=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
-----------------
Date of Report (Date of earliest event reported):
June 21, 1999
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Kentucky 33-13142
(State or other 33-15521 61-0244930
jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
Kincaid Towers, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
(606) 253-5111
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
=================================================================
Item 7. Financial Statements, Pro Forma Financial Information
-----------------------------------------------------
and Exhibits.
- ------------
(a) Financial Statements.
--------------------
Filed with this report are the following documents of
Kentucky Central Life Insurance Company-In Liquidation:
(1) Financial statements as of June 30, 1998 and September
30, 1998 prepared on modified liquidating basis
(unaudited).
(2) Notes to financial statements which have been filed
with this Form 8-K.
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Dated: June 21, 1999
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
By: /s/ George Nichols III
-------------------------------------
George Nichols III, Commissioner of
the Kentucky Department of
Insurance, as Liquidator of
Kentucky Central Life Insurance
Company
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
ASSETS Notes
-----
<S> <C> <C> <C>
Cash: 5
Unrestricted $ 7,391,375
Restricted 679,792
------------
$ 8,071,167
Short-term investments: 6
Unrestricted 120,026,365
Restricted 3,548,266
------------
123,574,631
Bonds: 7
Unrestricted 17,293,219
Restricted 798,750
------------
18,091,969
Kincaid Tower Building Receivable 21 18,000,000
Mortgage loans 8 12,352,661
Real estate 9 44,785,600
Investment in M-C Realty, Inc. 10 3,276,916
Other invested assets 11 51,741
Federal income tax recoverable 12 0
Miscellaneous assets 13 14,900
Accrued investment income 165,042
------------
Total Assets $228,384,627
============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
DISCLAIMER
- ----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
LIABILITIES Notes
-----
<S> <C> <C> <C>
Class 1
Reserve for Kentucky Central
Retirement Plan 14 7,000,000
Guaranty associations'
reimbursable costs under
the Plan 1,15 3,200,000
Accrued administrative expenses 5,038,907
------------
$ 15,238,907
Class 2
Policy benefits 1 4,012,631
Opt-in amounts 1,16 109,267,279
Guaranty associations' advances 1,17 19,882,287
Guaranty associations'
post-closing costs 1,18 46,855,851
Liability to Opt-out policyholders 1,19 6,920,733
Opt-out reimbursable amount 1,20 2,193,693
------------
189,132,474
Class 3
Claims of the federal government 27(a) 0
Class 4
Not evaluated
Class 5
ABN Amro Bank 21 62,903,463
General creditors 22 9,669,775
Escheat funds 488,118
Taxes payable 4,497,750
------------
77,559,106
Class 6
Not evaluated
Class 7
Not evaluated
Class 8 4
Policyholder deductible 17,156,506
General creditor deductible 33,127
Escheat funds deductible 2,500
Taxes payable deductible 2,250
------------
17,194,383
Class 9
Not evaluated
Class 10 23
Shareholder outstanding dividends
and fractional shares 666,224
Common capital stock:
Voting - par value, $100 per sh. 100,000
Class A non-voting - par value,
$1 per sh. 13,314,830
Preferred dividends, Mid-Central 3 1,935,978
Preferred stock, Mid-Central 3 8,799,900
------------
24,816,932
Other Liabilities 27
Tenant security deposits 5 108,230
108,230
------------
Total Liabilities $324,050,032
(Deficiency) of Assets Over Liabilities (95,665,405)
------------
Total Liabilities and (Deficiency) $228,384,627
============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- ----------
DISCLAIMER
- ----------
The information contained in these financial statements has been
prepared by the Liquidator from information available to or known
by the Liquidator as of the date of the financial statements; and
is based upon records, information or books available to the
Liquidator. The completion and timing of certain information is
at the total discretion of the Liquidator. The Liquidator makes
no warranty as to the accuracy of the information or of the
opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of
fact, evaluation or opinion contained in the financial
statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
Notes
-----
<S> <C> <C> <C>
RECEIPTS 2 4/1 - 6/30/98 YTD 6/30/98
- -------- ------------- ------------
Premium receipts $ (2,553) $ (8,588)
Rental receipts 1,212,908 2,161,630
Mortgage loans:
(a) Principal 0 79,460
(b) Interest 206,792 393,486
Proceeds from:
(a) Mortgage loans 0 0
(b) Real estate 120,000 8,757,638
(c) Other invested assets 0 26,432
Reinsurance recoveries 0 0
Agents' balances received 32,032 60,728
Collection of subsidiaries receivables 0
0
Recovery of taxes previously paid 0 16,054
Other miscellaneous receipts and changes 13,198 48,577
------------ ------------
Receipts before Investment Activities 1,582,377 11,535,417
------------ ------------
Interest and dividend receipts 117,284 241,156
Proceeds from Sales:
(a) Short-term investments 45,011,434 47,018,993
(b) Bonds 14,232,134 57,848,922
(c) Stocks 0 0
------------ ------------
Receipts from Investment Activities 59,360,852 105,109,071
------------ ------------
Tenant-In-Possession receipts 21 971,230 2,144,844
------------ ------------
Total Cash Receipts $ 61,914,459 $118,789,332
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- ----------
DISCLAIMER
- ----------
The information contained in these financial statements has been
prepared by the Liquidator from information available to or known
by the Liquidator as of the date of the financial statements; and
is based upon records, information or books available to the
Liquidator. The completion and timing of certain information is
at the total discretion of the Liquidator. The Liquidator makes
no warranty as to the accuracy of the information or of the
opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of
fact, evaluation or opinion contained in the financial
statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
Notes
-----
<S> <C> <C> <C>
DISBURSEMENTS 2 4/1 - 6/30/98 YTD 6/30/98
- ------------- ------------- -----------
Losses/benefit payments 24 $ 65,912 $ 105,148
LAE payments 108,013 234,236
Legal fees 1,689,784 2,869,650
Audit fees 5,595 7,020
Receivers fees 36,360 69,621
Consulting fees 1,570,470 2,934,686
Commissions (2,765) (6,735)
Salaries 204,261 349,552
Employee benefits 199,198 206,102
Real estate taxes 95,459 493,371
Payroll and other taxes 12,034 23,380
Rent and related expenses 545,900 610,163
Office expenses and miscellaneous 158,548 251,440
Interest expense 0 0
------------ ------------
Total Disbursements 4,688,769 8,147,634
------------ ------------
Distributions:
(a) Distributions of assets 1 34,880,662 34,880,662
(b) Early access distributions 0 0
------------ ------------
Distributions 34,880,662 34,880,662
------------ ------------
Disbursements & Distributions Before
Investment Activities 39,569,431 43,028,296
------------ ------------
Investment expenses 25 205,991 443,140
Purchase of:
(a) Short-term investments 15,814,517 68,584,756
(b) Bonds 0 0
(c) Stocks 0 0
(d) Mortgage loans 0 0
(e) Real estate 0 0
------------ ------------
Disbursements for Investment Activities 16,020,508 69,027,896
------------ ------------
Tenant-In-Possession disbursements 21 1,205,730 2,271,779
------------ ------------
Total Cash Disbursements 56,795,669 114,327,971
============ ============
Net Increase (Decrease) in Cash 5,118,790 4,461,361
Cash at March 31 and January 1, 1998 2,952,377 3,609,806
------------ ------------
Cash at June 30, 1998 $ 8,071,167 $ 8,071,167
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
DISCLAIMER
- ----------
The information contained in these financial statements has been
prepared by the Liquidator from information available to or known
by the Liquidator as of the date of the financial statements; and
is based upon records, information or books available to the
Liquidator. The completion and timing of certain information is
at the total discretion of the Liquidator. The Liquidator makes
no warranty as to the accuracy of the information or of the
opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of
fact, evaluation or opinion contained in the financial
statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
SHORT-TERM INVESTMENTS AMOUNT
- ---------------------- ------
<S> <C>
UNRESTRICTED:
FIDELITY TREASURY FUND #696, PNC BANK $ 1,478,210
U.S. TREASURY BILL - MATURES 7/23/98 19,934,411
U.S. TREASURY BILL-MATURES 7/16/98-LASALLE BANK 98,613,130
DREYFUS CASH MANAGEMENT FUND, LASALLE BANK 614
------------
TOTAL $120,026,365
============
RESTRICTED:
CERTIFICATE OF DEPOSIT - SECURING LETTER OF CREDIT $ 16,864
FUNDS HELD BY NEW MEXICO DEPT OF INS 106,297
FUNDS HELD BY S. CAROLINA DEPT OF INS 79,325
U.S. TREASURY BILL-MATURES 7/02/98,S.C.DEPT OF INS 1,299,630
FUNDS HELD BY GEORGIA DEPT OF INS - BILTMORE FUND 104,216
U.S. TREASURY BILL-MATURES 8/06/98,TENANT IN POSSESSION 1,591,934
CERTIFICATES OF DEPOSIT - AS PER FRANCHISE AGREEMENT 350,000
------------
TOTAL $ 3,548,266
============
$123,574,632
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. Reorganization and Reinsurance of the Life and Health
-----------------------------------------------------
Insurance Assets of Kentucky Central Life Insurance Company and
- ---------------------------------------------------------------
Order of Liquidation - On February 12, 1993, Kentucky Central
- --------------------
Life Insurance Company ("Kentucky Central" or the "Company") was
placed into rehabilitation by an order of the Franklin Circuit
Court ("Court") after a determination by the Commissioner of the
Kentucky Department of Insurance that such action was necessary
for the protection of the Company's policyholders. On February
9, 1994, after a thorough investigation regarding rehabilitating
versus liquidating the Company, the Commissioner, in his capacity
as Rehabilitator of Kentucky Central, filed a motion for
reorganization and reinsurance of the Company's life and health
assets and a petition of liquidation with the Court.
On August 18, 1994, the Court issued an order approving the
motion of the Rehabilitator for Reorganization and Reinsurance of
the Company's life and health assets with Jefferson-Pilot Life
Insurance Company ("JP Life"). (The Rehabilitator's Plan of
Reorganization and Reinsurance together with the Guaranty
Association Participation Agreement By and Among the National
Organization of Life and Health Insurance Guaranty Associations
and the Participating State Life and Health Insurance Guaranty
Associations and Kentucky Central Life Insurance Company Acting
By and Through Don W. Stephens, Insurance Commissioner of the
Commonwealth of Kentucky, As Rehabilitator and Liquidator of KCL
and Jefferson Pilot Life Insurance Company are hereinafter
collectively referred to as the "Plan.") In conjunction
therewith, the Court issued an order terminating the
rehabilitation and directing the liquidation of the Company (the
"Order"). The Company was ordered into liquidation following a
determination by the Court that the Company was insolvent and
that rehabilitation of the Company was not feasible. The Order
was affirmed by the Supreme Court of Kentucky on May 11, 1995.
The key element of the Rehabilitator's Plan of
Reorganization and Reinsurance, the transfer to JP Life of most
of the Company's assets in exchange for JP Life's agreement to
assume and "enhance" the life insurance policies and annuity
contracts previously issued by the Company, was closed on May 31,
1995. All policyholders of the Company were given the right, if
they chose to do so, to keep their life insurance and annuity
contracts, and immediately become policyholders of JP Life; such
policyholders are referred to herein as "Opt-ins." Those
policyholders who elected not to have their policies transferred
are referred to herein as "Opt-outs."
In consideration for JP Life's assumption of the liabilities
for Opt-ins, the Company transferred bonds, short-term
securities, cash, policy loans and certain miscellaneous assets
with a total estimated value of $762,862,093 to JP Life on the
date of closing. Policyholders representing approximately 95% of
the total policy values in force opted into the Plan and were
transferred to JP Life on the date of closing.
The life insurance guaranty associations of the states where
the Company was licensed to do business transferred assets
consisting of cash and notes with a total value of $109,986,918
to JP Life in connection with the closing. Such assets, along
with an enhancement added by JP Life, were used to restore the
policy values of Opt-ins whose policies were covered by one of
the guaranty association funds to their full amount as recorded
by the Company as of the closing date and for uncovered
policyholders restructured account values to the extent supported
by the assets. In return for this advancement of assets on
behalf of covered policyholders, the state guaranty associations
obtained what is now a class 2 priority claim against the
Company. The shortfall on uncovered policies was calculated at
closing to be $11,231,328.
-1-
Under the Plan, the Company retains a liability to Opt-ins
over and above the amount of their full policy value as of the
closing date. The ultimate amount of this liability, referred to
as the Reimbursable Amount, depends on the interest rates from
February 12, 1993 until a date five years from closing (i.e., May
31, 2000), and on the persistency of Opt-in policies during the
five-year period after closing.
Policyholders representing approximately 5% of the total
policy values in force opted out of the Plan. The Company is
obligated to pay these policyholders their proportionate share of
the Company's assets up to the full amount of their statutory
reserve as of February 12, 1993, plus any additions to their
policy values from premiums paid and less any deductions to their
policy values subsequent to that date. The full amount of such
obligation to Opt-outs was approximately $57 million. The Plan
calls for the Company to pay these amounts in three installments.
The first installment, equivalent to 75% of the total opt-out
amount, was due, and paid, 120 days after closing. The second
installment was paid June 23, 1997.
Assets not transferred to JP Life remained with the Company
and are being liquidated by the Commissioner of the Kentucky
Department of Insurance who has been designated as the Liquidator
of the Company. The Liquidator is vested by operation of law
with the title to all of the Company's property, contracts, and
rights of action, and may recover and reduce all such assets to
possession and liquidate them in accordance with the terms of the
Order and applicable law. The court has ordered the Liquidator
to liquidate the remaining assets of the estate as rapidly and
economically as he can. As these assets are liquidated, they
will be utilized to repay the guaranty associations and to make
policyholders whole. The remaining assets of the Company, if
any, will be distributed to other creditors and shareholders in
the priority established by statute.
Pursuant to the terms of the Plan, $50,000,000 from the
assets of Kentucky Central was disbursed on February 13, 1996.
Of this amount $41,039,878 reduced the liability to the Guaranty
Associations on the Guaranty Associations' advances, $3,557,738
was applied to reduce policy benefits due uncovered policies and
$2,291,194 was applied to the Opt-in Traditional liability. The
remaining $3,111,190 was later distributed to Opt-out
policyholders.
In a similar transaction, $40,000,000 was distributed from
the assets of the Company in May and June 1997. Of this amount,
$32,890,768 reduced the liability to the Guaranty Associations on
the Guaranty Associations' advances, $2,774,651 was applied to
reduce policy benefits due uncovered policies and $1,834,469 was
applied to the Opt-in Traditional liability. The remaining
$2,500,112 was distributed to Opt-out policyholders on June 23,
1997.
In May 1998, an additional $34,880,662 was distributed from
the assets of the Company. Of this amount, $31,647,582 reduced
the liability to the Guaranty Associations on the Guaranty
Associations' advances, $3,233,080 was applied to reduce policy
benefits due uncovered policies and Opt-in Traditional liability.
2. Basis of Presentation - The accompanying financial
---------------------
statements of Kentucky Central Life Insurance Company (In
Liquidation) are unaudited. The balance sheet has been prepared
on a modified liquidating basis, that is, assets have been
reported at their estimated market value when known, otherwise,
they are reported on the basis more particularly described
herein. The financial statements are presented generally in a
format established by the National Association of Insurance
Commissioners ("NAIC") Report on Receiverships.
With regard to the liabilities, for the purposes of these
financial statements, the liabilities have been preliminarily
classified in accordance with the statutory scheme set forth in
Chapter 304 of the Kentucky Revised Statutes, Subtitle 33,
Section 430. The classifications and amounts are subject to
further review and change, and the Liquidator is not bound or
prejudiced by the classification of the liabilities on the
financial statements as the process for reviewing the liabilities
and claims is ongoing. Claims filed in the amount of
$1,422,112,785 are not reflected
-2-
on the financial statements. See footnote number 29(b) for
additional information regarding these claims.
The Statement of Receipts and Disbursements is prepared on a
cash basis. Since the Company has been in both rehabilitation
and liquidation, the books and records were not organized in such
a manner to facilitate the accounting of receipts and
disbursements on a cash basis from the date of rehabilitation.
The information contained in these financial statements has
been prepared by the Liquidator from information available to or
known by the Liquidator as of the date of the financial
statements. The Liquidator makes no warranty as to the accuracy
of the information or of the opinions or evaluations contained in
the financial statements and expressly disclaims any liability
arising from the statements of fact, evaluation or opinion
contained in the financial statements.
3. Ownership and Affiliated Companies - The common stock of
----------------------------------
Kentucky Central consists of two classes: Voting and Class A Non-
voting. The Class A Non-voting common stock is publicly held and
was traded on the NASDAQ stock market until removed from listing
in April 1993. Further, Kentucky Central owned 100% of the
common stock of Mid-Central Investment Co., Inc. ("Mid-Central").
The Company's investment in Mid-Central was previously reported
on the financial statements of Kentucky Central on an equity
basis. However, effective September 30, 1997, the assets and
liabilities of Mid-Central were combined with the assets and
liabilities of Kentucky Central consistent with the Liquidator's
position regarding the true nature of these assets and
liabilities under the Insurers Rehabilitation and Liquidation
Law, KRS 304.33-010 et seq. The preferred stock of Mid-Central
was not owned by Kentucky Central. The owners of said stock have
filed claims with the Liquidator. The Liquidator has classified
these claims, together with the related accrued dividends, as a
Class 10 liability.
4. Order of Distribution - The order of distribution from the
---------------------
assets of the Company's estate is set forth at KRS 304.33-430. An
amendment of the statute went into effect July 15, 1996. By its
express terms, the statute applies and governs the priority of
distribution of assets in any proceeding to liquidate an insurer
pending on the effective date of the statute. Accordingly, the
order of distribution of Kentucky Central's assets is governed by
the statute, as amended.
The statute, as amended, provides as follows:
Section 1. The order of distribution of claims from
the insurer's estate shall be as stated in this
section. The first fifty dollars ($50) of the amount
allowed on each claim in the classes under subsections
(2) to (6), inclusive, of this section, shall be
deducted from the claim and included in the class under
subsection (8) of this section. Claims may not be
cumulated by assignment to avoid application of the
fifty dollars ($50) deductible provision. Subject to
the fifty dollars ($50) deductible provision, every
claim in each class shall be paid in full or adequate
funds retained for the payment before the members of
the next class receive any payment. No subclasses
shall be established within any class. No claim by a
shareholder, policyholder, or other creditor shall be
permitted to circumvent the priority classes through
the use of equitable remedies.
(1) Administration costs. The costs and expenses of
administration, including but not limited to the
following: the actual and necessary costs of
preserving or recovering the assets of the
insurer; compensation for all services rendered in
the liquidation; any necessary filing fees; the
fees and mileage payable to witnesses; and
reasonable attorneys' fees.
(2) Loss and unearned premium claims. Claims by
policyholders, beneficiaries, and insureds arising from
and within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and liability claims
against insureds which claims
-3-
are within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and claims of guaranty
associations or foreign guaranty associations.
Notwithstanding the foregoing, the following claims
shall be excluded from Class 2 priority:
(a) Obligations of the insolvent insurer arising out
of reinsurance contracts;
(b) Obligations incurred after the expiration date of
the insurance policy or after the policy has been
replaced by the insured or canceled at the
insured's request or after the policy has been
canceled as provided in this chapter.
Notwithstanding this subsection, earned premium
claims on policies, other than reinsurance
agreements, shall not be excluded;
(c) Obligations to insurers, insurance pools, or
underwriting associations and their claims for
contribution, indemnity or subrogation, equitable
or otherwise;
(d) Any claim which is in excess of any applicable
limits provided in the insurance policy issued by
the insolvent insurer;
(e) Any amount accrued as punitive or exemplary
damages unless expressly covered under the terms
of the policy; and
(f) Tort claims of any kind against the insurer, and
claims against the insurer for bad faith or
wrongful settlement practices.
(3) Claims of the federal government other than those
claims included in Class 2.
(4) Wages.
(a) Debts due to employees for services performed, not
to exceed one thousand dollars ($1,000) to each
employee which have been earned within one (1)
year before the filing of the petition for
liquidation. Officers shall not be entitled to
the benefit of this priority.
(b) This priority shall be in lieu of any other
similar priority authorized by law as to wages or
compensation of employees.
(5) Residual classification. All other claims including
claims of the federal or any state or local government,
not falling within other classes under this section.
Claims, including those of any governmental body, for a
penalty or forfeiture, shall be allowed in this class
only to the extent of the pecuniary loss sustained from
the act, transaction or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual
costs occasioned thereby. The remainder of such claims
shall be postponed to the class of claims under
subsection (8) of this section.
(6) Judgments. Claims based solely on judgments. If a
claimant files a claim and bases it both on the
judgment and on the underlying facts, the claim shall
be considered by the liquidator who shall give the
judgment such weight as he deems appropriate. The
claim as allowed shall receive the priority it would
receive in the absence of the judgment. If the
judgment is larger than the allowance on the underlying
claim, the remaining portion of the judgment shall be
treated as if it were a claim based solely on a
judgment.
(7) Interest on claims already paid. Interest at the legal
rate compounded annually on all claims in the
-4-
classes under subsections (1) to (6) of this section,
inclusive, from the date of the petition for
liquidation or the date on which the claim becomes due,
whichever is later, until the date on which the
dividend is declared. The liquidator, with the
approval of the court may make reasonable
classifications of claims for purposes of computing
interest, may make approximate computations and may
ignore certain classifications and time periods as de
minimis.
(8) Miscellaneous subordinated claims. The remaining
claims or portions of claims not already paid, with
interest as in subsection (7) of this section:
(a) The first fifty dollars ($50) of each claim in the
classes under subsections (2) to (6), inclusive,
of this section, subordinated under this section;
(b) Claims under subsection (2) of KRS 304.33-380;
(c) Claims subordinated by KRS 304.33-600;
(d) Claims filed late;
(e) Portions of claims subordinated under subsection
(5) of this section; and
(f) Claims or portions of claims, payment of which is
provided by other benefits or advantages recovered
or recoverable by the claimant.
(9) Preferred ownership claims. Surplus or contribution
notes, or similar obligations, and premium refunds on
assessable policies. Interest at the legal rate shall
be added to each claim, as in subsections (7) and (8)
of this section.
(10) Proprietary claims. The claims of shareholders or
other owners.
Section 2. Section 1 of this Act shall apply to and govern
the priority of the distribution of assets in any proceeding
to liquidate an insurer pending on or commenced on or after
the effective date of the Act.
The liabilities on the accompanying balance sheet are presented
in accordance with the order of distribution set forth in the
amended statute.
5. Cash - As of June 30, 1998, Kentucky Central had cash on
----
deposit in banks of $8,071,167 of which $679,792 was restricted
as tenant security deposits and the tenant-in-possession rental
fund. The tenant security deposits of $118,442 include deposits
of $108,230 on real estate owned by the Company and deposits of
$10,212 held by the Company on behalf of the Tenant-in-
Possession.
6. Short-term investments - Short-term investments consisted of
----------------------
the following: certificates of deposit in the amount of $366,864,
money market accounts in the amount of $1,768,048, U.S. Treasury
bills equal to $121,439,105 and a Dreyfus Cash Management Fund in
the amount of $614. Approximately $289,838 of the money market
accounts and $1,299,623 of the T-bills are being held by or on
behalf of various state departments of insurance. Certificates
of deposit for $366,800 are held as collateral to secure letters
of credit which guarantee contract performance on properties
owned by the Company. Additionally, the U.S. Treasury bill for
$98,613,130 and the Dreyfus Cash Management Fund is being held by
LaSalle National Bank ("LaSalle") in connection with the
sale/leaseback of Kincaid Towers. This transaction is described
in detail in footnote number 21.
7. Bonds - Bonds in the amount of $18,091,969 are principally
-----
stated at their market value as obtained from
-5-
published information concerning the market value of such bonds.
The bond values are not based upon valuations published by the
---
NAIC Committee on Valuation of Securities. Certain Fayette
County, Kentucky revenue bonds and Kentucky Development Finance
Authority bonds with a par value of $16,600,000 are included in
the total at their book value of $16,600,000 as their market
value is not readily ascertainable. Additionally, bonds with a
market value of $798,750 are being held by the state department
of insurance of South Carolina.
8. Mortgage Loans - Mortgage loans on real estate are not
-------------- ---
stated at their market value as of June 30, 1998, but are stated
at the lower of their unpaid principal balance or at the
appraised value of the underlying collateral. The appraisals
being used were primarily obtained on varying dates in 1993 and
early 1994. Further, the mortgage loans are reported net of
$337,680, the estimated costs to dispose of the loans.
9. Real Estate - Real estate is stated at its estimated market
-----------
value as of June 30, 1998, based on appraisals obtained between
1993 and 1998. Additionally, the total of the real estate is
reported less estimated disposition costs of $3,890,000.
10. Investment in M-C Realty, Inc. - At June 30, 1998, the
------------------------------
Company owned 100% of the common stock of M-C Realty, Inc. ("M-
C"). M-C owns 100% of the common stock of Wilkinson Hotel
Enterprises, Inc. ("WHE"). WHE is a 1% general partner and M-C
is a 95% limited partner in Wilkinson Hotels, Ltd. Wilkinson
Hotels Ltd. is the owner and operator of the Capital Plaza Hotel
in Frankfort, Kentucky.
The Company's investment in M-C is reported on an equity
basis. The primary asset of M-C is the hotel and its furniture
and fixtures. As of June 30, 1998, the hotel and its furniture
and fixtures had an appraised value equal to $8,500,000.
The primary liabilities of M-C include bonds which were
payable at December 15, 1997 in the amount of $5,200,000, a
second mortgage in the amount of $278,437 held by Kentucky
Economic Development Finance Authority and $497,218 due on a
Community Development Block Grant issued by the City of
Frankfort. The Company holds the bonds while Central Bank &
Trust Company is the Trustee. The Liquidator has entered into an
agreement with the Trustee of the bonds and the holder of the
second mortgage which permits Wilkinson Hotels, Ltd. to continue
to make interest and other payments on the bonds and the mortgage
through December 15, 1998.
In August 1996, M-C and certain current and former
affiliates of M-C filed refund claims for corporate taxes paid to
the Commonwealth of Kentucky for the 1991-94 tax years. The
total amount of refunds sought is $1,132,166. The probability of
collection of the refunds is unknown at this time. Accordingly,
the refund claims are not reflected on the balance sheet as of
this date.
11. Other Invested Assets - The Company has an investment in
---------------------
Centennial Business Development Fund, Ltd. in the amount of
$49,745. This amount represents the Company's equity in the
partnership, net of unrealized gains or losses. This amount does
not purport to reflect the market value of the Company's
investment. Additionally, the Company has an investment in
Colonial Commercial Corporation and Golden Gem Growers, Inc. The
total market value of the Company's investment is $1,404.
The Company is also a 99% partner in two rental property
ventures styled Fred Burns Limited Partnerships I and II. The
value to the Company of these investments, if any, is dependent
upon the outcome of pending litigation. Due to the inherent
uncertainty involved with litigation, it was deemed inappropriate
to place any value upon these interests at this time.
12. Federal Income Tax Recoverable - The Company filed amended
------------------------------
federal income tax returns on September 13, 1996 for the 1989-91
tax years requesting refunds of $18,502,455 plus interest. The
amended returns were filed on the basis that certain Treasury
Regulations were invalid. The Treasury Regulations at issue
prevent the
-6-
carryback of life subgroup losses to offset nonlife subgroup
income on a consolidated return. The Company filed suit in the
United States District Court for the Eastern District of Kentucky
on May 5, 1997 in order to collect the refund claims. On July
17, 1998, the Court entered summary judgment in favor of the
United States. The Liquidator has appealed to the 6th Circuit
Court of Appeals. The probability of collection of the refund
claims is unknown at this time. Accordingly, no amount is shown
for the refund claims on the balance sheet as of this date.
13. Miscellaneous Assets - This amount consists of a utility
--------------------
deposit of $2,000 for property owned by the Company in Frankfort,
Kentucky, and capital equity credits in Golden Gem Growers, Inc.
in the approximate amount of $12,900.
No value has been reflected on the balance sheet for Agents
Debit Balances, Furniture & Fixtures and Other Receivables and
Prepaid Expenses due to the fact that realization of the value of
the accounts is unlikely. However, collection activities
continue on all accounts due the Company and any unused fixed
assets will be disposed of at the appropriate time. The net book
value of the accounts as of June 30, 1998 was as follows: Agents
Debit Balances - $6,273,890 Furniture & Fixtures - $59,199 and
Other Receivables and Prepaid Expenses - $15,148,017.
14. Reserve for Kentucky Central Retirement Plan - This is an
--------------------------------------------
estimate of the amount which may be necessary to accomplish a
standard termination of the Kentucky Central Retirement Plan. By
order date September 23, 1997, the Franklin Circuit Court
authorized the Liquidator to pay up to seven million dollars to
effectuate a standard termination of the Plan.
15. Guaranty Associations' Reimbursable Costs under the Plan -
--------------------------------------------------------
This is an estimate by the guaranty associations of their
administrative costs under the Plan. The Guaranty Associations
have incurred additional costs since submitting this estimate
which are also reimbursable under the Plan. The additional costs
are likely to be several million dollars and will be reflected in
the financial statements when the additional expenses have been
reviewed and agreed to by the Liquidator.
16. Opt-in Amounts - This liability is a combination of the
--------------
following: reimbursement for the reduced account values
resulting from the difference in the rate credited to
policyholders from February 12, 1993 to May 31, 1995 versus the
new money rate as described in the Plan, reimbursement for the
reduced account values resulting from non-contractual expenses
charged by JP Life during the moratorium period subsequent to the
closing as required by the Plan and reimbursement of reduced
account values resulting from lower than market credited interest
rates applied by JP Life during the moratorium period subsequent
to the closing as required under the Plan.
Under the Plan, JP Life agreed to credit KCL Traditional Life
policyholders with the difference between their restructured and
unrestructured account values if JP Life was reimbursed this
amount. Accordingly, this liability also represents the amount
owed to JP Life for the Traditional Life policyholders.
17. Guaranty Associations' Advances - This amount, together with
-------------------------------
accrued interest at the rate set forth in the Plan, is the amount
that the guaranty associations paid JP Life on behalf of Kentucky
Central to cover the short-fall in assets that were transferred
to JP Life at closing.
18. Guaranty Associations' Post-closing Costs - This is an
-----------------------------------------
estimate of the guaranty associations continuing support costs
through the five-year Plan period, together with accrued interest
at the rate set forth in the plan.
19. Liability to Opt-out Policyholders - On May 31, 1995,
----------------------------------
policyholders which elected to opt-out of the Plan surrendered
their policies to Kentucky Central. The calculation of policy
account values for opt-out liabilities was prepared pursuant to
the Plan approved by the Court. The first payment (75% of the
opt-out payment) was made within 120 days of Closing. The second
payment (12.5% of the opt-out payment) was made two years after
closing.
-7-
The balance (12.5% of the opt-out payment) is to be disbursed
with interest four years after closing.
20. Opt-out Reimbursable Amount - This liability is the
---------------------------
difference between the amounts scheduled to be paid to Opt-out
policyholders using the opt-out percentage as defined in the Plan
versus 100% of the statutory reserve as of February 12, 1993
adjusted for policy loans and interim period amounts.
21. ABN Amro Bank - This amount represents the principal of
-------------
$50,323,634 and interest of $12,579,829 due ABN Amro Bank, N.V.,
("ABN") as a result of a sale lease back transaction, the subject
of which was Kentucky Central's home office building and related
properties. As of June 30, 1998, to secure this debt ABN held
securities having a value as of that date of $98,613,744 plus a
mortgage on and an assignment of rents of the tenants of Kincaid
Towers. On December 29, 1998, $37,897,108 was returned to the
Liquidator and the title of Kincaid Towers, with a value of
approximately $18,000,000, was conveyed to the Liquidator.
Further, any claim for rent owed by the Liqidator was released,
and all rent collected from occupants of Kincaid Towers, net of
expenses, was released to the Liquidator. This amount was
approximately two million dollars.
22. General Creditors - This liability consists primarily of
-----------------
amounts due to agents under a deferred compensation agreement
formerly maintained by the Company.
23. Other Equity Claims - The amounts reflected as Class 10
-------------------
claims include the book value of the shareholders' common stock
and additional paid-in-capital ($13,414,830), the outstanding
dividends and fractional shares related to the common stock
($666,224), the book value of the preferred stock of Mid-Central
($8,799,900) and the related accrued dividends ($1,935,978).
These balances do not reflect the potential claims of current and
former Kentucky Central shareholders who may allege that they
purchased and/or sold their stock based on misstated financial
statements and does not reflect any other legal claims to which
the shareholders may be entitled and which may or may not be
included in the $1.4 billion of claims described herein. Such
claims may be substantially in excess of the balances reflected.
24. Losses/Benefit Payments - This amount includes payments made
-----------------------
to policyholders with claims occurring prior to May 31, 1995 and
continuing claims on credit insurance and payments made to Opt-
out policyholders.
25. Investment Expenses - This expense is generally related to
-------------------
the operation and maintenance of the Company's investments in
bonds and real estate.
26. Liability to Opt-in Policyholders - The Plan creates a
---------------------------------
liability to policyholders for the difference between
policyholder account values as calculated before and after
restructuring. The liability to Opt-in policyholders was reduced
at closing by amounts paid to JP Life for the benefit of the
policyholders by the guaranty associations on behalf of Kentucky
Central (and such reduction is currently shown as a liability to
the guaranty associations). The Plan also calls for a discharge
of the liability to Opt-in policyholders upon an order by the
Court after several events have occurred. It is currently
anticipated that the entire amount of this liability
(approximately $249 million) will ultimately be discharged by the
Court. Therefore, no dollar amount is included in the financial
statement.
27. Contingent Liabilities
----------------------
(a) Income Taxes - The Company may have a tax liability for
------------
Phase III taxable income. Phase III taxable income results from
certain reductions to the Company's "policyholders' surplus
account." The policyholders' surplus account is an untaxed
income account that was accumulated under prior tax law. It is
the Company's contention, supported by tax case law, that the
Company will not have any federal tax liability related to
reductions in this account. If a liability is found to exist,
the tax is estimated to be between $2.1 and $2.6 million.
Additionally, any such tax liability will increase the amount by
which the Company's liabilities exceed its assets.
-8-
(b) Claims Filed - Claims in the amount of $1,422,112,785
------------
have been filed against Kentucky Central pursuant to the claims
process required under KRS 304 Subtitle 33. The majority of
these claims are not reflected in the financial statements as
they are in the process of being reviewed. However, a few of the
known claims are reflected. While a number of the claims may be
rejected and disallowed, to the extent these claims are proven
valid, they will have the effect of increasing the amount by
which the Company's liabilities exceed its assets for the claims
which are not already recorded as liabilities. Additionally,
interest will accrue at the legal rate on those claims which are
proven valid; such interest is a class 7 liability.
The Liquidator cautions that under KRS 304.33-360(2),
certain claimants may assert valid claims after the expiration of
the claims bar date. Further, under KRS 304.33-360(1), certain
claims - specifically, preferred ownership and proprietary claims
under subsections (9) and (10) of KRS 304.33-430 and claims for
unearned premiums and cash surrender values or other investment
values in life insurance and annuities - are not required to be
filed. Thus, total claims asserted against the Liquidator may
actually be in excess of the amounts set forth above. The extent
of any such additional liability is uncertain at this time.
(c) Pending Litigation - A summary of the litigation in
------------------
which the Company is a party is included in each Report to the
Court filed on a periodic basis in Franklin Circuit Court. The
claims of litigants against the Company have not been analyzed
for financial reporting purposes. Accordingly, no judgment has
been made as to whether the Company will have any liability to
the litigants or the amount, if any, of such liability.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
CASH AMOUNT
- ---- ------
<S> <C>
UNRESTRICTED:
IN COMPANY OFFICE $ 280
REAL ESTATE PROPERTY MANAGER ACCOUNTS 484,376
CENTRAL BANK, LEXINGTON, KY 6,906,719
TOTAL $ 7,391,376
------------
RESTRICTED:
MEADOW GREEN CONDOS, TENANT SECURITY DEPOSIT $ 14,769
TERRACE GREEN CONDOS, TENANT SECURITY DEPOSIT 6,898
VILLA GREEN CONDOS, TENANT SECURITY DEPOSIT 7,227
FALCON CREST CONDOS, TENANT SECURITY DEPOSIT 13,800
PALM LAKES SHOPPING CTR, TENANT SECURITY DEPOSIT 26,119
GUADALUPE PLAZA, TENANT SECURITY DEPOSIT 12,599
BLUEBONNET VILLAS, TENANT SECURITY DEPOSIT 1,533
BLUEBONNET OFFICE BLDG, TENANT SECURITY DEPOSIT 10,000
BLUEBONNET FLEX BLDG, TENANT SECURITY DEPOSIT 15,285
FIFTH THIRD BANK, TENANT SECURITY DEPOSITS 10,212
FIFTH THIRD BANK, TENANT-IN-POSSESSION 212,934
CENTRAL BANK & TRUST CO., TENANT-IN-POSSESSION 348,416
------------
TOTAL $ 679,792
------------
$ 8,071,168
============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
KENTUCKY CENTRAL LIFE INSURANCE
(IN LIQUIDATION)
BONDS
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
UNRESTRICTED:
MATURITY PAR
CUSIP # ISSUER RATE DATE VALUE
------- ------ ---- ---- -----
<C> <S> <C> <C> <C>
49126NAC9 KENTUCKY DEV. FINANCE AUTH.B 5.340 12/15/97 5,200,000
528908AM8 LEXINGTON-FAYETTE URBAN CO 5.000 02/01/18 663,219
528914AC8 LEXINGTON FAYETTE URBAN COUNTY 5.860 05/01/20 11,400,000
-----------
TOTAL 17,293,219
MARKET VALUE -Unrestricted 17,293,219
RESTRICTED:
MATURITY PAR
CUSIP # ISSUER RATE DATE VALUE
------- ------ ---- ---- -----
912827ZN5 UNITED STATES TREAS NTS 8.500 11/15/00 750,000
TOTAL 750,000
MARKET VALUE -Restricted 798,750
MARKET VALUE -TOTAL $18,091,969
===========
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- ----------
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
As of June 30, 1998
(UNAUDITED)
MORTGAGE LOANS
<TABLE>
LOAN LOAN TITLE/OWNER PROPERTY
NO. MAILING ADDRESS ADDRESS
<C> <S> <S>
6355 Webb Bros. Woodlands
Woodland Apts. Lexington, Kentucky
6462 Madison, Arlene Scruggs 500 Hollow Creek Road #27
P. O. Box 11881 Lexington, Kentucky
Lexington, Kentucky 40578
6531 Delaplain Development Company 110 Triport Road
(Sold P. O. Box 974 Georgetown, Kentucky
7/98) Georgetown, KY 40234
6712 Moore Properties of Tampa, Inc. 102 East Tyler Street
6712A P. O. Box 406 Tampa, Florida
Tampa, FL 33601
6778 Cohen, Harry S. & Arlene 1165-1169 Centre Parkway
(Sold 1165 Centre Parkway Lexington, Kentucky
7/98) Lexington, KY 40517
6840 Webb Properties 565, 575 & 585 W. Main St.
3000 Lexington Financial Center Lexington, Kentucky
Lexington, KY 40507
6877 Fred Burns Limited Partnership I 1053 Winburn Drive
3341 Post Road Lexington, Kentucky
Lexington, KY 40503
6878 Fred Burns Limited Partnership II 1840 McCullough Drive
3341 Post Road Lexington, Kentucky
Lexington, KY 40503
Total Value $12,690,341
Less: Estimated Sales Cost (337,680)
-----------
Statement Value $12,352,661
===========
</TABLE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
REAL ESTATE
As of June 30, 1998
(UNAUDITED)
<TABLE>
ASSET
No. Description and Location of Property
<C> <S> <C>
4201 Meadow Green Condos, Lexington, KY
4202 Terrace Green Condos, Lexington, KY
4203 Villa Green Condos, Lexington, KY
4204 Falcon Crest Condos, Lexington, KY
4225 Land, Baton Rouge, LA
4230 Land, McAllen, TX
4246 Palm Lakes Shopping Center, Tampa, FL
4265 Vine Center Condo 2005, Lexington, KY (Sold 5/7/98)
4282 Jordan Plating Bldg, Georgetown, KY
4283 Guadalupe Plaza, Albuquerque , NM
4291 Rio Bravo Shopping Center, Albuquerque, NM
4293 Vine Center Condo 2205, Lexington, KY
4294 Bluebonnet Villas, Baton Rouge, LA
4295 Bluebonnet Office Bldg, Baton Rouge, LA
4296 Bluebonnet Flex Bldg, Baton Rouge, LA
4297 Men's Wearhouse, McAllen, TX
4299 One Gateway Plaza, Colorado Springs, CO
4307 Retail Center, McAllen, TX
4308 TEC Office Bldg, McAllen, TX
4309 Stein Mart Bldg., McAllen, TX
4310 Cinemark Theater Bldg, McAllen, TX
4312 Office Bldgs, 1100 US 127 South, Frankfort, KY
4313 Whse, 1045 Georgetown Rd, Lexington, KY
4314 Office Bldg & Parking Lot, Upper/Main St, Lexington, KY
4316 Arby's (H&S Food Services), US 460, Georgetown, KY
4318 Quality Suites (Bluebonnet Hotel), Baton Rouge, LA
4320 Land (Kentucky Barkley), Georgetown, KY
4444 Vine Center Condo 2001, Lexington, KY
Total Value $48,625,000
Less: Estimated Sales Costs (3,890,000)
-----------
Statement Value $44,735,000
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- ----------
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
ASSETS Notes
-----
<S> <C> <C> <C>
Cash: 5
Unrestricted $ 803,426
Restricted 481,760
------------
$ 1,285,186
Short-term investments: 6,21
Unrestricted 127,309,233
Restricted 3,895,941
------------
131,205,174
Bonds: 7
Unrestricted 24,392,161
Restricted 812,100
------------
25,204,261
Kincaid Tower Building Receivable 21 18,000,000
Mortgage loans 8 6,088,060
Real estate 9 44,589,640
Investment in M-C Realty, Inc. 10 3,276,916
Other invested assets 11 30,263
Federal income tax recoverable 12 0
Miscellaneous assets 13 14,900
Accrued investment income 235,377
------------
Total Assets $229,929,777
============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
DISCLAIMER
- ----------
The information contained in these financial statements has been
prepared by the Liquidator from information available to or known
by the Liquidator as of the date of the financial statements; and
is based upon records, information or books available to the
Liquidator. The completion and timing of certain information is
at the total discretion of the Liquidator. The Liquidator makes
no warranty as to the accuracy of the information or of the
opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of
fact, evaluation or opinion contained in the financial
statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
LIABILITIES Notes
-----
<S> <C> <C>
Class 1
Reserve for Kentucky Central
Retirement Plan 7,000,000
Guaranty associations'
reimbursable costs under
the Plan 1,15 $ 3,200,000
Accrued administrative expenses 5,511,133
------------
$ 15,711,133
Class 2
Policy benefits 1 3,947,955
Opt-in amounts 1,16 109,267,279
Guaranty associations' advances 1,17 19,963,504
Guaranty associations'
post-closing costs 1,18 47,470,007
Liability to Opt-out
policyholders 1,19 6,995,915
Opt-out reimbursable amount 1,20 2,632,774
------------
190,277,434
Class 3
Claims of the federal government 27(a) 0
Class 4
Not evaluated
Class 5
ABN Amro Bank 21 62,903,463
General creditors 22 9,669,775
Escheat funds 488,118
Taxes payable 4,497,750
------------
77,559,106
Class 6
Not evaluated
Class 7
Not evaluated
Class 8 4
Policyholder deductible 17,181,279
General creditor deductible 33,127
Escheat funds deductible 2,500
Taxes payable deductible 2,250
------------
17,219,156
Class 9
Not evaluated
Class 10 23
Shareholder outstanding dividends
and fractional shares 666,224
Common capital stock:
Voting - par value, $100 per sh. 100,000
Class A non-voting - par value,
$1 per sh. 13,314,830
Preferred dividends, Mid-Central 3 2,023,977
Preferred stock, Mid-Central 3 8,799,900
------------
24,904,931
Other Liabilities 27
Tenant security deposits 5 108,230
------------
108,230
------------
Total Liabilities $325,779,990
(Deficiency) of Assets Over Liabilities (95,850,213)
------------
Total Liabilities and (Deficiency) $229,929,777
============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
DISCLAIMER
- ----------
The information contained in these financial statements has been
prepared by the Liquidator from information available to or known
by the Liquidator as of the date of the financial statements; and
is based upon records, information or books available to the
Liquidator. The completion and timing of certain information is
at the total discretion of the Liquidator. The Liquidator makes
no warranty as to the accuracy of the information or of the
opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of
fact, evaluation or opinion contained in the financial
statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
Notes
-----
<S> <C> <C> <C>
Receipts 2 7/1 - 9/30/98 YTD 9/30/98
- -------- ------------- ------------
Premium receipts $ (141) $ (8,730)
Rental receipts 872,321 3,033,951
Mortgage loans:
(a) Principal 0 79,460
(b) Interest 66,851 460,337
Proceeds from:
(a) Mortgage loans 6,200,422 6,200,422
(b) Real estate 739,547 9,497,185
(c) Other invested assets 0 26,432
Reinsurance recoveries 0 0
Agents' balances received 38,627 99,355
Collection of subsidiaries receivables 609,320 609,320
Recovery of taxes previously paid 0 16,054
Other miscellaneous receipts and changes 3,017 16,215
------------ ------------
Receipts before Investment Activities 8,529,964 20,030,001
------------ ------------
Interest and dividend receipts 108,412 349,569
Proceeds from Sales:
(a) Short-term investments 508,167 47,562,539
(b) Bonds 27,128 57,876,050
(c) Stocks 0 0
------------ ------------
Receipts from Investment Activities 643,707
105,788,157
------------ ------------
Tenant-In-Possession receipts 21 1,123,210 3,268,054
------------ ------------
Total Cash Receipts $ 10,296,881 $129,086,213
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
DISCLAIMER
- ----------
The information contained in these financial statements has been
prepared by the Liquidator from information available to or known
by the Liquidator as of the date of the financial statements; and
is based upon records, information or books available to the
Liquidator. The completion and timing of certain information is
at the total discretion of the Liquidator. The Liquidator makes
no warranty as to the accuracy of the information or of the
opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of
fact, evaluation or opinion contained in the financial
statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
Notes
-----
<S> <C> <C> <C>
Disbursements 2 7/1 - 9/30/98 YTD 9/30/98
- -------- ------------- ------------
Losses/benefit payments 24 $ 0 $ 105,148
LAE payments 0 234,236
Legal fees 1,501,697 4,371,347
Audit fees 27,078 34,098
Receivers fees 40,496 110,117
Consulting fees 1,002,712 3,937,398
Commissions (749) (7,484)
Salaries 156,030 505,582
Employee benefits 17,087 223,189
Real estate taxes 3,861 497,232
Payroll and other taxes 11,956 35,336
Rent and related expenses 80,158 690,321
Office expenses and miscellaneous 147,613 399,053
Interest expense 0 0
------------ ------------
Total Disbursements 2,987,939 11,135,573
------------ ------------
Distributions:
(a) Distributions of assets 1 0 34,880,662
(b) Early access distributions 0 0
------------ ------------
Distributions 0 34,880,662
------------ ------------
Disbursements & Distributions Before
Investment Activities 2,987,939 46,016,235
------------ ------------
Investment expenses 25 70,980 514,119
Purchase of:
(a) Short-term investments 13,288,430 81,873,186
(b) Bonds 0 0
(c) Stocks 0 0
(d) Mortgage loans 0 0
(e) Real estate 47,688 47,688
------------ ------------
Disbursements for Investment Activities 13,407,098 82,434,993
------------ ------------
Tenant-In-Possession disbursements 21 687,826 2,959,605
------------ ------------
Total Cash Disbursements 17,082,863 131,410,833
============ ============
Net Increase (Decrease) in Cash (6,785,982) (2,324,620)
Cash at June 30 and January 1, 1998 8,071,167 3,609,806
------------ ------------
Cash at September 30, 1998 5 $ 1,285,185 $ 1,285,186
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
DISCLAIMER
- ----------
The information contained in these financial statements has been
prepared by the Liquidator from information available to or known
by the Liquidator as of the date of the financial statements; and
is based upon records, information or books available to the
Liquidator. The completion and timing of certain information is
at the total discretion of the Liquidator. The Liquidator makes
no warranty as to the accuracy of the information or of the
opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of
fact, evaluation or opinion contained in the financial
statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
SHORT-TERM INVESTMENTS AMOUNT
- ---------------------- ------
<S> <C>
UNRESTRICTED:
FIDELITY TREASURY FUND #696, PNC BANK $ 2,653,420
U.S. TREASURY BILL-MATURES 10/22/98 4,984,716
U.S. TREASURY BILL-MATURS 11/19/98 9,930,674
U.S. TREASURY BILL-MATURES 12/24/98 9,891,862
U.S. TREASURY BILL-MATURES 1/14/98, LASALLE BANK 99,848,561
------------
TOTAL 127,309,233
============
RESTRICTED:
CERTIFICATE OF DEPOSIT - SECURING LETTER OF CREDIT $ 16,864
FUNDS HELD BY NEW MEXICO DEPT OF INS 106,297
FUNDS HELD BY S. CAROLINA DEPT OF INS 79,325
U.S. TREASURY BULL-MATURES 10/01/98,S.C, DEPT OF INS 1,299,817
FUND S HELD BY GEORGIA DEPT OF INS - BILTMORE FUND 104,216
U.S. TREASURY BILL-MATURES 11/05/98,TENANT IN POSSESSION 1,690,554
U.S. TREASURY BILL-MATURES 11/05/98,TENANT IN POSSESSION 248,868
CERTIFICATES OF DEPOSIT - AS PER FRANCHISE AGREEMENT 350,000
------------
TOTAL $ 3,895,941
============
$131,205,174
============
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. Reorganization and Reinsurance of the Life and Health
-----------------------------------------------------
Insurance Assets of Kentucky Central Life Insurance Company and
- ---------------------------------------------------------------
Order of Liquidation - On February 12, 1993, Kentucky Central
- --------------------
Life Insurance Company ("Kentucky Central" or the "Company") was
placed into rehabilitation by an order of the Franklin Circuit
Court ("Court") after a determination by the Commissioner of the
Kentucky Department of Insurance that such action was necessary
for the protection of the Company's policyholders. On February
9, 1994, after a thorough investigation regarding rehabilitating
versus liquidating the Company, the Commissioner, in his capacity
as Rehabilitator of Kentucky Central, filed a motion for
reorganization and reinsurance of the Company's life and health
assets and a petition of liquidation with the Court.
On August 18, 1994, the Court issued an order approving the
motion of the Rehabilitator for Reorganization and Reinsurance of
the Company's life and health assets with Jefferson-Pilot Life
Insurance Company ("JP Life"). (The Rehabilitator's Plan of
Reorganization and Reinsurance together with the Guaranty
Association Participation Agreement By and Among the National
Organization of Life and Health Insurance Guaranty Associations
and the Participating State Life and Health Insurance Guaranty
Associations and Kentucky Central Life Insurance Company Acting
By and Through Don W. Stephens, Insurance Commissioner of the
Commonwealth of Kentucky, As Rehabilitator and Liquidator of KCL
and Jefferson Pilot Life Insurance Company are hereinafter
collectively referred to as the "Plan.") In conjunction
therewith, the Court issued an order terminating the
rehabilitation and directing the liquidation of the Company (the
"Order"). The Company was ordered into liquidation following a
determination by the Court that the Company was insolvent and
that rehabilitation of the Company was not feasible. The Order
was affirmed by the Supreme Court of Kentucky on May 11, 1995.
The key element of the Rehabilitator's Plan of
Reorganization and Reinsurance, the transfer to JP Life of most
of the Company's assets in exchange for JP Life's agreement to
assume and "enhance" the life insurance policies and annuity
contracts previously issued by the Company, was closed on May 31,
1995. All policyholders of the Company were given the right, if
they chose to do so, to keep their life insurance and annuity
contracts, and immediately become policyholders of JP Life; such
policyholders are referred to herein as "Opt-ins." Those
policyholders who elected not to have their policies transferred
are referred to herein as "Opt-outs."
In consideration for JP Life's assumption of the liabilities
for Opt-ins, the Company transferred bonds, short-term
securities, cash, policy loans and certain miscellaneous assets
with a total estimated value of $762,862,093 to JP Life on the
date of closing. Policyholders representing approximately 95% of
the total policy values in force opted into the Plan and were
transferred to JP Life on the date of closing.
The life insurance guaranty associations of the states where
the Company was licensed to do business transferred assets
consisting of cash and notes with a total value of $109,986,918
to JP Life in connection with the closing. Such assets, along
with an enhancement added by JP Life, were used to restore the
policy values of Opt-ins whose policies were covered by one of
the guaranty association funds to their full amount as recorded
by the Company as of the closing date and for uncovered
policyholders restructured account values to the extent supported
by the assets. In return for this advancement of assets on
behalf of covered policyholders, the state guaranty associations
obtained what is now a class 2 priority claim against the
Company. The shortfall on uncovered policies was calculated at
closing to be $11,231,328.
-1-
Under the Plan, the Company retains a liability to Opt-ins
over and above the amount of their full policy value as of the
closing date. The ultimate amount of this liability, referred to
as the Reimbursable Amount, depends on the interest rates from
February 12, 1993 until a date five years from closing (i.e., May
31, 2000), and on the persistency of Opt-in policies during the
five-year period after closing.
Policyholders representing approximately 5% of the total
policy values in force opted out of the Plan. The Company is
obligated to pay these policyholders their proportionate share of
the Company's assets up to the full amount of their statutory
reserve as of February 12, 1993, plus any additions to their
policy values from premiums paid and less any deductions to their
policy values subsequent to that date. The full amount of such
obligation to Opt-outs was approximately $57 million. The Plan
calls for the Company to pay these amounts in three installments.
The first installment, equivalent to 75% of the total opt-out
amount, was due, and paid, 120 days after closing. The second
installment was paid June 23, 1997. The third installment was
paid in May, 1998.
Assets not transferred to JP Life remained with the Company
and are being liquidated by the Commissioner of the Kentucky
Department of Insurance who has been designated as the Liquidator
of the Company. The Liquidator is vested by operation of law
with the title to all of the Company's property, contracts, and
rights of action, and may recover and reduce all such assets to
possession and liquidate them in accordance with the terms of the
Order and applicable law. The court has ordered the Liquidator
to liquidate the remaining assets of the estate as rapidly and
economically as he can. As these assets are liquidated, they
will be utilized to repay the guaranty associations and to make
policyholders whole. The remaining assets of the Company, if
any, will be distributed to other creditors and shareholders in
the priority established by statute.
Pursuant to the terms of the Plan, $50,000,000 from the
assets of Kentucky Central was disbursed on February 13, 1996.
Of this amount $41,039,878 reduced the liability to the Guaranty
Associations on the Guaranty Associations' advances, $3,557,738
was applied to reduce policy benefits due uncovered policies and
$2,291,194 was applied to the Opt-in Traditional liability. The
remaining $3,111,190 was later distributed to Opt-out
policyholders.
In a similar transaction, $40,000,000 was distributed from
the assets of the Company in May and June 1997. Of this amount,
$32,890,768 reduced the liability to the Guaranty Associations on
the Guaranty Associations' advances, $2,774,651 was applied to
reduce policy benefits due uncovered policies and $1,834,469 was
applied to the Opt-in Traditional liability. The remaining
$2,500,112 was distributed to Opt-out policyholders on June 23,
1997.
In May 1998, an additional $34,880,662 was distributed from
the assets of the Company. Of this amount, $31,647,582 reduced
the liability to the Guaranty Associations on the Guaranty
Associations' advances, $3,233,080 was applied to reduce policy
benefits due uncovered policies and Opt-in Traditional liability.
2. Basis of Presentation - The accompanying financial
---------------------
statements of Kentucky Central Life Insurance Company (In
Liquidation) are unaudited. The balance sheet has been prepared
on a modified liquidating basis, that is, assets have been
reported at their estimated market value when known, otherwise,
they are reported on the basis more particularly described
herein. The financial statements are presented generally in a
format established by the National Association of Insurance
Commissioners ("NAIC") Report on Receiverships.
With regard to the liabilities, for the purposes of these
financial statements, the liabilities have been preliminarily
classified in accordance with the statutory scheme set forth in
Chapter 304 of the Kentucky Revised Statutes, Subtitle 33,
Section 430. The classifications and amounts are subject to
further review and change, and the Liquidator is not bound or
prejudiced by the classification of the liabilities on the
financial statements as the process for reviewing the liabilities
and claims is ongoing. Claims filed in the amount of
$1,422,112,785 are not reflected
-2-
on the financial statements. See footnote number 29(b) for
additional information regarding these claims.
The Statement of Receipts and Disbursements is prepared on a
cash basis. Since the Company has been in both rehabilitation
and liquidation, the books and records were not organized in such
a manner to facilitate the accounting of receipts and
disbursements on a cash basis from the date of rehabilitation.
The information contained in these financial statements has
been prepared by the Liquidator from information available to or
known by the Liquidator as of the date of the financial
statements. The Liquidator makes no warranty as to the accuracy
of the information or of the opinions or evaluations contained in
the financial statements and expressly disclaims any liability
arising from the statements of fact, evaluation or opinion
contained in the financial statements.
3. Ownership and Affiliated Companies - The common stock of
----------------------------------
Kentucky Central consists of two classes: Voting and Class A Non-
voting. The Class A Non-voting common stock is publicly held and
was traded on the NASDAQ stock market until removed from listing
in April 1993. Further, Kentucky Central owned 100% of the
common stock of Mid-Central Investment Co., Inc. ("Mid-Central").
The Company's investment in Mid-Central was previously reported
on the financial statements of Kentucky Central on an equity
basis. However, effective September 30, 1997, the assets and
liabilities of Mid-Central were combined with the assets and
liabilities of Kentucky Central consistent with the Liquidator's
position regarding the true nature of these assets and
liabilities under the Insurers Rehabilitation and Liquidation
Law, KRS 304.33-010 et seq. The preferred stock of Mid-Central
was not owned by Kentucky Central. The owners of said stock have
filed claims with the Liquidator. The Liquidator has classified
these claims, together with the related accrued dividends, as a
Class 10 liability.
4. Order of Distribution - The order of distribution from the
---------------------
assets of the Company's estate is set forth at KRS 304.33-430. An
amendment of the statute went into effect July 15, 1996. By its
express terms, the statute applies and governs the priority of
distribution of assets in any proceeding to liquidate an insurer
pending on the effective date of the statute. Accordingly, the
order of distribution of Kentucky Central's assets is governed by
the statute, as amended.
The statute, as amended, provides as follows:
Section 1. The order of distribution of claims from
the insurer's estate shall be as stated in this
section. The first fifty dollars ($50) of the amount
allowed on each claim in the classes under subsections
(2) to (6), inclusive, of this section, shall be
deducted from the claim and included in the class under
subsection (8) of this section. Claims may not be
cumulated by assignment to avoid application of the
fifty dollars ($50) deductible provision. Subject to
the fifty dollars ($50) deductible provision, every
claim in each class shall be paid in full or adequate
funds retained for the payment before the members of
the next class receive any payment. No subclasses
shall be established within any class. No claim by a
shareholder, policyholder, or other creditor shall be
permitted to circumvent the priority classes through
the use of equitable remedies.
(1) Administration costs. The costs and expenses of
administration, including but not limited to the
following: the actual and necessary costs of
preserving or recovering the assets of the
insurer; compensation for all services rendered in
the liquidation; any necessary filing fees; the
fees and mileage payable to witnesses; and
reasonable attorneys' fees.
(2) Loss and unearned premium claims. Claims by
policyholders, beneficiaries, and insureds arising from
and within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and liability claims
against insureds which claims
-3-
are within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and claims of guaranty
associations or foreign guaranty associations.
Notwithstanding the foregoing, the following claims
shall be excluded from Class 2 priority:
(a) Obligations of the insolvent insurer arising out
of reinsurance contracts;
(b) Obligations incurred after the expiration date of
the insurance policy or after the policy has been
replaced by the insured or canceled at the
insured's request or after the policy has been
canceled as provided in this chapter.
Notwithstanding this subsection, earned premium
claims on policies, other than reinsurance
agreements, shall not be excluded;
(c) Obligations to insurers, insurance pools, or
underwriting associations and their claims for
contribution, indemnity or subrogation, equitable
or otherwise;
(d) Any claim which is in excess of any applicable
limits provided in the insurance policy issued by
the insolvent insurer;
(e) Any amount accrued as punitive or exemplary
damages unless expressly covered under the terms
of the policy; and
(f) Tort claims of any kind against the insurer, and
claims against the insurer for bad faith or
wrongful settlement practices.
(3) Claims of the federal government other than those
claims included in Class 2.
(4) Wages.
(a) Debts due to employees for services performed, not
to exceed one thousand dollars ($1,000) to each
employee which have been earned within one (1)
year before the filing of the petition for
liquidation. Officers shall not be entitled to
the benefit of this priority.
(b) This priority shall be in lieu of any other
similar priority authorized by law as to wages or
compensation of employees.
(5) Residual classification. All other claims including
claims of the federal or any state or local government,
not falling within other classes under this section.
Claims, including those of any governmental body, for a
penalty or forfeiture, shall be allowed in this class
only to the extent of the pecuniary loss sustained from
the act, transaction or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual
costs occasioned thereby. The remainder of such claims
shall be postponed to the class of claims under
subsection (8) of this section.
(6) Judgments. Claims based solely on judgments. If a
claimant files a claim and bases it both on the
judgment and on the underlying facts, the claim shall
be considered by the liquidator who shall give the
judgment such weight as he deems appropriate. The
claim as allowed shall receive the priority it would
receive in the absence of the judgment. If the
judgment is larger than the allowance on the underlying
claim, the remaining portion of the judgment shall be
treated as if it were a claim based solely on a
judgment.
(7) Interest on claims already paid. Interest at the legal
rate compounded annually on all claims in the
-4-
classes under subsections (1) to (6) of this section,
inclusive, from the date of the petition for
liquidation or the date on which the claim becomes due,
whichever is later, until the date on which the
dividend is declared. The liquidator, with the
approval of the court may make reasonable
classifications of claims for purposes of computing
interest, may make approximate computations and may
ignore certain classifications and time periods as de
minimis.
(8) Miscellaneous subordinated claims. The remaining
claims or portions of claims not already paid, with
interest as in subsection (7) of this section:
(a) The first fifty dollars ($50) of each claim in the
classes under subsections (2) to (6), inclusive,
of this section, subordinated under this section;
(b) Claims under subsection (2) of KRS 304.33-380;
(c) Claims subordinated by KRS 304.33-600;
(d) Claims filed late;
(e) Portions of claims subordinated under subsection
(5) of this section; and
(f) Claims or portions of claims, payment of which is
provided by other benefits or advantages recovered
or recoverable by the claimant.
(9) Preferred ownership claims. Surplus or contribution
notes, or similar obligations, and premium refunds on
assessable policies. Interest at the legal rate shall
be added to each claim, as in subsections (7) and (8)
of this section.
(10) Proprietary claims. The claims of shareholders or
other owners.
Section 2. Section 1 of this Act shall apply to and govern
the priority of the distribution of assets in any proceeding
to liquidate an insurer pending on or commenced on or after
the effective date of the Act.
The liabilities on the accompanying balance sheet are presented
in accordance with the order of distribution set forth in the
amended statute.
5. Cash - As of September 30, 1998, Kentucky Central had cash
----
on deposit in banks of $1,285,186 of which $481,760 was
restricted as tenant security deposits and the tenant-in-
possession rental fund. The tenant security deposits of $118,442
include deposits of $108,230 on real estate owned by the Company
and deposits of $10,212 held by the Company on behalf of the
Tenant-in-Possession.
6. Short-term investments - Short-term investments consisted of
----------------------
the following: certificates of deposit in the amount of $366,864,
money market accounts in the amount of $2,943,258, U.S. Treasury
bills equal to $1,299,817 and a Dreyfus Cash Management Fund in
the amount of $614. Approximately $289,838 of the money market
accounts and $1,299,623 of the T-bills are being held by or on
behalf of various state departments of insurance. Certificates
of deposit for $366,800 are held as collateral to secure letters
of credit which guarantee contract performance on properties
owned by the Company. Additionally, the U.S. Treasury bill for
$99,848,561 and the Dreyfus Cash Management Fund is being held by
LaSalle National Bank ("LaSalle") in connection with the
sale/leaseback of Kincaid Towers. This transaction is described
in detail in footnote number 21.
7. Bonds - Bonds in the amount of $25,204,261 are principally
-----
stated at their market value as obtained from
-5-
published information concerning the market value of such bonds.
The bond values are not based upon valuations published by the
---
NAIC Committee on Valuation of Securities. Certain Fayette
County, Kentucky revenue bonds and Kentucky Development Finance
Authority bonds with a par value of $16,600,000 are included in
the total at their book value of $16,600,000 as their market
value is not readily ascertainable. Additionally, bonds with a
market value of $812,100 are being held by the state department
of insurance of South Carolina.
8. Mortgage Loans - Mortgage loans on real estate are not
-------------- ---
stated at their market value as of September 30, 1998, but are
stated at the lower of their unpaid principal balance or at the
appraised value of the underlying collateral. The appraisals
being used were primarily obtained on varying dates in 1993 and
early 1994. Further, the mortgage loans are reported net of
$209,831, the estimated costs to dispose of the loans.
9. Real Estate - Real estate is stated at its estimated market
-----------
value as of September 30, 1998, based on appraisals obtained
between 1993 and 1998. Additionally, the total of the real estate
is reported less estimated disposition costs of $3,877,360.
10. Investment in M-C Realty, Inc. - At September 30, 1998, the
------------------------------
Company owned 100% of the common stock of M-C Realty, Inc. ("M-
C"). M-C owns 100% of the common stock of Wilkinson Hotel
Enterprises, Inc. ("WHE"). WHE is a 1% general partner and M-C
is a 95% limited partner in Wilkinson Hotels, Ltd. Wilkinson
Hotels Ltd. is the owner and operator of the Capital Plaza Hotel
in Frankfort, Kentucky.
The Company's investment in M-C is reported on an equity
basis. The primary asset of M-C is the hotel and its furniture
and fixtures. As of September 30, 1998, the hotel and its
furniture and fixtures had an appraised value equal to
$8,500,000.
The primary liabilities of M-C include bonds which were
payable at December 15, 1997 in the amount of $5,200,000, a
second mortgage in the amount of $278,437 held by Kentucky
Economic Development Finance Authority and $497,218 due on a
Community Development Block Grant issued by the City of
Frankfort. The Company holds the bonds while Central Bank &
Trust Company is the Trustee. The Liquidator has entered into an
agreement with the Trustee of the bonds and the holder of the
second mortgage which permits Wilkinson Hotels, Ltd. to continue
to make interest and other payments on the bonds and the mortgage
through December 15, 1998.
In August 1996, M-C and certain current and former
affiliates of M-C filed refund claims for corporate taxes paid to
the Commonwealth of Kentucky for the 1991-94 tax years. The
total amount of refunds sought is $1,132,166. The Revenue
Cabinet has not yet stated its position as to payment of these
refunds. The probability of collection of the refunds is unknown
at this time. Accordingly, the refund claims are not reflected
on the balance sheet as of this date.
11. Other Invested Assets - The Company has an investment in
---------------------
Centennial Business Development Fund, Ltd. in the amount of
$28,267. This amount represents the Company's equity in the
partnership, net of unrealized gains or losses. This amount does
not purport to reflect the market value of the Company's
investment. Additionally, the Company has an investment in
Colonial Commercial Corporation and Golden Gem Growers, Inc. The
total market value of the Company's investment is $1,404.
The Company is also a 99% partner in two rental property
ventures styled Fred Burns Limited Partnerships I and II. The
value to the Company of these investments, if any, is dependent
upon the outcome of pending litigation. Due to the inherent
uncertainty involved with litigation, it was deemed inappropriate
to place any value upon these interests at this time.
12. Federal Income Tax Recoverable - The Company filed amended
------------------------------
federal income tax returns on September 13, 1996 for the 1989-91
tax years requesting funds of $18,502,455 plus interest. The
amended returns were filed
-6-
on the basis that certain Treasury Regulations were invalid. The
Treasury Regulations at issue prevent the carryback of life
subgroup losses to offset nonlife subgroup income on a
consolidated return. The Company filed suit in the United States
District Court for the Eastern District of Kentucky on May 5,
1997 in order to collect the refund claims. On July 17, 1998,
the Court entered summary judgment in favor of the United States.
The Liquidator has filed a motion seeking amendment of the
Court's judgment. As of this date, a ruling on the motion is
pending. The probability of collection of the refund claims is
unknown at this time. Accordingly, no amount is shown for the
refund claims on the balance sheet as of this date.
13. Miscellaneous Assets - This amount consists of a utility
--------------------
deposit of $2,000 for property owned by the Company in Frankfort,
Kentucky, and capital equity credits in Golden Gem Growers, Inc.
in the approximate amount of $12,900.
No value has been reflected on the balance sheet for Agents
Debit Balances, Furniture & Fixtures and Other Receivables and
Prepaid Expenses due to the fact that realization of the value of
the accounts is unlikely. However, collection activities
continue on all accounts due the Company and any unused fixed
assets will be disposed of at the appropriate time. The net book
value of the accounts as of September 30, 1998 was as follows:
Agents Debit Balances - $6,185,878.79 Furniture & Fixtures -
$59,199 and Other Receivables and Prepaid Expenses - $15,148,017.
14. Reserve for Kentucky Central Retirement Plan - This is an
--------------------------------------------
estimate of the amount which may be necessary to accomplish a
standard termination of the Kentucky Central Retirement Plan. By
order date September 23, 1997, the Franklin Circuit Court
authorized the Liquidator to pay up to seven million dollars to
effectuate a standard termination of the Plan.
15. Guaranty Associations' Reimbursable Costs under the Plan -
--------------------------------------------------------
This is an estimate by the guaranty associations of their
administrative costs under the Plan. The Guaranty Associations
have incurred additional costs since submitting this estimate
which are also reimbursable under the Plan. The additional costs
are likely to be several million dollars and will be reflected in
the financial statements when the additional expenses have been
reviewed and agreed to by the Liquidator.
16. Opt-in Amounts - This liability is a combination of the
--------------
following: reimbursement for the reduced account values
resulting from the difference in the rate credited to
policyholders from February 12, 1993 to May 31, 1995 versus the
new money rate as described in the Plan, reimbursement for the
reduced account values resulting from non-contractual expenses
charged by JP Life during the moratorium period subsequent to the
closing as required by the Plan and reimbursement of reduced
account values resulting from lower than market credited interest
rates applied by JP Life during the moratorium period subsequent
to the closing as required under the Plan.
Under the Plan, JP Life agreed to credit KCL Traditional Life
policyholders with the difference between their restructured and
unrestructured account values if JP Life was reimbursed this
amount. Accordingly, this liability represents the amount owed
to JP Life for the Traditional Life policyholders.
17. Guaranty Associations' Advances - This amount, together with
-------------------------------
accrued interest at the rate set forth in the Plan, is the amount
that the guaranty associations paid JP Life on behalf of Kentucky
Central to cover the short-fall in assets that were transferred
to JP Life at closing.
18. Guaranty Associations' Post-closing Costs - This is an
-----------------------------------------
estimate of the guaranty associations continuing support costs
through the five-year Plan period, together with accrued interest
at the rate set forth in the plan.
19. Liability to Opt-out Policyholders - On May 31, 1995,
----------------------------------
policyholders which elected to opt-out of the Plan surrendered
their policies to Kentucky Central. The calculation of policy
account values for opt-out liabilities was
-7-
prepared pursuant to the Plan approved by the Court. The first
payment (75% of the opt-out payment) was made within 120 days of
Closing. The second payment (12.5% of the opt-out payment) was
made two years after closing. The balance (12.5% of the opt-out
payment) is to be disbursed with interest four years after
closing.
20. Opt-out Reimbursable Amount - This liability is the
---------------------------
difference between the amounts scheduled to be paid to Opt-out
policyholders using the opt-out percentage as defined in the Plan
versus 100% of the statutory reserve as of February 12, 1993
adjusted for policy loans and interim period amounts.
21. ABN Amro Bank - This amount represents the principal of
-------------
$50,323,634 and interest of $12,579,829 due ABN Amro Bank, N.V.,
("ABN") as a result of a sale lease back transaction, the subject
of which was Kentucky Central's home office building and related
properties. As of September 30, 1998, to secure this debt ABN
held securities, having a value as of that date of $99,848,561
plus a mortgage on and an assignment of rents of the tenants of
Kincaid Towers. On December 29, 1998, $37,897,108 was returned to
the Liquidator and the title of Kincaid Towers, with a value of
approximately $18,000,000, was conveyed to the Liquidator.
Further, any claim for rent owed by the Liquidator was released,
and all rent collected from occupants of Kincaid Towers, net of
expenses, was released to the Liquidator. This amount was
approximately two million dollars.
22. General Creditors - This liability consists primarily of
-----------------
amounts due to agents under a deferred compensation agreement
formerly maintained by the Company.
23. Other Equity Claims - The amounts reflected as Class 10
-------------------
claims include the book value of the shareholders' common stock
and additional paid-in-capital ($13,414,830), the outstanding
dividends and fractional shares related to the common stock
($666,224), the book value of the preferred stock of Mid-Central
($8,799,900) and the related accrued dividends ($1,935,978).
These balances do not reflect the potential claims of current and
former Kentucky Central shareholders who may allege that they
purchased and/or sold their stock based on misstated financial
statements and does not reflect any other legal claims to which
the shareholders may be entitled and which may or may not be
included in the $1.4 billion of claims described herein. Such
claims may be substantially in excess of the balances reflected.
24. Losses/Benefit Payments - This amount includes payments made
-----------------------
to policyholders with claims occurring prior to May 31, 1995 and
continuing claims on credit insurance and payments made to Opt-
out policyholders.
25. Investment Expenses - This expense is generally related to
-------------------
the operation and maintenance of the Company's investments in
bonds and real estate.
26. Liability to Opt-in Policyholders - The Plan creates a
---------------------------------
liability to policyholders for the difference between
policyholder account values as calculated before and after
restructuring. The liability to Opt-in policyholders was reduced
at closing by amounts paid to JP Life for the benefit of the
policyholders by the guaranty associations on behalf of Kentucky
Central (and such reduction is currently shown as a liability to
the guaranty associations). The Plan also calls for a discharge
of the liability to Opt-in policyholders upon an order by the
Court after several events have occurred. It is currently
anticipated that the entire amount of this liability
(approximately $249 million) will ultimately be discharged by the
Court. Therefore, no dollar amount is included in the financial
statement.
27. Contingent Liabilities
----------------------
(a) Income Taxes - The Company may have a tax liability for
------------
Phase III taxable income. Phase III taxable income results from
certain reductions to the Company's "policyholders' surplus
account." The policyholders' surplus account is an untaxed
income account that was accumulated under prior tax law. It is
the Company's contention, supported by tax case law, that the
Company will not have any federal tax liability related to
-8-
reductions in this account. If a liability is found to exist,
the tax is estimated to be between $2.1 and $2.6 million.
Additionally, any such tax liability will increase the amount by
which the Company's liabilities exceed its assets.
(b) Claims Filed - Claims in the amount of $1,422,112,785
------------
have been filed against Kentucky Central pursuant to the claims
process required under KRS 304 Subtitle 33. The majority of
these claims are not reflected in the financial statements as
they are in the process of being reviewed. However, a few of the
known claims are reflected. While a number of the claims may be
rejected and disallowed, to the extent these claims are proven
valid, they will have the effect of increasing the amount by
which the Company's liabilities exceed its assets for the claims
which are not already recorded as liabilities. Additionally,
interest will accrue at the legal rate on those claims which are
proven valid; such interest is a class 7 liability.
The Liquidator cautions that under KRS 304.33-360(2),
certain claimants may assert valid claims after the expiration of
the claims bar date. Further, under KRS 304.33-360(1), certain
claims - specifically, preferred ownership and proprietary claims
under subsections (9) and (10) of KRS 304.33-430 and claims for
unearned premiums and cash surrender values or other investment
values in life insurance and annuities - are not required to be
filed. Thus, total claims asserted against the Liquidator may
actually be in excess of the amounts set forth above. The extent
of any such additional liability is uncertain at this time.
(c) Pending Litigation - A summary of the litigation in
------------------
which the Company is a party is included in each Report to the
Court filed on a periodic basis in Franklin Circuit Court. The
claims of litigants against the Company have not been analyzed
for financial reporting purposes. Accordingly, no judgment has
been made as to whether the Company will have any liability to
the litigants or the amount, if any, of such liability.
-9-
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
CASH AMOUNT
- ---- ------
<S> <C>
UNRESTRICTED:
IN COMPANY OFFICE $ 280
REAL ESTATE PROPERTY MANAGER ACCOUNTS 464,946
CENTRAL BANK, LEXINGTON, KY 338,198
----------
TOTAL $ 803,425
----------
RESTRICTED:
FALCON CREST CONDOS, TENANT SECURITY DEPOSIT $ 13,800
PALM LAKES SHOPPING CTR, TENANT SECURITY DEPOSIT 26,119
GUADALUPE PLAZA, TENANT SECURITY DEPOSIT 12,599
BLUEBONNET VILLAS, TENANT SECURITY DEPOSIT 1,533
BLUEBONNET OFFICE BLDG, TENANT SECURITY DEPOSIT 10,000
BLUEBONNET FLEX BLDG, TENANT SECURITY DEPOSIT 15,285
FIFTH THIRD BANK, TENANT SECURITY DEPOSITS 10,212
FIFTH THIRD BANK, TENANT-IN-POSSESSION 367,885
CENTRAL BANK & TRUST CO., TENANT-IN-POSSESSION 24,327
----------
TOTAL $ 481,760
----------
$1,285,185
==========
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- ----------
KENTUCKY CENTRAL LIFE INSURANCE
(IN LIQUIDATION)
BONDS
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
UNRESTRICTED:
MATURITY PAR
CUSIP # ISSUER RATE DATE VALUE
------- ------ ---- ---- -----
<C> <S> <C> <C> <C>
49126NAC9 KENTUCKY DEV. FINANCE AUTH.B 5.340 12/15/97 5,200,000
528908AM8 LEXINGTON-FAYETTE URBAN CO 5.000 02/01/18 665,604
528914AC8 LEXINGTON FAYETTE URBAN COUNTY 5.860 05/01/20 11,400,000
UNITED STATES TREAS STRIP 05/15/20 1,617,878
UNITED STATES TREAS STRIP 11/15/24 1,031,188
UNITED STATES TREAS STRIP 02/15/13 1,675,635
UNITED STATES TREAS STRIP 11/15/11 866,673
UNITED STATES TREAS STRIP 11/15/15 1,279,915
-----------
TOTAL 23,736,893
MARKET VALUE -Unrestricted $24,392,161
RESTRICTED:
MATURITY PAR
CUSIP # ISSUER RATE DATE VALUE
------- ------ ---- ---- -----
912827ZN5 UNITED STATES TREAS NTS 8.500 11/15/00 750,000
TOTAL 750,000
MARKET VALUE -Restricted $812,100
MARKET VALUE -TOTAL $25,204,261
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
As of September 30, 1998
(UNAUDITED)
MORTGAGE LOANS
<TABLE>
LOAN LOAN TITLE/OWNER PROPERTY
NO. MAILING ADDRESS ADDRESS
- ---- --------------- -------
<C> <S> <S>
6355 Webb Bros. Woodlands
Woodland Apts. Lexington, Kentucky
6462 Madison, Arlene Scruggs 500 Hollow Creek Road #27
P. O. Box 11881 Lexington, Kentucky
Lexington, Kentucky 40578
6712 Moore Properties of Tampa, Inc. 102 East Tyler Street
6712A P. O. Box 406 Tampa, Florida
Tampa, FL 33601
6840 Webb Properties 565, 575 & 585 W. Main St.
3000 Lexington Financial Center Lexington, Kentucky
Lexington, KY 40507
6877 Fred Burns Limited Partnership I 1053 Winburn Drive
3341 Post Road Lexington, Kentucky
Lexington, KY 40503
6878 Fred Burns Limited Partnership II 1840 McCullough Drive
3341 Post Road Lexington, Kentucky
Lexington, KY 40503
Total Value $6,297,891
Less: Estimated Sales Cost (209,831)
----------
Statement Value $6,088,060
==========
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- ----------
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
REAL ESTATE
As of September 30, 1998
(UNAUDITED)
<TABLE>
ASSET
No. Description and Location of Property
- ----- ------------------------------------
<C> <S> <C>
4201 Meadow Green Condos, Lexington, KY (Sold 9/13/98)
4202 Terrace Green Condos, Lexington, KY (Sold 9/13/98)
4203 Villa Green Condos, Lexington, KY (Sold 9/13/98)
4204 Falcon Crest Condos, Lexington, KY
4225 Land, Baton Rouge, LA
4230 Land, McAllen, TX (Sold 11/6/98)
4246 Palm Lakes Shopping Center, Tampa, FL
4282 Jordan Plating Bldg, Georgetown, KY
4283 Guadalupe Plaza, Albuquerque , NM (Sold 12/21/98)
4291 Rio Bravo Shopping Center, Albuquerque, NM (Sold 12/21/98)
4293 Vine Center Condo 2205, Lexington, KY (Sold 12/22/98)
4294 Bluebonnet Villas, Baton Rouge, LA
4295 Bluebonnet Office Bldg, Baton Rouge, LA
4296 Bluebonnet Flex Bldg, Baton Rouge, LA
4297 Men's Wearhouse, McAllen, TX (Sold 11/6/98)
4299 One Gateway Plaza, Colorado Springs, CO
4307 Retail Center, McAllen, TX (Sold 11/6/98)
4308 TEC Office Bldg, McAllen, TX (Sold 11/6/98)
4309 Stein Mart Bldg., McAllen, TX (Sold 11/6/98)
4310 Cinemark Theater Bldg, McAllen, TX (Sold 11/6/98)
4312 Office Bldgs, 1100 US 127 South, Frankfort, KY (Sold 12/29/98)
4313 Whse, 1045 Georgetown Rd, Lexington, KY
4314 Office Bldg & Parking Lot, Upper/Main St, Lexington, KY
4316 Arby's (H&S Food Services), US 460, Georgetown, KY
4318 Quality Suites (Bluebonnet Hotel), Baton Rouge, LA
4320 Land (Kentucky Barkley), Georgetown, KY
4444 Vine Center Condo 2001, Lexington, KY
Total Value $48,467,000
Less: Estimated Sales Costs (3,877,360)
-----------
Statement Value $44,589,640
===========
</TABLE>
The accompanying notes are an integral part of these financial
- --------------------------------------------------------------
statements.
- -----------
