products of the Company are deferred
annuities, marketed on a commission basis principally through financial
institutions and independent agents. As of December 31, 1995, premiums for
these annuities averaged approximately $21,000 per policy and are generally
sold to middle income customers seeking tax deferred insurance products,
primarily to provide savings for retirement.
The Company's deferred annuity policies typically guarantee an interest
crediting rate for the first policy year. Thereafter, the interest crediting
rate generally may be adjusted by the Company at any time (subject to certain
minimum crediting rates stated in the policy). A policyholder is permitted at
any time to withdraw all or part of the accumulated premiums plus the amount
of interest credited on the policy, less a surrender charge if applicable.
The initial surrender charge is typically 9% - 10% of accumulated premium or
accumulated value, depending on the particular contract, and decreases to zero
during a penalty period of from five to ten years. Approximately 78% of the
Company's deferred annuity policies at December 31, 1995, were subject to a
surrender penalty.
The interest earned on the annuity policies accumulates on a tax-deferred
basis until withdrawal by the policyholder. The deferred annuity contracts
written by the Company provide a death benefit equal to the amount of the
accumulated premium and interest earned less the amount of any prior
withdrawals.
The Company has continued to focus its efforts on expanding its distribution
network of financial institutions and independent general agents, and
expansion of the independent general agents' share of the distribution network
has been a primary goal since 1993. Independent general agents sold
approximately 55% of the total dollar amount of annuities written in 1995
compared to 46% in 1994 and 20% in 1993. Annuity sales in 1995 were $136
million compared to $250 million in 1994 and $208 million in 1993. The
Company believes that the decrease in annuity sales in 1995 is due in part to
the interest rate environment, particularly the relative relationships between
short-term and intermediate-term interest rates and to the focus of the
Company's resources on development of its variable annuity product. In
addition, a financial institution which produced approximately 10% of the
Company's annuity sales in 1994 discontinued the sale of the Company's
annuities in 1995, subsequent to the merger of such financial institution.
Fluctuations in and the level of interest rates directly impact the operations
of the Company. The average spread on the annuity business was 2.20% in 1993,
and increased to 2.73% during 1994. This spread declined to 2.37% for 1995.
This decrease can be attributed to the more favorable interest rate
environment that existed in 1994 compared to 1995. Surrenders of annuity
policies increased in 1995 and 1994 compared to the prior years due in part to
the reduction in interest rates on new and existing annuity contracts and to a
rising interest rate environment and an increase in the number of annuity
contracts which were beyond the surrender penalty period.
The Company has continued its efforts to improve the quality and liquidity of
its investment portfolio as the weighted average rating of the publicly traded
bond portfolio was improved from "A" to "AA" in 1992, the amount of
non-investment grade publicly traded bonds in the portfolio was reduced from
$86.7 million or 14.7% of the bond portfolio at the end of 1990 to $22 million
or 1.9% of the portfolio at December 31, 1995. The assets allocated to
investments in mortgage-backed securities have increased from $218 million at
year-end 1990 to $777.7 million at December 31, 1995. At December 31, 1995,
the weighted average rating of the publicly traded bond portfolio was "AA,"
the amortized cost of assets allocated to investments in investment grade
fixed maturity securities was $345.6 million or 30.2% of the portfolio and in
investment grade mortgage-backed securities was $733.5 million or 64.0% of the
portfolio. At December 31, 1995, the amortized cost of the Company's holdings
of non-investment grade traded bonds was $22 million or 1.9% of the portfolio.
Invested assets of the Company also include residential and commercial real
estate mortgages originated and serviced by United Companies Lending
Corporation ("UC Lending"), an affiliate.
The annuities sold by the Company are monetary in nature and therefore
sensitive to changes in the interest rate environment. Profitability of the
Company is directly affected by its ability to invest annuity premiums at
yields above the interest crediting rates on the related policy liabilities.
One of the primary financial objectives is to effectively manage this interest
spread over time in changing interest rate environments. This is
accomplished, in part, by adjusting the interest crediting rate paid on its
existing and new annuity policies. During periods of declining interest
rates, the fair value of the Company's investments, primarily fixed maturity
investments, increases; however, yields earned on investments made during such
periods decline. In contrast, during periods of rising interest rates, the
fair value of the investment portfolio declines and the risk of policy
surrenders increases. An unanticipated increase in surrenders would impact
the Company's liquidity, potentially requiring the sale of certain investments
prior to their maturities, which may be at a loss.
Reserves for annuity policies constitute the Company's primary liabilities.
The duration of these liabilities is affected by a number of factors,
including interest rates, surrender penalties, ratings, public confidence in
the insurance industry, generally, and in the Company, specifically,
governmental regulations and tax laws. Since insurance commissions incurred
at the origination of annuity policies are generally deferred and recognized
over the estimated life of the policies, any unexpected increase in surrenders
of annuity contracts would require more rapid recognition of these expenses,
thereby adversely impacting profitability.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net income for 1995 was $8.0 million, compared to $5.9 million for 1994. The
increase in net income for 1995 resulted primarily from improved investment
results from the Company's interest in a limited partnership.
The following table sets forth certain financial data for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Total revenues $ 128,117 $ 120,942
Total expenses 116,017 111,862
Income before taxes 12,100 9,080
Net income 8,035 5,886
</TABLE>
REVENUES
The following table sets forth information regarding the components of the
Company's revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Net investment income $ 123,107 $ 114,380
Net insurance premiums 8,508 11,373
Realized investment losses (3,498) (4,811)
--------------- ---------------
Total $ 128,117 $ 120,942
=============== ===============
</TABLE>
Net investment income totaled $123.1 million on average investments of
approximately $1.5 billion for 1995, compared to net investment income of
$114.4 million on average investments of approximately $1.4 billion during the
same period of 1994. At December 31, 1995, the amortized cost of the fixed
income portfolio totaled $1.1 billion and was comprised principally of $733.5
million in investment grade mortgage-backed securities and $345.6 million in
investment grade bonds. In addition, net income before income taxes for 1995
increased $4.8 million as compared to 1994 by results from an investment in a
limited partnership. At December 31, 1995, the weighted average rating of the
publicly traded bond portfolio, according to nationally recognized statistical
rating agencies, was "AA." During 1994, the Company established a trading
account for a portion of its investment portfolio invested in common stocks.
At December 31, 1995, the carrying value of investments in the Company's
trading account was $752,000 reflecting a $207,000 unrealized loss, which is
included in investment income for 1995.
Interest, charges and fees on mortgage real estate loans decreased $5.3
million during 1995 compared to the same period of 1994. A reduction in the
holding periods of home equity loans acquired by the Company from UC Lending
was the primary reason for the reduction in interest charges and fees on loans
in 1995. At December 31, 1995, the Company's mortgage loans on real estate
were comprised of $168.9 million in home equity mortgage loans and $167.4
million in commercial real estate mortgage loans, compared to $158.5 million
and $153.0 million, respectively at December 31, 1994. The mortgage loan
portfolio of the Company is serviced by UC Lending. The Company has full
credit recourse to UC Lending with respect to substantially all home equity
mortgage loans acquired by it from UC Lending. Although the Company, since
1991, had limited its investment in commercial real estate loans, the Company
decided in 1995 to invest on a limited basis in new commercial real estate
loans, substantially all of which were originated by UC Lending. During 1995,
the Company funded $21.3 in new commercial real estate loans and refinanced
$18.2 million of existing commercial loans. The servicing of the commercial
loan portfolio will be transferred from UC Lending to the Company pursuant to
the terms of the proposed sale of the Company. See "Pending Sale of the
Company."
The Company estimates that non-accrual loans reduced mortgage loan interest by
approximately $121,000 and $124,000 during the 1995 and 1994, respectively.
Loans are placed on a non-accrual status when they are 150 days past due.
During the year ended December 31, 1995, the average amount of non-accrual
mortgage loans owned by the Company was $2.4 million, compared to
approximately $2.6 million during the same period of 1994. At December 31,
1995, the Company owned approximately $7.2 million of commercial loans which
were on an accrual status, but which the Company considers as potential
problem loans, compared to $7.6 million at December 31, 1994. The Company
evaluates each of these commercial loans to estimate its risk of loss in the
investment and provides for such loss through a charge to earnings.
Investment income for the year of 1995 was also reduced by $.9 million as
compared to the same period of 1994 for the excess of the amortization of
prior loan sale gains over the related pass-through income. An increase in
the amortization of prior loan sale gains was the result of an adjustment in
the estimated prepayment assumptions of certain mortgage loans. This
adjustment was made in connection with the Company's evaluation which is
performed as of each balance sheet date of the prepayment assumptions used in
calculating loan sale gains in relation to the current rate of prepayment, and
if necessary, revising the estimate using the original discount rate. Any
losses arising from adverse prepayment experience are recognized immediately
while favorable experience is recognized prospectively.
Net insurance premiums declined approximately $2.9 million for the year of
1995 compared to the same period of 1994. Net insurance premiums reflect
revenues associated primarily with pre-need life insurance and credit
insurance. Management has chosen to focus on deferred annuities, its primary
product line, and on developing its variable annuity product introduced in the
fourth quarter of 1995, and thus new sales of pre-need life insurance and
credit insurance have been discontinued. The decrease in premium income
reflects that decision.
Realized investment gains and losses may vary significantly from year to year
since the decision to sell investments is determined principally by
considerations on investment timing and tax consequences. Realized investment
gains and losses can also result from early redemption of securities at the
election of the issuer (calls) and changes in write-downs and reserves.
Realized gains (losses) were as follows for the indicated periods:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Sales of fixed maturity securities $ 423 $ (121)
Calls and maturities of fixed maturity securities (42) 98
Sales of equity securities 172 (8)
Sales of investment real estate - 279
Write-downs/reserve changes (4,051) (5,059)
--------------- ---------------
Realized investment losses $ (3,498) $ (4,811)
=============== ===============
</TABLE>
EXPENSES
The following table presents the components of the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
--------------- --------------
(in thousands) in thousands)
<S> <C> <C>
Interest on annuity policies $ 79,086 $ 73,065
Amortization of deferred policy acquisition costs 13,159 13,528
Insurance commissions 432 328
Insurance benefits 9,930 12,654
Other operating 13,410 12,287
--------------- --------------
Total $ 116,017 $ 111,862
=============== ==============
</TABLE>
Interest on annuity policies increased $6.0 million in 1995 compared to the
same period of 1994, primarily as a result of a $70 million increase in
average annuity reserves. However, annuity reserves decreased $8.2 million
during 1995 from 1994 primarily because of annuity surrenders. As expected,
annuity surrenders increased in comparison with 1994, primarily because of the
current interest rate environment and the effect of policies no longer subject
to surrender charges. Management continues to aggressively manage its
interest spread between earnings and crediting rates in an effort to balance
competitiveness and profitability goals. Average renewal credited rates
ranged from 5.60% to 5.75% and 5.60% to 6.45% for years ended December 31,
1995 and 1994, respectively.
Net insurance commissions for the year of 1995 increased by approximately $.1
million from the same period of 1994. Refunds of commissions on the unearned
premiums of the Company's credit life business exceeded the net commissions
after capitalization during a portion of 1994 and contributed to the increase
in 1995. Commissions paid on issuance of the Company's deferred annuity
products are generally capitalized as deferred policy acquisition costs
("DPAC") and amortized over the estimated life of the policy. The accounting
method prescribed for determining the cumulative amount of DPAC requires a
regular reevaluation of the estimated present value of gross profits to be
earned on a block of policies. If, based on actual experience and other
information, the estimate of the present value of gross profits significantly
changes, either positively or negatively, the cumulative amount of DPAC is
redetermined and the resulting adjustment is charged against or credited to
income. Factors used in determining DPAC include policy surrender levels,
policy crediting rates and investment yields. During 1995, the Company
capitalized as deferred policy acquisition costs approximately $11.9 million
in commissions paid on sales of annuities, compared to $20.7 million during
1994. Amortization of commission expense on annuities capitalized in prior
periods was $11.0 million during 1995, compared to $9.5 million during 1994.
Amortization of DPAC decreased $.4 million in 1995 compared to 1994. In 1995,
total amortization was increased by the impact of the increase in production
in 1994, but was decreased by the reduction in amortization of the declining
credit life business. In addition, the Company adjusted its assumptions and
related factors to bring them in line with current Company experience during
its annual review and updates. Insurance benefits for the year ended December
31, 1995 decreased $2.7 million, compared to the comparable period of 1994,
generally reflecting the run-off of credit life insurance.
Other operating expenses, which include general insurance and taxes, licenses
and fees, increased approximately $1.1 during 1995, compared to the comparable
period in 1994. This increase is primarily attributable to the start-up costs,
including legal and printing expenses, associated with the Company's new
variable annuity product introduced in the fourth quarter of 1995, and
increased corporate expenses allocated from its parent.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
- -----------------------------------------------------------------------
Net income for 1994 was $5.9 million, compared to a net loss of $8.3 million
for 1993. The increase in net income in 1994 resulted primarily from an
improved interest margin earned on annuities and a non-recurring $15.0 million
pre-tax investment loss on preferred stock of Foster Mortgage Corporation, an
affiliate, in 1993.
The following table sets forth certain financial data for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Total revenues $ 120,942 $ 108,952
Total expenses 111,862 121,317
Income (loss) before income taxes 9,080 (12,365)
Net income (loss) 5,886 (8,258)
</TABLE>
REVENUES
The following table sets forth information regarding the components of the
Company's revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Net investment income $ 114,380 $ 109,661
Net insurance premiums 11,373 18,684
Realized investment losses (4,811) (19,393)
--------------- ---------------
Total $ 120,942 $ 108,952
=============== ===============
</TABLE>
Net investment income totaled $114.4 million on average investments of
approximately $1.4 billion for 1994, compared to net investment income of
$109.7 million on average investments of approximately $1.4 billion during the
same period of 1993. Annuity sales of $250 million in 1994 set a Company
annual sales record, was an increase of 20.2% over 1993, and contributed to
the increase in funds available for investment. At December 31, 1994, the
amortized cost of the fixed income portfolio totaled $1.1 billion and was
comprised principally of $791 million in investment grade mortgage-backed
securities and $291 million in investment grade bonds. At December 31, 1994,
the weighted average rating of the publicly traded bond portfolio, according
to nationally recognized statistical rating agencies, was "AA." During 1994,
the Company established a trading account for a portion of its investment
portfolio invested in common stocks. At December 31, 1994, the carrying value
of investments in the Company's trading account was $679,000 reflecting a
$22,751 unrealized gain, which is included in investment income for 1994.
Interest, charges and fees on loans decreased $2.1 million in 1994 compared to
1993. At December 31, 1994, the Company's portfolio of loans was comprised of
$159.1 million in first mortgage home equity loans and $175.6 million in first
mortgage commercial real estate loans, compared to $263.6 million and $209.3
million, respectively, in 1993. The mortgage loan portfolio of the Company
is serviced by UC Lending. The Company has full credit recourse to UC Lending
with respect to all home equity mortgage loans acquired by it from UC Lending.
A reduction in the volume of and related holding periods for home equity
loans acquired by the Company from UC Lending contributed to the reduction in
interest, charges and fees on loans in 1994.
The Company estimates that non-accrual loans reduced mortgage loan interest
for 1994 and 1993 by approximately $124,000 and $420,000, respectively.
During 1994, the average amount of non-accrual loans owned by the Company was
approximately $2.6 million, compared to approximately $8.1 million during
1993. At December 31, 1994, the Company owned approximately $7.6 million of
commercial loans which were on an accrual status, but which the Company
considered as potential problem loans, compared to $8.1 million at December
31, 1993. The Company evaluates each of these commercial loans to estimate
its risk of loss in the investment and provides for such loss through a charge
to earnings.
Net insurance premiums reflect revenues associated primarily with sales of
pre-need life insurance and credit insurance. Management has chosen to focus
on deferred annuities, its primary product line, and on developing a variable
annuity product which was introduced in 1995. Therefore, the sale of credit
life insurance was discontinued in 1993. The decrease in premium income
reflects that decision.
Realized investment gains and losses may vary significantly from year to year
since the decision to sell investments is determined principally by
considerations of investment timing and tax consequences. Realized investment
gains and losses can also result from early redemption of securities at the
election of the issuer (calls) and changes in write-downs and reserves.
Realized gains (losses) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
From:
Sales of fixed maturity securities $ (121) $ (701)
Calls and maturities of fixed maturity securities 98 1,187
Sales of equity securities (8) 62
Sales of mortgage loans on real estate - 1,018
Sales of investment real estate 279 195
Sales of other investments - -
Write-downs/reserve changes (5,059) (21,154)
--------------- ---------------
Realized investment losses $ (4,811) $ (19,393)
=============== ===============
</TABLE>
The write-downs in 1993 include a $15.0 million loss associated with the
Company's ownership of preferred stock of Foster Mortgage Corporation, an
affiliate.
EXPENSES
The following table presents the components of the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Interest on annuity policies $ 73,065 $ 76,086
Amortization of deferred policy acquisition costs 13,528 10,229
Insurance commissions 328 3,116
Insurance benefits 12,654 18,200
Other operating 12,287 13,686
--------------- ---------------
Total $ 111,862 $ 121,317
=============== ===============
</TABLE>
Interest on annuity policies declined $3.0 million in 1994 compared to 1993,
as the result of a reduction in the average interest crediting rate on the
Company's annuity policies, offset by the impact of an increase in annuity
reserves. Average annuity reserves were $1.4 billion during 1994, an increase
of approximately $117 million from 1993. In comparison with 1993, annuity
surrenders increased in 1994, but were managed to a level less than expected,
notwithstanding the aggressive policy crediting rate strategy.
Net insurance commissions for 1994 decreased by approximately $2.8 million
from the same period of 1993. This decrease was primarily attributable to
the discontinuation of credit life insurance sales by the Company in 1993.
Commissions paid on issuance of the Company's deferred annuity products are
generally capitalized as DPAC and amortized over the estimated life of the
policy. The accounting method prescribed for determining the cumulative
amount of DPAC requires a regular reevaluation of the estimated present value
of gross profits to be earned on a block of policies. If, based on actual
experience and other information, the estimate of the present value of gross
profits significantly changes, either positively or negatively, the cumulative
amount of DPAC is redetermined and the resulting adjustment is charged against
or credited to income. Factors used in determining DPAC include policy
surrender levels, policy crediting rates and investment yields. During 1994,
the Company capitalized as DPAC approximately $20.7 million in commissions
paid on sales of annuities, compared to $13.7 million during 1993.
Amortization of commission expense on annuities capitalized in prior periods
was $9.5 million during 1994, compared to $5.6 million during 1993.
Amortization of DPAC increased $3.3 million in 1994, compared to 1993. In
1994, total amortization was impacted by the amortization of the large
increase in production from 1993. In addition, the Company adjusted its
assumptions and related factors to bring them in line with current company
experience during its annual review and update.
Insurance benefits for 1994 decreased $5.5 million, compared to 1993, generally
reflecting the run-off of credit life insurance, which the Company
discontinued in 1993.
Other operating expenses for 1994 decreased approximately $1.4 million,
compared to 1993. Other operating expenses in 1993 included a non-recurring
$2.1 million estimated loss in connection with the termination of a third
party administrative contract for credit life insurance. Personnel expenses
increased approximately $1.1 million in 1994 compared to 1993 primarily
because of an increase in the cost of the Company's employee benefit and
incentive plans. A $1.2 million reduction in expenses in 1994 compared to
1993 also resulted from an increase in acquisition expenses deferred as DPAC
in 1994 over 1993. Assessments by state guaranty associations also increased
approximately $920,000 in 1994 over 1993.
ASSET QUALITY AND RESERVES
The quality of the Company's commercial loan and bond portfolios significantly
affects the profitability of the Company. The values of and markets for these
assets are dependent on a number of factors, including general economic
conditions, interest rates and governmental regulations. Adverse changes in
such factors, which become more pronounced in periods of economic decline, may
affect the quality of these assets and the Company's resulting ability to sell
these assets for acceptable prices. General economic deterioration can result
in increased delinquencies on existing loans, reductions in collateral values
and declines in the value of investments resulting from a reduced capacity of
issuers to repay the bonds. The Company has full credit recourse to UC
Lending for principal and interest on its home equity loans originated by UC
Lending.
Substantially all of the loans owned by the Company were originated by UC
Lending, with the home equity loans being originated primarily through its
branch (i.e., retail) network or wholesale loan programs. The Company's
investment in mortgage loans on real estate at December 31, 1995, was
comprised primarily of $168.9 million in home equity loans and $167.4 million
in commercial loans.
At December 31, 1995, the contractual balance of loans serviced by UC Lending
for the Company was approximately $338.7 million. Included in the serviced
portfolio are the Company's commercial loans, a substantial portion of which
were originated in the following states: Florida (22.1%), Georgia (19.2 %),
Colorado (12.6%), Virginia (8.2%), Tennessee (7.3%), Texas (5.8%) and
Louisiana (5.2%). No other state accounted for more than 5% by outstanding
principal balance of the Company's commercial real estate loan portfolio. The
risk inherent in such concentrations is dependent not only upon regional and
general economic stability which affects property values, but also the
financial well-being and credit worthiness of the borrower.
Management continues to emphasize reducing the level of non-earning assets
owned by focusing on expediting the foreclosure process on its commercial real
estate loans and disposing of the properties on a timely basis. The balance
of foreclosed loans totaled $13.6 million at December 31, 1995, compared to
$19.3 million at December 31, 1994. The Company can neither quantify the
impact of property value declines, if any, on its loans nor predict whether,
to what extent, or how long such declines may exist. In a period of such
declines, the rates of delinquencies, foreclosures and losses on loans could
be higher than those previously experienced. Adverse economic conditions
(which may or may not affect real property values) may affect the timely
payment by borrowers of scheduled payments of principal and interest on the
home equity loans, and, accordingly the actual rates of delinquencies,
foreclosures and losses.
The following table provides a summary of mortgage loans owned by the Company
which are past due 30 days or more, and loans charged-off as of the dates
indicated:
<TABLE>
<CAPTION>
Contractual Delinquencies % of % of
Balance Contractual Contractual Net Loans Average
Year Ended of Loans Balance Balance Charged-Off Loans
- ---------------------------- ------------ -------------- ------------ ------------ --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Home equity $ 169,175 $ 1,020 .60% $ - -%
Commercial 169,512 3,238 1.91% 194 .11%
-------------- ------------
Total $ 338,687 $ 4,258 1.26% $ 194 .06%
============ ============== ============
Year ended December 31, 1994
Home equity $ 158,943 $ 1,516 .96% $ - -%
Commercial 154,790 2,335 1.51% 1,510 .98%
------------ -------------- ------------
Total $ 313,733 $ 3,851 1.23% 1,510 .48%
============ ============== ============
Year ended December 31, 1993
Home equity $ 263,456 $ 1,304 .49% $ 33 .01%
Commercial 188,686 9,692 5.14% 475 .25%
------------ -------------- ------------
Total $ 452,142 $ 10,996 2.43% $ 508 .11%
============ ============== ============
</TABLE>
The above delinquencies of home equity loans are covered by full credit
recourse to UC Lending except $.2 million, $.3 million, and $.7 million at
December 31, 1995, 1994 and 1993, respectively. The Company, however, retains
the entire risk associated with its commercial real estate loans.
The Company owns senior and subordinated pass-through certificates issued in
1990 for commercial mortgage loans previously owned by the Company for which
an election has been made under the real estate mortgage investment conduit
provisions of the Internal Revenue Code of 1986, as amended (the "Code").
These certificates are included in bonds in the accompanying consolidated
financial statements. The outstanding principal balance of all of the senior
and subordinated certificates was $46.8 million as of December 31, 1995. The
principal balance of the subordinated certificates at December 31, 1995, all
of which were owned by the Company, was $26.5 million. Losses associated with
defaults and related foreclosures which may occur on the loans backing these
pass-through certificates first reduce the principal balance of the
subordinated certificates. The losses resulting from such foreclosures were
$1.7 million, $2.5 million, and $.8 million, for the periods ending December
31, 1995, 1994 and 1993, respectively.
The Company provides an estimate for future credit losses in an allowance for
losses. A summary analysis of the changes in the Company's allowance for
losses for the indicated periods is as follows:
<TABLE>
<CAPTION>
1995 1995 1995 1994 1994 1994
-------- ---------- ---------- -------- -------- ----------
Real Mortgage Real Mortgage
Bonds Estate(1) Loans Bonds Estate Loans
-------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 317 $ 5,120 $ 1,778 $ 1,515 $ 4,473 $ 2,639
Losses charged to allowance (1,664) (2,638) (194) (3,047) (1,929) (1,510)
Recoveries on loans previously charged to allowance - - - - 15 -
-------- ---------- ---------- -------- -------- ----------
Net charge-offs (1,664) (2,638) (194) (3,047) (1,914) (1,510)
Loss provision 2,013 1,505 533 1,849 2,561 (649)
-------- ---------- ---------- -------- -------- ----------
Balance at end of period $ 666 $ 3,987 $ 2,117 $ 317 $ 5,120 $ 1,778
======== ========== ========== ======== ======== ==========
Specific reserves $ 666 $ 3,987 $ 1,117 $ 317 $ 5,120 $ 752
Unallocated reserves - - 1,000 - - 1,026
-------- ---------- ---------- -------- -------- ----------
Total Reserves $ 666 $ 3,987 $ 2,117 $ 317 $ 5,120 $ 1,778
======== ========== ========== ======== ======== ==========
<FN>
(1) The provision for real estate losses relate to losses from properties acquired in satisfaction of debt.
</TABLE>
At December 31, 1995 and 1994, the Company owned $13.6 million and $19.3
million, respectively, of property acquired in settlement of loans, excluding
the specific reserves attributed to these properties, which is included in the
Company's allowance for loan losses to reduce the carrying value of these
properties to their market value.
The Company's fixed maturity securities portfolio consists primarily of
mortgage-backed securities and corporate bonds, comprising 67.9% and 29.3% of
the portfolio at December 31, 1995, respectively. Investment purchases are
made with the intention of holding fixed maturity securities until maturity.
Prior to January 1, 1994, securities were generally carried at cost adjusted
for discount accretion and premium amortization. At December 31, 1995, the
amortized cost of the Company's fixed maturity portfolio was $1.1 billion,
consisting primarily of $777.7 million in mortgage-backed securities and
$335.2 million in corporate bonds. At December 31, 1995, bonds with an
amortized cost of approximately $1.1 billion or 95.6% of the Company's
portfolio of fixed maturity securities were classified in an
available-for-sale category and the carrying value adjusted to fair value by
means of an adjustment to stockholder's equity. The remainder of the
portfolio consists primarily of private placement investments traded directly
and are classified as held-to-maturity and valued at cost. At December 31,
1995, the Company owned $0.8 million in equity securities classified as
trading securities. The pre-tax net unrealized gain in the available-for-sale
fixed maturity and equity portfolio (fair value over amortized cost) at
December 31, 1995, was $45.4 million, compared to a pre-tax unrealized loss of
$72.1 million at December 31, 1994.
The Company has an investment in certain limited partnerships which were
formed for the purpose of participating in privately placed mezzanine
investments. These investments generally include higher risk subordinated
debt combined with equity securities. The partnerships are carried on an
equity basis at $25.6 million and $26.7 million at December 31, 1995 and 1994,
respectively. Income attributable to the partnerships for 1995 was $6.3
million and $1.5 million for 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements consist of funding the payment of
policyholder claims and surrenders. Liquidity requirements for the Company's
operations are generally met by funds provided from the sale of annuities and
cash flow from its investments in fixed income securities and mortgage loans.
Net cash flow from annuity operations is used to build the Company's
investment portfolio, which in turn produces future cash flows from investment
income and provides a secondary source of liquidity. Net cash provided by
operating activities for 1995 and 1994 was approximately $88.4 million and
$62.6 million, respectively, resulting primarily from cash earnings on
investments. The Company monitors available cash and cash equivalents to
maintain adequate balances for current payments while maximizing cash
available for longer term investment activities. The Company's financing
activities during the years ended December 31, 1995 and 1994 reflect cash
received primarily from sales by the Company of its annuity products of
approximately $135.3 million and $249.7 million, respectively. The Company
believes that the decrease in annuity sales in 1995 compared to the same
period of 1994 is due in part to the interest rate environment, particularly
the relative relationship between short term and intermediate term interest
rates, and to the focus of the Company's resources on development of its
variable annuity product. In addition, a financial institution which produced
approximately 10% of the Company's annuity sales in 1994 discontinued the sale
of annuities of the Company in 1995 subsequent to the merger of such financial
institution. As reflected in the net cash used by investing activities during
the same periods, investment purchases, which include loans purchased on an
interim basis from UCLC, were approximately $1.34 billion and $1.20 billion,
respectively, reflecting the investment of these funds and the reinvestment of
proceeds from maturities of investment. Cash used by financing activities
during 1995 and 1994 also reflects payments of $222.8 million and $191.8
million, respectively, primarily on annuity products resulting from
policyholder surrenders and claims. The increase in annuity surrenders during
1995 was expected, due in part to an increase in the amount of annuity
policies which were beyond the surrender penalty period and to the general
interest rate environment during this period. The interest margin on the
Company's annuity liabilities during the year ended December 31, 1995 was
2.37% compared to 2.73% during the same period of 1994. Investments at
December 31, 1995, included approximately $336.3 million in home equity and
commercial mortgage loans, and the amortized cost of the bond portfolio
included $367.5 million in corporate and government bonds and private debt
placements and $777.7 million in mortgage-backed securities.
The investment portfolio is also managed to provide a secondary source of
liquidity as investments can be sold, if necessary, to fund abnormal levels of
policy surrenders, claims and expenses. An unanticipated increase in
surrenders would impact the Company's liquidity, potentially requiring the
sale of certain assets, such as bonds and loans, prior to their maturities,
which may be at a loss.
Reserves for annuity policies comprise the primary liabilities of the Company.
The Company believes it has established adequate reserves on these products
as well as on its other insurance products. The effective life of these
liabilities is influenced by a number of factors, including interest rates,
surrender penalties, ratings, public confidence in the insurance industry
generally, and in the Company specifically, governmental regulations and tax
laws. The Company employs an actuarial model to measure the interest rate
sensitivity of these liabilities to assist in the selection of assets with
appropriate characteristics.
The Company is a Louisiana domiciled insurance company, and, as such, is
subject to certain regulatory restrictions on the payment of dividends. The
Louisiana statutes allow payments of dividends without the approval of the
commissioner to the extent of the lesser of ten percent of surplus as of the
prior year end, or the current year's net gain from operations. At December
31, 1995, the Company could pay dividends of $9.2 million without such
approval. No dividends were paid during 1995 or 1994 in order to retain
capital in the Company.
RATINGS
In the second quarter of 1995, A.M. Best Company ("Best"), an independent
rating organization, reaffirmed its "A-" (Excellent) rating of the Company.
Best's ratings depend in part on its analysis of an insurance company's
financial strength, operating performance and claims paying ability In
addition, the Company's claims paying ability has been rated "A+"
(Single-A-Plus) by Duff & Phelps Credit Rating Company ("Duff & Phelps"). On
October 24, 1995, Duff & Phelps placed its "A+" rating of the Company on its
Rating Watch-Uncertain list because of the October 20, 1995, announcement by
the Company's Parent that strategic alternatives which it was considering
included the pending sale of the Company (see "Pending Sale of the Company"
below). Duff & Phelps reported that the claims paying ability rating would
remain on Rating Watch-Uncertain until more information becomes known about
the Company's ultimate position within the organization or another
organization. In 1995, Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. revised the rating scale used in assigning its qualified
solvency ratings of insurance companies and, as a result, revised the
Company's rating from "BBq" to "Aq." Ratings such as those held by the Company
can affect the Company's ability to market its annuity products. Any lowering
of the Company's ratings could materially and adversely affect the Company's
ability to market its products, particularly the sale of annuities through
financial institutions, and could increase the surrender of its annuity
policies. Both of these consequences could, depending upon the extent
thereof, have a materially adverse effect on the Company's liquidity and,
under certain circumstances, net income. The Company believes that its
ratings will enable it to continue to compete successfully.
PENDING SALE OF THE COMPANY
On February 2, 1996, UCFC signed a stock purchase agreement ("Agreement")
dated as of January 30, 1996, for the sale of all of the outstanding
capital stock of the Company to UC Life Holding Corp., a new Delaware
corporation formed by Knightsbridge Capital Fund I, L.P. ("Knightsbridge")
for $164 million plus earnings of the Company from January 1, 1996, to
closing of the transaction. Knightsbridge, which is a private investment
partnership with institutional partners, was formed in 1995 to make equity
investments in companies engaged primarily in the life insurance industry.
Knightsbridge is a Delaware limited partnership, the limited partners of
which are primarily affiliates of leading domestic and international
banking organizations. The general partner is Knightsbridge Management
L.L.C.
Under the terms of the Agreement, the sales price is comprised of cash,
estimated, as of January 30, 1996, to be approximately $109 million, and real
estate and other assets owned by the Company to be distributed to UCFC prior
to the closing. The real estate to be distributed includes portions of the
United Plaza office park, including UCFC's home office. In addition, UCFC
will purchase a convertible promissory note from an affiliate of the purchaser
for $15 million in cash.
The purchaser also agreed that the Company would continue to be an investor in
first lien home equity loans originated by UCFC's lending operations and that
the purchaser would use commercially reasonable efforts to maintain the
Company's home office operations in its present location in Baton Rouge,
Louisiana following the closing for at least two years. The Agreement is
subject to approval by UCFC's shareholders and regulatory authorities and
the satisfaction of other conditions, and provides that the closing will
occur on or before July 31, 1996.
THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of March 15, 1996
are listed below, together with information as to their ages, dates of
election and principal business occupation during the last five years (if
other than their present business occupation).
<TABLE>
<CAPTION>
<S> <C>
PRINCIPAL BUSINESS OCCUPATION
NAME DURING LAST FIVE YEARS
J. Terrell Brown Mr. Brown is a director and is Chief
(Age 56) Executive Officer of the Company, is
Chairman of the Board and Chief Executive
Officer of the Company's parent, United
Companies Financial Corporation ("UCFC")
and is Chief Executive Officer of each of
UCFC's subsidiaries. Mr. Brown has served
as a director and executive officer of the
Company since 1964. Mr. Brown is also a
director of Hibernia Corporation and
Sizeler Property Investors, Inc.
Robert B. Thomas, Jr. Mr. Thomas is Chairman of the Board and
(Age 50) President of the Company and is an
Executive Vice President of UCFC. Mr.
Thomas joined the Company in February 1993
as Chairman of the Board and was named
President of the Company in 1994. Mr.
Thomas also serves as a Director of United
Variable Services, Inc. Prior to his
employment with the Company, Mr. Thomas
served as a principal of Lewis and Ellis,
Inc., a Dallas, Texas actuarial consulting
firm and, through Lewis and Ellis, served
as consulting actuary to the Company for
approximately 15 years.
John D. Dienes Mr. Dienes was named a director of the
(Age 54) Company in 1995 and is President and Chief
Operating Officer of UCFC. Mr. Dienes
joined UCFC in 1994 as Executive Vice
President and Chief Operating Officer.
Prior to his employment with UCFC,
Mr. Dienes served as Executive Vice
President and director of Western
Corporate Banking for NationsBank
Corporation, Dallas, Texas, his employer
since 1988. At the time Mr. Dienes joined
UCFC, he had over 30 years of experience
in the financial industry.
Dale E. Redman Mr. Redman has served as a director of the
(Age 48) Company since 1983. He is Executive Vice
President, Chief Financial Officer and
Assistant Secretary of UCFC and is Vice
Chairman of each of the subsidiaries of
UCFC. Prior to his appointment as Chief
Financial Officer and Executive Vice
President in 1988, Mr. Redman served as
Secretary and Treasurer of UCFC. Mr.
Redman is also a director of Piccadilly
Cafeterias, Inc.
Gary L. Warrington Mr. Warrington has served as a director of
(Age 56) the Company since 1988 and serves as
Executive Vice President of the Company,
Senior Vice President of UCFC and President
of United Variable Services, Inc. Mr.
Warrington joined the Company as Vice
President and Controller in 1982 and served
as President of the Company from 1988 to
1994.
Lindsay C. Seals Mr. Seals has served as a director of the
(Age 60) Company since 1988 and serves as Executive
Vice President of the Company, Senior Vice
President of UCFC and Executive Vice
President of United Variable Services,
Inc. Mr. Seals joined the Company in 1971
and since that time has served in various
management positions with the Company.
Kitty S. Kennedy Ms. Kennedy has served as Executive Vice
(Age 47) President, Chief Actuary and Chief
Administrative Officer since 1993 and
serves as Senior Vice President of UCFC.
Ms. Kennedy joined the Company in 1984, was
named Senior Vice President in 1991 and has
served in various management positions with
the Company.
Donald M. Woodard Mr. Woodard is Senior Vice President and
(Age 47) Controller of the Company. Mr. Woodard
joined the Company in June 1994. Prior to
his employment with the Company, Mr.
Woodard served as Chief Financial Officer
of National Financial Insurance Company and
American Insurance Company of Texas, both
of Dallas, Texas.
Francis G. Miller Mr. Miller is a Senior Vice President,
(Age 49) Information Services, of the Company and
is a Senior Vice President of UCFC. He
transferred to the Company in August 1993
from UCFC, which he had joined in 1989.
R. Andrew Davidson, III Mr. Davidson is Senior Vice President of
(Age 43) Investments for the Company. Mr. Davidson
joined the Company in October 1992 as Vice
President. Prior to his employment with the
Company, Mr. Davidson served as Investment
Adviser/Portfolio Analyst with Southwest
Corporate FCU in Dallas, Texas, his
employer since 1990. At the time Mr.
Davidson joined the Company, he had over 11
years of experience in the insurance
industry.
C. Keith Cook Mr. Cook is a Senior Vice President in the
(Age 41) Marketing Division of the Company. Mr.
Cook was named Senior Vice President in
1994. Mr. Cook joined the Company in 1974
and has served in various positions within
the Company.
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth certain information on the annual and long-term
Compensation paid by the Company and its affiliates for the Chief Executive
Officer and each of the other four most highly compensated executive officers
of the Company for the three years ended December 31, 1995, 1994, and 1993.
The salary and bonus of each of the executive officers, except that of Mr.
Brown, were paid by the Company. Mr. Brown's salary and bonus were paid by
UCFC, a portion of which was allocated to the Company.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Long-Term
Summary Compensation Table Annual Compensation Compensation Awards
------ ------------- -------------- -------------
Other
Annual Restricted
Name and Bonus Compensation Stock Awards Options(3)/ All Other
Principal Position Year Salary ($)(1) ($)(2) ($)(5) SARs(%) Compensation(4)
- ---------------------------- ------ ------------- --------- ------------- -------------- ------------- ----------------
J. Terrell Brown 1995 $ 393,750 $833,666 $ 304,000 $ 50,000 $ 39,308
Chief Executive Officer 1994 378,304 297,205 - - 41,240
1993 375,625 76,395 - 55,000 32,114
Robert B. Thomas, Jr. 1995 219,625 395,818 160,000 - 20,505
Chairman of the Board and 1994 209,366 168,116 - - 21,882
President 1993 175,269 49,732 - 22,000 -
Kitty S. Kennedy 1995 108,970 49,988 - - 16,015
Executive Vice President, 1994 100,320 40,800 - - 15,280
Chief Actuary and 1993 - - - - -
Chief Administrative Officer
Gary L. Warrington 1995 158,980 71,541 - - 18,047
Executive Vice President 1994 158,980 63,592 - - 21,939
1993 158,208 14,308 - 3,300 10,849
Lindsay C. Seals 1995 106,600 48,204 - - 17,443
Executive Vice President 1994 103,333 41,600 - - 16,474
1993 99,773 9,000 - 2,200 6,680
<FN>
_________________________________
NOTES:
(1) Amounts awarded under the United Companies Financial Corporation Management Incentive Plan for the respective years,
even if deferred. Included in the amount awards to J. Terrell Brown in 1995, 1994 and 1993 were $16,562, $16,729 and $16,998,
respectively, which were deferred pursuant to an unfunded salary deferral agreement entered into between UCFC and Mr. Brown in
1989. The aggregate amount payable to UCFC to Mr. Brown at December 31, 1995 was $136,023.
(2) No personal benefits, which are non-cash compensation, are disclosed in the "Other Annual Compensation" column since
they did not exceed the lesser of either $50,000 or 10% of the total annual salary and bonus for any of the named executive
officers.
(3) Represents options granted under the United Companies Financial Corporation stock option plans for employees after
giving effect to stock dividends. All options have been granted at an exercise price equal to 100% of the fair market value
of the Common Stock on the date of the grant. For additional information regarding current holdings of options, see table
below entitled "Aggregate Option Exercises in Last Fiscal Year and Year-End 1995 Option Values."
(4) Amount reported include amounts contributed or accrued for 1995, 1994, and 1993 for the named officers under the
United Companies Financial Corporation Employee Stock Ownership Plan ("ESOP") and Employees' Savings Plan and Trust. Amounts
for J. Terrell Brown for 1995, 1994, and 1993 include $16,729, $16,998 and $17,134, respectively, in loans to Mr. Brown made
by UCFC for payment of a portion of the premium on a life insurance policy. The loans were made without interest and are
secured by an assignment of the policy.
(5) Reflects the value of the shares of restricted stock based upon the closing price of the Company's Common Stock
reported on the National Association of Securities Dealers Quotations National Stock Market (the "Nasdaq Stock Market") on the
date of award. The shares of the restricted stock vest in 50% increments on the anniversary date of the award in each of the
two years thereafter. The awards are also subject to certain performance-based conditions. During the restriction period for
the shares of restricted stock, the named executive officer is entitled to receive dividends and exercise voting privileges on
such restricted shares. At December 29, 1995, the shares of restricted stock held by Messrs. Brown and Thomas had a fair
market value of $501,125 and $263,750, respectively.
</TABLE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth information regarding the options granted
during the year ended December 31, 1995, to the Named Executive Officers:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Options Grants in Last Fiscal Year
Individual Grants
----------------------------------------
Number of % of Total
Securities Options Potential Realization
Underlying Granted to at Assumed Annual Rates
Options Employees Exercise of Stock Price Appreciation
Granted in Fiscal Price Expiration for Option Term
Name (#)(1) Year ($/SH)(1) Date 5% (s) 10% ($)
- ---------------- ----------- ---------------------------------------- ----------------------------
J. Terrell Brown 50,000 7.5 22.375 June 14, 2000 703,576 1,782,999
<FN>
_________________________
(1) The options granted to the Named Executive Officer were awarded under the Company's 1993
Stock Incentive Plan (the "1993 Plan"). The options granted under the 1993 Plan are not exercisable,
except in limited circumstances, until three years have elapsed from the date such options are
granted. The exercise price of the options, which can be no less than 100% of the fair market value
of a share of Common Stock on the date of grant, has been adjusted to reflect a 100% stock dividend
paid by the Company on October 20, 1995. The number of shares underlying the above options have also
been adjusted to reflect such stock dividend. The options will expire ten years from the date of
grant.
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR - END 1995 OPTION VALUES
The following table sets forth information as of December 31, 1995, regarding
the number and value of exercisable and unexercisable options to purchase
Common Stock of UCFC held by the Company's Chief Executive Officer and the
other four most highly compensated officers.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Value of Unexercised
Number of Unexercised In-the-Money Options at
Shares Acquired Value Options at Fiscal Year End Fiscal Year-End ($)(1)(2)(3)
---------------------------- -------------------------------
Name on Exercise (%) Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------------------ ----------- ---------------------------- -------------------------------
J. Terrell Brown - - 153,824 160,000 3,534,794 2,394,995
Robert B. Thomas, Jr. - - 22,000 22,000 489,625 438,999
Kitty S. Kennedy - - - 8,800 - 175,600
Gary L. Warrington 36,682 563,381 - 6,600 - 131,700
Lindsay C. Seals - - - 4,400 - 87,800
<FN>
(1) All options were awarded under the United Companies Financial Corporation Stock Options plans for Employees
and were awarded at the fair market value of the shares of Common Stock Options Plans for Employees and were awarded
at the fair market value of the shares of Common Stock on the date of the grant.
(2) Values in each column are based on the closing price, as reported on the National Association of Securities
Dealers Quotations National Stock Market of the Company's Common Stock on December 31, 1995 ($26.375).
(3) The exercise prices of the reported options range from $5.53 to $12.84 per share (as adjusted for stock
dividends).
Directors of the Company receive no fees for their services as members of the Board of Directors. No shares of
capital stock of the Company are owned by the executive officer or director. The Company is a wholly-owned
subsidiary of UCFC.
</TABLE>
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate Account
or the Distributor is a party. The nature of the Company's business is such
that it is routinely involved in litigation or subject to other items of
pending or threatened litigation. Although the outcome of certain of these
matters cannot be predicted, management of the Company believes, based upon
information currently available, that the resolution of these matters will not
result in any material adverse effect on its financial condition.
EXPERTS
The financial statements included (or incorporated by reference) in this
Prospectus and the related financial statement schedules included elsewhere
in the registration statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement, and are so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
Additional information concerning the Separate Account, including audited
financial statements of the Separate Account, is included in a Statement
of Additional Information, which is available at no charge, by contacting
the Company at P.O. Box 3257, Baton Rouge, LA 80721-3257, (800) 825-7568.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Contracts and Certificates offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and amendments
thereto and exhibits filed as a part thereof, to all of which reference is
hereby made for further information concerning the Company and the Contracts
and Certificates offered hereby. Statements contained in this Prospectus as to
the content of Contracts and Certificates and other legal instruments are
summaries. For a complete statement of the terms thereof, reference is made to
such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Contracts and Certificates described
herein are being passed upon by the law firm of Blazzard, Grodd & Hasenauer,
P.C., Westport, Connecticut.
FINANCIAL STATEMENTS
Financial statements of the Company are included in this Prospectus.
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Companmy to meet its obligations
under the Contracts and Certificates.
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors of
United Companies Life Insurance Company
We have audited the accompanying consolidated balance sheets of United
Companies Life Insurance Company (a wholly-owned subsidiary of United
Companies Financial Corporation) and its subsidiary as of December 31, 1995
and 1994, and the related consolidated statements of income, stockholder's
equity, and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement schedules
listed in the Index at Item 14. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of United Companies Life Insurance
Company and its subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statements
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
February 29, 1996
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
--------------- ---------------
1995 1994
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Assets
- -------------------------------------------------
Investments:
Fixed maturity securities:
Available-for-sale at fair value $ 1,140,160 $ 959,857
Held-to-maturity at amortized cost 50,919 57,074
Equity securities at fair value 794 721
Mortgage loans on real estate 336,269 311,537
Investment real estate 32,423 17,292
Policy loans 20,291 20,243
Investments in limited partnerships 25,594 26,672
Short-term investments 22,804 54,664
Other invested assets 2,469 5,034
--------------- ---------------
Total investments 1,631,723 1,453,094
Cash 3,028 13,169
Investment in indebtedness of affiliate 10,000 10,000
Accrued investment income 16,529 15,032
Due from reinsurers 33,583 34,985
Deferred policy acquisition costs 90,703 91,915
Property-net 575 20,299
Deferred income tax benefit - 17,128
Other assets 3,256 2,532
Assets held in separate accounts 211 -
--------------- ---------------
Total assets $ 1,789,608 $ 1,658,154
=============== ===============
Liabilities and stockholder's equity
- -------------------------------------------------
Annuity reserves $ 1,417,803 $ 1,425,973
Policy benefit reserves 111,209 116,501
Unearned premium reserves 1,793 4,491
Repurchase agreements 40,857 -
Deferred income tax payable 22,770 -
Other liabilities 8,440 9,010
Liabilities related to separate accounts 211 -
--------------- ---------------
Total liabilities 1,603,083 1,555,975
--------------- ---------------
Stockholder's equity:
Common stock, $2 par value;
Authorized - 4,200,528 shares;
Issued - 4,200,528 shares 8,401 8,401
Additional paid-in capital 28,980 28,980
Retained earnings 119,667 111,632
Net unrealized gains (losses) on securities 29,477 (46,834)
--------------- ---------------
Total stockholder's equity 186,525 102,179
--------------- ---------------
Total liabilities and stockholder's equity $ 1,789,608 $ 1,658,154
=============== ===============
<FN>
See notes to consolidated financial statements.
</TABLE>
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
-------------- --------------- --------------
December 31, December 31, December 31,
-------------- --------------- --------------
1995 1994 1993
-------------- --------------- --------------
(in thousands)
<S> <C> <C> <C>
Revenues:
Net investment income $ 123,107 $ 114,380 $ 109,661
Net insurance premiums 8,508 11,373 18,684
Realized investment losses (3,498) (4,811) (19,393)
-------------- --------------- --------------
Total 128,117 120,942 108,952
-------------- --------------- --------------
Expenses:
Interest on annuity policies 79,086 73,065 76,086
Amortization of deferred policy acquisition costs 13,159 13,528 10,229
Insurance commissions 432 328 3,116
Insurance benefits 9,930 12,654 18,200
Other operating expenses 13,410 12,287 13,686
-------------- --------------- --------------
Total 116,017 111,862 121,317
-------------- --------------- --------------
Income (loss) before income taxes 12,100 9,080 (12,365)
-------------- --------------- --------------
Provision (benefit) for income taxes:
Current 5,259 5,915 (2,263)
Deferred (1,194) (2,721) (1,844)
-------------- --------------- --------------
Total 4,065 3,194 (4,107)
-------------- --------------- --------------
Net income (loss) $ 8,035 $ 5,886 $ (8,258)
============== =============== ==============
<FN>
See notes to consolidated financial statements.
</TABLE>
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended
-------------- ---------------
December 31, December 31.
-------------- ---------------
1995 1994
-------------- ---------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,035 $ 5,886
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in deferred policy acquisition costs 1,212 (8,419)
(Increase) decrease in policy loans (48) (609)
(Increase) in accrued interest and accounts receivable (1,497) (498)
Decrease in due from reinsurers 1,402 1,574
Decrease in other invested assets 2,565 2,241
(Increase) in other assets (1,215) (1,924)
(Decrease) in policy benefit reserves (5,292) (6,827)
Interest on annuity policies 79,086 73,065
(Decrease) in unearned premium reserves (2,698) (5,769)
Deferred income tax (benefit) (1,194) (2,721)
Increase (decrease) in other liabilities 359 (1,404)
Provision for loan losses 4,051 5,059
Amortization and depreciation 1,648 1,883
Amortization of prior loan sale gains 2,451 2,012
Investment (gains) losses (381) (256)
Net cash flows from trading investment securities (73) (679)
-------------- ---------------
Net cash provided by operating activities 88,411 62,614
-------------- ---------------
Cash flows from investment activities:
Proceeds from sales of loans held for investment 1,111,636 940,099
Principal collected on loans 71,294 94,084
Loan originations and acquisitions (39,547) (8,799)
Loans purchased from affiliates (1,168,648) (893,099)
Proceeds from sales, calls or maturities of available-for-sale securities 75,937 84,155
Proceeds from maturities or calls of held-to-maturity securities 2,188 2,256
Purchase of available-for-sale securities (136,503) (300,384)
Purchase of held-to-maturity securities - -
Change in investment in limited partnerships 1,078 26
Change in short-term investments 31,860 (17,813)
Capital expenditures (1,258) (656)
-------------- ---------------
Net cash (used) by investing activities (51,963) (100,131)
-------------- ---------------
Cash flows from financing activities:
Deposits received from annuities and interest sensitive products 135,325 249,738
Payments on annuities and interest sensitive products (222,791) (191,812)
Increase (decrease) in repurchase agreement 40,857 (30,000)
Decrease in debt with maturities of three months or less - -
Proceeds from capital contribution - -
Other 20 44
-------------- ---------------
Net cash (used) provided by financing activities (46,589) 27,970
-------------- ---------------
(Decrease) in cash (10,141) (9,547)
Cash at beginning of period 13,169 22,716
-------------- ---------------
Cash at end of period $ 3,028 $ 13,169
============== ===============
Year Ended
--------------
December 31,
--------------
1993
--------------
<S> <C>
Cash flows from operating activities:
Net income (loss) $ (8,258)
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in deferred policy acquisition costs (3,488)
(Increase) decrease in policy loans 332
(Increase) in accrued interest and accounts receivable (129)
Decrease in due from reinsurers 1,158
Decrease in other invested assets 921
(Increase) in other assets (875)
(Decrease) in policy benefit reserves (1,699)
Interest on annuity policies 76,086
(Decrease) in unearned premium reserves (6,878)
Deferred income tax (benefit) (1,844)
Increase (decrease) in other liabilities 813
Provision for loan losses 4,994
Amortization and depreciation 1,914
Amortization of prior loan sale gains 735
Investment (gains) losses 14,400
Net cash flows from trading investment securities -
--------------
Net cash provided by operating activities 78,182
--------------
Cash flows from investment activities:
Proceeds from sales of loans held for investment 457,945
Principal collected on loans 95,752
Loan originations and acquisitions (4,560)
Loans purchased from affiliates (572,576)
Proceeds from sales, calls or maturities of available-for-sale securities -
Proceeds from maturities or calls of held-to-maturity securities 136,429
Purchase of available-for-sale securities -
Purchase of held-to-maturity securities (293,816)
Change in investment in limited partnerships 6,126
Change in short-term investments (20,926)
Capital expenditures (133)
--------------
Net cash (used) by investing activities (195,759)
--------------
Cash flows from financing activities:
Deposits received from annuities and interest sensitive products 207,681
Payments on annuities and interest sensitive products (136,489)
Increase (decrease) in repurchase agreement 30,000
Decrease in debt with maturities of three months or less (15,570)
Proceeds from capital contribution 15,000
Other 242
--------------
Net cash (used) provided by financing activities 100,684
--------------
(Decrease) in cash (16,893)
Cash at beginning of period 39,609
--------------
Cash at end of period $ 22,716
==============
<FN>
See notes to consolidated financial statements.
</TABLE>
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Additional Gains Total
Common Paid-in Retained (Losses) Stockholder's
Stock Capital Earnings on Securities Equity
------- ----------- --------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance, December, 1992 $ 8,401 $ 13,980 $ 114,004 $ 136,385
Net loss (8,258) (8,258)
Capital contribution 15,000 15,000
------- ----------- --------------- ---------------
Balance, December 31, 1993 8,401 28,980 105,746 143,127
Net income 5,886 5,886
Mark-to-market adjustment on investments (46,834) (46,834)
------- ----------- --------------- --------------- ---------------
Balance, December 31, 1994 8,401 28,980 111,632 (46,834) 102,179
Net income 8,035 8,035
Mark-to-market adjustment on investments 76,311 76,311
------- ----------- -------------- --------------- ---------------
Balance, December 31, 1995 $ 8,401 $ 28,980 $ 119,667 $ 29,477 $ 186,525
======= =========== =============== =============== ===============
<FN>
See notes to consolidated financial statements.
</TABLE>
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ACCOUNTING POLICIES
1.1 Principles of Consolidation. The consolidated financial statements
include United Companies Life Insurance Company (the "Company") and its
wholly-owned subsidiary, United Variable Services, Inc. All significant
intercompany balances and transactions have been eliminated in the
consolidated financial statements.
1.2 Organization. United Companies Life Insurance Company (the "Company") is
a wholly-owned subsidiary of United Companies Financial Corporation ("UCFC" or
the "Parent"), a financial services holding company founded in 1946. UCFC
focuses on the origination, sale and servicing of first mortgage,
nonconventional, home equity loans and insurance.
The Company, a life insurance company domiciled in Louisiana and organized in
1955, is currently authorized to conduct business in 47 states, the District
of Columbia and Puerto Rico. The primary products of the Company are tax
deferred annuity contracts marketed to individuals principally through
financial institutions and independent agents.
1.3 Investments.
1.3(a) Fixed Maturity and Equity Securities. During the first quarter of
1994, the Company implemented the provisions of Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 115 ("SFAS
115"), which revised the method of accounting for certain of the Company's
investments. Prior to adoption of SFAS 115, the Company reported its
investments in fixed income investments at amortized cost, adjusted for
declines in value considered to be other than temporary. SFAS 115 requires
the classification of securities in one of three categories:
"available-for-sale," "held-to-maturity" or "trading." Securities classified
as held-to-maturity are carried at amortized cost, whereas securities
classified as trading securities or available-for-sale are recorded at fair
value. Effective with the adoption of SFAS 115, the Company determined the
appropriate classification of its investments and, if necessary, adjusted the
carrying value of such securities, accordingly, as if the unrealized gains or
losses had been realized. The adjustment, net of applicable income taxes, for
investments classified as available-for-sale is recorded in "Net unrealized
gains (losses) on securities" and is included in stockholder's equity on the
balance sheet. The adjustment for investments classified as trading is
recorded in "Net investment income" in the statement of income. In accordance
with the provisions of SFAS 115, prior year investments were not restated.
1.3(b) Mortgage Loans on Real Estate. Loans are carried at amortized cost,
net of an allowance for losses. The Company provides for estimated loan
losses on loans owned by the Company by establishing an allowance for loan
losses through a charge to earnings. The Company conducts periodic reviews of
the quality of the loan portfolio and estimates the risk of loss based upon
historical loss experience, prevailing economic conditions, estimated
collateral value and such other factors which, in management's judgment, are
relevant in estimating the adequacy of the Company's allowance for loan
losses. While management uses the best information available in conducting
its evaluation, future adjustments to the allowance may be necessary if there
are significant changes in economic conditions, collateral value or other
elements used in conducting the review.
1.3(c) Investment Real Estate. The Company's investments in real estate are
comprised of properties received in settlement of loans ("foreclosed
properties") and two office buildings, adjacent land, and related improvements
(its former home office property). The Company records foreclosed properties
at the lower of their market value less estimated costs to sell ("market") or
the outstanding loan amount plus accrued interest ("cost"). The Company
accomplishes this by providing a specific reserve, on a property by property
basis, for the difference between market and cost. Market value is determined
by property appraisals performed either by its affiliate, United Companies
Lending Corporation ("UCLC"), or independent appraisers. The related
adjustments are included in the Company's provision for loan losses.
During 1995, the Company moved its offices from its previous location, and
converted One and Two United Plaza to investment real estate. One and Two
United Plaza are leased primarily by the Company to its Parent and other
affiliates. One and Two United Plaza are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over its
estimated useful life.
1.3(d) Policy Loans. Policy loans are reported at unpaid principal balance.
1.3(e) Investment in Limited Partnerships. The Company's investment in
limited partnerships, whose affairs are not controlled by the Company, is
reflected on the equity method.
1.3(f) Short-term Investments. At December 31, 1995, short-term investments
totaled $22.8 million bearing interest rates ranging from 5.25% to 5.61% per
annum.
1.4 Investment in Indebtedness of Affiliate. The Company has invested in
three subordinated debentures of an affiliate, which are carried at cost.
1.5 Deferred Policy Acquisition Costs. Commissions and other costs related
to the production of new and renewal business have been deferred. The
deferred costs related to traditional life insurance are amortized over the
premium payment period using assumptions consistent with those used in
computing policy benefit reserves. Deferred costs related to annuities and
interest sensitive products are amortized over the estimated life of the
policy in relation to the present value of estimated gross profits on the
contract. The Company periodically reviews the appropriateness of assumptions
used in calculating the estimated gross profits on annuity contracts. Any
change required in these assumptions may result in an adjustment to deferred
policy acquisition costs which would affect income.
1.7 Property-Net. Property is stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line and accelerated methods over the
estimated useful lives on the assets.
1.8 Policy Benefit Reserves. Policy benefit reserves for traditional life
insurance policies have been provided on a net level premium method including
assumptions as to investment yield, mortality and withdrawals based on the
Company's experience and industry standards with provisions for possible
adverse deviation. Investment yield assumptions range from 5.5% to 8.5% per
annum. Policy benefit reserves include certain deferred profits on limited
payment policies. These profits are being recognized in income over the
policy term.
Reserves for annuity policies and interest sensitive life policies represent
the policy account balance, or accumulated fund value, before applicable
surrender charges. Benefit claims incurred in excess of related policy
account balances and interest credited during the period to policy account
balances are charged to expense.
1.9 Repurchase agreements. At December 31, 1995, the Company had a liability
of approximately $40.9 million incurred pursuant to securities sold under
agreements to repurchase ("repurchase agreements"). The securities sold under
these agreements are classified as "Available-for-sale" investment securities
and are carried at their aggregate market value of $42.2 million at December
31, 1995. The repurchase agreements bear interest at 5.70% and 5.74% and
matured in January, 1996.
1.10 Income Taxes. The Company files a consolidated federal income tax
return with its Parent and other affiliated companies. The Parent allocates
to the Company its proportionate share of the consolidated tax liability
under a tax allocation agreement whereby each affiliate's federal income tax
provision is computed on a separate return basis. Deferred income taxes are
provided for the effect of revenues and expenses which are reported in
different periods for financial reporting purposes than for tax purposes.
Such differences result primarily from deferring policy acquisition costs,
providing for bond, real estate and and loan losses, differences in the
methods of computing reserves, and depreciation.
1.11 Premiums. Income on short duration single premium contracts, primarily
credit insurance products, is recognized over the contract period. Premiums
on other insurance contracts principally traditional life insurance and
limited payment life insurance policies, are recognized as revenue when due.
1.12 Reinsurance. The Company generally reinsures with other insurance
companies the portion of any one risk which exceeds $100,000. On certain
types of policies this limit is $25,000. The Company is contingently liable
for insurance ceded to reinsurers. Premiums ceded under reinsurance
agreements were $1.7 million, $2.1 million and $3.6 million in 1995, 1994 and
1993, respectively. Reserve credit taken under reinsurance agreements totaled
$32.9 million, $34.0 million and $35.2 million at December 31, 1995, 1994 and
1993, respectively.
The Company has assumed the following reinsurance from other insurers:
<TABLE>
<CAPTION>
Insurance
in Force Premiums
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
1995 $ 992,979 $ 2,589
1994 1,106,148 2,966
1993 1,106,721 3,039
</TABLE>
The Company has a receivable at December 31, 1995 of approximately $33.9
million from one reinsurer; however, the funds supporting the receivable are
escrowed in a separate trust account for the benefit of the Company by the
reinsurer. The following table reflects the effect of reinsurance agreements
on premiums and the amounts earned for the periods indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
-------------- --------------- --------------
December 31, December 31, December 31,
-------------- --------------- --------------
1995 1994 1993
-------------- --------------- --------------
(in thousands)
<S> <C> <C> <C>
Direct premiums $ 7,659 $ 10,537 $ 19,294
Reinsurance assumed 2,589 2,966 3,039
Reinsurance ceded (1,740) (2,130) (3,649)
-------------- --------------- --------------
Net insurance premiums $ 8,508 $ 11,373 $ 18,684
============== =============== ==============
</TABLE>
1.13 Participating Policies. Direct participating business, primarily
related to the Company's pre-need funeral policies, represented 8.2%, 7.2% and
6.3% of the life insurance in force as of December 31, 1995, 1994 and 1993,
respectively. The amount of dividends paid on participating policies is based
on published dividend scales and totaled $1.2 million, $1.0 million and $1.5
million for the years ended December 31, 1995, 1994 and 1993, respectively.
1.14 Accounting Standards. In May, 1993 and in October, 1994, respectively
the FASB issued Statements of Financial Accounting Standards Nos. 114 and 118
("SFAS 114" and "SFAS 118") which address the accounting by creditors for
impairment of loans and specify how allowances for credit losses related to
certain loans should be determined. The statements also address the
accounting by creditors for all loans that are restructured in a troubled debt
restructuring involving modification of terms of a receivable. The
implementation of the provisions of SFAS 114 and SFAS 118 in the first
quarter of 1995 did not have a material effect on the financial statements of
the Company.
1.15 Use of Estimates. 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.
1.16 Reclassifications. Certain prior year amounts have been reclassified to
conform with the current year presentation. Such reclassifications had no
effect on net income.
2. INVESTMENTS
2.1 Fixed Maturity Securities. The Company's portfolio of fixed maturity
securities consisted of the following:
<TABLE>
<CAPTION>
December 31 December 31, December 31, December 31,
--------------- --------------- --------------- ---------------
1995 1995 1995 1995
--------------- --------------- --------------- ---------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ---------------
(in thousands) (in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Government $ 11,504 $ 409 $ - $ 11,913
Municipal 425 21 - 446
Foreign 20,394 1,916 - 22,310
Corporate 328,546 22,452 679 350,319
Mortgage-backed 733,516 22,258 602 755,172
--------------- --------------- --------------- ---------------
Total $ 1,094,385 $ 47,056 $ 1,281 $ 1,140,160
=============== =============== =============== ===============
Held-to-Maturity:
Corporate $ 6,692 $ 550 $ - $ 7,242
Mortgage-backed 44,227 1,414 3,272 42,369
--------------- --------------- --------------- ---------------
Total $ 50,919 $ 1,964 $ 3,272 $ 49,611
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31,
--------------- -------------- -------------- --------------
1994 1994 1994 1994
--------------- -------------- -------------- --------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- --------------
(in thousands) (in thousands (in thousands (in thousands
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Government $ 10,720 $ 31 $ 238 $ 10,513
Municipal 425 13 - 438
Foreign 18,433 190 603 18,020
Corporate 258,549 321 13,148 245,722
Mortgage-backed 743,359 22 58,217 685,164
--------------- -------------- -------------- --------------
Total $ 1,031,486 $ 577 $ 72,206 $ 959,857
=============== ============== ============== ==============
Held-to-Maturity:
Corporate $ 10,828 $ 300 $ 211 $ 10,917
Mortgage-backed 46,246 110 2,188 44,168
--------------- -------------- -------------- --------------
Total $ 57,074 $ 410 $ 2,399 $ 55,085
=============== ============== ============== ==============
</TABLE>
Included in the Company's mortgage-backed Held-to-Maturity Securities is an
investment in subordinated junior certificates in securitized pools of
commercial real estate loans for which an election under the real estate
mortgage investment conduit provisions ("REMIC") of the Internal Revenue Code
was made. Associated with the ownership of those junior certificates are
certain credit risks for which the Company has established an estimate of
future credit losses as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
-------------- --------------- --------------
December 31, December 31, December 31,
-------------- --------------- --------------
1995 1994 1993
-------------- --------------- --------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 317 $ 1,515 $ 98
Losses charged to allowance (1,664) (3,047) (811)
Loss provision 2,013 1,849 2,228
-------------- --------------- --------------
Balance at end of period $ 666 $ 317 $ 1,515
============== =============== ==============
</TABLE>
The cost and estimated fair value of fixed maturity securities by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because certain issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1995
--------------- ---------------
Available- for-Sale Held-to- Maturity
--------------- --------------- --------------- ---------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- --------------- --------------- ---------------
(in thousands) (in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C>
1 year or less $ 6,601 $ 6,513 $ - $ -
Over 1 year through 5 years 80,080 84,349 2,286 2,361
Over 5 years through 10 years 266,238 285,826 4,406 4,881
After 10 years 7,950 8,300 - -
Mortgage-backed securities 733,516 755,172 44,227 42,369
--------------- --------------- --------------- ---------------
Total $ 1,094,385 $ 1,140,160 $ 50,919 $ 49,611
=============== =============== =============== ===============
</TABLE>
Net unrealized gains on available-for-sale securities of $29.5 million
included in Stockholder's equity at December 31, 1995, are presented net of
deferred income taxes of $15.9 million. Net unrealized losses of $46.8
million at December 31, 1994, were net of deferred income taxes of $25.2
million.
Proceeds from the sales, calls and maturities of investments in debt
securities during 1995 totaled $78.1 million and resulted in realized
investment gains of approximately $.5 million and realized investment losses
of approximately $2.1 million. During 1994 and 1993, proceeds totaled $86.4
million and $136.4 million, respectively; resulting in realized capital gains
of $303,000 and $1.5 million, respectively. Realized losses for 1994 and 1993
were $4.5 million and $3.2 million, respectively. In addition to losses
incurred in connection with the sale of investments during 1993, the Company
reduced the carrying value of a corporate bond by $.5 million to reflect the
Company's estimate of a permanent decline in the value of this investment. At
December 31, 1995, securities with a cost of $9.4 million were on deposit with
insurance regulatory authorities.
In 1990, the Company securitized pools of commercial real estate loans owned
by it in two transactions and in connection therewith sold pass-through
certificates("Series 90-1" and "Series 90-2") for which an election under the
real estate mortgage investment conduit provisions ("REMIC") of the Internal
Revenue Code of 1986, as amended were made. The Company retained as an
investment subordinated junior certificates in both issues, as well as a
senior certificate interest in Series 90-2.
Included in "Held-to-maturity," fixed maturity securities are investments in
the two REMIC's of approximately $44.2 million at December 31, 1995 and $46.2
million at December 31, 1994.
A summary of the Company's investment at December 31, 1995 in the REMIC's is
as follows:
<TABLE>
<CAPTION>
Remaining
Date of Principal Carrying Interest Maturity
Issue Balance Value Rate Date
------------ -------------- --------------- --------- ------------
(in thousands (in thousands)
<S> <C> <C> <C> <C> <C>
United Companies Life REMIC
Series 90-1, Class B-1 Mar 29, 1990 $ 10,794 $ 10,296 10.05% Sep 25, 2009
Series 90-2, Class A-3 Dec 18, 1990 20,250 19,974 9.88% May 25, 2000
Series 90-2, Class B-1 Dec 18, 1990 15,709 13,957 9.88% Jan 25, 2009
-------------- ---------------
$ 46,753 $ 44,227
============== ===============
</TABLE>
2.2 Equity Securities. The net unrealized capital gains and losses on common
stocks are as follows:
<TABLE>
<CAPTION>
December 31, 1995
--------------- ---------------
Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ---------------
(in thousands) (in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C>
Trading $ 545 $ 215 $ 28 $ 752
Available-for-Sale 467 - 425 42
--------------- --------------- --------------- ---------------
Total $ 1,012 $ 215 $ 433 $ 794
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
--------------- ---------------
Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ---------------
(in thousands) (in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C>
Trading $ 656 $ 51 $ 28 $ 679
Available-for-Sale 467 - 425 42
--------------- --------------- --------------- ---------------
Total $ 1,123 $ 51 $ 453 $ 721
=============== =============== =============== ===============
</TABLE>
2.3 Mortgage Loans on Real Estate. The following schedule summarizes the
composition of mortgage loans on real estate:
<TABLE>
<CAPTION>
December 31,
--------------- ---------------
1995 1994
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Residential $ 169,175 $ 158,943
Unearned loan charges (301) (418)
--------------- ---------------
168,874 158,525
--------------- ---------------
Commercial 169,512 154,790
Allowance for loan losses (2,117) (1,778)
--------------- ---------------
167,395 153,012
--------------- ---------------
Total $ 336,269 $ 311,537
=============== ===============
</TABLE>
Included in the loans owned at December 31, 1995 and 1994 were non-accrual
loans of $2.4 million and $2.6 million, respectively.
The Company provides an estimate for future credit losses in an allowance for
loan losses. A summary analysis of the changes in the Company's allowance for
loan losses is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------ --------------- -------
1995 1994 1993
------------ --------------- -------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,778 $ 2,639 $2,489
Loans charged to allowance (194) (1,510) (508)
Loan loss provision 533 649 658
------------ --------------- -------
Balance at end of year $ 2,117 $ 1,778 $2,639
============ =============== =======
Specific reserves $ 1,117 $ 752 1,376
Unallocated reserves 1,000 1,026 1,263
------------ --------------- -------
Total reserves $ 2,117 $ 1,778 $2,639
============ =============== =======
</TABLE>
2.4 Investment Real Estate. Investment real estate at December 31, 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Investment real estate $ 22,845 $ 3,073
Foreclosed real estate 13,565 19,339
Allowance for losses (3,987) (5,120)
--------------- ---------------
$ 32,423 $ 17,292
=============== ===============
</TABLE>
The specific allowance for investment real estate losses was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------------- --------
(in thousands)
<S> <C> <C> <C>
Balance, January 1 $ 5,120 $ 4,473 $ 4,062
Additions (a) 1,505 2,561 2,607
Deductions (b) (2,638) (1,914) (2,196)
-------- --------------- --------
Balance, December 31 $ 3,987 $ 5,120 $ 4,473
======== =============== ========
<FN>
(a) Charged to realized investment gains (losses).
(b) Resulting from sales.
</TABLE>
2.5 Investment In Limited Partnerships. Following is an analysis of the
Company's investment in limited partnerships:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------------ --------------- ---------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 26,672 $ 26,698 $ 32,824
Contributions and capitalized costs 9,869 5,168 4,326
Net partnership income 6,279 1,480 2,944
Distributions (17,226) (6,674) (13,396)
------------ --------------- ---------
Balance, end of year $ 25,594 $ 26,672 $ 26,698
============ =============== =========
</TABLE>
The limited partnerships were formed for the purpose of participating in
privately placed mezzanine investments. These investments, acquired in
leveraged investment transactions, generally include higher risk subordinated
debt combined with equity securities.
2.6 Investment Income. Investment income by type that exceeds five percent
of total investment income was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------------ --------------- ---------
(in thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 85,852 $ 74,443 $ 63,751
Mortgage loans on real estate 35,056 42,763 45,709
All other investment income 14,386 8,925 11,243
------------ --------------- ---------
135,294 126,131 120,703
Less: Investment expenses (12,187) (11,751) (11,042)
------------ --------------- ---------
Net investment income $ 123,107 $ 114,380 $109,661
============ =============== =========
</TABLE>
2.7 Realized Investment Gains (Losses). Net realized investment gains
(losses) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------ --------------- ---------
1995 1994 1993
------------ --------------- ---------
(in thousands)
<S> <C> <C> <C>
Fixed maturity securities:
Gross gains $ 524 $ 303 $ 1,536
Gross losses (1,807) (3,373) (1,816)
Loss provision (350) 1,198 (1,417)
------------ --------------- ---------
Net losses on fixed maturity securities (1,633) (1,872) (1,697)
------------ --------------- ---------
Equity securities:
Gross gains 205 51 882
Gross losses (33) (59) (15,715)
------------ --------------- ---------
Net gains (losses) on equity securities 172 (8) (14,833)
------------ --------------- ---------
Mortgage loans on real estate:
Losses on sale (194) - -
Loss provision (339) (861) (150)
------------ --------------- ---------
Net losses on mortgage loans on real estate (533) (861) (150)
------------ --------------- ---------
Investment real estate:
Losses on sale (2,638) (2,840) (2,302)
Loss provision 1,134 (952) (411)
------------ --------------- ---------
Net losses on investment real estate (1,504) (3,792) (2,713)
------------ --------------- ---------
Realized investment losses $ (3,498) $ (4,811) $(19,393)
============ =============== =========
</TABLE>
3. PROPERTY-NET
Property is summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31,
--------------- ---------------
1995 1994
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Land and buildings $ - $ 27,350
Furniture, fixtures and equipment 2,370 2,084
--------------- ---------------
Total 2,370 29,434
Less accumulated depreciation (1,795) (9,135)
--------------- ---------------
Property-net $ 575 $ 20,299
=============== ===============
</TABLE>
Rental expense on operating leases, including real estate, computer equipment
and automobiles, totaled $.7 million, $.5 million and $.4 million during
1995, 1994 and 1993, respectively. Minimum annual commitments under
noncancellable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1995
-------------
<S> <C>
1996 $ 509
1997 503
1998 503
1999 481
2000 241
-------------
Total $ 2,237
=============
</TABLE>
4. INCOME TAXES
The provision (benefit) for income taxes attributable to operations is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------ --------------- --------
1995 1994 1993
------------ --------------- --------
(in thousands)
<S> <C> <C> <C>
Current $ 5,259 $ 5,915 $(2,263)
Deferred (1,194) (2,721) (1,844)
------------ --------------- --------
Total $ 4,065 $ 3,194 $(4,107)
============ =============== ========
</TABLE>
Reported income tax expense attributable to operations differs from the amount
computed by applying the statutory federal income tax rate to income from
operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31,
------------ --------------- --------
1995 1994 1993
------------ --------------- --------
(in thousands)
<S> <C> <C> <C>
Federal income tax (benefit) at statutory rate $ 4,235 $ 3,178 $(4,328)
Differences resulting from:
Reversal of temporary differences at prior tax rates - - 48
Other (170) 16 173
------------ --------------- --------
Reported income tax provision benefit $ 4,065 $ 3,194 $(4,107)
============ =============== ========
</TABLE>
The significant components of the Company's net deferred income tax benefit
and liability are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------- ---------------
1995 1994
--------------- ---------------
(in thousands) (in thousands)
<S> <C> <C>
Deferred income tax benefit:
Policy reserves $ 21,530 $ 21,457
Investment securities - 27,263
Real estate and loan income 1,861 1,956
Other - 4
--------------- ---------------
Total 23,391 50,680
--------------- ---------------
Deferred income tax liabilities:
Other 11 -
Investment securities 12,495 -
Real estate and loan income 4,180 3,926
Deferred policy acquisition costs 29,475 29,626
--------------- ---------------
Total 46,161 33,552
--------------- ---------------
Net deferred income tax (benefit) liability $ 22,770 $ (17,128)
=============== ===============
</TABLE>
Payments made for income taxes, net of refunds received, during the years
ended December 31, 1995, 1994 and 1993 were $4.6 million, $1.4 million and $.6
million, respectively.
Retained earnings at December 31, 1995 include approximately $5.2 million of
"Policyholders' Surplus" on which no federal income tax payment will be
required unless it is distributed as a dividend or exceeds the limits
prescribed by tax laws applicable to life insurance companies. A deferred
income tax liability has not been recognized for this amount. The maximum
federal income tax provision possibly required based on the current federal
income tax rate would be $1.8 million.
The Company had a current income tax payable, which is included in "Other
liabilities," in the amount of $2.3 million at December 31, 1995, and $1.7
million at December 31, 1994.
5. TRANSACTIONS WITH AFFILIATES
The Company has an agreement with UCLC to purchase qualifying residential home
equity mortgage loans originated or purchased and underwritten by UCLC. These
loans are usually held three to six months until resold to UCLC for sale by
UCLC in loan securitizations. Also, under an agreement, UCLC is obligated to
repurchase these home-equity loans previously sold to the Company at the time
of foreclosure. At December 31, 1995, approximately $166.5 million of
home-equity loans originated by UCLC were owned by the Company. During the
years ended December 31, 1995, 1994 and 1993 the Company purchased home-equity
loans of approximately $1,169 million, $893 million and $569.9 million,
respectively, from UCLC. Sales of these home-equity loans to UCLC by the
Company were $1,112 million in 1995, $932.7 million in 1994, and $457.3
million in 1993. No gain or loss was recorded by the Company in these
transactions.
As of December 31, 1995, 1994 and 1993 UCLC serviced loans owned by the
Company having aggregate unpaid principal balances of approximately $338.4
million, $296.9 million and $338.7 million, respectively. The Company paid
servicing fees relative to these loans of approximately $.9 million in 1995,
$1.1 million in 1994 and $1.3 million in 1993.
The Company leases home office space to its Parent and other affiliates. Rent
income attributable to these affiliates was approximately $1.0 million in each
of the years ended December 31, 1995, 1994 and 1993.
United Companies Realty & Development Co., Inc. ("UCRD"), an affiliate,
managed the home office buildings leased by the Company to its Parent and
other third party tenants under a real estate management contract in 1995,
1994 and 1993. The Company paid approximately $443,000, $306,000 and $312,000
to UCRD in management fees in 1995, 1994 and 1993, respectively.
The Company is allocated certain costs from its Parent and affiliates under a
cost sharing agreement. Amounts allocated to the Company from UCFC and
affiliates were as follows:
<TABLE>
<CAPTION>
Year Ended
---------------
December 31,
---------------
1995 1994 1993
------ --------------- ------
(in thousands)
<S> <C> <C> <C>
Personnel expense $2,014 $ 1,776 $ 937
Other operating expenses 2,116 1,532 1,452
------ --------------- ------
Total $4,130 $ 3,308 $2,389
====== =============== ======
</TABLE>
In May 1993, the Company purchased three subordinated debentures from UCLC.
Listed below is summarized information on the subordinated debentures that
were issued by UCLC:
<TABLE>
<CAPTION>
Date of Principal Interest Maturity
Series Issue Balance Rate Date
- ------- ------------ ----------- --------- ------------
<S> <C> <C> <C> <C>
A-1 May 14, 1993 $ 3,000,000 6.05% May 20, 1998
B May 14, 1993 3,000,000 6.64% May 20, 2000
C May 14, 1993 4,000,000 7.18% May 20, 2003
-----------
Total $10,000,000
===========
</TABLE>
Interest income received from UCLC with respect to those subordinated
debentures totaled approximately $668,000 in each of 1995 and 1994 and
$345,000 in 1993. All principal is payable upon maturity.
The Company is a participant in UCFC's consolidated income tax agreement. See
Note 1.9.
6. EMPLOYEE BENEFIT PLANS
All employees who meet minimum age and service requirements participate in
UCFC's Employee Stock Ownership Plan ("ESOP"). Under the ESOP, UCFC makes tax
deductible contributions of its common stock (or cash which is used to
purchase its common stock or to repay debt used by the ESOP to purchase such
stock) to a trust for the benefit of participating employees. Contributions
are allocated among participants based on years of service and compensation.
Upon retirement, death or disability, the employee or a beneficiary receives
the designated common stock.
Contributions to the ESOP are determined on an annual basis. The Company's
contributions to the ESOP were $244,000, $189,000 and $74,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Eligible employees may elect to participate in the UCFC Employees' Savings
Plan and Trust which is designed to be a qualified plan under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1988, as amended. Under the plan,
employees are allowed to defer income on a pre-tax basis through contributions
to the plan and the Company matches a portion of such contributions. The
Company's matching contributions totaled $170,000, $138,000 and $49,000 during
1995, 1994 and 1993, respectively. Employees have five investment options,
one of which is to invest in the Parent's common stock.
7. REGULATORY ACCOUNTING
Accounting records of the Company are also maintained in accordance with
practices prescribed or authorized by insurance regulatory authorities.
Prescribed statutory accounting principles include a variety of publications
of the National Association of Insurance Commissioners, as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The Company's
capital and surplus pursuant to the regulatory accounting basis as of December
31, 1995 and 1994 was $99.9 million and $90.0 million, respectively. On a
regulatory accounting basis, net gain from operations for the years ended
December 31, 1995, 1994 and 1993 was $12.8 million, $9.7 million and $13.0
million, respectively. Net income (loss) on a regulatory accounting basis,
which includes realized capital gains and losses, was $10.0 million, $5.8
million and $(1.7) million for the years ended December 31, 1995, 1994 and
1993, respectively. As a Louisiana domiciled insurance company, the Company
is subject to certain regulatory restrictions on the payment of dividends. At
December 31, 1995 dividends of $9.2 million may be paid without prior
regulatory approval. The Company did not pay any dividends during 1995, 1994
or 1993 in order to retain capital.
The Company received written approval from the Louisiana Department of
Insurance to invest in first lien residential mortgage loans originated by
UCLC on a short-term basis without recording the assignment of the mortgage
loans to the Company, which differs from prescribed statutory accounting
practices. Statutory accounting practices prescribed by the State of
Louisiana require that investments in mortgage loans be secured by
unrestricted first liens on the underlying property. As of December 31, 1995,
statutory surplus was increased by approximately $53.7 million as a result of
this permitted practice.
8. DISCLOSURE ABOUT FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS 107") requires that
the Company disclose the estimated fair values of its financial instruments,
both assets and liabilities recognized and not recognized in its financial
statements.
SFAS 107 defines financial instruments as cash and contractual rights
and obligations that require settlement in cash or by exchange of
financial instruments. Fair value is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale.
The carrying value and fair value of the Company's financial assets and
liabilities were as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
--------------- --------------- --------------- ---------------
Carrying Fair Carrying Fair
Value Value Value Value
--------------- --------------- --------------- ---------------
(in thousands) (in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Investments:
Fixed maturity securities:
Available-for-sale $ 1,140,160 $ 1,140,160 $ 959,857 $ 959,857
Held-to-maturity 50,919 49,611 57,074 55,085
Equity securities:
Trading 752 752 679 679
Available-for-sale 42 42 42 42
Mortgage loans on real estate 336,269 335,157 311,537 307,775
Investment real estate 32,423 38,978 17,292 15,179
Policy loans 20,291 20,291 20,243 20,243
Investment in limited partnership 25,594 25,594 26,672 26,672
Short-term investments 22,804 22,804 54,664 54,664
Other invested assets 2,469 2,469 5,034 5,034
Cash 3,028 3,028 13,169 13,169
Financial liabilities:
Annuity reserves 1,417,803 1,350,626 1,425,673 1,354,944
Repurchase agreements 40,857 40,857 - -
</TABLE>
The above values do not reflect any premium or discount from offering for sale
at one time the Company's entire holdings of a particular financial
instrument. Fair value estimates are made at a specific point in time based
on relevant market information, if available. Because no market exists for
certain of the Company's financial instruments, fair value estimates for these
assets and liabilities were based on subjective estimates of market conditions
and perceived risks of the financial instruments. Fair value estimates were
also based on judgments regarding future loss and prepayment experience and
were influenced by the Company's historical information.
The following methods and assumptions were used to estimate the fair value of
the Company's financial instruments.
FIXED MATURITY AND EQUITY SECURITIES. The estimated fair value for the
Company's investment portfolio was generally determined from quoted market
prices for publicly traded securities. Certain of the securities owned by the
Company may trade infrequently or not at all; therefore, fair value for these
securities was determined by management by evaluating the relationship between
quoted market values and carrying value and assigning a liquidity factor to
this segment of the investment portfolio.
MORTGAGE LOANS ON REAL ESTATE. The fair value of the Company's loan portfolio
was determined by segregating the portfolio by type of loan and further by its
performing and non-performing components. Performing loans were further
segregated based on the due date of their payments, an analysis of credit risk
by category was performed and a matrix of pricing by category was developed.
Loans which were current were valued at remaining principal balance which is
believed to represent an estimate of market discount from similar loans
identified for sale. The fair value of delinquent loans was estimated by
using the Company's historical recoverable amount on defaulted loans.
INVESTMENT REAL ESTATE. The fair value of the Company's investment real
estate was based upon independent appraisals of the properties.
POLICY LOANS. Policy loans are generally settled at the loan amount plus
accrued interest; therefore, the carrying value of these assets is a
reasonable estimate of their fair values.
OTHER INVESTMENT ASSETS. The fair value of the Company's investment in other
invested assets approximate their carrying value.
SHORT-TERM INVESTMENTS. The carrying amount of short-term investments
approximates their fair values because these assets generally mature in 90
days or less and do not present any significant credit concerns.
INVESTMENT IN LIMITED PARTNERSHIPS. The fair value of the Company's
investment in limited partnerships approximated their carrying value.
ANNUITY RESERVES. The Company's annuity contracts generally do not have a
defined maturity and are considered as deposits under SFAS 97. SFAS 107
states that the fair value to be disclosed for deposit liabilities with no
defined maturities is the amount payable on demand at the reporting date.
Accordingly, the Company has estimated the fair value of its annuity reserves
as the cash surrender value of these contracts.
REPURCHASE AGREEMENTS. The repurchase agreements mature in less than 60 days;
therefore, the carrying value of the repurchase agreements is considered to be
a reasonable estimate of fair value.
9. SUBSEQUENT EVENT
On February 2, 1996, UCFC signed a stock purchase agreement dated as of
January 30, 1996, for the sale of all of the outstanding capital stock of the
Company to UC Life Holding Corp., a new Delaware corporation, formed by
Knightsbridge Capital Fund I, L.P. for an aggregate amount of $164 million
plus earnings of the Company from January 1, 1996, to closing of the
transaction. Knightsbridge, which is a private investment partnership with
institutional partners, was formed in 1995 to make equity investments in
companies engaged primarily in the life insurance industry.
Under the terms of the agreement, the sales price is comprised of cash,
currently estimated to be $109 million, and real estate and other assets owned
by the Company to be distributed to UCFC prior to the closing. The real
estate to be distributed includes portions of the United Plaza office park,
including the home office. In addition, UCFC will purchase a convertible
promissory note from an affiliate of the purchaser for $15 million in cash.
The note matures in 11 years and bears interest at 8% per annum payable at
maturity.
The purchaser also agreed that the Company would continue to be an investor in
first lien home equity loans originated by UCFCs lending operations and that
the Companys home office operations would be maintained in its present
location in Baton Rouge, Louisiana following the closing for at least two
years. The agreement is subject to approval by UCFCs shareholders and
regulatory authorities and the satisfaction of other conditions, and provides
that the closing will occur on or before July 31, 1996.
10. CONTINGENCIES
The Company is subject to various litigation arising during the ordinary
course of business. While the outcome of such litigation cannot be predicted
with certainty, management does not expect the resolution of these matters to
have a material adverse effect on the financial condition or results of
operations of the Company.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial date is as follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------- ---------------
March 31 June 30 September 30 December 31
--------------- --------------- --------------- ---------------
(in thousands) (in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C>
1995
Total revenues $ 32,036 $ 33,977 $ 31,779 $ 30,325
Income from operations before income taxes 3,170 4,563 2,671 1,696
Net income 2,266 2,963 1,732 1,074
1994
Total revenues $ 32,806 $ 34,512 $ 35,554 $ 34,880
Income from operations before income taxes 1,579 2,925 2,703 1,873
Net income 1,024 1,897 1,753 1,212
</TABLE>
SCHEDULE I
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
SUMMARY OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Amount Shown
Type of Investment Cost Value on Balance Sheet
- ----------------------------------------------------- ---------- --------------- -----------------
(in thousands)
<S> <C> <C> <C>
Fixed maturity securities available for sale:
U.S. Government and agencies and authorities $ 698,913 $ 719,358 $ 719,358
Municipal 425 446 446
Foreign 20,394 22,310 22,310
Public utilities 13,697 14,672 14,672
All other corporate bonds 360,957 383,374 383,374
---------- --------------- -----------------
Total fixed maturity securities available for sale 1,094,386 1,140,160 1,140,160
---------- --------------- -----------------
Fixed maturity securities held to maturity:
All other corporate bonds 50,919 49,611 50,919
---------- --------------- -----------------
Total fixed maturity securities 1,145,305 1,189,771 1,191,079
---------- --------------- -----------------
Equity securities:
Common Stock
Banks, trust and insurance companies -
Industrial and miscellaneous 1,012 794 794
---------- --------------- -----------------
Total equity securities 1,012 794 794
---------- --------------- -----------------
Mortgage loans on real estate 336,269 XXXXXX 336,269
Investment real estate 32,423 XXXXXX 32,423
Policy loans 20,291 XXXXXX 20,291
Investment in limited partnerships 25,594 XXXXXX 25,594
Short-term investments 22,804 XXXXXX 22,804
Other long-term investments 2,469 XXXXXX 2,469
---------- --------------- -----------------
Total investments $1,586,167 XXXXXX $ 1,631,723
========== =============== =================
</TABLE>
SCHEDULE III
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
SUPPLEMENTARY INSURANCE INFORMATION
For the Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN F COLUMN G COLUMN H
- ---------------------------- ------------ --------------- --------- --------------- ----------- -------------
Deferred
Policy Net Benefits,
Acquisition Future Policy Unearned Premium Investment Claims
Costs Benefits(1) Premiums Revenues(3) Income Losses, Etc.
------------ --------------- --------- --------------- ----------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1995 $ 90,703 $ 1,529,012 $ 1,793 $ 8,508 $ 123,107 $ 9,930
Year ended December 31, 1994 $ 91,915 $ 1,542,474 $ 4,491 $ 11,373 $ 114,380 $ 12,654
Year ended December 31, 1993 $ 83,495 $ 1,418,311 $ 10,260 $ 18,684 $ 109,661 $ 18,200
COLUMN A COLUMN I & J
- ---------------------------- -----------------
Deferred Policy
Acquisition Cost
Amortization
and
Other Operating
Expenses
-----------------
<S> <C>
Year ended December 31, 1995 $ 26,569
Year ended December 31, 1994 $ 25,815
Year ended December 31, 1993 $ 23,915
<FN>
NOTES:
(1) Column C includes accumulated fund values on annuity and interest sensitive products.
(2) Column E is omitted as amounts are not material and are included with Column C.
(3) Column F excludes premiums on annuity and interest sensitive products which are accounted for as deposits.
</TABLE>
SCHEDULE IV
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
REINSURANCE
For the Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------- --------- ---------- --------------- ---------- -----------
Percentage
Ceded to Assumed of Amount
Direct Other From Other Net Assumed to
Amount Companies Companies Amount Net Amount
--------- ---------- --------------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
December 31, 1995
Life insurance in force $ 554,131 $ 149,080 $ 992,979 $1,398,030 71.0%
========= ========== =============== ==========
Premiums
Life insurance 6,016 1,625 2,588 6,979 37.1
Accident and health insurance 1,643 115 1 1,529 -
--------- ---------- --------------- ----------
Total premiums $ 7,659 $ 1,740 $ 2,589 $ 8,508 30.4
========= ========== =============== ==========
December 31, 1994
Life insurance in force $ 709,883 $ 177,585 $ 1,106,148 $1,638,446 67.5
========= ========== =============== ==========
Premiums
Life insurance $ 7,467 $ 1,931 $ 2,959 $ 8,495 34.8
Accident and health insurance 3,070 199 7 2,878 0.2
--------- ---------- --------------- ----------
Total premiums $ 10,537 $ 2,130 $ 2,966 $ 11,373 26.1
========= ========== =============== ==========
December 31, 1993
Life insurance in force $ 956,788 $ 215,917 $ 1,106,721 $1,847,591 59.9
========= ========== =============== ==========
Premiums
Life insurance $ 12,657 $ 3,196 $ 3,020 $ 12,481 23.2
Accident and health insurance 6,637 453 19 6,203 -
--------- ---------- --------------- ----------
Total premiums $ 19,294 $ 3,649 $ 3,039 $ 18,684 15.5%
========= ========== =============== ==========
</TABLE>
SCHEDULE V
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
COLUMC C COLUMN D
COLUMN A COLUMN B ADDITIONS DEDUCTIONS(2) COLUMN E(3)
- ---------------------------------- ----------- -------------------------- -------------- ------------
Charged
Balance at to Costs Charged Balance at
Beginning and to Other End
of Year Expenses Accounts(1) of Year
----------- ---------- --------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
December 31, 1995
Allowance for loan losses $ 1,778 $ 533 $ - $ 194 $ 2,117
Allowance for real estate losses 5,120 1,505 - 2,638 3,987
Allowance for bond losses 317 2,013 - 1,664 666
Unearned loan charges 419 - - 118 301
----------- ---------- --------------- -------------- ------------
Total $ 7,634 $ 4,051 $ - $ 4,419 $ 7,071
=========== ========== =============== ============== ============
December 31, 1994
Allowance for loan losses $ 2,639 $ 649 $ - $ 1,510 $ 1,778
Allowance for real estate losses 4,473 2,561 - 1,914 5,120
Allowance for bond losses 1,515 1,849 - 3,047 317
Unearned loan charges 592 - - 173 419
----------- ---------- --------------- -------------- ------------
Total $ 9,219 $ 5,059 $ - $ 6,644 $ 7,634
=========== ========== =============== ============== ============
December 31, 1993
Allowance for loan losses $ 2,489 $ 658 $ - $ 508 $ 2,639
Allowance for real estate losses 4,062 2,607 - 2,196 4,473
Allowance for bond losses 98 2,228 - 811 1,515
Unearned loan charges 764 - - 172 592
----------- ---------- --------------- -------------- ------------
Total $ 7,413 $ 5,493 $ - $ 3,687 $ 9,219
=========== ========== =============== ============== ============
<FN>
- ---------------------------------------
NOTES:
(1) Represents the approximate amount of unearned loan charges on installment loans originated during
the period.
(2) Represents loans and bonds charged off and loan charges earned during the period.
(3) All of the above are deducted in the balance sheet from the asset to which they apply.
</TABLE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
ITEM PAGE
Company............................................................ 3
Experts............................................................ 3
Legal Opinions..................................................... 3
Distributor........................................................ 3
Yield Calculation for Money Market Sub-Account..................... 3
Performance Information............................................ 4
Annuity Provisions................................................. 5
Financial Statements............................................... 6
APPENDIX
EXAMPLES OF APPLICATION OF MARKET VALUE ADJUSTMENT
The MVA Account currently offers the following Guarantee Periods: 3 years, 5
years, and 7 years.
Each subsequent Purchase Payment and transfer into the MVA Account will be
allocated to a new Guarantee Period with a new Effective Date specified and a
Guaranteed Interest Rate. These new Guarantee Period Account(s) will count
toward the ten investment option limit.
Contingent Deferred Sales Charges are calculated before the imposition of any
Market Value Adjustment.
Any Free Withdrawal is allocated on a pro-rata basis between all investment
options (Fixed, MVA or Separate Account) affected by the withdrawal. In the
event of a full withdrawal, the Free Withdrawal provision is not available.
The Market Value Adjustment Factor is:
LEFT [ (1~+~i) OVER (1~+~j~+~.005) RIGHT] SUP n/12~-~1
where:
i = Current Interest Rate credited to the Owner's Contract Value or
the Certificate Holder's Account Value allocated to a Guarantee
Period as of the beginning of the Guarantee Period.
j = Current Interpolated U.S. Constant Maturity Treasury Rate ("CITR")
for the time remaining in the current Guarantee Period plus the
difference between i and the corresponding CITR rate at time of
purchase.
n = Number of full months remaining in the Guarantee Period.
The examples below assume the following:
1. An initial Purchase Payment of $10,000.00 is allocated to the 7-Year
MVA Account on January 1, 1995.
2. The Guaranteed Interest Rate on the 7-Year Guarantee Period was 10%.
3. On January 1, 1995, the 7-Year Treasury Rate was 9%.
4. On April 7, 1998, the following Treasury Rates were in effect:
1-Year Treasury . . . . . . . . . . . . . . . . . . . . . 6%
3-Year Treasury . . . . . . . . . . . . . . . . . . . . . 8%
5-Year Treasury . . . . . . . . . . . . . . . . . . . . . 9%
7-Year Treasury . . . . . . . . . . . . . . . . . . . . . 10%
5. No additional Purchase Payments were made and there were no partial
withdrawals or transfers.
EXAMPLE 1:
Assume there is a complete withdrawal on April 7, 1998 and the Account Value
is $13,651.43.
The Contingent Deferred Sales Charge (CDSC) applicable on April 7, 1998 is 7%.
(See "Charges and Deductions - Deduction for Contingent Deferred Charge.") The
dollar amount of the CDSC is $700.
The MVA Factor is calculated as follows:
LEFT [ (1~+~i) OVER (1~+~j~+~.005) RIGHT] SUP n/12~-~1
where i = .10
n = 44
j = (CITR + (Guaranteed Interest Rate at Issue - Corresponding Treasury
Rate at Issue))
((44 - 36) X .09) + ((60 - 44) X .08)
CITR = ______________________________________ = .0833333
(60-36)
[ (1 + .10) ] 44/12
MVA FACTOR = [ ____________________________________ ] - 1 = +.005575
[ (1 + (.0833333 + (.10 - .09) + .005) ]
The Withdrawal Value = Account Value + (MVA Adjustment X Account Value) - CDSC -
Contract Maintenance Charge
Withdrawal Value = $13,651.43 + ($13,651.43 X .005575) - $700 - $30 = $12,997.54
EXAMPLE 2:
Assume the same facts as above except there is a partial withdrawal on April
7, 1988 of $5,000.00.
The Contingent Deferred Sales Charge (CDSC) applicable on April 7, 1998 is 7%.
(See "Charges and Deductions - Deduction for Contingent Deferred Sales
Charge.") The dollar amount of the CDSC for a complete withdrawal is $700.
Because this is a partial withdrawal, a portion can be withdrawn without the
imposition of the CDSC (Free Withdrawal). (See "Charges and Deductions -
Deduction for Contingent Deferred Sales Charge - Free Withdrawal.") The Free
Withdrawal amount is measured at the beginning of the Contract/Certificate
Year as the greater of the earnings in the Account or 10% of Purchase
Payments.
The MVA Factor will be the same as in Example 1, i.e. +.005575.
The Free Withdrawal for 1998 is the larger of the following:
$13,313.48 - $10,000.00 = $3,313.48
[ 10% X $10,000.00 = $1,000.00
Therefore, the Free Withdrawal Amount is $3,313.48.
The amount of the CDSC = ($5,000.00 - $3,313.48) X .07 = $118.06
The Withdrawal Value = Amount of Withdrawal + (MVA Adjustment X Amount of
Withdrawal) - CDSC
= $5,000 + (.005575 X $5,000) - $118.06
= $4,909.82
TABLE>
s>
________________________________________________________________________
__________________ _______
__________________ STAMP
__________________ _______
FRONT
United Companies Life Insurance Company
P.O. Box 3257
Baton Rouge, LA 70821-3257
________________________________________________________________________
________________________________________________________________________
Please send me, at no charge, the Statement of Additional Information
dated May 1, 1996 for the Individual and Group Fixed and Variable
Deferred Annuity Contracts and Certificates issued by United Companies
Life Insurance Company and United Companies Separate Account One.
(Please print or type and fill in all information)
BACK
________________________________________________________________________
Name
________________________________________________________________________
Address
________________________________________________________________________
City State Zip Code
Form #5344-A
________________________________________________________________________
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Response is incorporated by reference to Registrant's Pre-Effective Amendment
No. 1 to Form S-1 (File No. 33-91358).
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company (Article VII) provide that:
This company may indemnify any person who was or is a party or is threatened
to be made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative (including any action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the company, or is or was serving at the request of the
company as a director, officer, employee or agent of another business, foreign
or non-profit corporation, partnership, joint venture or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with the
defense or settlement of such action and no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless, and only to the extent, that the court shall
determine upon application that, despite the adjudication of liability that in
view of all the circumstances of the case, he is fairly and reasonably
entitled to indemnity plus such expenses which the court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner in which he reasonably believed to be in or not opposed
to the best interest of the Company, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. FINANCIAL STATEMENTS
The financial statements of the Company together with the opinion of an
independent certified public accountant are included in the Prospectus.
b. EXHIBITS
1. Principal Underwriter's Agreement*
3.(i) Company's Articles of Incorporation*
3.(ii) Company's By-laws*
3.(iii) Resolution of the Board of Directors of the Company*
4.(i) Individual Fixed and Variable Deferred Annuity Contract*
4.(ii) Allocated Fixed and Variable Group Annuity Contract*
4.(iii) Allocated Fixed and Variable Group Annuity Certificate*
4.(iv) Death Benefit Endorsement*
5. Opinion of Counsel re: Legality
21. Company Organizational Chart ***
23.(i) Consent of Counsel
23.(ii) Consent of Independent Auditors
24. Power of Attorney**
*incorporated by reference to Registrant's Form S-1 (File No. 33-91358) filed
on April 19, 1995.
**incorporated by reference to Registrant's Pre-Effective Amendment to Form
S-1 (33-91358) filed on August 2, 1995.
***incorporated by reference to a Registration Statement on Form N-4 (File
Nos. 33-91362 and 811-9026) filed on April 19, 1995.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post
effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement, including
(but not limited to) any addition or deletion of a managing underwriter.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on April 25th, 1996.
<TABLE>
<CAPTION>
<S> <C>
UNITED COMPANIES LIFE INSURANCE
COMPANY
By:/s/ ROBERT B. THOMAS, JR.
___________________________________
Robert B. Thomas, Jr.
Its Chairman and President
Attest:
/S/ JOSEPH P. MCKINNON, JR.
- -------------------------
Joseph P. McKinnon, Jr.
</TABLE>
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ ROBERT B. THOMAS, JR. Director and Chairman 4-24-96
- -------------------------- of the Board -------
Robert B. Thomas, Jr.
J. Terrell Brown* Director and Chief 4-24-96
- -------------------------- Executive Officer -------
J. Terrell Brown
John D. Dienes* Director 4-24-96
- -------------------------- -------
John D. Dienes
Dale E. Redman* Director, Vice 4-24-96
- -------------------------- Chairman and Assistant -------
Dale E. Redman Secretary
Lindsay C. Seals* Director and 4-24-96
- -------------------------- Executive Vice -------
Lindsay C. Seals President
Gary L. Warrington* Director and 4-24-96
- -------------------------- Executive Vice -------
Gary L. Warrington President
Donald M. Woodard* Senior Vice President 4-24-96
- -------------------------- and Controller -------
Donald M. Woodard
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
*By Power of Attorney
By: /S/ ROBERT B. THOMAS, JR.
_______________________________
Robert B. Thomas, Jr.
</TABLE>
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-5. Opinion of Counsel re: Legality
EX-23.(i) Consent of Counsel
EX-23.(ii) Consent of Independent Auditors
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 26, 1996
VIA EDGAR
Board of Directors
United Companies Life Insurance Company
III United Plaza
8545 United Plaza Blvd.
Baton Rouge, LA 70809-2251
RE: Opinion of Counsel - United Companies
Life Insurance Company
_____________________________________
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form S-1 for the Individual and Group Fixed and
Variable Deferred Annuity Contracts and Certificates (collectively, the
"Contracts") to be issued by United Companies Life Insurance Company.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. United Companies Life Insurance Company is a valid and existing stock
life insurance company of the state of Louisiana.
2. Upon the acceptance of purchase payments made by an Owner or
Certificate Holder pursuant to a Contract issued in accordance
with the Prospectus contained in the Registration Statement and upon
compliance with applicable law, such an Owner/Certificate Holder will have a
legally-issued, fully paid, non-assessable contractual interest under such
Contract.
You may use this opinion letter, or a copy hereof, as an exhibit to the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By:/S/LYNN KORMAN STONE
______________________________
Lynn Korman Stone
April 26, 1996
CONSENT OF COUNSEL
We consent to the reference to our firm under the caption "Legal
Opinions" contained in the Prospectus which forms a part of the Registration
Statement.
/S/ BLAZZARD, GRODD & HASENAUER, P.C.
BLAZZARD, GRODD & HASENAUER, P.C.
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 33-91358 of United Companies Life Insurance Company on Form S-1
of our report dated February 29, 1996, appearing in the Annual Report on Form
10-K of United Companies Life Insurance Company for the year ended December
31, 1995, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
April 26, 1996
