<cover page>
VA (in large letters)
Variable Annuity
Union Central (logo)
1997 Prospectuses
- -----------------------------------------------
Carillon Account of The Union Central Life Insurance Company;
Carillon Fund, Inc.;
MFS Variable Insurance Trust;
Scudder Variable Life Investment Fund;
American Century Variable Portfolios, Inc.; and
Templeton Variable Products Series Fund
Distributed by: Carillon Investments, Inc.,
P.O. Box 40409, Cincinnati, Ohio 45240
<PAGE>
PROSPECTUS
Flexible Premium Deferred Variable Annuity
CARILLON ACCOUNT
of
THE UNION CENTRAL LIFE INSURANCE COMPANY
Home Office:
1876 Waycross Road
P.O. Box 40888
Cincinnati, Ohio 45240-40888
Telephone: 1-800-999-1840
This Prospectus describes a Flexible Premium Deferred Variable
Annuity Contract ("Contract") offered by The Union
Central Life Insurance Company ("Union Central"). The Contract is
designed to aid employers, employees, and other groups
and individuals in long-term financial planning, and it provides
for the accumulation of capital on a tax-deferred basis for
retirement or other long-term purposes. The Contract is designed
for use in connection with retirement plans regardless of
whether the plan qualifies for favored federal income tax
treatment.
Funds may be accumulated and annuity payments made on a variable
basis, a fixed basis, or a combination variable
and fixed basis. The Contract allows for significant flexibility
with respect to premium payments, annuity payments,
withdrawals, and transfers. Within the limits, if any, applicable
to particular retirement plans, the Contract provides the
flexibility necessary to permit a Contract Owner to devise a
financial plan that best fits the particular needs.
Premiums may be allocated in whole or in part to the Carillon
Account ("CA"), a separate account of Union Central. CA invests
its assets in shares of the Carillon Fund, Inc. (the "Carillon
Fund"), a mutual fund consisting of four separate portfolios:
Equity Portfolio, Bond Portfolio, Capital Portfolio and S&P 500
Index Portfolio; in shares of the Capital Growth Portfolio Class
A, International Portfolio Class A, and Money Market Portfolio of
Scudder Variable Life Investment Fund (the "Scudder Fund"); in
shares of the American Century VP Capital Appreciation Portfolio
(formerly known as the TCI Growth Portfolio) of American Century
Variable Portfolios, Inc. (the "American Century Fund"), formerly
known as TCI Portfolios, Inc.; in shares of the MFS Growth With
Income Series, MFS High Income Series and MFS Emerging Growth
Series of MFS Variable Insurance Trust (the "MFS Fund"); and in
shares of the Templeton International Fund Class 2 of Templeton
Variable Products Series Fund (the "Templeton Fund," and with
Carillon Fund, Scudder Fund, American Century Fund and MFS Fund,
collectively referred to as the "Funds"). To the extent that
premiums are allocated to CA, the Accumulation Value will vary in
accordance with the investment performance of the Portfolio or
Portfolios selected by the Contract Owner. Similarly, if a
variable annuity settlement is selected, the amount of the
annuity payments will vary with the investment performance of the
Portfolio(s). The Contract Owner bears the investment risk for
any amounts allocated to CA. This Prospectus generally describes
only the variable portion of the Contract. For a brief
description of the fixed portion, see "The Guaranteed Account" on
page 22.
This Prospectus sets forth the information about CA that
prospective purchasers of Contracts ought to know.
Additional information about CA has been filed with the
Securities and Exchange Commission in the form of a Statement
of Additional Information ("SAI") which is incorporated herein by
reference. The SAI is dated May 1, 1997, and may be
obtained without charge by writing Union Central at the address
given above or calling the listed telephone number. A Table
of Contents for the SAI is given on page 3.
This Prospectus Must be Accompanied or Preceded by a Current
Prospectus for the Carillon Fund, Inc.; for the Capital Growth
Portfolio Class A, International Portfolio Class A and Money
Market Portfolio of Scudder Variable Life Investment Fund; for
the American Century VP Capital Appreciation Portfolio of
American Century Variable Portfolios, Inc.; for the MFS Growth
with Income Series, MFS High Income Series, and MFS Emerging
Growth Series of MFS Variable Insurance Trust; and for the
Templeton International Fund Class 2 of Templeton Variable
Products Series Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please Read This Prospectus Carefully and Retain It for Future
Reference
The Date of This Prospectus is May 1, 1997.
<PAGE>
TABLE OF CONTENTS
Page
Definitions . . . . . . . . .. . . . . . . . . 3
Summary . . . . . . . . .. . . . . . . . . 4
Summary of Separate Account Expenses . . . . . . . . . 6
Performance Data . . . . . . . . .. . . . . . . . . 9
Accumulation Unit Values . . . . . . . . .. . . . . . . 10
The Union Central Life Insurance Company and Carillon Account. 11
Union Central . . . . . . . . .. . . . . . . . . 11
Carillon Account . . . . . . . . .. . . . . . . . . 11
The Funds. . . . . . . . . .. . . . . . . . . 11
Additions, Deletions, or Substitutions of Investments. .12
The Contract . . . . . . . . .. . . . . . . . . 13
Purchasing a Contract . . . . . . . . .. . . . . . . . . 13
Premiums . . . . . . . . .. . . . . . . . . 13
Crediting of Accumulation Units . . . . . . . . . 13
Value of Accumulation Units . . . . . . . . . 14
Transfers . . . . . . . . . . . . . . . . . . . . . . . 14
Special Transfers - Dollar Cost Averaging . . . . . . . 15
Portfolio Rebalancing Plan. . . . . . . . . . . . . . . 16
Surrenders. . . . . . . . . . .. . . . . . . . . . . . . 16
Interest Sweep. . . . . . . . . . . . . . . . . . . . . 16
Personal Income Plan. . . . . .. . . . . . . . . . . . . 17
Charges and Other Deductions . . . . . . . . . . . . . . . 17
Administration Fee. . . . . . . . . . . . . . . . . . . 17
Mortality and Expense Risk Charge . .. . . . . . . . . . 17
Surrender Charge (Contingent Deferred Sales Charge) .. . 18
Terminal Illness/Confinement. . . . .. . . . . . . . 18
Premium Taxes . . . . . . . . . . . . . . . . .. . . . . 19
Fund Expenses . . . . . . . . . . . . . . . . . . . . . 20
Benefits Under the Contract. . . . . . . . . . . . . . . . 20
Death Benefits. . . . . . . . . . . . . . . . . .. . . . 20
Annuity Payments. . . . . . . . . . . . . . . . . . . . 20
The Guaranteed Account . . . . . . . . . . . . . . . . . . 22
General Matters. . . . . . . . . . . . . . . .. . . . . . . 23
Federal Tax Matters. . . . . . . . . . . . . . .. . . . . . 23
Restrictions Under the Texas Optional Retirement Program .. 25
Distribution of the Contracts. . . . . . . . . . . . . . . 25
Voting Rights. . . . . . . . . . . . . . . . . . . . . . . 26
Financial Statements . . . . . . . . . . . . . . . . . . . 26
Appendix A . . . . . . . . . . . . . . . . . . . . . .. . . 27
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Distribution of Contracts. . . . . . . . . . . . . . . . .B-2
Determination of Annuity Payments. . . . . . . . .. . . . .B-2
Performance Data Advertising . . . . . . . . . . . . . . .B-3
Federal Tax Matters. . . . . . . . . . . . . . . . . . . .B-5
Miscellaneous Contract Provisions. . . . . . . . . .. . . .B-7
Custody of CA's Assets . . . . . . . . . . . . . . . . . .B-8
Experts. . . . . . . . . . . . . . . . . . . .. . . . . . .B-8
Financial Statements of CA and of Union Central
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO
DEALER, SALESMAN, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON.<PAGE>
DEFINITIONS
Accumulation Period - The period before the Maturity Date and
during the lifetime of the Annuitant.
Accumulation Unit - An accounting unit of measure used to
calculate the value of the Variable Account prior to the
Maturity Date.
Accumulation Value - The sum of the Guaranteed Account and the
Variable Account credited to a Contract.
Annuitant - The person or persons whose life determines the
duration of annuity payments involving life contingencies.
Annuity Period - The period after the Maturity Date during which
Union Central makes annuity payments.
Annuity Unit - An accounting unit of measure used to calculate
Variable Annuity payments.
CA - A separate account of The Union Central Life Insurance
Company called the Carillon Account. CA currently is
divided into twelve Subaccounts, and each Subaccount invests
exclusively in a different Portfolio of the Funds.
Contract Owner ("Owner") - During the Annuitant's lifetime and
prior to the Maturity Date, the person designated
as the Owner in the Contract or as subsequently changed. After
the Maturity Date, the Annuitant is the Contract Owner.
After the Annuitant's death, the beneficiary is the Contract
Owner.
If a Contract has been absolutely assigned, the assignee is the
Contract Owner. A collateral assignee is not a Contract
Owner.
Contract Year - A period of 12 consecutive months beginning on
the Contract Date or any anniversary thereof.
Due Proof of Death - One of the following:
(a) A certified copy of a death certificate.
(b) A certified copy of a decree of a court of competent
jurisdiction as to the finding of death.
(c) A written statement by a medical doctor who attended the
deceased.
(d) Any other proof satisfactory to Union Central.
Fixed Annuity - An annuity with payments fixed in amount
throughout the annuity period.
Guaranteed Account - The Contract's value that is part of the
general assets of Union Central other than assets in any
of its separate accounts.
Investment Option - The Guaranteed Account and the twelve
subdivisions of the Variable Account constitute the thirteen
Investment Options.
Maturity Date - The date on which annuity payments will begin.
Nonqualified Contracts - Contracts that do not qualify for
special federal income tax treatment.
Portfolio or Fund Portfolio - A separate Portfolio of the Funds,
the mutual funds in which CA invests, its successor
or assigns.
Qualified Contracts - Contracts issued in connection with plans
that qualify for special federal income tax treatment.
Subaccount - A part of CA. Each Subaccount invests exclusively in
shares of a different Fund Portfolio.
Variable Account - That part of the value of a Contract that is
invested in one or more Subaccounts of CA. Each Contract's
Variable Account is divided into one or more subdivisions, one
for each Subaccount of CA in which the Contract is invested.
Variable Annuity - An annuity with payments that (1) are not
predetermined or guaranteed as to dollar amount, and (2) vary in
amount in relation to the investment experience of one or more
specified Subaccounts.<PAGE>
SUMMARY
The Contract and the Investment Options
The individual variable annuity contracts described in this
Prospectus are designed and offered to aid in the
accumulation of funds on a tax-deferred basis for retirement in
connection with the following types of plans: (a) plans
established by persons entitled to the benefits of the
Self-Employed Individuals Tax Retirement Act of 1962, as amended
(H.R. 10); (b) certain qualified employee pension and
profit-sharing trusts or plans (described in Section 401(a) and
tax-exempt under Section 501(a) of the Internal Revenue Code of
1986, as amended ("the Code") and qualified annuity plans
(described in Section 403(a) of the Code); (c) annuity purchase
plans adopted by public school systems and certain tax-exempt
organizations under Section 403(b) of the Code; (d) Individual
Retirement Annuities purchased by or on behalf of individuals
pursuant to Section 408 of the Code; (e) government deferred
compensation plans pursuant to Section 457 of the Code; (f)
other qualified plans; and (g) nontax-favored plans. Qualified
plans provide special tax treatment to participating employees
and self-employed individuals and their beneficiaries.
Contract Owners may allocate their premiums in whole or in part
to one or more subdivisions of the Contract's Variable Account,
to the Guaranteed Account, or to a combination of the Variable
Account subdivisions and the Guaranteed Account. Each subdivision
of a Contract's Variable Account corresponds to a different
Subaccount of CA, and each Subaccount invests solely in a
specified Portfolio of the Funds.
The Carillon Fund Equity Portfolio seeks primarily long-term
appreciation of capital by investing primarily in common
stocks and other equity securities.
The Carillon Fund Bond Portfolio seeks as high a level of current
income as is consistent with reasonable investment risk by
investing primarily in investment-grade corporate bonds.
The Carillon Fund Capital Portfolio seeks the highest total
return through a combination of income and capital appreciation
consistent with the reasonable risks associated with an
investment portfolio of above-average quality by investing
in equity securities, debt instruments and money market
instruments.
The Carillon Fund S&P 500 Index Portfolio seeks investment
results that correspond to the total return performance
of U.S. common stocks, as represented by the Standard & Poor's
500 Composite Stock Index (the "S&P 500"**). The S&P 500 is a
well-known stock market index that includes common stocks of
companies representing approximately 70% of the market value of
all common stocks publicly traded in the United States. The
investment adviser of the Portfolio believes that
the performance of the S&P 500 is representative of the
performance of publicly traded common stocks in general.
**The S&P 500 is an unmanaged index of common stocks comprised of
500 industrial, financial, utility and transportation companies.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard &
Poor's 500(R)", and "500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Carillon Fund.
The Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or
warranty, express or implied, to the beneficial owners of the
Portfolio or any member of the public regarding the advisability
of investing in securities generally or in the Portfolio
particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to Carillon
Fund is the licensing of certain trademarks and trade names of
S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to Carillon Fund or the
Portfolio. S&P has no obligation to take the needs of Carillon
Fund or the beneficial owners of the Portfolio into consideration
in determining, composing or calculating the S&P 500 Index. S&P
is not responsible for and has not participated in the
determination of the prices and amount of the Portfolio or the
timing of the issuance or sale of the Portfolio or in the
determination or calculation of the equation by which the
Portfolio is to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or
trading of the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE
NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.
S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY CARILLON FUND, BENEFICIAL OWNERS OF THE PORTFOLIO, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE
ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH DAMAGES.**
The Scudder Fund Capital Growth Portfolio Class A seeks to
maximize long-term capital growth through a broad and
flexible investment program. The Portfolio invests in marketable
securities, principally common stocks and, consistent with
its objective of long-term capital growth, preferred stocks.
The Scudder Fund International Portfolio Class A seeks long-term
growth of capital principally from a diversified portfolio of
foreign equity securities.
The Scudder Fund Money Market Portfolio seeks stability and
current income from a portfolio of money market instruments.
Money market funds are neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that this Portfolio
will maintain a stable net asset value per share.
The American Century VP Capital Appreciation Portfolio seeks
capital growth by investing primarily in common stocks that are
considered by its management to have better-than-average
prospects for appreciation.
The MFS Growth With Income Series seeks to provide reasonable
current income and long-term growth of capital and income.
The MFS High Income Series seeks high current income by investing
primarily in a professionally managed diversified portfolio of
fixed income securities, some of which may involve equity
features. The MFS High Income Series may invest up to 100% of
its assets in lower-rated bonds commonly known as junk bonds.
Before allocating any portion of premiums to the subdivision
corresponding to this Portfolio, Contract Owners should read the
risk disclosure in the accompanying Prospectus for the MFS High
Income Series.
The MFS Emerging Growth Series seeks to provide long-term growth
of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment
objective of long-term growth of capital.
The Templeton International Fund Class 2 seeks long-term capital
growth through a flexible policy of investing in stocks and debt
obligations of companies and governments outside the United
States.
There can be no assurance that any Portfolio will achieve its
objective. See "The Funds," page 11, and the accompanying Fund
Prospectuses.
The Accumulation Value of the Contract will vary according to the
investment experience of the Portfolio or Portfolios selected by
the Contract Owner. Similarly, the dollar amount of variable
annuity payments will vary according to the investment experience
of the Portfolio(s) selected. The Contract Owner bears the entire
investment risk for all amounts allocated to the Contract's
Variable Account. Premiums may also be allocated to the
Guaranteed Account. See "The Guaranteed Account," page 22.
Premiums
Each premium payment must be at least $25 for Qualified Contracts
and $50 for Nonqualified Contracts, but Contract Owners may pay
premiums at any time and in any amount, subject to the $25/$50
minimum and a maximum (which may be waived by Union Central) of
$10,000 per Contract Year. However, if no premiums are paid for
two consecutive Contract Years (three in New York), then under
certain circumstances Union Central may pay the Owner the
Accumulation Value (less the administration fee and surrender
charge, if applicable) and cancel the Contract. See "Premiums,"
page 13.
Surrenders
Total or partial surrenders, which are cash withdrawals of all or
part of the Accumulation Value, are permitted at any time prior
to the Maturity Date, except in the case of certain surrenders
under contracts issued in connection with annuity purchase plans
adopted pursuant to Section 403(b) of the Code (see page 25).
Certain surrenders may be subject to a surrender charge (see page
18) and a penalty tax may be imposed (see "Federal Tax Matters"
in the Statement of Additional Information). In addition,
Contract Owners may return the Contract for a refund within 20
days after receiving it (see page 23).
Transfers
Before the Maturity Date, amounts may be transferred among
subdivisions of the Contract's Variable Account or between those
subdivisions and the Guaranteed Account, as frequently as
desired. Transfers generally must be at least $300. Prior to the
Maturity Date, up to six transfers may be made each Contract Year
without charge. However, a transaction charge (currently $10) is
imposed for each transfer in excess of that number. See
"Transfers," page 14. There is no limit on the amount that may be
transferred out of a subdivision of the Variable Account. For
transfers out of the Guaranteed Account, see page 22.
Similarly, after the Maturity Date, the Contract Owner may, once
each year, change the investment base upon which the amount of
the variable annuity payments are calculated by requesting that
Union Central transfer annuity reserves among
the Fund Portfolios.
Benefits
Contract Owners can choose among various types of annuity
benefits, including life annuities with a period certain
and joint and survivor life annuities. See "Annuity Payments,"
page 20.
If the Annuitant dies before the Maturity Date and the Annuitant
was the Owner or the Owner is still living, then Union Central
will pay the beneficiary a death benefit equal to the greater of
(a) the Accumulation Value, or (b) the sum of all premiums paid
less any amounts deducted in connection with partial surrenders.
See "Death Benefits," page 20.
Charges
No sales charge is deducted from premiums. However, a surrender
charge is imposed on certain early surrenders. This
surrender charge depends on how long the Contract has been in
force. During the first two Contract Years the surrender
charge is 7% of the amount surrendered. This charge is reduced by
1% on each subsequent Contract anniversary until the
eighth anniversary when it becomes zero. Notwithstanding the
charges described above, partial surrenders totaling not more
than 10% of the Accumulation Value (as of the date of the first
partial surrender in the Contract Year) may be made each Contract
Year without the imposition of the surrender charge. Also, the
surrender charge will be waived in the event of the Owner's
hospital confinement or terminal illness as defined in the
Contract. The total surrender charge assessed over the life of
the Contract will not exceed 9% of premiums paid. See "Surrender
Charge," page 18.
As partial compensation for administrative expenses, an
administration fee of $30 per year is deducted prior to the
Maturity Date. The annual administration fee will be waived for
any year in which the Accumulation Value of the Contract
is $25,000 or more on the last day of that Contract Year. This
annual fee is not imposed after the Maturity Date. A daily
charge at the rate of 0.25% of net assets per year is also
deducted (both before and after the Maturity Date) to defray the
expenses of administering the Contract. See "Administration Fee,"
page 17.
As compensation for Union Central's assumption of the mortality
and expense risks, a charge that is currently 1.2% of net assets
per year (and that will never exceed 1.7% per year) is deducted
from CA. See "Mortality and Expense Risk Charge," page 17. In
accordance with state laws, premium taxes will be deducted from
some policies. See "Premium Taxes," page 19.
Finally, the Funds in which CA invests will pay an investment
advisory fee and other expenses which are described in the Fund
Prospectuses. See "The Funds," page 11.
SUMMARY OF SEPARATE ACCOUNT EXPENSES
Contract Owner Transaction Expenses
Sales Load Imposed on Purchases (as a percentage of purchase
payments). . . . . None
Surrender Charge (Contingent Deferred Sales Charge) (as a
percentage of amount surrendered)
<TABLE>
<CAPTION>
Contract Year Surrender Charge Percentage*
<S> <C>
1 7%
2 7%
3 6%
4 5%
5 4%
6 3%
7 2%
8 1%
After 8 0%
</TABLE>
Exchange Fee . . . . . . . . . . . . . . . . . $10 **
Annual Administration Fee . . . . . . . . . . $30***
Separate Account Annual Expenses (as a percentage of average
account value)
<TABLE>
<CAPTION>
Equity Bond Capital
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
Mortality and Expense Risk Charge 1.20% 1.20% 1.20%
Administration Fee .25% .25% .25%
Total Separate Account Annual Expenses 1.45% 1.45% 1.45%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Capital Scudder Money
Index Growth International Market
Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C>
Mortality and
Expense Risk Charge 1.20% 1.20% 1.20% 1.20%
Administration Fee .25% .25% .25% .25%
Total Separate Account
Annual Expenses 1.45% 1.45% 1.45% 1.45%
</TABLE>
<TABLE>
<CAPTION>
Capital Growth With High
Appreciation Income Income
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
Mortality and Expense Risk Charge 1.20% 1.20% 1.20%
Administration Fee .25% .25% .25%
Total Separate Account Annual Expenses 1.45% 1.45% 1.45%
</TABLE>
<TABLE>
<CAPTION>
Emerging Templeton
Growth International
Subaccount Subaccount
<S> <C> <C>
Mortality and Expense Risk Charge 1.20% 1.20%
Administration Fee .25 .25
Total Separate Account Annual Expenses 1.45% 1.45%
</TABLE>
<TABLE>
<CAPTION>
Carillon Fund, Inc. Annual Expenses+
S&P 500
Equity Bond Capital Index
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Management Fees .57% .48% .68% .29%
Other Expenses .07% .14% .09% .30%
Total Carillon Fund, Inc.
Annual Expenses .64% .62% .77% .59%
</TABLE>
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund Annual Expenses+
Capital
Growth International Money
Portfolio Portfolio Market
Class A Class A Portfolio
<S> <C> <C> <C>
Management Fees .48% .88% .37%
Other Expenses .05% .17% .09%
Total Scudder Variable Life
Investment Fund Annual Expenses .53% 1.05% .46%
</TABLE>
<TABLE>
<CAPTION>
American Century Variable Portfolios, Inc. Annual Expenses+
VP Capital Appreciation
Portfolio
<S> <C>
Management Fees 1.00%
Other Expenses++ --
Total TCI Portfolios, Inc. Annual Expenses 1.00%
</TABLE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Annual Expenses+(1)(2)
Emerging
Growth With High Income Growth
Income Series Series Series
<S> <C> <C> <C>
Management Fees .75% .75% .75%
Other Expenses
(after fee reductions) .25% .25% .25%
Total MFS Variable Insurance
Trust Annual Expenses 1.00% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
Templeton Variable Products Series Fund Annual Expenses+
Templeton
International
Fund Class 2
<S> <C>
Management Fees .70%
Rule 12b-1 Fees .25%
Other Expenses .18%
Total Templeton Variable Products
Series Fund Annual Expenses 1.13%
</TABLE>
* Partial surrenders totaling up to 10% of the Accumulation
Value may be made each Contract Year without the surrender
charge being assessed.
** Prior to the Maturity Date, up to six transfers may be made
each Contract Year without charge.
*** Waived for any year in which the Accumulation Value of the
Contract is $25,000 or more on the last day of the Contract
Year.
+ Because the Templeton International Fund Class 2 shares were
not offered until May 1, 1997, the figures for "Management Fees"
and "Other Expenses" are based on the historical expenses of the
Templeton International Class 1 shares for the year ended
December 31, 1996. Class 1 Management Fees and total operating
expenses have been restated to reflect the management fee
schedule approved by shareholders and effective May 1, 1997,
Class 1 actual management fees and total fund operating expenses
before May 1, 1997 were lower. For each other Portfolio they are
based on the actual expenses incurred by the Portfolio for the
year ended December 31, 1996. Total Annual Expenses in excess of
.60% for the S&P 500 Index Portfolio are paid by the investment
adviser.
++ All expenses except brokerage, taxes, interest and fees and
expenses of non-interested person directors are paid by the
investment adviser.
(1) Each Series has an expense offset arrangement which reduces
the Series' custodian fee based upon the amount of cash
maintained by the Series with its custodian and dividend
disbursing agent, and may enter into other such arrangements and
directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee
reductions are not reflected under "Other Expenses."
(2) The Adviser has agreed to bear expenses for each Series,
subject to reimbursement by each Series, such that each Series'
"Other Expenses" shall not exceed 0.25% of the average daily net
assets of the Series during the current fiscal year. See
"Information Concerning Shares of Each Series - Expenses" (in
the Series' Prospectus). Otherwise, "Other Expenses" for the
Emerging Growth Series, the Growth With Income Series and the
High Income Series would be 0.41%, 1.32% and 0.87%,
respectively, and "Total Operating Expenses" would be 1.16%,
2.07% and 1.62%, respectively, for these Series.
Example* If you surrender your Contract at the end of the applicable time
period, you would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Equity Subaccount $94 $134 $165 $255
Bond Subaccount $94 $134 $164 $253
Capital Subaccount $96 $138 $171 $268
S&P 500 Index Subaccount $94 $133 $162 $250
Capital Growth Subaccount $93 $131 $159 $243
Scudder International Subaccount $98 $146 $185 $297
Money Market Subaccount $93 $129 $156 $236
Capital Appreciation Subaccount $98 $145 $182 $292
Growth With Income Subaccount $98 $145 $182 $292
High Income Subaccount $98 $145 $182 $292
Emerging Growth Subaccount $98 $145 $182 $292
Templeton International Subaccount $99 $146 $183 $293
</TABLE>
If you annuitize at the end of the applicable time period
or if you do not surrender your Contract, you would pay
the following expenses on a $1,000 investment, assuming
5% annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Equity Subaccount $22 $69 $119 $255
Bond Subaccount $22 $69 $118 $253
Capital Subaccount $24 $73 $126 $268
S&P 500 Index Subaccount $22 $68 $116 $250
Capital Growth Subaccount $21 $66 $113 $243
Scudder International Subaccount $27 $82 $140 $297
Money Market Subaccount $21 $64 $110 $236
Capital Appreciation Subaccount $26 $80 $137 $292
Growth With Income Subaccount $26 $80 $137 $292
High Income Subaccount $26 $80 $137 $292
Emerging Growth Subaccoung $26 $80 $137 $292
Templeton International Subaccount $28 $82 $137 $293
</TABLE>
The purpose of this table is to assist the Contract Owner in
understanding the various costs and expenses that a Contract
Owner will bear directly or indirectly. The table reflects
expenses of CA as well as the Funds. See "Charges and Other
Deductions," page 17, and the accompanying Prospectuses. The
table does not reflect any deduction made for premium taxes
that may be applicable (see page 19).
THIS TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES AND THE ACTUAL EXPENSES THAT WILL BE PAID
MAY BE GREATER OR LESSER THAN THOSE SHOWN.
+ In the example above, the $30 annual administration fee has
been reflected in the calculation of annual expenses by
converting the fee to a percent of average net assets
attributable to the Contracts, adding it to the Total
Separate Account Annual Expenses and the Fund Annual Expenses
shown above and multiplying the resulting percentage figure
by the average annual assets of the hypothetical account.
The fee has been converted to a percent by dividing the total
amount of the fee collected during 1996 by the total average
net assets attributable to the Contracts. Net assets
attributable to the Contracts includes amounts allocated to
both CA and the Guaranteed Account except for such amounts as
are held as reserves for annuity payments.
PERFORMANCE DATA
From time to time CA may publish advertisements containing
total return performance data relating to its Subaccounts
(including graphs, charts, tables and examples depicting that
data). More detailed information on computation of
performance data is included in the Statement of Additional
Information. All performance data quoted represents only
historical performance and is not intended to indicate future
performance of the Subaccounts.
Total return for a Subaccount is the sum of all the
Subaccount's earnings plus any changes in the value of its
assets, reduced by all expenses accrued during a measuring
period, expressed as a percentage of the amount invested for
a one-year period. The total return figures advertised are
average annual total returns for periods of one year and,
when applicable, five years and ten years, and since
inception of the Subaccounts. Total return omitting the
effect of surrender charges may also be advertised for the
same and other periods, to illustrate change in the value of
the Variable Account during times when there is no surrender.
Total return omitting the effect of charges not reflected in
Accumulation Unit Values (surrender charges and the portion
of the annual administration fee attributable to the
Subaccount whose return is shown) may also be advertised for
the same and other periods, usually in comparison with
certain unmanaged market indices. Total return (whether
including or excluding the effects of the charges described
above) also may be shown in some advertisements on a
cumulative basis.
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES
(for a unit outstanding throughout the period)
Year ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EQUITY SUBACCOUNT
Accumulation unit value
at beginning of period $33.969 $27.147 $26.628 $23.676 $21.491
Accumulation unit value
at end of period $41.682 $33.969 $27.147 $26.628 $23.676
Number of accumulation
units outstanding,
end of period 2,723,705 2,337,986 1,981,958 1,723,790 1,312,947
Payout unit value $41.682 $33.969 $27.147
Number of payout units
outstanding, end
of period 9,142 9,796 10,476
BOND SUBACCOUNT
Accumulation unit value
at beginning of period $23.865 $20.341 $20.977 $19.014 $17.921
Accumulation unit value
at end of period $25.210 $23.865 $20.341 $20.977 $19.014
Number of accumulation
units outstanding,
end of period 672,511 574,421 508,398 513,613 348,420
CAPITAL SUBACCOUNT
Accumulation unit value
at beginning of period $16.214 $14.394 $14.467 $13.022 $12.241
Accumulation unit value
at end of period $18.367 $16.214 $14.394 $14.467 $13.022
Number of accumulation
units outstanding,
end of period 2,732,591 2,521,521 2,271,375 1,790,938 1,181,036
S&P 500 INDEX
SUBACCOUNT
Accumulation unit
value at beginning
of period $10.000<F2>
Accumulation unit value
at end of period $11.375
Number of accumulation
units outstanding,
end of period 869,681
CAPITAL GROWTH
SUBACCOUNT
Accumulation unit value
at beginning of period $14.394 $11.351 $12.749 $10.700 $10.000<F3>
Accumulation unit value
at end of period $17.041 $14.394 $11.351 $12.749 $10.700
Number of accumulation
units outstanding,
end of period 1,593,634 1,162,999 906,428 439,914 70,218
SCUDDER INTERNATIONAL
SUBACCOUNT
Accumulation unit value
at beginning of period $14.192 $12.958 $13.259 $9.760 $10.000<F3>
Accumulation unit value
at end of period $16.054 $14.192 $12.958 $13.259 $ 9.760
Number of accumulation
units outstanding,
end of period 1,564,591 1,220,160 1,095,214 362,172 43,624
MONEY MARKET SUBACCOUNT
Accumulation unit value
at beginning of period $15.468 $14.850 $14.526 $14.369 $14.122
Accumulation unit value
at end of period $16.028 $15.468 $14.850 $14.526 $14.369
Number of accumulation
units outstanding,
end of period 477,679 368,444 280,575 119,598 120,547
CAPITAL APPRECIATION
SUBACCOUNT
Accumulation unit
value at beginning
of period $10.000<F2>
Accumulation unit value
at end of period $9,062
Number of accumulation
units outstanding,
end of period 424,022
GROWTH WITH INCOME
SUBACCOUNT
Accumulation unit
value at beginning
of period $10.000<F2>
Accumulation unit value
at end of period $11.352
Number of accumulation
units outstanding,
end of period 425,068
HIGH INCOME SUBACCOUNT
Accumulation unit
value at beginning
of period $10.000<F2>
Accumulation unit value
at end of period $10.841
Number of accumulation
units outstanding,
end of period 108,723
</TABLE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EQUITY SUBACCOUNT
Accumulation unit value
at beginning of period $14.979 $17.977 $16.316 $12.565 $12.624
Accumulation unit value
at end of period $21.491 $14.979 $17.977 $16.316 $12.565
Number of accumulation
units outstanding,
end of period 1,057,669 936,036 799,268 561,682 521,067
Payout unit value
Number of payout
units outstanding,
end of period
BOND SUBACCOUNT
Accumulation unit
value at beginning
of period $15.424 $14.403 $13.199 $12.475 $12.272
Accumulation unit
value at end
of period $17.921 $15.424 $14.403 $13.199 $12.475
Number of accumulation
units outstanding,
end of period 283,493 285,370 250,631 225,777 224,900
CAPITAL SUBACCOUNT
Accumulation unit value
at beginning of period $9.850 $10.000<F1>
Accumulation unit
value at end
of period $12.241 $ 9.850
Number of accumulation
units outstanding,
end of period 627,636 279,289
MONEY MARKET SUBACCOUNT
Accumulation unit value
at beginning of period $13.576 $12,709 $11,846 $11,226 $10,708
Accumulation unit value
at end of period $14.122 $13.576 $12.709 $11.846 $11.226
Number of accumulation
units outstanding,
end of period 83,623 103,405 75,006 52,666 50,467
<FN>
<F1> Commencement of operations was May 1, 1990.
<F2> Commencement of operations was May 1, 1996.
<F3> Commencement of operations was May 4, 1992.
</TABLE>
The Emerging Growth Subaccount and Templeton International
Subaccount did not exist on December 31, 1996.
THE UNION CENTRAL LIFE INSURANCE COMPANY
AND CARILLON ACCOUNT
Union Central
The Union Central Life Insurance Company ("Union Central"), a
mutual insurance company, was organized in 1867 under the laws of
Ohio. Union Central is primarily engaged in the sale of life and
disability insurance and annuities and is currently licensed to
operate in all states and the District of Columbia. The Contract
is available in all states.
Carillon Account
CA is a separate account of Union Central that is registered with
the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. Such
Registration does not signify that the Commission supervises the
management or investment practices or policies of CA. Union
Central's Board of Directors established CA by resolution on
February 6, 1984.
Although the assets of CA belong to Union Central, these assets
are held separately from the other assets of Union Central, and
are not chargeable with liabilities incurred in any other
business operations of Union Central (except to the extent that
assets in CA exceed the liabilities under the variable portion of
the Contracts). Accordingly, the income, capital gains, and
capital losses incurred on the assets of CA are credited to or
charged against the assets of CA, without regard to the income,
capital gains or capital losses arising out of any other business
Union Central may conduct. Therefore, the investment performance
of CA is entirely independent of both the investment performance
of Union Central's general assets and the performance of any
other separate account.
CA has been divided into twelve subaccounts, each of which
invests in a different Portfolio of the Funds. Additional
Subaccounts may be added at Union Central's discretion.
The Funds
The Funds are mutual funds of the series type which are
registered with the Securities and Exchange Commission as
open-end, diversified, management investment companies. Such
registration does not signify that the Commission supervises
the management or investment practices or policies of Funds. The
investment adviser to Carillon Fund is Carillon Advisers,
Inc. (a wholly-owned subsidiary of Union Central). Scudder,
Stevens & Clark, Inc. is the investment adviser to the Scudder
Fund.
The investment adviser to the American Century is American
Century Investment Management, Inc., the adviser to the American
Century Investments group. The investment adviser to the MFS
Fund is Massachusetts Financial Services Company. The investment
adviser to the Templeton Fund is Templeton Investment Counsel,
Inc.
CA invests in four Portfolios of Carillon Fund: the Equity
Portfolio, the Bond Portfolio, the Capital Portfolio and the
S&P 500 Index Portfolio. CA invests in three Portfolios of the
Scudder Fund: the Capital Growth Portfolio Class A, the
International Portfolio Class A and the Money Market Portfolio.
(The Scudder Fund has four additional Portfolios that are not
available through the Contract.) CA invests in one Portfolio of
the American Century Fund: American Century VP Capital
Appreciation Portfolio. (The American Century Fund has four
additional Portfolios that are not available through the
Contract.) CA invests in three Portfolios of the MFS
Fund: MFS Growth With Income Series, MFS High Income Series and
MFS Emerging Growth Series. (The MFS Fund has nine additional
Portfolios that are not available through the Contract.) CA
invests in one Portfolio of the Templeton Fund: Templeton
International Fund Class 2. (The Templeton Fund has nine
additional Portfolios that are not available through the
Contract.) The assets of each Portfolio are separate from the
others and each Portfolio has different investment objectives and
policies. As a result, each Portfolio operates as a separate
investment fund and the investment performance of one Portfolio
has no effect on the investment performance of any other
Portfolio.
The Carillon Fund Equity Portfolio seeks primarily long-term
appreciation of capital by investing primarily in common stocks
and other equity securities.
The Carillon Fund Bond Portfolio seeks as high a level of
current income as is consistent with reasonable investment
risk by investing primarily in investment-grade corporate bonds.
The Carillon Fund Capital Portfolio seeks the highest total
return through a combination of income and capital appreciation
consistent with the reasonable risk associated with an investment
portfolio of above-average quality by investing in equity
securities, debt instruments and money market instruments.
The Carillon Fund S&P 500 Index Portfolio seeks investment
results that correspond to the total return performance
of U.S. common stocks, as represented by the Standard & Poor's
500 Composite Stock Index (the "S&P 500"). The S&P 500 is a
well-known stock market index that includes common stocks of
companies representing approximately 71% of the market value of
all common stocks publicly traded in the United States. The
investment adviser of the Portfolio believes that
the performance of the S&P 500 is representative of the
performance of publicly traded common stocks in general.
The Scudder Fund Capital Growth Portfolio Class A seeks to
maximize long-term capital growth through a broad and
flexible investment program. The Portfolio invests in marketable
securities, principally common stocks and, consistent with
its objective of long-term capital growth, preferred stocks.
The Scudder Fund International Portfolio Class A seeks
long-term growth of capital principally from a diversified
portfolio of foreign equity securities.
The Scudder Fund Money Market Portfolio seeks stability and
current income from a portfolio of money market instruments.
Money market funds are neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that this Portfolio
will maintain a stable net asset value per share.
The American Century VP Capital Appreciation Portfolio seeks
capital growth by investing primarily in common stocks that are
considered by management to have better-than-average prospects
for appreciation.
The MFS Growth With Income Series seeks to provide reasonable
current income and long-term growth of capital and income.
The MFS High Income Series seeks high current income by investing
primarily in a professionally managed diversified portfolio of
fixed income securities, some of which may involve equity
features. The MFS High Income Portfolio may invest up to 100% of
its assets in lower-rated bonds commonly known as junk bonds.
Before allocating any portion of premiums to the subdivision
corresponding to this Portfolio, the Contract Owners should read
the risk disclosure in the accompanying Prospectus for the MFS
High Income Series.
The MFS Emerging Growth Series seeks to provide long-term growth
of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment
objective of long-term growth of capital.
The Templeton International Fund seeks long-term capital growth
through a flexible policy of investing in stocks and debt
obligations of companies and governments outside the United
States.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE
THEIR RESPECTIVE STATED OBJECTIVES. Additional information
concerning the investment objectives and policies of the Funds
can be found in the current Fund Prospectuses which are attached
and accompany this Prospectus. The Fund Prospectuses should be
read carefully before any decision is made concerning the
allocation of premiums to a particular Subaccount of CA.
Additions, Deletions or Substitutions of Investments
Union Central retains the right, subject to any applicable law,
to make additions to, deletions from or substitutions for the
Portfolio shares held by any Subaccount of CA or that CA may
purchase. Union Central reserves the right to eliminate the
shares of any of the Portfolios and to substitute shares of
another Fund Portfolio, or of another open-end, registered
investment company, if the shares of the Portfolio are no longer
available for investment, or if in Union Central's judgment
investment in any Portfolio would become inappropriate in view of
the purposes of CA. To the extent required by the Investment
Company Act of 1940, substitutions of shares attributable to a
Contract Owner's interest in a Subaccount will not be made until
the Owner has been notified of the change, and until the
Securities and Exchange Commission has approved the change. In
the case of such substitution, affected Contract Owners will have
the right, within 30 days after notification, to surrender the
Contract without the imposition of any withdrawal charge. Nothing
contained in this Prospectus shall prevent CA from purchasing
other securities for other series or classes of contracts, or
from effecting a conversion between series or classes of
contracts on the basis of requests made by Contract Owners.
The Company may also establish additional Subaccounts of CA. Each
additional Subaccount would purchase shares in a new Fund
Portfolio, in another mutual fund, or in a combination of these.
New Subaccounts may be established when, in the sole discretion
of Union Central, marketing needs or investment conditions
warrant, and any new Subaccounts will be made available to
existing Contract Owners only on a basis to be determined by
Union Central, if at all. Union Central may also eliminate one or
more Subaccounts if, in its sole discretion, marketing, tax or
investment conditions so warrant.
In the event of any such substitution or change, Union Central
may, by appropriate endorsement, make such changes in Contracts
offered by this Prospectus as may be necessary or appropriate to
reflect such substitution or change. If deemed by Union Central
to be in the best interests of persons having voting rights under
the Contracts, CA may be operated as a management company under
the Investment Company Act of 1940 or it may be deregistered
under such Act in the event such registration is no longer
required, or it may be combined with one or more other separate
accounts.
THE CONTRACT
Purchasing a Contract
A Contract can be purchased by completing an application and
having it and a premium of at least $25 for Qualified Contracts
or $50 for Nonqualified Contracts sent to Union Central by a
representative of Union Central who is also a qualified
securities representative under federal law. Acceptance of an
application is subject to Union Central's underwriting rules and
Union Central reserves the right to reject any application. If an
initial premium cannot be credited to the Contract within five
business days of receipt by Union Central, then Union Central
will return the premium to the payor immediately unless the
applicant consents to Union Central holding the premium for a
longer period. Initial premiums accompanied by completed
applications will be credited to the Contract not later than two
business days following receipt.
Premiums
After the first premium has been paid and accepted, the Owner
has flexibility, within the limits of any applicable retirement
plan, in determining the size and frequency of subsequent
premiums. Premiums may be paid at any time and in any amount,
subject only to the $25/$50 minimum and to a maximum of $10,000
per Contract Year. (Union Central may waive the maximum but a
waiver in one instance does not constitute a waiver for any
additional premiums.)
If no premiums are paid for two consecutive Contract Years
(three in New York), Union Central may cancel the Contract and
return the Accumulation Value (less the administration fee and
surrender charge, if applicable) but only if (1) the
Accumulation Value is less than $2,000 at the end of the
two-year period (three-year period in New York); and (2) the
total premium paid, less any partial surrenders, is less than
$2,000. Union Central will not cancel a Contract unless it first
gives the Contract Owner at least 30 days' notice to pay an
additional premium to prevent cancellation.
Premiums will be allocated among the thirteen Investment Options
(the twelve subdivisions of the Variable Account and the
Guaranteed Account) in accordance with the instructions of the
Contract Owner, as specified in the application for the Contract
or as subsequently changed by the Owner. Any portion of the
premium, subject to a $10 minimum, may be allocated to these
Investment Options. The allocation may be changed at any time,
without charge, by notifying Union Central in writing.
Crediting of Accumulation Units
Premiums that are allocated to the Contract's Variable Account
are credited to the Contract in the form of Accumulation Units.
The number of Accumulation Units credited to a Contract is
determined by dividing the amount allocated to each subdivision
of the Variable Account by the Accumulation Unit value for the
corresponding Subaccount of CA for the Valuation Period during
which the premium is received. (In the case of the initial
premium, units are credited when the application is accepted.)
The value of the Accumulation Units will vary in accordance with
investment experience and expenses of the Portfolio in which the
Subaccount invests.
Prior to the Maturity Date, the Accumulation Value equals the
sum of the Variable Account and the Guaranteed Account credited
to the Contract. The Variable Account is the sum of the value of
all subdivisions of the Variable Account. The value in a
subdivision equals the number of Accumulation Units credited to
that subdivision times the value of the Accumulation Units for
the corresponding Subaccount. For the value of the Guaranteed
Account, see page 22.
Value of Accumulation Units
The value of Accumulation Units is expected to change every
valuation period, and will depend upon the investment
performance and expenses of the Portfolio in which each
Subaccount invests. The Accumulation Units in each Subaccount
of CA are valued separately.
A valuation period is the period between successive valuation
dates, commencing at the close of business of each valuation
date and ending at the close of business of the next succeeding
valuation date. A valuation date is each day, Monday through
Friday, when there are purchases or redemptions of Fund shares,
except (i) when the New York Stock Exchange is closed (currently
New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day); and (ii) any day on which changes in the value of the
Portfolio securities of the Funds will not materially affect the
current net asset value of the shares of a Portfolio.
The value of each Accumulation Unit was initially set at $10.
Thereafter, the value of an Accumulation Unit for any valuation
period equals the value of such a unit as of the immediately
preceding valuation period, multiplied by the "Net Investment
Factor" for the current valuation period.
The Net Investment Factor for each Subaccount for any Valuation
Period is determined by dividing (A) by (B) and subtracting (C)
from the result, where:
(A) is:
(1) the net asset value per share of a Portfolio share
held in the Subaccount determined as of the end of the current
valuation period; plus
(2) the per share amount of any dividend or capital
gains distributions made by the Portfolio on shares held in
the Subaccount if the "ex-dividend" date occurs during the
current valuation period; plus or minus
(3) a per share charge or credit for any taxes incurred
by or provided for in the Subaccount, which Union Central
determines to have resulted from the maintenance of the
Subaccount (Union Central does not believe that currently any
taxes are incurred by CA); and
(B) is:
(1) the net asset value per share of a Portfolio share
held in the Subaccount determined as of the end of the
immediately preceding valuation period (adjusted for an
"ex-dividend"); plus or minus
(2) the per share charge or credit for any taxes
provided for during the immediately preceding valuation period;
and
(C) is a factor representing the daily charges deducted from CA
by Union Central for administrative expenses and assumption of
the mortality and expense risks under the Contract. The factor
is equal to 0.00004% for a one-day valuation period.
Transfers
Amounts may be transferred among subdivisions of a Contract's
Variable Account, or between the Guaranteed Account and
subdivisions of the Variable Account, at any time prior to the
Maturity Date. Prior to the Maturity Date, Contract Owners may
transfer up to the greater of (1) 20% of the value of the
Guaranteed Account (as of the first day of the Contract Year),
or (2) $1,000 to one or more subdivisions of the Variable
Account each Contract Year. There is no maximum on amounts that
may be transferred out of a subdivision of the Variable Account.
The minimum amount that may be transferred is $300, or if less,
the entire amount in the Investment Option.
Prior to the Maturity Date, up to six transfers may be made each
Contract Year without charge. However, a transaction charge is
imposed for each transfer in excess of that number, and is
deducted from the Investment Option from which the transfer is
made (or from the amount transferred, if the entire amount in
any Investment Option is transferred). The transfer charge is
currently $10 and may be increased, but it will never be more
than $15.
If after a transfer the amount remaining in any Investment
Option is less than $25, then the entire amount will be
transferred instead of the requested amount.
Transfer requests must be made pursuant to proper written or
telephone instructions which specify in detail the requested
changes. Transfers from subdivisions of the Variable Account
will be made based on the Accumulation Unit values at the end of
the valuation period during which Union Central receives the
transfer request.
After the Maturity Date, the Annuitant can change the reserve
basis (contract reserves for the specific variable annuity
contract involved) for the variable annuity payments he or she
is receiving once in each 12 months after the first 12 months.
Such a change in reserve basis for variable annuity payments
will result in subsequent annuity payments being based on the
investment performance of the Subaccount to which annuity
reserves have been transferred.
Telephone Transfers: To effect a telephone transfer,
authorization must have been properly provided to Union Central
in a telephone transfer authorization form. Such authorization
must be on file at Union Central's Home Office before telephone
transfer instructions will be honored by Union Central.
Telephone transfer instructions may be made by calling
1-800-456-9319 between 9:00 a.m. and 3:30 p.m. (Eastern Time
Zone) on days when Union Central is open for business. Each
telephone exchange request must include a precise
identification of the Contract and the Contract Owner's Personal
Security Code. Union Central may accept telephone exchange
requests from any person representing himself or herself to be
the Contract Owner or any other person who properly identifies
the correct Contract Number and Personal Security Code. Thus,
Contract Owners risk possible loss of interest, capital
appreciation and principal in the event of an unauthorized
telephone exchange. Neither Union Central nor the Funds nor
Carillon Investments, Inc., the principal underwriter of the
Contracts, will be liable for complying with telephone
instructions it reasonably believes to be authentic, nor for any
loss, damage, cost or expense in acting on such telephone
instructions, and Contract Owners will bear the risk of any such
loss. Union Central will employ reasonable procedures to
confirm that telephone instructions are genuine. If Union
Central does not employ such procedures, it may be liable for
losses due to unauthorized or fraudulent instructions. Such
procedures may include, among others, requiring forms of
personal identification prior to acting upon telephone
instructions, providing written confirmation of such
transactions to Contract Owners, and/or tape recording of
telephone transfer request instructions received from Contract
Owners. All or part of any telephone conversation relating to
transfer instructions may be recorded by Union Central without
prior disclosure.
Telephone instructions apply only to previously invested amounts
and do not change the investment of any future premiums paid
under the Contract. Allocations of future premium payments can
only be changed by proper written request. (See "Premiums" on
page 13.)
NOTE: During periods of drastic economic or market changes,
telephone transfers may be difficult to implement. At such
times, requests may be made by regular or express mail and will
be processed pursuant to the terms and restrictions described in
this "Transfers" section.
Additional information concerning this transfer privilege may be
obtained from Union Central. Union Central reserves the right to
modify, suspend or discontinue the telephone transfer privilege
at any time and without prior notice.
Special Transfers - Dollar Cost Averaging Union Central
administers a Dollar Cost Averaging ("DCA") program that enables
the Contract Owner to pre-authorize a periodic exercise of the
right to transfer amounts among subdivisions of the Variable
Account. Contract Owners entering into a DCA agreement instruct
Union Central to transfer monthly (as of the first business day
of the month) a predetermined dollar amount (a minimum of $100)
from the Money Market subdivision to other subdivisions of the
Variable Account until the amount in the Money Market
subdivision is exhausted. A DCA agreement may be terminated at
any time upon the Contract Owner notifying Union Central in
writing at least five business days prior to the next transfer
date so that the transfer scheduled to take effect on such date
can be cancelled.
Transfers made pursuant to the DCA program are not subject to a
transfer charge and do not affect a Contract Owner's right to
make up to six transfers each Contract Year without charge,
prior to the Maturity Date.
By allocating specific amounts on a regularly scheduled basis,
as opposed to allocating the total amount at one particular
time, a Contract Owner may be less susceptible to the impact of
market fluctuations. There is no guarantee, however, that such
an investment method will result in profits or prevent losses.
Contract Owners interested in the DCA program may elect to
participate in this program by separate application.
Portfolio Rebalancing Plan
Union Central administers a Portfolio Rebalancing Plan that
enables Contract Owners with a minimum balance of $5,000 in the
Variable Account to indicate to Union Central the percentage
levels he or she would like to maintain among the subdivisions
of the Variable Account. On a calendar-year quarterly,
semi-annual or annual basis as selected by the Contract Owner,
Union Central will automatically rebalance the subdivisions of
the Contract Owner's Variable Account to maintain the indicated
percentages by transfers among the subdivisions. (The Portfolio
Rebalancing Plan is not available for amounts in the Guaranteed
Account.) The entire value of the subdivisions of the Variable
Account must be included in the Portfolio Rebalancing Plan.
Other investment programs, such as the DCA program, Interest
Sweep Plan (see below), or other transfers or withdrawals may
not work in concert with the Portfolio Rebalancing Plan.
Therefore, Contract Owners should monitor their use of these
other programs and any other transfers or withdrawals while the
Portfolio Rebalancing Plan is being used.
The Portfolio Rebalancing Plan may be terminated at any time
upon the Contract Owner notifying Union Central in writing at
least five business days prior to the date of the next
rebalancing.
Transfers made pursuant to the Portfolio Rebalancing Plan are
not subject to a transfer charge and do not affect a Contract
Owner's right to make up to six transfers each Contract Year
without charge, prior to the Maturity Date.
Union Central reserves the right to alter the terms or suspend
or eliminate the availability of the Portfolio Rebalancing Plan
at any time.
Contract Owners may elect to participate in this program by
separate application.
Interest Sweep
Contract Owners with a minimum balance of $5,000 in the
Guaranteed Account may elect to have the interest credited to
the Guaranteed Account periodically transferred (or "swept")
into specified subdivisions of the Variable Account. The sweep
may be done on a quarterly, semi-annual or annual basis.
The Interest Sweep Plan may be terminated at any time upon the
Contract Owner notifying Union Central in writing at least five
business days prior to the date of the next periodic sweep.
Transfers made pursuant to the Interest Sweep Plan are not
subject to a transfer charge and do not affect a Contract
Owner's right to make up to six transfers each Contract Year
without charge, prior to the Maturity Date.
Union Central reserves the right to alter the terms or suspend
or eliminate the availability of the Interest Sweep Plan at any
time.
Contract Owners may elect to participate in this program by
separate application.
Surrenders
The Contract Owner may make cash withdrawals (surrenders) of all
or part of the Accumulation Value at any time prior to the
earlier of the death of the Annuitant or the Maturity Date
(subject to any restrictions imposed in connection with a
particular retirement plan). Surrender requests must be made
pursuant to proper written instructions. Surrenders cannot be
made by telephone. The amount available is the Accumulation
Value at the end of the valuation period during which Union
Central receives the written request, less any surrender
charges, administration fee and premium taxes not previously
deducted. Surrenders from the Variable Account generally will be
paid within seven days of receipt of the written request (see
"Miscellaneous Contract Provisions" in the Statement of
Additional Information). For surrenders from the Guaranteed
Account, see page 23. For restrictions applicable to certain
surrenders under Contracts issued in connection with annuity
purchase plans adopted pursuant to Section 403(b) of the Code,
see "Qualified Plans," page 25.
The minimum partial surrender is $100 or the entire amount in
the Investment Option, whichever is less. If after the
surrender (and deduction of the surrender charge, if any) the
amount remaining in the Investment Option would be less than
$25, then the request will be considered to be a request for
surrender of the entire amount held in the Investment Option.
If a partial surrender plus any surrender charge would reduce
the Accumulation Value to less than $100, then a request for
a partial surrender will be treated as a total surrender of the
Contract and the entire Accumulation Value, less any charges,
will be paid out.
Under certain circumstances, surrenders will be subject to the
surrender charge set forth below under "Surrender
Charge" at page 18. Surrenders of Contracts may be subject to a
10% tax penalty (see "Federal Tax Matters" in the Statement of
Additional Information).
The full administration fee will also be deducted at the time of
total surrender regardless of the date of surrender. For total
surrenders, any surrender charge and administration fee will be
deducted from the amount paid.
Partial surrenders will be implemented by canceling Accumulation
Units in an amount equal to the withdrawal and any applicable
surrender charge. The Contract Owner should designate the
Investment Option from which the surrender should be made. If no
designation is made, the requested amount will be withdrawn from
each Investment Option in the same proportion that the interest
therein bears to the Accumulation Value. The surrender charge,
if any, will be deducted from
the value remaining after payment of the requested amount, or
from the amount paid if the entire amount in an Investment
Option is surrendered.
Since the Contract Owner assumes the investment risk with
respect to amounts allocated to the Variable Account (and
because there are certain charges), the total amount paid upon
total surrender of the Contract (including any prior surrenders)
may be more or less than the total premiums paid.
Personal Income Plan
Union Central administers a Personal Income Plan ("PIP") that
enables a Contract Owner to pre-authorize a periodic exercise of
the contractual surrender rights described above. Contract
Owners entering into a PIP agreement instruct Union Central to
withdraw a level dollar amount or percentage of the Accumulation
Value on a monthly, quarterly, semi-annual or annual basis. To
the extent that the total of PIP surrenders in a Contract Year
exceeds 10% of the Contract Owner's Accumulation Value (in the
initial year, as of the date the PIP agreement is approved by
Union Central; in subsequent years, as of the first day of that
Contract Year), a surrender charge may be applicable (see
"Surrender Charge" at page 18.) PIP surrenders may also be
subject to the 10% federal tax on early withdrawals (see
"Federal Tax Matters" in the Statement of Additional
Information).
CHARGES AND OTHER DEDUCTIONS
Administration Fee
Prior to the Maturity Date, an annual administration fee of $30
will be deducted from the Accumulation Value as partial
reimbursement for actual expenses related to the administration
of each Contract and the Variable Account. The annual
administration fee will be waived for any year in which the
Accumulation Value of the Contract is $25,000 or more on the
last day of that Contract Year. Union Central guarantees that
the amount of this fee will not increase over the life of the
Contract. This annual administration fee is not deducted after
the Maturity Date.
The annual administration fee will be deducted on the last day
of each Contract Year. The fee will be deducted pro rata from
all Investment Options in the same proportion that the Contract
Owner's interest in each bears to the total Accumulation Value.
The full administration fee will also be deducted at the time of
total surrender, regardless of the date of surrender. However,
in the case of a total surrender, the annual administration fee
will also be waived if the Accumulation Value of the Contract is
$25,000 or more on the date of surrender.
There will also be a deduction, on a daily basis, at an annual
rate of 0.25% of the assets of the Variable Account to help
defray the expenses of administering CA and the Contract. This
deduction also is guaranteed not to increase over the life of
the Contract. Because this fee is a percentage of assets, rather
than a flat amount, larger contracts will, in effect, pay a
higher proportion of the total administrative expenses of CA
than smaller contracts. The deduction for 1996 was $538,608.
Administrative expenses include expenses incurred in connection
with premium billing and collection, record keeping, processing
death benefit claims, cash surrenders and Contract changes,
calculating Accumulation Unit and Annuity Unit values, reporting
and other communications to Owners and other similar expense and
overhead costs.
Mortality and Expense Risk Charge
A Mortality and Expense Risk Charge will be deducted daily at a
rate equal, on an annual basis, to 1.2% of each
Contract's Variable Account. THIS CHARGE MAY INCREASE BUT UNION
CENTRAL GUARANTEES THAT IT WILL NEVER BE MORE THAN 1.7%.
Although Union Central does not believe it is possible to
allocate this charge to different risks, Union Central feels
that a reasonable estimate is .8% for mortality risk and .4% for
expense risk.
The mortality risk arises from Union Central's guarantees to
make annuity payments in accordance with the annuity tables,
regardless of how long the Annuitant lives and regardless of any
improvement in life expectancy generally. This relieves
annuitants of the risk that they might outlive the funds that
have been accumulated for retirement. The mortality risk
also arises from Union Central's guarantee to pay death benefits
equal to the total of all premiums paid under the Contract, with
adjustments for any partial surrenders (including surrender
charges), should an Annuitant die before the Maturity Date.
Union Central's expense risk arises from the possibility that
the amounts realized from the administration fee and surrender
charge (which are guaranteed not to increase) will be
insufficient to cover actual administrative and distribution
expenses. If these charges are insufficient to cover the
expenses, the deficiency will be met from Union Central's
general corporate funds, including amounts derived from the
Mortality and Expense Risk Charge.
If amounts derived from the Mortality and Expense Risk Charge
are insufficient to cover mortality costs and excess expenses,
Union Central will bear the loss. If the charge is more than
sufficient, Union Central will retain the balance as profit.
Union Central currently expects a profit from this charge. The
Mortality and Expense Risk Charge for 1996 was $2,629,642.
Surrender Charge (Contingent Deferred Sales Charge)
The Accumulation Value may, as explained above, be withdrawn in
whole or in part by totally or partially surrendering the
Contract, at any time before the earlier of the Maturity Date or
the Annuitant's death. However, if a surrender takes place in
the first eight Contract Years, then a surrender charge will be
imposed on the amount withdrawn as shown below:
<TABLE>
<CAPTION>
Contract Year 1 2 3 4 5 6 7 8 Thereafter
---------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
7% 7% 6% 5% 4% 3% 2% 1% 0%
</TABLE>
Notwithstanding the charges described above, partial surrenders
totaling not more than 10% of the Accumulation Value (as of the
date of the first partial surrender in the Contract Year) may be
made each Contract Year without the imposition of the surrender
charge. Also, PIP surrenders (see "Personal Income Plan" at page
17) in a Contract Year totaling not more than 10% of the
Accumulation Value (in the initial year, as of the date the PIP
agreement is approved by Union Central; in subsequent years, as
of the first day of that Contract Year) may be made without the
imposition of the surrender charge.
Terminal Illness/Confinement
Also, where permitted by state law, the surrender charge will be
waived upon a full surrender or one or more partial surrenders
in the event of (1) or (2) below:
(1) The Contract Owner becomes confined in a qualified
institution for a period of at least 30 consecutive days after
the later of the issue date of the Contract ("Contract Date") or
May 1, 1993, subject to the following:
(a) The Owner must be a natural person (not a Trust,
Corporation, or other legal entity).
(b) The Owner must have been an Owner of the Contract
continuously since the Contract Date.
(c) The Owner was not confined in a qualified institution
at any time during the 60 day period just prior to the later of
the Contract Date or May 1, 1993.
(d) Union Central receives a written request for full or
partial surrender along with due proof of confinement within 12
months following such confinement.
(e) A "qualified institution" means any licensed hospital
or licensed skilled or intermediate care nursing facility at
which:
(i) medical treatment is available on a daily basis;
and
(ii) daily medical records are kept for each patient.
(2) The Contract Owner acquires a terminal illness after the
later of the Contract Date or May 1, 1993, subject to the
following:
(a) The Owner must be a natural person (not a Trust,
Corporation, or other legal entity).
(b) The Owner must have been an Owner of the Contract
continuously since the Contract Date.
(c) The Owner has less than 12 months to live.
(d) Union Central must receive a written request for full
or partial surrender together with a certificate from the
Owner's attending physician stating the Owner's life expectancy
and any other proof Union Central may require.
(e) "Physician" means a medical doctor licensed in the
United States who:
(i) is operating within the scope of that license; and
(ii) is not the Owner and is not related to the Owner.
The cumulative total of all surrender charges is guaranteed
never to exceed 9% of premiums.
The surrender charge may be reduced in certain instances where a
large number of Contracts are issued in connection with a single
sale. For example, the charge may be reduced where a Corporate
Pension Plan funded by the Contracts results
in the issuance of a number of Contracts to the same owner, or
where an employer-sponsored salary-deduction plan results
in Contracts being issued to a number of employees of one
employer. Any reduction in the surrender charge will be
nondiscriminating by class of purchaser, and will be based on
reduced selling and other expenses.
The surrender charge may be modified for Contracts where the
initial premium is a result of a transfer to or from(i) another
Contract owned by the employer or another person for the benefit
of the Contract Owner in connection with an employee benefit
plan, (ii) a Certificate (account) under certain Union Central
Group Retirement Annuity Contracts, or (iii) certain Union
Central Life Insurance Policies or Annuity Contracts. In
addition, the surrender charge will be eliminated with respect
to any amount payable in connection with the surrender of a
Contract where such amount is forfeited by an employee under the
terms of an employee benefit plan and credited to another
Contract issued in connection with the plan. The reduction or
elimination of the surrender charge in the foregoing
circumstances recognizes the reduction of selling expense in
such circumstances.
Surrender charges on partial surrenders will be deducted pro
rata from the value remaining in the Investment Option
or Options from which the amount paid was withdrawn. However, if
insufficient value remains to pay the surrender charges
or if the entire amount in an Investment Option is withdrawn,
then to the extent necessary, any surrender charge will be
deducted from the amount to be paid. Any surrender charges on a
total surrender of a Contract will be deducted from the
amount paid.
The amounts obtained from the surrender charge will be used to
offset the distribution fee paid Carillon Investments.
See page 25.
The surrender charge is not expected to recover all of the
distribution costs associated with the Contracts. Any shortfall
will be paid by Union Central out of its general surplus, which
may include profits derived from the mortality and expense
risk charge.
Certain surrenders of Contracts may also be subject to federal
tax penalties. See Federal Tax Matters, page 23.
Premium Taxes
Union Central will, where such taxes are imposed by state law,
deduct premium taxes or other taxes relative to the
Contract (collectively referred to as "premium taxes") when
incurred, which could be (1) at the Maturity Date, (2) when a
total surrender occurs, or (3) when premiums are paid. If the
charge for premium taxes is deducted at the Maturity Date,
it will be taken from each Investment Option in the proportion
that the Contract Owner's interest in the Investment Option
bears to the total Accumulation Value. If the charge for premium
taxes is deducted when premiums are paid, it will be
deducted from the premium before the premium has been allocated
to the Investment Option(s). Applicable premium tax rates
depend upon such factors as the Contract Owner's state of
residency and the insurance laws and status of Union Central in
that state when the premium taxes are incurred. Current premium
tax rates range from 0 to 3.5%. Applicable premium tax
rates are subject to change by legislation, administrative
interpretations or judicial acts.
<PAGE>
Fund Expenses
There are deductions from and expenses paid out of the assets
of the Funds that are fully described in the Fund
Prospectuses.
BENEFITS UNDER THE CONTRACT
Death Benefits
If the Annuitant is the Owner and dies prior to the Maturity
Date, or if the Annuitant dies prior to the Maturity Date
while the Owner is living, then a death benefit will be paid to
the designated Beneficiary. The death benefit will be the
greater
of: (a) the sum of all premiums paid less any amounts deducted
in connection with partial surrenders, including any surrender
charges associated with those partial withdrawals; or (b) the
Accumulation Value on the date Union Central receives Due
Proof of Death. This formula guarantees that the death benefit
will at least equal the sum of all premiums paid (less any
partial surrenders and surrender charges on such partial
withdrawals), independent of the investment experience of CA.
If the Owner is not the Annuitant and the Owner dies before
the Maturity Date and while the Annuitant is living, Union
Central will pay the Accumulation Value (measured as of the date
Union Central receives Due Proof of Death) to the Owner's
estate or to a successor owner. Notwithstanding the foregoing
sentence to the contrary, if the Owner's spouse is the
designated beneficiary under the Contract, such spouse will
become the Owner of the Contract and no distribution will be
required as a result of the death of the original Owner.
If the Annuitant dies after the Maturity Date, Union Central
will provide the death benefit, if any, contained in the
particular Annuity Option elected. See page 20.
Annuity Payments
Maturity Date The Contract Owner specifies a Maturity Date in
the application, which is the day that annuity payments will
commence under the Contract. The Contract Owner may change the
Maturity Date at any time, provided written notice of the change
is received by Union Central at least 30 days before the
previously specified Maturity Date. The Maturity Date must be:
(a) at least a month after the Contract Date; (b) the first day
of a calendar month; and (c) no later than the Annuitant's 95th
(85th in New York and Pennsylvania) birthday (particular
retirement plans may impose additional limitations).
Type of Income Payments A Contract Owner may specify any
proportion of the Accumulation Value (less premium taxes, if
any) to be applied to a Variable Annuity or a Fixed Annuity.
Variable Annuity payments will vary in accordance with the
investment experience of the Subaccount selected by the Contract
Owner.
At least 30 days before the Maturity Date, the Contract Owner
must select how the Accumulation Value will be used to provide
the monthly annuity payments. If no selection is made, Union
Central will provide a Fixed Annuity with the proceeds of the
Guaranteed Account and a Variable Annuity with the proceeds of
the Variable Account. The first Variable Annuity payment will be
based on the allocation of the Variable Account among the
subdivisions.
If a Variable Annuity is selected, the amount of the first
monthly income payment will be obtained from the appropriate
Option Table in the Contract. Subsequent monthly income payments
will vary based on the investment experience of the
Subaccount(s) used to reserve for the annuity.
Amount of Variable Annuity Payments The amount of Variable
Annuity payments will depend not only upon the investment
experience of the Subaccount selected by the Contract Owner, but
also upon the amount of any premium tax, the age (and possibly
sex) of the Annuitant, and the Annuity Option chosen. Union
Central guarantees that the annuity payments (1) will not be
affected by any variation in the actual mortality experience of
the Annuitants from what was assumed in determining the amount
of the first monthly payment, and (2) will not be affected by
the actual amount of expenses incurred by Union Central in
administering the Contract.
Since Variable Annuity payments will vary in accordance with
the investment results of the Subaccounts, the amount of the
Variable Annuity payments cannot be predetermined.
If the total Accumulation Value to be applied to an Annuity
Option is less than $5,000 ($2,000 in Massachusetts and
New York), Union Central will have the option of paying the
Accumulation Value in a lump sum. If the total first monthly
payment (combined Fixed and Variable) determined under the
Annuity Option selected is less than $50 ($20 in New York),
Union Central may change the payment frequency of annuity
payments to quarterly, semiannually or annually.
Annuity Options The Contract Owner may elect a Fixed Annuity,
a Variable Annuity, or a combination Fixed and Variable Annuity.
All of the Annuity Options listed below (except the Alternate
Annuity Option) are available as either Fixed or Variable
Annuities.
Up to 30 days before the Maturity Date, the Contract Owner may
change the Annuity Option. If an Annuity Option is chosen which
depends on the continuation of the life of the Annuitant or of a
contingent Annuitant, proof of age will be required before
annuity payments begin. The Annuity Options include:
Option 1: Life Annuity (a) Nonrefund. Union Central will make
payments during the lifetime of the Annuitant. No payments are
due after the death of the Annuitant. It is possible under this
Option that only one payment will be made if the Annuitant dies
before a second payment is due, or that only two payments will
be made if the Annuitant dies before the third payment, and so
forth.
(b) 5-Years Certain. Union Central will make payments for at
least five years, and after that during the lifetime of the
Annuitant. No payments are due after the death of the Annuitant
or, if later, the end of the five-year period certain.
(c) 10-Years Certain. Union Central will make payments for at
least 10 years, and after that during the lifetime of the
Annuitant. No payments are due after the death of the Annuitant
or, if later, the end of the 10-year period certain. (This
option will apply unless the Contract Owner selects a different
option.)
(d) Installment Refund. Union Central will make payments for a
period certain and after that during the lifetime of the
Annuitant. No payments are due after the death of the Annuitant
or, if later, the end of the period certain. The number of
period certain payments is equal to the amount applied under
this Installment Refund Option divided by the amount of the
first annuity payment; provided, however, that the amount of the
final period certain payment shall be multiplied by that part
of the answer which is not a whole number.
Option 2: Joint and Survivor Life Annuity (a) Joint and
Survivor Nonrefund. Union Central will make payments during
the joint lifetime of the Annuitant and contingent Annuitant.
Payments will then continue during the remaining lifetime of
the survivor of them. No payments are due after the death of the
last survivor of the Annuitant and contingent Annuitant.
It is possible under this option that only one monthly annuity
payment will be made if the Annuitant and contingent Annuitant
both die before the second payment is made, or that only two
payments will be made if they both die before the third
payment, and so forth.
(b) Joint and Survivor with 10-Year Certain. Union Central
will make payments for 10 years and after that during the joint
lifetime of the Annuitant and contingent Annuitant. Payments
will then continue during the remaining lifetime of the survivor
of them. No payments are due after the death of the survivor of
the Annuitant and contingent Annuitant or, if later, the end of
the 10-year period certain.
Instead of the settlement in accordance with the Annuity
Options described above, Contract Owners may choose an
alternate type of Fixed Annuity payment. Such alternate annuity
option shall be based on rates at least as favorable as those
for fixed-dollar single-premium immediate annuities being issued
by Union Central on the Maturity Date. This alternate
annuity option may only be elected within 30 days before the
Maturity Date.
If the Annuitant dies on or after the Maturity Date, but
before annuity payments have been made for a guaranteed period,
if any, Union Central will continue payments to the beneficiary
until the rest of the guaranteed payments have been made. If no
beneficiary is living, Union Central will commute any unpaid
guaranteed payments to a single sum (on the basis of the
interest rate used in the Annuity Option Table from which the
payments were determined) and pay that sum to the estate of the
last to die of the Annuitant and the Beneficiary.
<PAGE>
THE GUARANTEED ACCOUNT
Premiums allocated to the Guaranteed Account and transfers to
the Guaranteed Account become part of the general assets of
Union Central, which support insurance and annuity obligations.
Because of exemptive and exclusionary provisions, interests in
the Guaranteed Account have not been registered under the
Securities Act of 1933 ("1933 Act") nor is Union Central
registered as an investment company under the Investment Company
Act of 1940 ("1940 Act "). Accordingly, neither Union Central
nor any interests in its general assets generally are subject to
the provisions of the 1933 or 1940 Acts and it is understood
that the staff of the Securities and Exchange Commission has not
reviewed the disclosures in this Prospectus which relate to the
fixed portion of the Contract. Disclosures regarding the fixed
portion of the Contract and Union Central, however, may be
subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and
completeness of statements made in prospectuses. For complete
details regarding the fixed portion, see the Contract itself.
General Description
The Guaranteed Account is the value of the Contract that is
part of the general assets of Union Central, other than
those allocated to separate investment accounts such as CA.
Contract Owners may elect to allocate all or part of their
premiums to the Guaranteed Account, and they may also transfer
values from the Variable Account to the Guaranteed
Account. Union Central bears the full investment risk for all
amounts allocated or transferred to the Guaranteed Account,
whereas the Contract Owners bear the investment risk for amounts
allocated or transferred to the Variable Account. Union
Central has sole discretion to invest its general assets,
including assets funding the Guaranteed Account, subject to
applicable law.
Guaranteed Account Accumulations
Union Central guarantees that it will credit interest to the
Guaranteed Account at an effective rate of at least 4.0% per
year (compounded annually). Interest in excess of the guaranteed
rate may be used in the calculation of the Guaranteed
Account at such increased rates and in such a manner as Union
Central may determine. ANY INTEREST CREDITED TO THE GUARANTEED
ACCOUNT IN EXCESS OF THE MINIMUM GUARANTEED RATE OF 4.0% PER
YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF UNION CENTRAL.
Union Central guarantees that, at any time prior to the
Maturity Date, the Guaranteed Account of the Contract will
be at least equal to:
(1) the total of all net premiums allocated to the Guaranteed
Account; plus
(2) the total of all amounts transferred to the Guaranteed
Account from the Variable Account; minus
(3) the total of all amounts transferred from the Guaranteed
Account to the Variable Account (including the transfer fee);
minus
(4) the total of all administration fees attributable to the
Guaranteed Account; minus
(5) the total of all partial surrenders from the Guaranteed
Account (including any surrender charges); plus
(6) interest at the guaranteed annual effective interest rate
of 4.0%.
Fixed Annuity Payments
A fixed annuity is an annuity with payments that have a dollar
amount that is fixed and guaranteed by the insurance company
issuing the Contract. The amount of the annuity payments will be
determined by applying the Guaranteed Account to rates at least
as favorable as those in the applicable annuity option table in
accordance with the Annuity Option elected. This will be done at
the Maturity Date. The annuity option tables contained in the
Contract are based on a 4.0% interest rate.
Union Central guarantees the amount of fixed annuity payments.
The payment depends only on the annuity option elected, the age
(and possibly sex) of the Annuitant, and the amount applied to
purchase the fixed annuity.
<PAGE>
Surrenders
The Contract Owner may surrender all or part of the Guaranteed
Account value at any time prior to the Maturity Date or the
death of the Annuitant. Union Central intends to pay surrender
requests upon receipt but reserves the right to delay payment of
all surrenders from the Guaranteed Account for up to six months.
Surrenders from the Guaranteed Account generally are subject to
the same provisions that apply to surrenders from the Variable
Account, discussed under "Surrenders" on page 16.
Transfers
Amounts may be transferred among subdivisions of a Contract's
Variable Account, or between the Guaranteed Account and
subdivisions of the Variable Account, at any time prior to the
Maturity Date. Prior to the Maturity Date, Contract Owners may
transfer up to the greater of (1) 20% of the value of the
Guaranteed Account (as of the first day of the Contract Year),
or (2) $1,000 to one or more subdivisions of the Variable
Account each Contract Year. There is no maximum on amounts that
may be transferred out of a subdivision of the Variable Account.
The minimum amount that may be transferred is $300, or if less,
the entire amount in the investment option. No transfers may be
made with respect to fixed annuity payments.
GENERAL MATTERS
Designation of Beneficiary
The Beneficiary is the person designated as such in the
application and is the person or persons to whom benefits will
be paid upon the death of the Annuitant. Subject to the terms of
any existing assignment or the rights of any irrevocable
Beneficiary, the Contract Owner may change the Beneficiary while
the Annuitant is living by providing Union Central with
written notice. Any change will be effective at the time it is
signed by the Contract Owner, whether or not the Annuitant is
living when the change is received by Union Central. Union
Central will not, however, be liable as to any payment or
settlement made prior to receiving the written notice.
20-Day Right to Examine Contract
If a Contract Owner is not satisfied with the Contract, it may
be voided by returning it to Union Central or the agent of Union
Central from which it was purchased within 20 days of receipt.
The Contract Owner will then receive a full refund of any
premium paid or in certain states the Accumulation Value.
Contract Owner's Inquiry
Contract Owners may make inquiries concerning their contracts by
calling Union Central at (513) 595-2728, or writing
c/o Annuity Administration, P.O. Box 40888, Cincinnati, Ohio
45240.
FEDERAL TAX MATTERS
Introduction
The following discussion is general and is not intended as tax
advice. This discussion is based upon Union Central's
understanding of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service
("Service"). No representation is made as to the likelihood of
continuation of these present federal income tax laws or of the
current interpretations by the Service. Moreover, no attempt has
been made to consider any applicable state or other tax laws.
The Contract may be used in connection with retirement plans
that are qualified for special tax treatment under Sections 401,
403, 408, or 457 of the Internal Revenue Code of 1986, as
amended ("Code"). The ultimate effect of federal income taxes on
the Accumulation Value, on annuity payments, and on the economic
benefit to the Contract Owner, the Annuitant or the Beneficiary
depends on the type of retirement plan for which the Contract is
purchased, on the tax and employment status of the individual
concerned, on Union Central's tax status, and on other factors.
Any person concerned about these tax implications should consult
a competent tax adviser.
<PAGE>
Tax Status of Contracts
The following discussion assumes that the Contracts will be
treated as annuities under Section 72 of the Internal
Revenue Code.
Union Central believes that an annuity owner generally is not
taxed on increases in the value of a Contract until
distribution occurs either in the form of a lump sum received by
withdrawing all or part of the cash value (i.e., "surrenders")
or as annuity payments under the annuity option elected. The
exception to this rule is the treatment afforded to owners that
are not natural persons. Generally, an owner of any deferred
annuity contract who is not a natural person must include in
income any increase in the excess of the Owner's cash value over
the Owner's investment in the contract during the taxable
year. However, there are some exceptions to this exception and
you may wish to discuss these with your tax counsel. The
taxable portion of a distribution (in the form of an annuity or
lump-sum payment) is taxed as ordinary income. For this
purpose, the assignment, pledge, or agreement to assign or
pledge any portion of the cash value (and in the case of a
Qualified Contract, any portion of an interest in the qualified
employer plan) generally will be treated as a distribution.
The following discussion applies generally to Contracts owned by
natural persons.
In the case of a surrender under Qualified Contracts, amounts
received are treated as taxable income to the extent that
they exceed the "investment in the contract." Any additional
amount withdrawn is not taxable. The "investment in a contract"
generally equals the portion, if any, of any premium paid by or
on behalf of an individual under a contract which is not
excluded from the individual's gross income. For contracts
issued in connection with tax-qualified plans, the "investment
in the contract" can be zero. A special rule may apply to
surrenders under Qualified Contracts with respect to the
"investment in the contract" as of December 31, 1986. In the
case of a surrender under Nonqualified Contracts, amounts
received are first treated as taxable income to the extent that
the cash value of the contract immediately before the surrender
exceeds the "investment in the contract" at that time. Any
additional amount withdrawn is not taxable. For purposes of
determining amounts treated as taxable income, all annuity
contracts issued by the same company to the same person during
any calendar year are treated as a single contract.
The recipient of an annuity payment under the Contract is
generally taxed on the portion of such payment that exceeds
the "investment in the contract." For variable annuity payments,
the taxable portion is determined by a formula which establishes
a specific dollar amount of each payment that is not taxed until
the investment in the Contract is recovered. The dollar amount
is determined by dividing the "investment in the contract" by
the total number of expected periodic payments. For fixed
annuity payments, in general, there is no tax on the portion of
each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value
of the annuity payments for the term of the Contract until the
investment in the Contract is recovered; the remainder of each
payment is taxable. Once the investment in the Contract is
recovered, the entire amount of each payment is taxable.
For Nonqualified Contracts, there may be imposed a penalty tax
on surrenders equal to 10% of the amount treated as taxable
income. In general, there is no penalty tax on surrenders (1)
made on or after age 59-1/2, (2) made as a result of death or
disability, or (3) received in substantially equal installments
as a life annuity. For some Qualified Contracts, there
may be imposed a penalty tax on certain surrenders.
A transfer of ownership of a Contract, or designation of an
annuitant or other beneficiary who is not also the owner,
may result in certain tax consequences to the owner that are not
discussed herein. An owner contemplating any such transfer
or assignment of a Contract should contact a competent tax
adviser with respect to the potential tax effects of such a
transaction.
Distributions from tax-deferred annuities or qualified pension
or profit sharing plans that are eligible for "tax-free
rollover" will be subject to an automatic 20% federal income tax
withholding unless such amounts are directly rolled over to
another qualified plan or individual retirement arrangement
permitted under the Code. Withholding for federal income taxes
on annuity payments is required unless the recipient elects not
to have any such amounts withheld and properly notifies Union
Central of that election. Failure to provide your taxpayer
identification number will automatically subject any payments
under the Contract to withholding.
Qualified Plans
The Contract may be used with several types of qualified plans.
The tax rules applicable to participants in such qualified plans
vary according to the type of plan and the terms and conditions
of the plan itself. Purchasers of Contracts for use with any
qualified plan should seek competent legal and tax advice
regarding the suitability of the Contract.
(a) Section 403(b) Plans. Under Section 403(b) of the Code,
payments made by public school systems and certain tax-exempt
organizations to purchase annuity contracts for their employees,
directly or through voluntary salary reductions, are excludable
from the gross income of the employee, subject to certain
limitations. However, such payments may be subject to FICA
(Social Security) taxes. In addition, effective January 1, 1989,
cash distributions from a Section 403(b) annuity may not begin
before the employee attains age 59-1/2, separates from his or
her employer's service, dies or becomes disabled, except that
cash distributions limited to the amount of premiums may be paid
in the event of the employee's hardship. These restrictions
apply to distributions attributable to contributions made after
December 31, 1988 pursuant to a salary reduction agreement,
earnings on those contributions, and earnings on amounts
attributable to contributions held as of December 31, 1988 and
made pursuant to a salary reduction agreement.
(b) Individual Retirement Annuities. Sections 219 and 408 of
the Code permit individuals or their employers to contribute to
an individual retirement program known as an "Individual
Retirement Annuity" or "IRA." Individual Retirement Annuities
are subject to limitations on the amount which may be
contributed and deducted and the time when distributions may
commence. In addition, distributions from certain other types of
qualified plans may be placed into an Individual Retirement
Annuity on a tax-deferred basis.
(c) Corporate Pension and Profit-Sharing Plans. Sections
401(a) and 403(a) of the Code permit corporate employers to
establish various types of retirement plans for employees. Such
retirement plans may permit the purchase of the Contracts to
provide benefits under the plans.
(d) H.R. 10 Plans. The Self-Employed Individuals Tax
Retirement Act of 1962, as amended, commonly referred to as
"H.R. 10," permits self-employed individuals to establish
tax-qualified plans for themselves and their employees. These
plans are limited by law to maximum permissible contributions,
distribution dates, and nonforfeitability of interests. In order
to establish such a plan, a plan document, usually in a form
approved in advance by the Internal Revenue Service, is adopted
and implemented by the employer.
(e) State and Local Government Deferred Compensation Plans.
Section 457 of the Code, while not actually providing for a
qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for
state governments, local governments, certain tax-exempt
organizations, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities which
enjoy special treatment. The Contracts can be used with such
plans.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Education Code permits participants
in the Texas Optional Retirement Program ("ORP") to redeem their
interest in a variable annuity contract issued under the ORP
only upon (1) termination of employment in the Texas public
institutions of higher education, (2) retirement, or (3) death.
Accordingly, a participant in the ORP, or the participant's
estate if the participant has died, will be required to obtain a
certificate of termination from the employer before the Contract
can be surrendered.
DISTRIBUTION OF THE CONTRACTS
Carillon Investments, Inc. (a wholly-owned subsidiary of Union
Central whose principal business address is 1876 Waycross Road,
Cincinnati, Ohio 45240), the principal underwriter of the
Contracts, is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Union Central will pay Carillon
Investments, Inc., an amount not in excess of 5% of premiums
received over the duration of the Contract, from which Carillon
Investments will pay commissions to its own registered
representatives or pay a reallowance to other broker-dealers who
distribute the Contracts. In those cases where the surrender
charges are reduced (see page 19), the amount paid to Carillon
Investments will be less than 5% of premiums.
VOTING RIGHTS
To the extent required by law, the Portfolio shares held by CA
will be voted by Union Central at shareholder meetings of the
Funds in accordance with instructions received from persons
having voting interests in the corresponding Subaccounts of CA.
However, if the Investment Company Act of 1940 or any regulation
thereunder should be amended or if the present interpretation
thereof should change, and as a result, Union Central determines
that it is allowed to vote the Portfolio shares in its own
right, Union Central may elect to do so.
The number of votes which a person has the right to instruct
will be calculated separately for each Subaccount. Prior to the
Maturity Date, the number of votes for which a Contract Owner
has a right to give instructions will be determined by dividing
the Accumulation Value attributable to a subdivision by the net
asset value per share of the corresponding Portfolio. After the
Maturity Date, the Annuitant has the voting interest. The number
of votes after the Maturity Date will be determined by dividing
the reserve for such Contract held in a Subaccount by the net
asset value per share of the corresponding Portfolio. After the
Maturity Date, the votes attributable to a Contract decrease as
the reserves underlying the Contract decrease. In determining
the number of votes, fractional shares will be recognized.
Voting instructions will be solicited prior to such meeting in
accordance with procedures established by Union Central. Fund
shares held in CA as to which no timely instructions are
received will be voted or not voted by Union Central in
proportion to the voting instructions received. Each person
having a voting interest in a Subaccount will receive proxy
material, reports and other materials relating to the
appropriate Portfolio.
In accordance with an amendment to the Maryland General
Corporation Law, the Board of Directors of Carillon Fund has
adopted an amendment to its By-laws providing that unless
otherwise required by the Investment Company Act of 1940,
Carillon Fund shall not be required to hold an annual meeting of
shareholders unless the Board of Directors determines to hold an
annual meeting. Carillon Fund intends to hold shareholder
meetings only when required by law and such other times as may
be deemed appropriate by its Board of Directors.
Scudder Fund, which was organized in the Commonwealth of
Massachusetts as a "Massachusetts business trust," does not
intend to hold annual meetings. However, shareholders of
Scudder Fund have certain rights, as set forth in the
Declaration of Trust of Scudder Fund, including the right to
call a meeting of shareholders for the purpose of voting on the
removal of one or more Trustees.
American Century Fund was organized as a Maryland corporation.
An insurance company issuing a variable contract invested in
shares issued by the American Century Fund will request voting
instructions from Contract Owners and will vote shares in
proportion to the voting instructions received.
MFS Fund was organized in the Commonwealth of Massachusetts as a
"Massachusetts business trust." It does not intend to hold
annual shareholder meetings.
Templeton Fund was organized in the Commonwealth of
Massachusetts as a "Massachusetts business trust." Massachusetts
business trust law does not require the Trust to hold annual
shareholder meetings.
FINANCIAL STATEMENTS
Financial statements of CA and Union Central are included in the
SAI which may be obtained without charge by writing Union
Central at: address - P.O. Box 40409, Cincinnati, Ohio
45240-0409; telephone - 1-800-999-1840.
<PAGE>
APPENDIX A
IRA DISCLOSURE STATEMENT
This statement is designed to help you understand the
requirements, as they exist for tax years beginning on and after
1-1-97, of federal tax law which apply to your Individual
Retirement Annuity (IRA), your Simplified Employee Pension IRA
(SEP-IRA for employer contributions), or to one purchased by
your spouse (see Spousal IRAs below). You can obtain more
information regarding your IRA either from your sales
representative or from any district office of the Internal
Revenue Service.
Seven-day Review Period
You have seven days after you sign your application to review
this statement and the Prospectus without obligation. If you
notify Union Central or your sales representative either orally
or in writing within the seven-day period that you want to
revoke your application, your entire purchase payment will be
refunded to you. The address and telephone number of Union
Central are as follows:
The Union Central Life Insurance Company
P.O. Box 40888
Cincinnati, Ohio 45240
Telephone: (513) 595-2728 8:15 a.m.-4:30 p.m.
(Eastern Time Zone)
Eligibility Requirements
If neither you, nor your spouse, is an active participant (see
A. below) you may make a contribution of up to the lesser of
$2,000 or 100% of compensation and take a deduction for the
entire amount contributed. If you or your spouse is an active
participant but have a combined adjusted gross income (AGI)
below a certain level (see B. below), you may make a fully
deductible contribution. If, however, you or your spouse is an
active participant and your combined AGI is above the specified
level, the amount of the deductible contribution you may make to
an IRA is scaled down and eventually eliminated.
A. Active Participant
You are an "active participant" for a year if you are covered by
a retirement plan. You are covered by a "retirement plan" for a
year if your employer or union has a retirement plan under which
money is added to your account or you are eligible to earn
retirement credits. For example, if you are covered under a
profit-sharing plan, certain government plans, a salary-
reduction arrangement (such as a tax-sheltered annuity
arrangement or a 401(k) plan), a simplified employee pension
plan (SEP), a SIMPLE plan, or a plan which promises you a
retirement benefit which is based upon the number of years of
service you have with the employer, you are likely to be an
active participant. Your Form W-2 for the year should indicate
your participation status.
You are an active participant for a year even if you are not yet
vested in your retirement benefit. Also, if you make required
contributions or voluntary employee contributions to a
retirement plan, you are an active participant. In certain
plans you may be an active participant even if you were only
with the employer for part of the year.
You are not considered an active participant if you are covered
in a plan only because of your service as (1) an Armed Forces
Reservist, for less than 90 days of active service; or (2) a
volunteer firefighter covered for firefighting service by a
government plan, which will not provide more than $1,800 per
year at age 65. Of course, if you are covered in any other
plan, these exceptions do not apply.
If your spouse is an active participant, by employing similar
rules as above to this or her situation, you will also be
treated as an active participant, unless you file separately and
do not live together at any time during the tax year.
B. Adjusted Gross Income (AGI)
If you are an active participant, you must look at your Adjusted
Gross Income for the year (if you and your spouse file a joint
tax return you use your combined AGI) to determine whether you
can make a deductible IRA contribution. Your tax return will
show you how to calculate your AGI for this purpose. If you are
at or below a certain AGI level, called the Threshold Level, you
are treated as if you were not an active participant and can
make a deductible contribution under the same rules as a person
who is not an active participant.
If you are single, your Threshold Level is $25,000. The
Threshold Level if you are married and file a joint tax return
is $40,000, and if you are married but file a separate tax
return, the Threshold Level is $0. If you are married but file
separately and you live apart from your spouse for the entire
year, the IRS will treat you as not being married for purposes
of active participant status and the Threshold Level. Thus,
your Threshold Level is $25,000.
If your AGI is less than $10,000 above your Threshold Level, you
will still be able to make a deductible contribution but it will
be limited in amount. The amount by which your AGI exceeds your
Threshold Level (AGI--Threshold Level) is called your Excess
AGI. The Maximum Allowable Deduction is $2,000. You can
estimate your Deduction Limit or calculate it as follows:
$10,000 - Excess AGI X Maximum Allowable Deduction = Deduction
- -------------------- Limit
$10,000
You must round up the result to the next highest $10 level (the
next highest number which ends in zero). For example, if the
result is $1,524, you must round it up to $1,530. If the final
result is below $200 but above zero, your Deduction Limit is
$200. Your Deduction Limit cannot, in any event, exceed 100% of
your compensation.
Deductible Contributions
If you satisfy the eligibility requirements described above,
contributions to your IRA will be deductible up to the deduction
limit whether or not you itemize deductions on your federal
income tax return. IRA or SEP-IRA contributions must be made by
no later than the time you file your income tax return for that
year (i.e., April 15 if you are a calendar-year taxpayer) with
no extensions.
Under certain circumstances an employee may elect to have the
employer make up to $7,000 ($9,500 in 1997 as adjusted for
inflation) in salary-reduction contributions to a SEP. Under a
SEP-IRA agreement, the maximum annual contribution which your
employer may make to a SEP-IRA contract is 15% of your
compensation. For plan years after 1993, compensation is
limited to $150,000. ($160,000 in 1997 as adjusted for
inflation.) Employer contributions to a SEP-IRA are excludable
from the employee's gross income rather than deductible.
If you or your employer should contribute more than the maximum
contribution amount of your IRA or SEP-IRA, the excess amount
will be considered an "excess contribution." You are permitted
to withdraw an excess contribution from your IRA or SEP-IRA
before your tax filing date without adverse tax consequences.
If, however, you fail to withdraw any such excess contribution
before your tax filing date, a 6% excise tax will be imposed on
the excess for the tax year of contribution.
Once the 6% excise tax has been imposed, an additional 6%
penalty for the following tax year can be avoided if the excess
is (1) withdrawn before the end of the following year, or (2)
treated as a current contribution for the following year.
No contribution may be made to your IRA during or after the tax
year in which you attain age70-1/2.
Nondeductible Contributions
Even if you are above the threshold level and thus may not make
a deductible contribution of $2,000, you may still contribute up
to the lesser of 100% of compensation or $2,000 to an IRA. The
amount of your contribution which is not deductible will be a
nondeductible contribution to the IRA. You may also choose to
make a contribution nondeductible even if you could have
deducted part or all of the contribution. Interest or other
earnings on your IRA contribution, whether from deductible or
nondeductible contributions, will not be taxed until taken out
of your IRA and distributed to you.
If you make a nondeductible contribution to an IRA you must
report the amount of the nondeductible contribution to the IRS
by including form 8606 as a part of your tax return for the
year. There is a $50 penalty for failure to file Form 8606,
entitled Nondeductible IRA Contributions, IRA Basis, and
Nontaxable IRA Distributions.
You may make a $2,000 contribution at any time during the year,
if your compensation for the year will be at least $2,000,
without having to know how much will be deductible. When you
fill out your tax return you may then figure out how much is
deductible.
You may withdraw an IRA contribution made for a year any time
before April 15 of the following year. If you do so, you must
also withdraw the earnings attributable to that portion and
report the earnings as income for the year for which the
contribution was made. If some portion of your contribution is
not deductible, you may decide either to withdraw the
nondeductible amount, or to leave it in the IRA and designate
that portion as a nondeductible contribution on your tax return.
Spousal IRAs
Your spouse may make a deductible contribution to a spousal IRA
if he or she files a joint tax return with you and his or her
gross income (if any) for the taxable year is less than yours.
The maximum amount allowable as a deduction to the spousal IRA
is limited to the lesser of (a) $2,000, and (b) the total of
both spouses' gross income reduced by the amount allowed as
deduction for your own IRA. This means that the total
contributions that can be made to both IRAs can be as much as
$4,000 for the taxable year.
You may not make a contribution to your IRA for any tax year
during which and after you attain age 70-1/2. Your spouse,
however, may make contributions to his or her spousal IRA until
the tax year in which he or she reaches age 70-1/2 if the other
conditions mentioned in the previous paragraph are met.
The amount which your spouse may deduct for a spousal IRA is
limited by application of the same rules for active
participation as described in "Eligibility Requirements," above.
Rollover Contributions
Once every year, you are permitted to withdraw any portion of
the value of your IRA or SEP-IRA and reinvest it in another IRA.
Withdrawals may also be made from other IRAs and contributed to
this IRA. This transfer of funds from one IRA to another is
called a "rollover" IRA. To qualify as a rollover contribution,
the entire portion of the withdrawal must be reinvested in
another IRA within 60 days after the date it is received. You
will not be allowed a tax deduction for the amount of any
rollover contribution. A direct transfer of funds from one IRA
to another IRA is permitted. Such direct transfers are not
limited to one per year.
A similar type of rollover can be made with the proceeds of a
qualified distribution from a qualified retirement plan
(including TDA and HR-10 plans). Distributions from tax-
deferred annuities or qualified pension or profit sharing plans
that are eligible for "tax-free rollover" will be subject to an
automatic 20% federal income tax withholding unless such amounts
are directly rolled over to another qualified plan or individual
retirement arrangement permitted under the Code. Properly made,
such a distribution will not be taxable until you receive
payments from the IRA created with it. Unless you were a self-
employed participant in the distributing plan, you may later
rollover such a contribution to another qualified retirement
plan as long as you have not mixed it with IRA or SEP-
IRA contributions.
Premature Distributions
At no time can interest in your IRA or SEP-IRA be forfeited. To
insure that your contributions will be used for your retirement,
the federal tax law does not permit you to use your IRA or SEP-
IRA as a security for a loan. Furthermore, as a general rule,
you may not sell or assign your interest in your IRA or SEP-
IRA to anyone. Use of an IRA or SEP-IRA as security or
assignment of it to another will invalidate the entire annuity.
The portion attributable to your deductible contributions and
all earnings will be includable in your income in the year it is
invalidated and will be subject to a 10% penalty if you are not
at least age 59-1/2 or totally disabled, or if you do not meet
certain other limited exceptions. (You may, however, assign
your IRA or SEP-IRA without penalty to your former spouse in
accordance with the terms of a divorce decree.)
You may surrender any portion of the value of your IRA or SEP-
IRA. In the case of a partial surrender which does not qualify
as a rollover, the amount withdrawn which is attributable to
your deductible contributions and all earnings will be
includable in your income and subject to the 10% penalty if you
are not at least age 59-1/2 or totally disabled, or if you do
not meet certain other limited exceptions. In addition, the 10%
penalty does not apply to an amount equal to medical expenses in
excess of 7.5% of your Adjusted Gross Income (AGI), nor does it
apply to amounts withdrawn to pay for medical expenses for you
and your spouse and dependents if you have separated from
employment and received unemployment compensation for at least
12 consecutive weeks, and the withdrawal is made in the year
unemployment compensation is received or in the following year.
The 10% penalty tax does not apply to the distribution of excess
contributions if you receive such distribution on or before the
due date (including extensions of time) for filing your tax
return, you did not deduct such excess contribution, and you
also received the net income attributable to such excess
contribution. However, the net income must be reported and may
be subject to the 10% penalty tax. Unless you are 59-1/2,
totally disabled, or meet the limited exceptions mentioned in
the previous paragraph, a 10% penalty tax will be imposed on the
part of an excess contribution greater than $2,000 which is
withdrawn after your tax filing date.
There is no 10% penalty if the IRA distributions are in
substantially equal amounts (at least annually) over your life
or life expectancy, or the joint lives or life expectancies of
you and your beneficiary.
Because nondeductible IRA contributions are made using income
which has already been taxed (that is, they are not deductible
contributions), the portion of the IRA distributions consisting
of nondeductible contributions will not be taxed again when
received by you. If you make any nondeductible IRA
contributions, each distribution from your IRAs will consist of
a nontaxable portion (return of nondeductible contributions) and
a taxable portion (return of deductible contributions, if any,
and account earnings).
The following formula is used to determine the nontaxable
portion of your distributions for a taxable year:
Remaining Nondeductible Total Distributions = Nontaxable
Contribution X (for the year) Distribution
- ----------------------- (for the year)
Year-end total IRA
account balances
To compute the year-end total IRA account balance you treat all
of your IRAs as a single IRA. This includes all regular IRAs,
as well as SEP-IRAs, and Rollover IRAs. You also add back the
distributions taken during the year.
Distributions
A. Inadequate or Underdistributions 50% Tax
Your IRA or SEP-IRA is intended to provide retirement benefits
over your lifetime. Thus, federal law requires that you either
receive a lump-sum distribution of your IRA or start to receive
distribution payments by the April 1 following the end of the
calendar year in which you attain age 70-1/2. If you elect
other than a lump-sum distribution, the distribution must begin
not later than the commencement date previously stated, and for
each succeeding year a distribution must be made on or before
December 31. If the payments are not sufficient to meet the
requirements, an excise tax of 50% will be imposed on the amount
of any underpayment.
B. Distribution Forms
By the required beginning date, you may elect to have the
balance in the account disbursed in one of the following forms:
(1) a single sum payment;
(2) equal or substantially equal payments over your life;
(3) equal or substantially equal payments over the lives
of you and your designated beneficiary;
(4) equal or substantially equal payments over a specified
period that may not be longer than your life
expectancy; or
(5) equal or substantially equal payments over a specified
period that may not be longer than the joint life and
last survivor expectancy of you and your designated
beneficiary.
C. Death Benefits
If you die before your entire interest is distributed, the
entire remaining interest will be disbursed as follows:
(1) If you die on or after disbursements have begun
under B., the entire remaining interest must be
disbursed at least as rapidly as provided under B.
(2) If you die before disbursements have begun under B.,
the entire remaining interest must be disbursed as
elected by you or, if you have nor no elected, as
elected by the beneficiary or beneficiaries, as
follows:
(i) by December 31st of the year containing the fifth
anniversary of your death; or
(ii) in equal or substantially equal payments over the
life of life expectancy of the designated
beneficiary or beneficiaries starting by December
31st of the year following the year of your
death. If, however, the beneficiary is your
surviving spouse, then this disbursement is not
required to begin before December 31st of the
year in which you would have turned 70-1/2.
Unless otherwise elected by you prior to the commencement of
disbursements under B. or, if applicable, by the surviving
spouse where you die before disbursements have commenced, life
expectancies of you or spouse beneficiary shall be recalculated
annually for purposes of disbursements under B. and C. An
election not to recalculate shall be irrevocable and shall apply
to all subsequent years. The life expectancy of a non-spouse
beneficiary shall not be recalculated.
Prototype Status
The Internal Revenue Service reviewed the format of your IRA,
and issued an opinion letter on May 19, 1986, to The Union
Central Life Insurance Company stating that your IRA qualifies
as a prototype IRA.
Reporting to the IRS
Whenever you are liable for one of the penalty taxes discussed
above (6% for excess contributions, 10% for premature
distributions, or 50% for distribution underpayments), you must
file Form 5329 with the Internal Revenue Service. The form is
to be attached to your federal income tax return for the tax
year in which the penalty applies. Normal contributions and
distributions must be shown on your income tax return for the
year to which they relate.
<PAGE>
CARILLON FUND, INC.
- --------------------------------------------------
Carillon Fund, Inc. (the "Fund"), is a no-load,
diversified, open-end management investment company which is
intended to meet a wide range of investment objectives with its
four separate Portfolios: Equity Portfolio, Bond Portfolio,
Capital Portfolio and S&P 500 Index Portfolio. Each Portfolio
generally operates as a separate fund issuing its own shares.
The Equity Portfolio seeks primarily long-term appreciation
of capital, without incurring unduly high risk, by investing
primarily in common stocks and other equity securities. Current
income is a secondary objective.
The Bond Portfolio seeks as high a level of current income
as is consistent with reasonable investment risk, by investing
primarily in long-term, fixed-income, investment-grade corporate
bonds.
The Capital Portfolio seeks to provide the highest total
return through a combination of income and capital appreciation
consistent with the reasonable risks associated with an
investment portfolio of above-average quality by investing in
equity securities, debt instruments and money market
instruments.
The S&P 500 Index Portfolio seeks investment results that
correspond to the total return performance of U.S. common
stocks, as represented by the S&P 500 Index.
There can be no assurance that any Portfolio will achieve
its objectives.
This Prospectus sets forth concisely the information that a
prospective investor should know before investing in the Fund,
and it should be read and kept for future reference. A Statement
of Additional Information dated May 1, 1997, which contains
further information about the Fund, has been filed with the
Securities and Exchange Commission and is incorporated by
reference into this Prospectus. A copy of the Statement of
Additional Information may be obtained without charge by calling
the Fund at (513) 595-2600, or by writing the Fund at P.O. Box
40409, Cincinnati, Ohio 45240-0409.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 1, 1997
UCCF 514 4-97<PAGE>
<PAGE>
CARILLON FUND, INC.
TABLE OF CONTENTS
Page
The Fund . . . . . . . . . . . . . . . . . . . . . . 2
Annual Fund Operating Expenses . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . 4
Investment Objectives and Policies . . . . . . . . . 7
Equity Portfolio. . . . . . . . . . . . . . . . 7
Bond Portfolio. . . . . . . . . . . . . . . . . 7
Capital Portfolio . . . . . . . . . . . . . . . 8
S&P 500 Index Portfolio . . . . . . . . . . . . 9
Principal Risk Factors. . . . . . . . . . . . . 10
Investment in Foreign Securities. . . . . . . . 11
Foreign Currency Transactions . . . . . . . . . 12
Repurchase Agreements . . . . . . . . . . . . . 12
Reverse Repurchase Agreements . . . . . . . . . 12
Futures Contracts and
Options on Futures Contracts. . . . . . . . . 12
Options . . . . . . . . . . . . . . . . . . . . 13
Options on Securities Indices . . . . . . . . . 14
Collateralized Mortgage Obligations . . . . . . 14
Lending Portfolio Securities. . . . . . . . . . 14
Other Information . . . . . . . . . . . . . . . 14
The Fund and Its Management. . . . . . . . . . . . . 14
Investment Adviser. . . . . . . . . . . . . . . 15
Advisory Fee. . . . . . . . . . . . . . . . . . 15
Expenses. . . . . . . . . . . . . . . . . . . . 15
Capital Stock . . . . . . . . . . . . . . . . . 16
Purchase and Redemption of Shares. . . . . . . . . . 16
Dividends and Distributions. . . . . . . . . . . . . 16
Taxes. . . . . . . . . . . . . . . . . . . . . . . . 17
Custodian, Transfer and
Dividend Disbursing Agent . . . . . . . . . . . 17
Appendix
Bond and Commercial Paper Ratings . . . . . . . 18
THE FUND
Carillon Fund, Inc. (the "Fund"), a Maryland corporation,
is a no-load, diversified, open-end investment company.
The Fund has four Portfolios, which in many ways operate as
separate funds issuing separate classes of common stock. An
interest in the Fund is limited to the assets of the Portfolio
in which shares are held, and shareholders of each Portfolio are
entitled to a pro rata share of all dividends and distributions
arising from the net income and capital gains on the investments
of such Portfolio.
Currently, the shares of the Fund are sold only to The
Union Central Life Insurance Company ("Union Central") and to
certain of its separate accounts to fund the benefits under
certain variable annuity contracts and variable universal life
insurance policies (the "contracts") issued by Union Central.
The separate accounts invest in shares of the Fund in accordance
with allocation instructions received from Contract Owners.
To the extent that the shares of the Fund's four Portfolios
are sold to Union Central in order to fund the benefits under
the contracts, the structure of the Fund permits Contract
Owners, within the limitations described in the contracts, to
determine the type of investment underlying their contracts in
response to or in anticipation of changes in market or economic
conditions. Contract Owners should consider that the investment
return experience of the Portfolio or Portfolios they select
will affect the value of the contract and the amount of annuity
payments received under a contract. See the attached Prospectus
for the Union Central contract for a description of the
relationship between increases or decreases in the net asset
value of Fund shares (and any distributions on such shares) and
the benefits provided under a contract.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
EXPENSES (as a percentage of average net assets)
S&P 500
Equity Bond Capital Index
Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .57% .48% .68% .29%
Other Expenses .07% .14% .09% .30%*
Total Operating Expenses .64% .62% .77% .59%*
</TABLE>
EXAMPLE
The table below shows the amount of expenses a Shareholder
would pay on a $1,000 investment assuming a 5% annual
return.+
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Portfolio $7 $21 $36 $80
Bond Portfolio $6 $20 $35 $78
Capital Portfolio $8 $25 $43 $96
S&P 500 Index Portfolio $6 $19 $33 $74
</TABLE>
The purpose of this table is to assist the Contract Owner
in understanding the various expenses that the Contract Owner
will bear indirectly by providing information on expenses
associated with the Contract's investment in the Fund. This
table does not include any contract or variable account charges.
This table should not be considered a representation of
past or future expenses and the actual expenses that will be
paid may be greater or lesser than those shown.
- ---------------
* Total Operating Expenses in excess of .60% for that Portfolio
are paid by the investment adviser.
+ The 5% annual return is a standardized rate prescribed for
the purpose of this example and does not represent the past or
future return of the Fund. <PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the tables which follow (pages 4-6),
insofar as it pertains to each of the five years in the
period ended December 31, 1996, have been audited in conjunction
with the annual audit of the financial statements of the Fund .
The financial statements for the year ended December 31, 1996,
have been audited by Deloitte & Touche LLP, whose unqualified
report thereon is included in the Statement of Additional
Information. The financial statements for the year ended
December 31, 1995 have been audited by Deloitte & Touche LLP.
The financial statements for the three years ended December 31,
1994 have been audited by another independent accountant, whose
reports expressed unqualified opinions on those statements.
These financial highlights should be read in conjunction with
the financial statements and notes thereto included in the
Statement of Additional Information. Further information about
the performance of the Fund is contained in the Fund's annual
report which may be obtained without charge. (See "Other
Information" below.)
<TABLE>
<CAPTION>
Equity Portfolio
Year ended December 31,
1996 1995 1994 1993 1992
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $16.54 $14.30 $14.58 $13.74 $12.60
Investment Activities:
Net investment income .29 .24 .20 .16 .19
Net realized and
unrealized gains
(losses) 3.61 3.36 .31 1.69 1.27
------ ------ ------ ------ ------
Total from Investment
Operations 3.90 3.60 .51 1.85 1.46
Distributions:
Net investment income (.27) (.23) (.19) (.16) (.19)
Net realized gains (.72) (1.13) (.60) (.85) (.13)
------ ------ ------ ------ ------
Total Distributions (.99) (1.36) (.79) (1.01) (.32)
Net Asset Value,
End of year $19.45 $16.54 $14.30 $14.58 $13.74
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Total Return <F2> 24.52% 26.96% 3.42% 14.11% 11.78%
Ratio of Expenses to
Average Net Assets .64% .66% .69% .70% .72%
Ratio of Net Investment
Income to
Average Net Assets 1.66% 1.73% 1.45% 1.18% 1.47%
Portfolio
Turnover Rate 52.53% 34.33% 40.33% 37.93% 46.75%
Average Commission
Rate Paid $.0628<F3>
Net Assets,
End of Period
(in thousands) $288,124 $219,563 $157,696 $138,239 $102,306
<CAPTION>
Year Ended December 31,
1991 1990 1989 1988 1987
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $ 8.81 $10.79 $10.88 $ 8.57 $ 9.62
Investment Activities:
Net investment income .20<F1> .28<F1> .58 .38 .34
Net realized and
unrealized gains (losses) 3.79 (1.91) .69 2.33 (.22)
------ ------ ------ ------ ------
Total from Investment
Operations 3.99 (1.63) 1.27 3.71 .12
Distributions:
Net investment income (.20) (.31) (.59) (.34) (.35)
Net realized gains -- (.04) (.77) (.06) (.82)
------ ------ ------ ------ ------
Total Distributions (.20) (.35) (1.36) (.40) (1.17)
Net Asset Value,
End of year $12.60 $ 8.81 $10.79 $10.88 $ 8.57
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Total Return<F2> 45.55% (15.45%) 11.79% 31.79% .85%
Ratio of Expenses to
Average Net Assets .75% .82%<F1> .95% .95% .97%
Ratio of Net Investment
Income to Average
Net Assets 1.79%<F1> 2.98%<F1> 5.34% 3.74% 3.30%
Portfolio Turnover Rate 55.17% 99.90% 61.49% 57.98% 70.17%
Net Assets, End of Period
(in thousands) $79,352 $52,514 $56,194 $37,723 $28,915
<FN>
<F1>
Net of expenses waived by the Adviser of $.002 per share in 1991 and $.01 per
share in 1990.
<F2>
Total Return does not reflect expenses that apply to the separate account or
the related insurance policies. Inclusion of these charges would reduce the
Total Return figures for all periods shown.
<F3>
Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged. Disclosure not required for periods prior to 1996.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Continued)
Bond Portfolio
Year ended December 31,
1996 1995 1994 1993 1992
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $11.07 $10.04 $11.30 $10.91 $10.96
Investment Activities:
Net investment income .79 .88 .77 .73 .82
Net realized and
unrealized gains
(losses) (.04) .98 (.95) .54 (.01)
------ ------ ------ ------ ------
Total from Investment
Operations .75 1.86 (.18) 1.27 .81
Distributions:
Net investment income (.87) (.83) (.78) (.73) (.82)
In excess of net
investment income (.04) -- -- -- --
Net realized gains -- -- (.30) (.15) (.04)
------ ------ ------ ------ ------
Total Distributions (.91) (.83) (1.08) (.88) (.86)
Net Asset Value,
End of year $10.91 $11.07 $10.04 $11.30 $10.91
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Total Return<F1> 7.19% 19.03% (1.63%) 11.94% 7.65%
Ratio of Expenses to
Average Net Assets .62% .65% .68% .66% .69%
Ratio of Net Investment
Income to Average
Net Assets 7.24% 7.43% 7.21% 6.65% 7.59%
Portfolio Turnover Rate 202.44% 111.01% 70.27% 137.46% 40.91%
Net Assets,
End of Period
(in thousands) $85,634 $73,568 $55,929 $54,128 $38,557
<CAPTION>
Year ended December 31,
1991 1990 1989 1988 1987
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $10.10 $10.02 $ 9.82 $ 9.96 $10.51
Investment Activities: .86 .81 .83 .85 .82
Net investment income
Net realized and
unrealized gains (losses) .87 .03 .20 (.13) (.51)
------ ------ ------ ------ ------
Total from Investment
Operations 1.73 .84 1.03 .72 .31
Distributions:
Net investment income (.87) (.76) (.83) (.86) (.86)
In excess of net
investment income -- -- -- -- --
Net realized gains -- -- -- -- --
------ ------ ------ ------ ------
Total Distributions (.87) (.76) (.83) (.86) (.86)
Net Asset Value,
End of year $10.96 $10.10 $10.02 $ 9.82 $ 9.96
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Total Return<F1> 17.89% 8.66% 10.72% 7.36% 3.15%
Ratio of Expenses to
Average Net Assets .73% .79% .86% .82% .72%
Ratio of Net Investment
Income to Average
Net Assets 8.27% 8.57% 8.38% 8.34% 8.34%
Portfolio Turnover Rate 39.82% 110.90% 17.70% 24.11% 80.35%
Net Assets, End of Period
(in thousands) $31,009 $24,446 $15,941 $12,460 $15,796
<FN>
<F1>
Total Return does not reflect expenses that apply to the separate account or
the related insurance policies. Inclusion of these charges would reduce the
Total Return figures for all periods shown.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Continued)
Capital Portfolio
Year ended December 31,
-------------------------------------
1996 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of period $13.72 $13.19 $13.81 $12.99
Investment Activities:
Net investment income .63 .64 .52 .43
Net realized and
unrealized gains
(losses) 1.36 1.15 (.39) 1.17
------ ------ ------ ------
Total from
Investment Operations 1.99 1.79 .13 1.60
Distributions:
Net investment income (.57) (.64) (.52) (.42)
Net realized gains (.19) (.62) (.23) (.36)
------ ------ ------ ------
Total Distributions (.76) (1.26) (.75) (.78)
Net Asset Value,
End of period $14.95 $13.72 $13.19 $13.81
====== ====== ====== ======
Ratios/Supplemental
Data:
Total Return<F2> 14.94% 14.28% .94% 12.72%
Ratio of Expenses
to Average
Net Assets .77% .77% .80% .82%
Ratio of Net
Investment Income
to Average
Net Assets 4.42% 4.99% 4.25% 3.31%
Portfolio
Turnover Rate 53.11% 43.83% 41.89% 32.42%
Average Commission
Rate Paid $.0615<F4>
Net Assets,
End of Period
(in thousands) $159,294 $145,623 $119,263 $100,016
<CAPTION>
Year ended December 31, Period Ended
---------------------------December 31,
1992 1991 1990<F1>
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value:
Beginning of period $12.82 $10.57 $10.95
Investment Activities:
Net investment income .42 .47 .34
Net realized and
unrealized gains
(losses) .56 2.25 (.40)
------ ------ ------
Total from
Investment Operations .98 2.72 (.06)
Distributions:
Net investment income (.42) (.47) (.32)
Net realized gains (.39) -- --
------ ------ ------
Total Distributions (.81) (.47) (.32)
Net Asset Value,
End of period $12.99 $12.82 $10.57
====== ====== ======
Ratios/Supplemental
Data:
Total Return<F2> 7.93% 26.10% (.54%)
Ratio of Expenses to
Average Net Assets .88% .95% 1.03%<F3>
Ratio of Net
Investment Income
to Average Net Assets 3.49% 4.05% 5.08%3
Portfolio Turnover Rate 39.74% 47.93% 16.02%
Net Assets,
End of Period
(in thousands) $68,674 $41,844 $23,813
<FN>
<F1>
Period from May 1, 1990 (commencement of operations) through December 31,
1990.
<F2>
Total Return does not reflect expenses that apply to the separate account or
the related insurance policies. Inclusion of these charges would reduce the
Total Return figures for all periods shown.
<F3>
Annualized
<F4<
Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged. Disclosure not required for periods prior to 1996.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Continued)
S&P 500 Index Portfolio
Year Ended
December 31, 1996<F1>
---------------------
<S> <C>
Net Asset Value, $10.00
Beginning of Year
Investment Activities:
Net investment income .20
Net realized and unrealized
gains/(losses) 2.12
Total from Investment Operations 2.32
Distributions:
Net investment income (.19)
Net realized gains --
------
Total Distributions (.19)
Net Asset Value,
End of Year $12.13
Total Return, not annualized 22.37%
Ratios/Supplemental Data
Ratio of Net Expenses to
Average Net Assets .59%<F2>
Ratio of Net Investment
Income to Average Net Assets 2.14%
Portfolio Turnover Rate 1.09%
Average Commission Rate Paid $.0601<F3>
Net Assets, End of Year (000's) $29,205
_____________
<FN>
<F1> The portfolio commenced operation on December 29, 1995. The
financial highlights table for the period ending December 31, 1995
is not presented because the activity for the period did not round
to $0.01 in any category of the reconciliation of beginning to
ending net asset value per share. The ratios and total return were
all less than 0.1%. The net assets at December 31, 1995 were
$305,148.
<F2> The ratios of net expenses to average net assets would have
increased and net investment income to average net assets would
have decreased by .25% for the year ended December 31, 1996, had
the Adviser not waived a portion of its fee.
<F3> Represents the dollar amount of commissions paid on
portfolio transactions divided by the total number of shares
purchased and sold for which commissions were charged.
</FN>
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Portfolio has a different investment objective which it
pursues through separate investment policies. The differences in
objectives and policies among the various Portfolios can be
expected to affect the investment return of each Portfolio and
the degree of market and financial risks to which each Portfolio
is subject. The investment objectives of each Portfolio
(described on the cover of this Prospectus) are fundamental
policies and may not be changed without shareholder approval.
There can be no assurance that the investment objectives of any
Portfolio will be realized.
Equity Portfolio
The investment objectives of the Equity Portfolio are to seek
long-term appreciation of capital with secondary opportunities
for growth in current income, without incurring unduly high
risks. A major portion of the Portfolio will be invested in
common stocks. The Portfolio's investment policy is to seek
special opportunities in securities that are selling at a
discount from theoretical price/earnings ratios and that seem
capable of recovering from their temporary out-of-favor status.
A portion of the Portfolio may be invested in money market
instruments pending investment or to effectively utilize cash
reserves.
Since no one class or type of security at all times affords
the greatest promise of capital appreciation and growth in
income, the Portfolio may invest all or a portion of its assets
in preferred stocks, bonds, convertible preferred stocks,
convertible bonds, and convertible debentures if it is believed
that such investments will further its investment objectives.
When market conditions for equity securities are adverse, and
for temporary defensive purposes, the Portfolio may invest in
Government securities, money market instruments, or other
fixed-income securities, or retain cash or cash equivalents.
However, the Portfolio will remain well invested in equities to
take advantage of stocks' relatively higher long-term potential.
The Equity Portfolio's policy of investing is based upon the
belief that the pricing mechanism of the securities market lacks
total efficiency and has a tendency to inflate prices of some
securities and depress prices of other securities in different
market climates. Management believes that favorable changes in
market prices are more likely to begin when securities are
out-of-favor, price/earnings ratios are relatively low,
investment expectations are limited, and there is little
interest in a particular security or industry. Management
believes that securities with relatively low price/earnings
ratios in relation to their profitability are better positioned
to benefit from favorable but generally unanticipated events
than are securities with relatively high price/earnings ratios
which are more susceptible to unexpected adverse developments.
The current institutionally-dominated market tends to ignore the
numerous second tier issues whose market capitalizations are
below those of a limited number of established large companies.
Although this segment of the market may be more volatile and
speculative, it is expected that a well-diversified Portfolio
represented in this segment of the market has potential
long-term rewards greater than the potential rewards from
investments in more highly capitalized equities.
Bond Portfolio
The investment objectives of the Bond Portfolio are to provide
as high a level of current income as is believed to be
consistent with reasonable investment risk and to seek
preservation and growth of shareholders' capital. In seeking to
achieve these objectives, it is anticipated that the Portfolio
will invest at least 75% of the value of its assets in
publicly-traded straight debt securities rated BBB or Baa or
higher by a nationally recognized rating service such as
Standard & Poor's or Moody's, or obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities or cash and cash equivalents. Up to 25% of the
Bond Portfolio's total assets may be invested in straight debt
securities that are unrated or less than investment-grade bonds,
in convertible debt securities, convertible preferred and
preferred stocks, or other securities.
Debt securities that are unrated or less than investment-grade
bonds are often referred to as "high-yield" bonds because they
generally offer higher interest rates. High-yield bonds run a
higher risk of default. In the case of default, they are more
difficult to sell and could present a liquidity problem to the
Portfolio. (See "Principal Risk Factors," page 9.) As of
February 25, 1997, 24% of the debt securities held by the Bond
Portfolio were unrated or less than investment-grade bonds. For
a more complete discussion of the risk factors associated with
high-yield bonds, see the discussion below under "Principal Risk
Factors," and "Certain Risk Factors Relating to High-Yield,
High-Risk Bonds" in the Statement of Additional Information.
The Bond Portfolio will not directly purchase common stocks.
However, it may retain up to 10% of the value of its
total assets in common stocks acquired either by conversion of
fixed-income securities or by the exercise of warrants attached
thereto.
The Bond Portfolio may also write covered call options on U.S.
Treasury Securities and options on futures contracts for such
securities. See "Options," page 11.
The Bond Portfolio may invest without limit in money market
instruments pending investment in accordance with its
investment policies or when market conditions dictate a
"defensive" investment strategy. To the extent a portion is
invested in commercial paper rated "A" or "Prime" it will be
included in the 75% guideline noted above.
A description of the corporate bond ratings assigned by
Standard & Poor's and Moody's is included in the Appendix.
Capital Portfolio
The Capital Portfolio seeks to obtain the highest total return
through a combination of income and capital appreciation
consistent with the reasonable risks associated with an
investment portfolio of above-average quality. The Capital
Portfolio invests in equity, debt and money market securities.
There are no percentage limitations on the class of securities
in which the Capital Portfolio may invest. The Capital Portfolio
may invest entirely in equity securities, entirely in debt,
entirely in money market instruments, or in any combination of
these type of securities at the sole discretion of the
investment adviser, subject only to the investment objective of
the Capital Portfolio and the policies adopted by the Board of
Directors. The investment adviser determines the proportion of
Capital Portfolio assets invested in equity, debt and money
market securities based on fundamental value analysis; analysis
of historical long-term returns among equity, debt and money
market investments; and other market influencing factors. The
fundamental value analysis considers the adviser's outlook over
both the near and long-term, for corporate profitability, short
and long-term interest rates, stock price earnings ratios for
the market in total and individual stocks and inflation rates.
When the investment climate as indicated by the fundamental
factors is near historical relationships, the Portfolio will be
structured approximately 63% in equity, 30% in debt and 7% in
money market securities. In addition, market influencing factors
relating to monetary policy, equity momentum, market sentiment,
economic influences and market cycles are taken into
consideration in making the asset allocation decision.
Deviations from historical fundamental market relationships on
either a current or anticipated basis, along with the influences
of market factors, may result under most foreseeable
circumstances in changes as much as 40%, plus or minus, in the
percentages allocated to equity, debt or money market securities
within the Portfolio.
Equity Securities. In its equity investments, the Capital
Portfolio emphasizes a combination of several themes in order to
diversify its investment exposure. Most stocks purchased by the
Portfolio display one or more of the following criteria:
* Low price earnings ratios in relation to their return on
equity.
* High asset values in relation to stock price.
* Foreign securities of companies judged to represent better
fundamental value than those of similar domestic companies.
* A high level of dividend payment providing a yield that is
competitive with debt investments.
Debt Securities. The Capital Portfolio may invest in rated or
unrated debt securities, including obligations of the U.S.
Government and its agencies, and corporate debt obligations
rated BBB or Baa or higher by a nationally recognized rating
service such as Standard & Poor's or Moody's, or, if not rated,
of equivalent quality as determined by the investment adviser.
Only 25% of the value of any bonds held by the Capital Portfolio
may be unrated or less than investment-grade bonds. For a
discussion of the risk factors associated with "high-yield"
bonds, see the "Bond Portfolio" on page 7 and "Certain Risk
Factors Relating to High-Yield, High-Risk Bonds" in the
Statement of Additional Information.
Money Market Instruments. The Capital Portfolio may at any
time be 100% invested in money market instruments although it
likely will invest in these securities only temporarily pending
investment in equity and debt securities, or on a limited basis.
The following securities, which are described in the Statement
of Additional Information, are considered money market
instruments if their remaining maturities are less than 13
months: repurchase agreements, U.S. government obligations,
government agency securities, certificates of deposit, time
deposits, bankers' acceptances, commercial paper and corporate
debt securities.
The Capital Portfolio may also write covered call options on
U.S. Treasury Securities and options on futures contracts for
such securities. See "Options," page 11.
S&P 500 Index Portfolio
The S&P 500 Index Portfolio ("Index Portfolio") seeks
investment results that correspond to the total return
performance of U.S. common stocks, as represented by the
Standard & Poor's 500 Composite Stock Index (the "S&P 500"**).
The S&P 500 is a well-known stock market index that includes
common stocks of companies representing approximately 70% of the
market value of all common stocks publicly traded in the United
States. The investment adviser believes that the performance of
the S&P 500 is representative of the performance of publicly
traded common stocks in general. As with all mutual funds,
there can be no assurance that the Index Portfolio will achieve
its investment objective.
- ------
**The S&P 500 is an unmanaged index of common stocks comprised
of 500 industrial, financial, utility and transportation
companies. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)",
"Standard & Poor's 500(R)", and "500" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by
Carillon Fund. The Portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P"). S&P makes no
representation or warranty, express or implied, to the
beneficial owners of the Portfolio or any member of the public
regarding the advisability of investing in securities generally
or in the Portfolio particularly or the ability of the S&P 500
Index to track general stock market performance. S&P's only
relationship to Carillon Fund is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which
is determined, composed and calculated by S&P without regard to
Carillon Fund or the Portfolio. S&P has no obligation to take
the needs of Carillon Fund or the beneficial owners of the
Portfolio into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and
has not participated in the determination of the prices and
amount of the Portfolio or the timing of the issuance or sale of
the Portfolio or in the determination or calculation of the
equation by which the Portfolio is to be converted into cash.
S&P has no obligation or liability in connection with the
administration, marketing or trading of the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY CARILLON FUND, BENEFICIAL OWNERS OF
THE PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH DAMAGES.
Index funds, such as the Index Portfolio, seek to create, to
the extent feasible, a portfolio which substantially replicates
the total return of the securities comprising the applicable
index, taking into consideration redemptions, sales of
additional shares, and other adjustments described below. Index
funds are not managed through traditional methods of fund
management, which typically involve frequent changes in a
portfolio of securities on the basis of economic, financial, and
market analyses. Therefore, brokerage costs, transfer taxes,
and certain other transaction costs for index funds may be lower
than those incurred by non-index, traditionally managed funds.
Precise replication of the holdings of the Index Portfolio and
the capitalization weighting of the securities in the S&P 500 is
not feasible, but the Index Portfolio seeks a high correlation
between the total return performance of securities comprising
the S&P 500 and the investment results of the Index Portfolio.
The Index Portfolio will attempt to achieve, in both rising and
falling markets, a correlation of at least 95% between the total
return of its net assets before expenses and the total return of
the S&P 500. A correlation of 100% would represent perfect
correlation between Index Portfolio and index performance. It
is anticipated that the correlation of the Index Portfolio's
performance to that of the S&P 500 will increase as the size of
the Index Portfolio increases. There can be no assurance that
the Index Portfolio will achieve this correlation.
The Index Portfolio may invest up to 5% of its assets in
Standard & Poor's Depositary Receipts(R) ("SPDRs(R)").
SPDRs are units of beneficial interest in a unit investment
trust, representing proportionate undivided interests in a
portfolio of securities in substantially the same weighting as
the component common stocks of the S&P 500.
Although the Adviser will attempt to invest as much of the
Index Portfolio's assets as is practical in stocks comprising
the S&P 500 and futures contracts and options relating thereto,
a portion of the Index Portfolio may be invested in money market
instruments pending investment or to meet redemption requests or
other needs for liquid assets. In addition, for temporary
defensive purposes, the Index Portfolio may invest in Government
securities, money market instruments, or other fixed-income
securities, or retain cash or cash equivalents.
Principal Risk Factors
Because the Portfolios are intended to serve a variety of
investment objectives, they are subject to varying degrees of
financial and market risks and current income volatility.
Financial risk refers to the ability of an issuer of a debt
security to pay principal and interest on that security and to
the earning stability and overall financial soundness of an
issuer of an equity security. Market risk refers to the
volatility of the reaction of the price of the security to
changes in conditions in the securities markets in general and,
with respect to debt securities, changes in the overall level of
interest rates. Current income volatility refers to the degree
and rapidity with which changes in the overall level of interest
rates become reflected in the level of current income of the
portfolio.
The Equity Portfolio should be subject to moderate levels of
both market and financial risk, since it invests in equity
securities chosen primarily for potential long-term
appreciation.
The Bond Portfolio invests most of its assets in investment-
grade corporate bonds, and these should be subject to little
financial risk, to moderately high levels of market risk, and to
moderately low current income volatility.
The Capital Portfolio invests in equity, debt and money market
instruments, and therefore the financial and market risks
to which it is subject will vary from time to time depending on
the extent of its holdings in each of those classes of
securities.
The Portfolio is subject to the further risk that in order to
meet its objectives, the Adviser must determine the proper mix
of equity, debt and money market securities. Moreover, the
timing of movements from one type of security to another could
have a negative effect on the Portfolio's overall objective.
Inherent in the fact that the Adviser has great latitude with
respect to portfolio composition is the risk that it may not
properly ascertain the appropriate mix of securities for any
particular economic cycle.
The market value of fixed-income debt securities is affected
by changes in general market interest rates. If interest rates
fall, the market value of fixed-income securities tends to rise;
but if interest rates rise, the value of fixed-income securities
tends to fall. This market risk affects all fixed-income
securities, but lower-rated and unrated securities may be
subject to a greater market risk than higher-rated (lower-yield)
securities.
Bonds rated below the four highest grades used by Standard &
Poor's or Moody's are frequently referred to as "junk"
bonds, reflecting the greater market and investment risks
associated with such bonds. Such risks relate not only to the
greater financial weakness of the issuers of such securities but
also to other factors including: (i) the sensitivity of such
securities to interest rates and economic changes (high-yield,
high-risk bonds are very sensitive to adverse economic and
corporate developments; their yields will fluctuate over time
and either an economic downturn or rising interest rates could
create
financial stress on the issuers of such bonds, possibly
resulting in their defaulting on their obligations); (ii) the
payment
expectations of holders of such securities (high-yield,
high-risk bonds may contain redemption or call provisions which
if
exercised in a period of lower interest rates would result in
their being replaced by lower yielding securities); (iii) the
liquidity of such securities (there may be little trading in
certain high-yield, high-risk bonds which may make it more
difficult to dispose of the securities and more difficult to
determine their fair value). See "Certain Risk Factors Relating
to High-Yield, High-Risk Bonds" in the Statement of Additional
Information for a further discussion of the risks summarized
above.
The S&P 500 Index Portfolio is subject to equity market risk
(i.e., the possibility that common stock prices will decline
over short or even extended periods). The U.S. stock market
tends to be cyclical, with periods when stock prices generally
rise and periods when stock prices generally decline.
To illustrate the volatility of stock prices, the following
table sets forth the average returns of the S&P 500 for the
period from 1926 to 1996:
<TABLE>
<CAPTION>
S&P 500 Returns (1926-1996)
Over Various Time Horizons
----------------------------
1 Year 5 Years 10 Years 20 Years
----- ------- -------- --------
<S> <C> <C> <C> <C>
Best 54.0% 23.9% 20.1% 16.9%
Worst -43.3% -12.5% -.9% 3.1%
Average 12.6% -- -- --
</TABLE>
Average return may not be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year.
Investment in Foreign Securities
Each Portfolio may invest in foreign securities that are
suitable for the Portfolio's investment objectives and policies.
Foreign securities investments are limited to 25% of net assets
for the Equity and Bond Portfolios and to 35% of net assets for
the Capital Portfolio. The S&P 500 Index Portfolio is limited to
investing in those foreign securities included in the Standard &
Poor's 500 Composite Stock Index. The term "foreign securities"
refers to equity and debt securities of corporate issuers whose
principal stock or bond exchange listing is outside of the
United States, to American Depositary Receipts ("ADRs") that
hold such securities, and to debt securities issued by foreign
governments or foreign government agencies.
Investing in foreign securities involves risks which are
not ordinarily associated with investing in domestic securities.
These risks include political or economic instability in the
foreign country, diplomatic developments that could adversely
affect the value of the foreign security, foreign government
taxes, the costs incurred by a Portfolio in converting among
various currencies, fluctuation in currency exchange rates and
the possibility of imposition of currency controls,
expropriation or nationalization measures or withholding
dividends at the source. In the event of a default on any
foreign obligation, it may be difficult legally to obtain or to
enforce a judgment against the issuer.
Currency exchange rates are determined by forces of supply
and demand. These forces are affected by international balance
of payments, other economic and financial conditions, government
intervention and other factors. The ability of a foreign
obligor to make timely payments on its external debt obligations
will be strongly influenced by the country's balance of
payments, including export performance, its access to
international credits and investments, fluctuations in interest
rates and the extent of its foreign reserves.
There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers
are subject to accounting and reporting requirements which are
generally less extensive than those applicable to domestic
issuers. Securities of foreign issuers are generally less liquid
and more volatile than those of comparable domestic issuers.
There is frequently less governmental regulation of exchanges,
broker-dealers and issuers and brokerage costs may be higher
than in the United States.
Foreign securities other than ADRs typically will be traded
on the applicable country's principal stock or bond exchange but
may also be traded on regional exchanges or over-the-counter.
Foreign markets, especially emerging markets, may have different
clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it
difficult to conduct such transactions.
A country whose exports are concentrated in a few
commodities or whose economy depends on certain strategic
imports could be vulnerable to fluctuations in international
prices of these commodities or imports. To the extent that a
country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in
dollars could be adversely affected.
ADRs are receipts, typically issued by a U.S. bank or trust
company, evidencing ownership of the underlying foreign
securities. ADRs are denominated in U.S. dollars and trade in
the U.S. securities markets. ADRs are subject to certain of the
same risks as direct investment in foreign securities, including
the risk that changes in the value of the currency in which the
security underlying an ADR is denominated relative to the U.S.
dollar may adversely affect the value of the ADR.
Foreign securities purchased by the Portfolios may include
securities issued by companies located in countries not
considered to be major industrialized nations. Such countries
are subject to more economic, political and business risk than
major industrialized nations, and the securities they issue are
expected to be more volatile and more uncertain as to payments
of interest and principal. The secondary market for such
securities is expected to be less liquid than for securities of
major industrialized nations.
To limit the risks of investing in any one country, each
Portfolio that invests in foreign securities limits not only its
total purchases of foreign securities, but also its purchases
for any single country. For "major countries," the applicable
limit is 10% of Portfolio net assets for the Equity and Bond
Portfolios and 20% for the Capital Portfolio; for other
countries, the applicable limit is 5% for each Portfolio.
"Major countries" currently include: The United Kingdom,
Germany, France, Italy, Switzerland, Netherlands, Spain,
Belgium, Canada, Mexico, Argentina, Chile, Brazil, Australia,
Japan, Singapore, New Zealand, Hong Kong, Sweden and Norway.
Foreign Currency Transactions
Each Portfolio that purchases foreign securities may also
engage in forward foreign currency contracts ("forward
contracts") in connection with the purchase or sale of a
specific security. A forward contract involves an obligation to
purchase or sell a specific foreign currency at a future date,
which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank
market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward contract
generally has no margin or other deposit requirement.
Portfolios will not enter into forward contracts for
longer-term hedging purposes. The possibility of changes in
currency exchange rates will be incorporated into the long-term
investment considerations when purchasing the investment and
subsequent considerations for possible sale of the investment.
Repurchase Agreements
A repurchase agreement is a transaction where a Portfolio
buys a security at one price and simultaneously agrees to sell
that same security back to the original owner at a higher price.
The Adviser reviews the creditworthiness of the other party to
the agreement and must find it satisfactory before engaging in a
repurchase agreement. A majority of such agreements will mature
in seven days or less. In the event of the bankruptcy of the
other party, the Portfolio could experience delays in recovering
its money, may realize only a partial recovery or even no
recovery, and may also incur disposition costs. It is not
anticipated that any Portfolio will regularly utilize repurchase
agreements extensively, since they are intended to be used to
invest otherwise idle cash.
Reverse Repurchase Agreements
The S&P 500 Index Portfolio may enter into reverse
repurchase agreements. Under reverse repurchase agreements, the
Portfolio transfers possession of portfolio securities to banks
in return for cash in an amount equal to a percentage of the
portfolio securities' market value and agrees to repurchase the
securities at a future date by repaying the cash with interest.
The Portfolio retains the right to receive interest and
principal payments from the securities while they are in the
possession of the financial institutions. Cash or liquid high
quality debt obligations from the Portfolio's portfolio equal in
value to the repurchase price (including any accrued interest)
will be segregated by the Custodian on the Portfolio's records
while a reverse repurchase agreement is in effect.
Futures Contracts and Options on Futures Contracts
For hedging purposes, including protecting the price or
interest rate of securities that the Portfolio intends to buy,
the S&P 500 Index Portfolio may enter into futures contracts
that relate to securities in which it may directly invest and
indices comprised of such securities and may purchase and write
call and put options on such contracts. As a temporary
investment strategy until the Index Portfolio reaches $25
million in net assets, the Index Portfolio may invest up to 100%
of its assets in such futures and/or options contracts.
Thereafter, the Portfolio may invest up to 20% of its assets in
such futures and/or options contracts.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments such as U.S.
Treasury bills, notes and bonds, commercial paper and bank
certificates of deposit or the cash value of a financial
instrument index at a specified future date at a price agreed
upon when the contract is made. A stock index futures contract
is a contract to buy or sell specified units of a stock index at
a specified future date at a price agreed upon when the contract
is made. The value of a unit is based on the current value of
the contract index. Under such contracts no delivery of the
actual stocks making up the index takes place. Rather, upon
expiration of the contract, settlement is made by exchanging
cash in an amount equal to the difference between the contract
price and the closing price of the index at expiration, net of
variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract. Upon entering into a futures
contract, the Portfolio is required to deposit an initial margin
with the Custodian for the benefit of the futures broker. The
initial margin serves as a "good faith" deposit that the
Portfolio will honor their futures commitments. Subsequent
payments (called "variation margin") to and from the broker are
made on a daily basis as the price of the underlying investment
fluctuates. In the event of the bankruptcy of the futures
broker that holds margin on behalf of the Portfolio, the
Portfolio may be entitled to return of margin owed to it only in
proportion to the amount received by the broker's other
customers. The Adviser will attempt to minimize this risk by
monitoring the creditworthiness of the futures brokers with
which the Portfolio does business.
Because the value of index futures depends primarily on the
value of their underlying indexes, the performance of the
broad-based contracts will generally reflect broad changes in
common stock prices. However, because the Portfolio may
not be invested in precisely the same proportion as the S&P 500,
it is likely that the price changes of the Portfolio's index
futures positions will not match the price changes of the
Portfolio's other investments.
Options on futures contracts give the purchaser the right
to assume a position at a specified price in a futures contract
at any time before expiration of the option contract.
Options
The Bond and Capital Portfolios may engage in certain
limited options strategies as hedging techniques. These options
strategies are limited to selling/writing call option contracts
on U.S. Treasury Securities and call option contracts on futures
on such securities held by the Portfolio (covered calls). The
Portfolio may purchase call option contracts to close out a
position acquired through the sale of a call option. The
Portfolio will only write options that are traded on a domestic
exchange or board of trade.
The S&P 500 Index Portfolio may write and purchase covered
put and call options on securities in which it may directly
invest. Option transactions of the Portfolio will be conducted
so that the total amount paid on premiums for all put and call
options outstanding will not exceed 5% of the value of the
Portfolio's total assets. Further, the Portfolio will not
write put or call options or combination thereof if, as a
result, the aggregate value of all securities or collateral used
to cover
its outstanding options would exceed 25% of the value of the
Portfolio's total assets.
A call option is a short-term contract (generally nine
months or less) which gives the purchaser of the option the
right to purchase from the seller of the option (the Portfolio)
the underlying security or futures contract at a fixed exercise
price at any time prior to the expiration of the option period
regardless of the market price of the underlying instrument
during the period. A futures contract obligates the buyer to
purchase and the seller to sell a predetermined amount of a
security at a predetermined price at a selected time in the
future. A call option on a futures contract gives the purchaser
the right to assume a "long" position in a futures contract,
which means that if the option is exercised the seller of the
option (the Portfolio) would have the legal right (and
obligation) to sell the underlying security to the purchaser at
the specified price and future time.
As consideration for the call option, the buyer pays the
seller (the Portfolio) a premium, which the seller retains
whether or not the option is exercised. The selling of a call
option will benefit the Portfolio if, over the option period,
the
underlying security or futures contract declines in value or
does not appreciate to a price higher than the total of the
exercise
price and the premium. The Portfolio risks an opportunity loss
of profit if the underlying instrument appreciates to a price
higher than the exercise price and the premium. When the Adviser
anticipates that interest rates will increase, the Portfolio
may write call options in order to hedge against an expected
decline in value of portfolio securities.
The Portfolio may close out a position acquired through
selling a call option by buying a call option on the same
security or futures contract with the same exercise price and
expiration date as the option previously sold. A profit or loss
on the transaction will result depending on the premium paid for
buying the closing call option. If a call option on a futures
contract is exercised, the Portfolio intends to close out the
position immediately by entering into an offsetting transaction
or by delivery of the underlying security (or other related
securities).
Options transactions may increase the Portfolio's portfolio
turnover rate and attendant transaction costs, and may
be somewhat more speculative than other investment strategies.
It may not always be possible to close out an options position,
and with respect to options on futures contracts there is a risk
of imperfect correlation between price movements of a futures
contract (or option thereon) and the underlying security.
Options strategies and related risks and limitations are
described in more detail in the Statement of Additional
Information.
Options on Securities Indices
The S&P 500 Index Portfolio may purchase or sell options on
the S&P 500, subject to the limitations set forth above
and provided such options are traded on a national securities
exchange or in the over-the-counter market. Options on
securities indices are similar to options on securities except
there is no transfer of a security and settlement is in cash. A
call option on a securities index grants the purchaser of the
call, for a premium paid to the seller, the right to receive in
cash an amount equal to the difference between the closing value
of the index and the exercise price of the option times a
multiplier established by the exchange upon which the option is
traded.
Collateralized Mortgage Obligations
The Portfolios other than the S&P 500 Index Portfolio may
invest in collateralized mortgage obligations ("CMOs")
or mortgage-backed bonds issued by financial institutions such
as commercial banks, savings and loan associations, mortgage
banks and securities broker-dealers (or affiliates of such
institutions established to issue these securities). To a
limited extent, the Portfolios may also invest in a variety of
more risky CMOs, including interest only ("IOs"), principal only
("Pos"), inverse floaters, or a combination of these securities.
See "Money Market Instruments and Investment Techniques" in the
Statement of Additional Information for a further discussion.
Lending Portfolio Securities
The S&P 500 Index Portfolio may lend portfolio securities
with a value up to 10% of its total assets. Such loans
may be terminated at any time. The Portfolio will continuously
maintain as collateral cash or obligations issued by the U.S.
government, its agencies or instrumentalities in an amount equal
to not less than 100% of the current market value (on a daily
marked-to-market basis) of the loaned securities plus declared
dividends and accrued interest.
The Portfolio will retain most rights of beneficial
ownership, including the right to receive dividends, interest or
other distributions on loaned securities. The Portfolio will
call loans to vote proxies if a material issue affecting the
investment is to be voted upon. Should the borrower of the
securities fail financially, the Portfolio may experience delay
in recovering the securities or loss of rights in the
collateral. Loans are to be made only to borrowers that are
deemed by the Adviser to be of good financial standing.
Other Information
In addition to the investment policies described above,
each Portfolio's investment program is subject to further
restrictions which are described in the Statement of Additional
Information. Unless otherwise specified, each Portfolio's
investment objectives, policies and restrictions are not
fundamental policies and may be changed without shareholder
approval. Shareholder inquiries and requests for the Fund's
annual report should be directed to the Fund at (513) 595-2600,
or at P.O. Box 40409, Cincinnati, Ohio 45240-0409.
THE FUND AND ITS MANAGEMENT
The Fund is a mutual fund, technically known as an
open-end, diversified, management investment company. The Board
of Directors is responsible for supervising the business affairs
and investments of the Fund, which are managed on a daily basis
by the Fund's investment adviser. The Fund was incorporated
under the laws of the State of Maryland on January 30, 1984. The
Fund is a series fund with four classes of stock, one for each
Portfolio. The S&P 500 Index Portfolio was authorized on
September 15, 1995 and commenced operations on December 29,
1995. Union Central has invested approximately $10.3 million in
this Portfolio, but reserves the right to redeem any portion or
all of its investment at any time.
Investment Adviser
The Fund's investment adviser is Carillon Advisers, Inc.
(the "Adviser"), P.O. Box 40407, Cincinnati, Ohio 45240. The
Adviser was incorporated under the laws of Ohio on August 18,
1986, as successor to the advisory business of Carillon
Investments, Inc., the investment adviser for the Fund since
1984. The Adviser is a wholly-owned subsidiary of Union Central,
a mutual life insurance company organized in 1867 under the laws
of Ohio. Subject to the direction and authority of the Fund's
Board of Directors, the Adviser manages the investment and
reinvestment of the assets of each Portfolio and provides
administrative services and manages the Fund's business affairs.
George L. Clucas has been primarily responsible for the
day-to-day management of the Equity Portfolio since 1988
and the Capital Portfolio since its inception in 1990. Mr.
Clucas is Director, President and Chief Executive Officer of the
Fund, and President and Chief Executive Officer of the Adviser.
He has been affiliated with the Adviser and Union Central since
1987. Steven R. Sutermeister (since 1990) has been primarily
responsible for the day-to-day management of the Bond Portfolio.
Mr. Sutermeister is Vice President of the Adviser and has been
affiliated with the Adviser and Union Central since 1990.
Previously, he was Senior Vice President of Washington Square
Capital, Inc.
Advisory Fee
The Fund pays the Adviser, as full compensation for all
facilities and services furnished, a monthly fee computed
separately for each Portfolio on a daily basis, at an annual
rate, as follows:
(a) for the Equity Portfolio .65% of the first $50,000,000,
.60% of the next $100,000,000, and .50% of all over
$150,000,000 of the current value of the net assets;
(b) for the Bond Portfolio .50% of the first $50,000,000,
.45% of the next $100,000,000, and .40% of all over
$150,000,000 of the current value of the net assets; and
(c) for the Capital Portfolio .75% of the first $50,000,000,
.65% of the next $100,000,000, and .50% of all over
$150,000,000 of the current value of the net assets.
(d) for the S&P 500 Index Portfolio .30% of the current
value of the net assets.
The fee paid for the Capital Portfolio is somewhat higher than
the average fee paid in the industry. However, breakpoints at
which fees are reduced are set at lower than normal amounts. It
is the desire of the Fund and Adviser to reflect in the fee
arrangement the effort involved in advising the separate
Portfolios.
Expenses
The Fund's expenses are deducted from total income before
dividends are paid. These expenses, which are accrued
daily, include: the fee of the Adviser; taxes; legal, dividend
disbursing, bookkeeping and transfer agent, custodian and
auditing fees; and printing and other expenses relating to the
Fund's operations which are not expressly assumed by the
Adviser under its investment advisory agreement with the Fund.
Certain expenses are paid by the particular Portfolio that
incurs them, while other expenses are allocated among the
Portfolios on the basis of their relative size (i.e., the amount
of their net assets). The Adviser will pay any expenses of the
S&P 500 Index Portfolio, other than the advisory fee for that
Portfolio, to the extent that such expenses exceed .30% of that
Portfolio's net assets.
Capital Stock
The Fund currently has four classes of stock, one for each
Portfolio. Shares (including fractional shares) of each
Portfolio have equal rights with regard to voting, redemptions,
dividends, distributions, and liquidations with respect to that
Portfolio. When issued, shares are fully paid and nonassessable
and do not have preemptive or conversion rights or cumulative
voting rights. The Fund's sole shareholder, Union Central, will
vote Fund shares allocated to its registered separate accounts
in accordance with instructions received from Contract Owners.
However, by virtue of Fund shares allocated to its other
separate accounts, Union Central currently has voting control
and can make fundamental changes regardless of the voting
instructions received from Contract Owners.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, only for
purchase by Union Central and its separate accounts to fund
benefits under both variable annuity contracts and variable
universal life insurance policies. The Fund's Board of Directors
will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of variable
annuity
contractowners investing in the Fund and interests of holders of
variable universal life insurance policies investing in the
Fund. Union Central will report any potential or existing
conflicts to the Directors of the Fund. If a material
irreconcilable conflict arises, Union Central will, at its own
cost, remedy such conflict up to and including establishing a
new registered management company and segregating the assets
underlying the variable annuity contracts and variable universal
life insurance policies. It is possible that at some later date
the Fund may offer shares to other investors. The Fund
continuously offers shares in each of its Portfolios at prices
equal to the respective net asset values of the shares of each
Portfolio.
The Fund redeems all full and fractional shares of the Fund
for cash. No redemption fee is charged. The redemption
price is the net asset value per share. Payment for shares
redeemed will generally be made within seven days after receipt
of a proper notice of redemption.
The net asset value of the shares of each Portfolio of the
Fund is determined once daily, Monday through Friday, as of the
close of regular trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern Time), when there are purchases or
redemptions of Fund shares, except (i) when the New York Stock
Exchange is closed (currently New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day); and any day on which
changes in the value of the Portfolio securities of the Fund
will not materially affect the current net asset value of the
shares of a Portfolio. Such determination is made by adding the
values of all securities and other assets of the Portfolio,
subtracting liabilities and expenses, and dividing by the number
of shares of the Portfolio outstanding. Expenses, including the
investment advisory fee payable to the Adviser, are accrued
daily.
Securities held by the Portfolios, except for money market
instruments maturing in 60 days or less, are valued at their
market value if market quotations are readily available.
Otherwise, such securities are valued at fair value as
determined in good faith by the Board of Directors, although the
actual calculations may be made by persons acting pursuant to
the direction of the Board.
All money market instruments with a remaining maturity of 60
days or less are valued on an amortized cost basis.
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of
the net investment income, if any, of each Portfolio. For
dividend purposes, net investment income of the Equity, Bond,
Capital and S&P 500 Index Portfolios consists of all dividends
or interest earned by such Portfolio less estimated expenses
(including the investment advisory fee). All net realized
capital gains, if any, of each Portfolio are distributed
periodically, no less frequently than annually. All dividends
and distributions are reinvested in additional shares of the
respective Portfolio at net asset value.
TAXES
Each Portfolio has qualified and has elected to be taxed as a
"regulated investment company" under the provisions of
Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). If a Portfolio qualifies as a "regulated
investment company" and complies with the appropriate provisions
of the Code, the Portfolio will be relieved of federal income
tax on the amounts distributed.
Since the sole shareholder of the Fund is Union Central, no
discussion is included herein as to the federal income tax
consequences at the shareholder level. For information
concerning the federal tax consequences to purchasers of the
contracts, see the attached Prospectus for such contracts.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, Mutual Fund Services, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701, acts as Custodian of the Fund's
assets, and is its bookkeeping, transfer and dividend disbursing
agent.<PAGE>
APPENDIX
CORPORATE BOND RATINGS
Moody's Investors Services, Inc.
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt-edge." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
Standard & Poor's Corporation
AAA This is the highest rating assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity
to pay principal and interest.
AA Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in a small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible
to the adverse effect of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they
normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB-B-CCC-CC Bonds rated BB, B, CCC, and CC are regarded, on
balance, as predominately speculative with respect
to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
Moody's Investors Services, Inc.
A Prime rating is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. Issuers rated Prime are
further referred to by use of numbers 1, 2 and 3 to denote
relative strength within this highest classification. Among the
factors considered by Moody's in assigning ratings for an issuer
are the following: (1) management; (2) economic evaluation of
the industry and an appraisal of speculative type risks which
may be inherent in certain areas; (3) competition and customer
acceptance of products; (4) liquidity; (5) amount and quality of
long-term debt; (6) ten-year earnings trends; (7) financial
strength of a parent company and the relationships which exist
with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of
public interest questions and preparations to meet such
obligations.
Standard & Poor's Corporation
Commercial paper rated A by Standard & Poor's Corporation has
the following characteristics: Liquidity ratios are better than
the industry average. Long-term senior debt rating is "A" or
better. In some cases, BBB credits may be acceptable. The issuer
has access to at least two additional channels of borrowing.
Basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances. Typically, the issuer's industry
is well established, the issuer has a strong position within its
industry and the reliability and quality of management is
unquestioned. Issuers rated A are further referred to by use of
numbers 1, 2 and 3 to denote relative strength within this
classification.
<PAGE>
<PAGE>
APPENDIX I FOR CROSS REFERENCING INFORMATION
Included here in the Prospectus booklet is a prospectus for the
MFS EMERGING GROWTH SERIES, MFS GROWTH WITH INCOME SERIES AND
THE MFS HIGH INCOME SERIES, which are three series of the MFS
Variable Insurance Trust.
Cross reference the Prospectus in EDGAR filing for MFS VARIABLE
INSURANCE TRUST as follows:
File Date: May 1, 1997.
Accession No. 912938-97-000256
<PAGE>
APPENDIX II FOR CROSS REFERENCING INFORMATION
Included here in the Prospectus booklet is a prospectus for the
SCUDDER MONEY MARKET PORTFOLIO, SCUDDER CAPITAL GROWTH PORTFOLIO
and SCUDDER INTERNATIONAL PORTFOLIO, which are portfolios of the
Scudder Variable Life Investment Fund.
Cross reference the Prospectus for SCUDDER VARIABLE LIFE
INVESTMENT FUND as filed with the SEC via EDGAR:
File Date: April 30, 1997
Accession No. 0000764797-97-000011
<PAGE>
APPENDIX III FOR CROSS REFERENCING INFORMATION
Included here in the Prospectus booklet is a prospectus for the
AMERICAN CENTURY VP CAPITAL APPRECIATION, a portfolio of
American Century Variable Portfolios, Inc.
Cross reference the prospectus for AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC. as filed with the SEC via EDGAR:
File Date: May 1, 1997
Accession No. 0000814680-97-000006
APPENDIX IV FOR CROSS REFERENCING INFORMATION
Included here in the Prospectus booklet is a prospectus for the
TEMPLETON INTERNATIONAL FUND, a portfolio of Templeton Variable
Products Series Fund
Cross reference the prospectus for TEMPLETON VARIABLE PRODUCTS
SERIES FUND as filed with the SEC via EDGAR:
File Date: April 30, 1997
Accession No. 0000829959-97-000027
(back cover)
(Union Central logo)
Insurance and Investments
At Union Central, being RELIABLE FOR GENERATIONS (SM) IS MORE
THAN A SLOGAN. IT IS OUR MISSION.
Securities products offered through registered representatives
of Carillon Investments, Inc., a subsidiary of The Union Central
Life Insurance Company, P.O. Box 40409, Cincinnati, Ohio
45240-0409, (800) 999-1840.
Printed on recycled paper
UC 1665 5/97
(C) 1997 - The Union Central Life Insurance Company
1876 Waycross Road, Cincinnati, Ohio 45240
(end of back cover)
<PAGE>
CARILLON ACCOUNT
CARILLON FUND, INC.
STATEMENTS OF
ADDITIONAL INFORMATION
May 1, 1997
UC 188 4-97
<PAGE>
CARILLON ACCOUNT
- -----------------------------------------------------------
of
THE UNION CENTRAL LIFE INSURANCE COMPANY
1876 Waycross Road Cincinnati, Ohio 45240 513-595-2600
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information is not a prospectus.
Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the
Prospectus. Accordingly, this Statement should be read in
conjunction with Carillon Account's ("CA") current Prospectus,
dated May 1, 1997, which may be obtained by calling The Union
Central Life Insurance Company ("Union Central") at (513)
595-2600, or writing to P.O. Box 40409, Cincinnati, Ohio
45240-0409.
TABLE OF CONTENTS
Page
Distribution of Contracts........................ B-2
Determination of Annuity Payments................ B-2
Performance Data Advertising..................... B-3
Federal Tax Matters.............................. B-4
Miscellaneous Contract Provisions................ B-6
Custody of CA's Assets........................... B-7
Experts.......................................... B-9
Financial Statements of CA and of Union Central
- ---------------------------------------------------------
<PAGE>
DISTRIBUTION OF CONTRACTS
Contracts are offered on a continuous basis through life
insurance agents of Union Central who are also registered
representatives of Carillon Investments, Inc., or another
broker-dealer member of the National Association of Securities
Dealers, Inc.
As underwriter of the Contracts, the following distribution
fees were paid to Carillon Investments, Inc., by Union Central:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1996 $2,723,411
1995 $1,636,172
1994 $1,975,636
</TABLE>
DETERMINATION OF ANNUITY PAYMENTS
The amount of the first Variable Annuity payment is
calculated by applying the Accumulation Value (less any premium
tax charge deducted at this time), measured as of a date not
more than 10 business days prior to the Maturity Date, to the
Annuity Tables in the Contract. This is done separately for
each amount to be used to provide an annuity reserved for in a
different Subaccount.
The first Variable Annuity payment is divided by the
appropriate Annuity Unit value (as of the same date that the
amount of the first payment was determined) to determine the
number of Annuity Units upon which later annuity payments will
be based. This number of Annuity Units will not change.
Variable Annuity payments after the first will be equal to the
number of Annuity Units determined in this manner times the
Annuity Unit value for each respective Subaccount calculated on
a uniform basis not more than 10 business days before each
annuity payment is due.
Annuity Unit Value - The value of an Annuity Unit in each
Subaccount of CA was initially set at $10. Annuity Units of
each Subaccount are valued separately and will vary with the
investment experience of the particular Subaccount.
The value of the Annuity Unit for each Subaccount at the end
of any valuation period is calculated by: (a) multiplying the
prior Annuity Unit value by the Subaccount's Net Investment
Factor for the period; and then (b) adjusting the result to
compensate for the interest rate assumed in the annuity tables
used to determine the dollar amount of the first Variable
Annuity payment. In this manner, the Annuity Unit values will
most likely change (except when the investment performance
exactly equals the assumed interest rate) for each annuity
payment (although the number of Annuity Units will remain fixed)
and therefore the amount of the Variable Annuity payments will
most likely vary.
<PAGE>
Performance Data Advertising
As noted in the Prospectus, CA occasionally may publish
advertisements that contain total return performance data
relating to its Subaccounts. Tables of historical Accumulation
Unit Values for each Subaccount may be included in advertising
or sales literature that contains total return calculations as
described below. The following table sets forth the performance
data for each of the Subaccounts of the type that will be used
in advertising, in each case for the period ended December 31,
1996.
<TABLE>
<CAPTION>
Average Annual Total Return
(Based on Accumulation Unit Values)
------------------------------------
Inception One Five Ten Since
Subaccounts Date Year Years Years Inception
- ----------- ---- ---- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Equity 6/7/85 22.70% 14.17% 12.69% 13.12%
Bond 8/26/85 5.64% 7.06% 7.47% 8.48%
Capital 5/2/90 13.27% 8.45% - 9.54%
S&P 500 Index 5/1/96 - - - 13.75%
Scudder International 5/1/92 13.12% - - 10.66%
Capital Growth 5/1/92 18.39% - - 12.09%
Money Market * 7/15/85 3.61% 2.57% 4.05% 4.14%
Capital Appreciation 5/1/96 - - - -9.38%
Growth with Income 5/1/96 - - - 13.51%
High Income 5/1/96 - - - 8.41%
Emerging Growth 5/1/97 - - - -
Templeton International 5/1/97 - - - -
<CAPTION>
Average Annual Total Return
(Standardized Total Return)
------------------------------------
Inception One Five Ten Since
Subaccounts Date Year Years Years Inception
- ----------- ---- ---- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Equity 6/7/85 14.01% 13.10% 12.48% 12.82%
Bond 8/26/85 -1.86% 6.06% 7.27% 8.21%
Capital 5/2/90 5.24% 7.44% - 9.06%
S&P 500 Index 5/1/96 - - - 5.72%
Scudder International 5/1/92 5.10% - - 9.57%
Capital Growth 5/1/92 9.99% - - 10.98%
Money Market * 7/15/85 -3.74% 1.60% 3.86% 3.86%
Capital Appreciation 5/1/96 - - - -15.78%
Growth with Income 5/1/96 - - - 5.50%
High Income 5/1/96 - - - 0.75%
Emerging Growth 5/1/97 - - - -
Templeton International 5/1/97 - - - -
</TABLE>
* Although the Money Market Subaccount began investing in the
Scudder Variable Life Investment Fund Money Market Portfolio on
November 12, 1993, the performance data quoted reflects the
performance of the Scudder Fund Money Market Portfolio since the
inception of the Money Market Subaccount.
<PAGE>
Average annual total return is the average annual compounded
rate of return that equates a purchase payment on the first day
to the market value of that purchase payment on the last day of
the period for which total return is calculated. For purposes
of the calculation, it is assumed that an initial payment of
$1,000 is made on the first day of the period for which the
return is calculated. Expenses and charges incurred by the Fund
and charges measured as a percentage of Subaccount assets are
reflected in changes in unit values. The typical effect of the
annual administration fee is included in the total return
calculations, other than those measured by changes in
Accumulation Unit Value, by multiplying $30 by the total number
of contracts in CA and then dividing that total by the average
net assets of CA (including contract assets allocated to the
Guaranteed Account) for the year measured. The resulting
percentage is then multiplied by the average value of the $1,000
investment during the year measured. For less than one year
periods, 1/365 of the fee is assumed to be deducted for each day
of the period. Total return figures that include the impact of
surrender charges assume that the investment is withdrawn from
the Subaccount at the end of the period for which return is
calculated.
From time to time, advertisements for CA may include
comparisons of performance of the Subaccounts to that of various
market indices, including, but not limited to: the Salomon
Brothers Investment Grade Bond Index, the Salomon Brothers U.S.
Treasury Bill Index, the Shearson Lehman Government/Corporate
Bond Index, the S&P 500 Index, the Dow Jones Industrial Average,
the Donoghue Money Fund 30-Day Average Yield, and the Lipper
Variable Insurance Products Performance Analysis Service.
CA advertisements may also include performance rankings (or
information based on those rankings) compiled by various
independent organizations, including but not limited to: LIPPER
ANALYTICAL SERVICES MUTUAL FUNDS SURVEY, LIPPER VARIABLE
INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE, THE VARDS
REPORT, SYLVIA PORTER PERSONAL FINANCE, FINANCIAL SERVICES WEEK,
CONSUMER REPORTS, MONEY MAGAZINE, FORBES MAGAZINE, AND FORTUNE
MAGAZINE.
FEDERAL TAX MATTERS
Taxation of Union Central
Union Central is taxed as a life insurance company under Part
I of Subchapter L of the Internal Revenue Code ("Code"). Since
CA is not an entity separate from Union Central, and its
operations form a part of Union Central, it will not be taxed
separately as a "regulated investment company" under Subchapter
M of the Code. Investment income and realized capital gains on
the assets of CA are reinvested and taken into account in
determining the Accumulation and Annuity Unit values. As a
result, such investment income and realized capital gains are
automatically applied to increase reserves under the Contract.
Under existing federal income tax law, separate account
investment income and capital gains are not taxed to the extent
they are applied to increase reserves under a Contract issued in
connection with CA. Accordingly, Union Central does not
anticipate that it will incur any federal income tax liability
attributable to CA, and therefore Union Central does not intend
to make provisions for any such taxes. However, if changes in
the federal tax laws or interpretations thereof result in Union
Central being taxed on income or gains attributable to CA or
certain types of Contracts, then Union Central may impose a
charge against CA (with respect to some or all Contracts) in
order to set aside provisions to pay such taxes.
<PAGE>
Tax Status of the Contracts
Section 817(h) of the Code provides that separate account
investments (or the investments of a mutual fund the shares of
which are owned by separate accounts of insurance companies)
underlying the Contract must be "adequately diversified" in
accordance with Treasury regulations in order for the Contract
to qualify as an annuity contract under Section 72 of the Code.
The Separate Account, through each Portfolio of the Funds,
intends to comply with the diversification requirements
prescribed in regulations, which affect how the assets in each
Portfolio of the Funds in which the Separate Account invests may
be invested. Union Central does not have control over the Funds
or their investments. However, Union Central believes that each
Portfolio in which the Separate Account owns shares will meet
the diversification requirements and that therefore the
Contracts will be treated as annuities under the Code.
The Treasury has stated that regulations on diversification
requirements do not provide guidance concerning the extent to
which contract holders may direct their investments to the
Portfolios of the Funds. Regulations in this regard may be
issued in the future. It is possible that when regulations are
issued the Funds may not be in compliance with such regulations.
Although Union Central can provide no assurances that any such
regulations will not adversely affect the tax treatment of
existing Contracts in all events, based upon a private letter
ruling Union Central has received on the Contracts, Union
Central believes that any such regulations would be applied only
on a prospective basis. For these reasons, Union Central
reserves the right to modify the Contract as necessary to
prevent the contract holder from being considered the owner of
the assets of the Funds or otherwise to qualify the contract for
favorable tax treatment.
In addition, Nonqualified Contracts will not be treated as
annuity contracts for purposes of Section 72 unless such
contracts provide: (a) that if the contract holder dies on or
after the annuity starting date but prior to the time before the
entire interest in the contract has been distributed, the
remaining portion of such interest must be distributed at least
as rapidly as under the method of distribution in effect at the
time of the contract holder's death; and (b) if the contract
holder dies prior to the annuity starting date, the entire
interest must be distributed within five years after the death
of the contract holder. These requirements should be considered
satisfied if any portion of the contract holder's interest which
is payable to or for the benefit of a "designated beneficiary"
is distributed over the life of such designated beneficiary (or
over a period that does not extend beyond the life expectancy of
the designated beneficiary) and such distributions begin within
one year of the contract holder's death. (A contract holder's
designated beneficiary is the person to whom ownership of the
Contract passes by reason of death and must be a natural
person.) However, if the contract holder's designated
beneficiary is the surviving spouse of the contract holder, the
contract may be continued in the name of the spouse as the
contract holder. Union Central believes that the Contracts
described in this Prospectus meet these requirements. However,
no assurance can be given that the provisions contained in the
Contracts satisfy all such Code requirements. The provisions
contained in the Contracts will be reviewed and modified if
necessary to assure that they comply with the Code requirements.
Other rules may apply to Qualified Contracts.
For a discussion of the tax treatment of the contracts as
annuities under Section 72, see "Tax Status of the Contracts" in
the Prospectus.
<PAGE>
MISCELLANEOUS CONTRACT PROVISIONS
Delay of Payments
Union Central will pay all amounts due from the Variable
Account under the Contract within seven days, unless:
(1) The New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is
otherwise restricted;
(2) An emergency exists as defined by the Securities and
Exchange Commission; or
(3) The Securities and Exchange Commission permits delay
for the protection of the security holders.
Participating
The Contract is issued on a participating basis, and as such
is eligible to share in Union Central's profits and surplus to
the extent determined by Union Central's Board of Directors in
its sole discretion. Union Central anticipates that such
participation, if at all, will be small in amount and will occur
only in later years of the Contract.
Misstatement and Proof of Age, Sex or Survival
Proof of age, sex, or survival of the Annuitant and any
contingent Annuitant may be required prior to making annuity
payments under any Annuity Option which depends on the
continuation of life. If any age or sex has been misstated,
Union Central will pay the amounts which would have been
provided at the correct age and sex. After the annuity payments
begin, Union Central will make up any underpayments in a lump
sum with the next annuity payment. Any overpayments will be
deducted from future annuity payments until the overpayment is
made up.
Settlements
Union Central may require the return of the Contract prior to
any settlement. Due proof of the Annuitant's death must be
received prior to settlement of a death claim.
Assignments
The Contract Owner may assign the Contract prior to the
Maturity Date and during the Annuitant's lifetime, subject to
the rights of any irrevocable Beneficiary, although the ability
to assign certain Qualified Contracts may be restricted. An
assignment will not be binding until received in writing by
Union Central, and Union Central will not be responsible for the
validity of an assignment. An assignment or pledge of the
Contract may result in income tax liability to the owner.
<PAGE>
No Beneficiary may assign benefits under the Contract until
they are due, and to the extent permitted by law, payments are
not subject to the debts of any Beneficiary or to any judicial
process for payment of the Beneficiary's debts.
Modification
Union Central may not modify the Contract without the consent
of the Contract Owner except to make the Contract meet the
requirements of the Investment Company Act of 1940, or to make
the Contract comply with any changes in the Internal Revenue
Code or as required by the Code or by any other applicable law
in order to continue treatment of the Contract as an annuity.
CUSTODY OF CA'S ASSETS
Title to the assets of CA is held by Union Central. Records
are maintained of all purchases and redemptions of Portfolio
shares held by each of the Subaccounts.
EXPERTS
The financial statements of CA at December 31, 1996 and the
statements of financial condition of Union Central at December
31, 1996 and 1995 appearing in this Statement of Additional
Information have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon also appearing
elsewhere herein. Such financial statements have been included
herein in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
<PAGE>
CARILLON ACCOUNT
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
<PAGE>
(letterhead)
ERNST & YOUNG LLP
1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
Phone: 513 621 6454
Report of Independent Auditors
=========================================================
To the Contractholders of Carillon
Account and the Board of Directors of
The Union Central Life Insurance Company
We have audited the accompanying statement of assets and
liabilities of the Carillon Account (comprised of the Carillon
Fund, Inc. Equity, Capital, Bond, and S&P 500 Index Subaccounts,
the Scudder Variable Life Investment Fund Money Market, Capital
Growth, and International Subaccounts, the MFS Variable
Insurance Trust, Growth with Income and High Income subaccounts,
and TCI Portfolios, Inc. Growth Subaccount) as of December 31,
1996, the related statement of operations for the year then
ended and the statements of changes in net assets for each of
the two years in the period then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the applicable
transfer agent. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of each of the respective subaccounts constituting the Carillon
Account at December 31, 1996, the results of their operations
for the year then ended and changes in their net assets for each
of the two years in the period then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
March 5, 1997
<PAGE>
Carillon Account
Statement of Assets and Liabilities
=======================================
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Carillon Fund, Inc.
(affiliated issuers)
-----------------------------------------
S&P 500
Equity Capital Bond Index
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities of
unaffiliated issuers, at
value (cost $ 7,672,708;
$4,517,366, $ 1,190,238,
$ 4,039,705) Investments in
shares of Carillon Fund, Inc.
at value (cost $ 84,762,580;
$43,418,068; $16,988,199,
$9,170,224) 114,189,384 48,469,001 16,994,952 9,914,625
----------- ---------- ---------- ---------
Total Assets 114,189,384 48,469,001 16,994,952 9,914,625
=========== ========== ========== =========
LIABILITIES
Payable to The Union
Central Life Insurance
Company for mortality
and expense risk charges,
and administration fee 279,552 117,413 40,766 22,059
Net Assets Attriibutable
to Contract Owners'
Equity Subacount:
2,723,705.33 Accumulation
Units @ $41.68174 113,528,777
9,142.02 Payout
Units @ $41.68174 381,055
Capital Subaccount:
2,632,591.00 Accumulation
Units @ $18.36654 48,351,588
Bond Subaccount:
672,511.33 Accumulation
Units @ $25.21026 16,954,186
S & P Subaccount:
869,681.47 Accumulation
Units @ $11.37493 9,892,566
Total Liabilities 114,189,384 48,469,001 16,994,952 9,914,625
=========== ========== ========== =========
</TABLE>
<PAGE>
Carillon Account
Statement of Assets and Liabilities (continued)
=========================================================
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Scudder Variable Life
Investment Fund
(unaffiliated issuers)
Money Capital
Market Growth International
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
ASSETS
Investments in securities of
unaffiliated issuers, at value
(cost $7,672,708; $23,264,447;
$21,491,361; 7,672,708 27,224,859 25,177,192
Investments in shares of
Carillon Fund, Inc.,
at value (cost $ 84,762,580;
$43,418,068; $16,988,199,
$9,170,224) ---------- ---------- ----------
Total Assets 7,672,708 27,224,859 25,177,192
========== ========== ==========
LIABILITIES
Payable to The Union Central
Life Insurance Company for
mortality and expense risk
charges, and administration fee 16,606 67,658 59,907
Net Assets Attriibutable to
Contract Owners' Money Market
Subaccount: 477,679.12 Accumulation
Units @ $16.02771 7,656,102
Capital Growth Subaccount:
1,593,634.26 Accumulation
Units @ $17.04105 27,157,201
International Subaccount:
1,564,590.89 Accumulation
Units @ $16.05358 25,117,285
Total Liabilities 7,672,708 27,224,859 25,177,192
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
Carillon Account
Statement of Assets and Liabilities (continued)
=========================================================
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MFS Variable
Insurance Trust TCI Portfolios, Inc.
(unaffiliated issuers) (unaffiliated issuers)
---------------------- ----------------------
Growth High
with Income Income Growth
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments in securities
of unaffiliated issuers,
at value (cost $ 7,672,708;
$23,264,447; $21,491,361; 4,835,556 1,180,931 3,851,036
Investments in shares of
Carillon Fund, Inc., at
value (cost $ 84,762,580;
$43,418,068; $16,988,199,
$9,170,224)
Total Assets 4,835,556 1,180,931 3,851,036
========= ========= =========
LIABILITIES
Payable to The Union
Central Life Insurance
Company for mortality
and expense risk
charges, and
administration fee 10,394 2,308 8,427
Growth with Income Subaccount
425,068.19 Accumulation
Units @ $11.35150 4,825,162
High Income Subaccount
108,722.82 Accumulation
Units @ $10.84062 1,178,623
Growth Subaccount
424.022.29 Accumulation
Units @ $9.06228 3,842,609
--------- --------- ---------
Total Liabilities 4,835,556 1,180,931 3,851,036
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Carillon Fund, Inc.
(affiliated issuers)
-----------------------------------------
S&P 500
Equity Capital Bond Index
Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income $ 5,124,916 $2,377,817 $1,268,449 $ 77,967
EXPENSES
Mortality and expense
risk charge 1,183,376 555,802 187,639 43,633
Administration fee 242,379 113,839 38,433 8,938
----------- ---------- ---------- --------
Total expenses 1,425,755 669,641 226,072 52,571
----------- ---------- ---------- --------
NET INVESTMENT
INCOME (EXPENSE) 3,699,161 1,708,176 ,042,377 25,396
----------- ---------- ---------- --------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
on investments 1,812,837 438,750 (13,540) 11,131
Net unrealized appreciation
(depreciation) of investments 14,393,952 3,452,457 (163,522) 744,401
----------- ---------- ---------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 16,206,789 3,891,207 (177,062) 755,532
----------- ---------- ---------- --------
NET INCREASE (DECREASE)
IN NET ASSETS FROM OPERATIONS $19,905,950 $5,599,383 $ 865,315 $780,928
=========== ========== ========== ========
<CAPTION>
Scudder Variable Life
Investment Fund
(unaffiliated issuers)
-----------------------------------
Money Capital
Market Growth International
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income $ 321,204 $1,772,539 $ 431,383
EXPENSES
Mortality and expense
risk charge 76,088 278,842 259,541
Administration fee 15,585 57,113 53,160
--------- ---------- ----------
Total expenses 91,673 335,955 312,701
--------- ---------- ----------
NET INVESTMENT
INCOME (EXPENSE) 229,531 1,436,584 118,682
--------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments -- 165,975 171,655
--------- ---------- ----------
Net unrealized appreciation
(depreciation) of investments -- 2,198,938 2,292,031
--------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS -- 2,364,913 2,463,686
--------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 229,531 $3,801,497 $2,582,368
========= ========== ==========
<CAPTION>
MFS Variable
Insurance Trust TCI Portfolios, Inc.
(unaffiliated issuers) (unaffiliated issuers)
---------------------- ----------------------
Growth High
with Income Income Growth
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income $ 80,004 $ 61,019 $ --
-------- -------- ---------
EXPENSES
Mortality and expense
risk charge 21,309 4,090 19,322
Administration fee 4,365 838 3,958
-------- -------- ---------
Total expenses 25,674 4,928 23,280
-------- -------- ---------
NET INVESTMENT
INCOME (EXPENSE) 54,330 56,091 (23,280)
-------- -------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
on investments 3,524 755 (3,651)
Net unrealized appreciation
(depreciation) of
investments 318,190 (9,308) (188,669)
-------- -------- ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 321,714 (8,553) (192,320)
-------- -------- ---------
NET INCREASE (DECREASE)
IN NET ASSETS FROM
OPERATIONS $376,044 $ 47,538 $(215,600)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
================================================
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Equity Subaccount
-----------------------
Year ended December 31,
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 3,699,161 $ 4,357,599
Net realized gain on investments 1,812,837 694,386
Net unrealized appreciation
of investments 14,393,952 9,553,916
------------ -----------
Net increase in net assets
resulting from operations 19,905,950 14,605,901
------------ -----------
EQUITY TRANSACTIONS
Contract purchase payments 17,670,408 13,375,897
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 6,004,201 2,803,916
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (3,610,691) (1,514,951)
Surrenders (5,812,606) (3,607,918)
------------ -----------
Net proceeds from equity transactions 14,251,312 11,056,944
------------ -----------
NET INCREASE IN NET ASSETS 34,157,262 25,662,845
NET ASSETS (Beginning of year) 79,752,570 54,089,725
------------ -----------
NET ASSETS (End of year) $113,909,832 $79,752,570
============ ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
========================================
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Capital Subaccount
-----------------------
Year ended December 31,
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 1,708,176 $ 2,793,454
Net realized gain on investments 438,750 228,784
Net unrealized appreciation
of investments 3,452,457 1,298,776
----------- -----------
Net increase in net assets
resulting from operations 5,599,383 4,321,014
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 5,734,653 6,490,922
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,976,596 970,203
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (3,029,990) (1,912,855)
Surrenders (2,813,935) (1,677,734)
----------- -----------
Net proceeds from equity transactions 1,867,324 3,870,536
----------- -----------
NET INCREASE IN NET ASSETS 7,466,707 8,191,550
NET ASSETS (Beginning of year) 40,884,881 32,693,331
----------- -----------
NET ASSETS (End of year) $48,351,588 $40,884,881
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
=====================================
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Bond Subaccount
-----------------------
Year ended December 31,
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 1,042,377 $ 737,629
Net realized gain (loss) on investments (13,540) 61
Net unrealized appreciation
(depreciation) of investments (163,522) 1,088,507
----------- -----------
Net increase in net assets resulting
from operations 865,315 1,826,197
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 3,598,278 2,396,149
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,232,814 471,042
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (1,607,281) (537,207)
Surrenders (843,649) (788,960)
----------- -----------
Net proceeds from equity transactions 2,380,162 1,541,024
----------- -----------
NET INCREASE IN NET ASSETS 3,245,477 3,367,221
NET ASSETS (Beginning of year) 13,708,709 10,341,488
----------- -----------
NET ASSETS (End of year) $16,954,186 $13,708,709
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
=======================================
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
Money Market Subaccount
-----------------------
Year ended December 31,
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 229,531 $ 175,915
----------- -----------
Net increase in net assets resulting
from operations 229,531 175,915
EQUITY TRANSACTIONS
Contract purchase payments 6,319,738 3,269,680
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 2,438,282 1,868,283
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (6,169,979) (3,591,075)
Surrenders (860,396) (190,316)
----------- -----------
Net proceeds from equity transactions 1,727,645 1,356,572
----------- -----------
NET INCREASE IN NET ASSETS 1,957,176 1,532,487
NET ASSETS (Beginning of year) 5,698,926 4,166,439
----------- -----------
NET ASSETS (End of year) $ 7,656,102 $ 5,698,926
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
=====================================
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
Capital Growth Subaccount
-----------------------
Year ended December 31,
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 1,436,584 $ 268,652
Net realized gain on investments 165,975 26,006
Net unrealized appreciation of investments 2,198,938 2,607,035
----------- -----------
Net increase in net assets resulting
from operations 3,801,497 2,901,693
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 6,225,412 3,831,260
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 2,457,281 947,249
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (1,294,901) (779,187)
Surrenders (772,653) (449,607)
----------- -----------
Net proceeds from equity transactions 6,615,139 3,549,715
----------- -----------
NET INCREASE IN NET ASSETS 10,416,636 6,451,408
NET ASSETS (Beginning of year) 16,740,565 10,289,157
----------- -----------
NET ASSETS (End of year) $27,157,201 $16,740,565
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
=====================================
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
International Subaccount
-----------------------
Year ended December 31,
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment (expense) $ 118,682 $ (158,671)
Net realized gain on investments 171,655 240,636
Net unrealized appreciation of investments 2,292,031 1,354,983
----------- -----------
Net increase in net assets resulting
from operations 2,582,368 1,436,948
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 4,746,264 3,361,698
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 2,157,750 598,178
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (824,341) (1,523,833)
Surrenders (861,194) (748,667)
----------- -----------
Net proceeds from equity transactions 5,218,479 1,687,376
----------- -----------
NET INCREASE IN NET ASSETS 7,800,847 3,124,324
NET ASSETS (Beginning of year) 17,316,438 14,192,114
----------- -----------
NET ASSETS (End of year) $25,117,285 $17,316,438
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
=====================================
<TABLE>
<CAPTION>
MFS Variable Insurance Trust
Growth with Income Subaccount
-----------------------------
Year ended December 31, 1996
<S> <C>
OPERATIONS
Net investment income $ 54,330
Net realized gain on investments 3,524
Net unrealized appreciation of investments 318,190
Net increase in net assets resulting
from operations 376,044
----------
EQUITY TRANSACTIONS
Contract purchase payments 2,163,387
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 2,336,016
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (36,171)
Surrenders (14,114)
----------
Net proceeds from equity transactions 4,449,118
----------
NET INCREASE IN NET ASSETS 4,825,162
NET ASSETS (Beginning of year) 0
NET ASSETS (End of year) $4,825,162
==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
=====================================
<TABLE>
<CAPTION>
MFS Variable Insurance Trust
High Income Subaccount
-----------------------------
Year ended December 31, 1996
<S> <C>
OPERATIONS
Net investment income $ 56,091
Net realized gain on investments 755
Net increase in net assets resulting
from operations 47,538
----------
EQUITY TRANSACTIONS
Contract purchase payments 740,317
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 403,782
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (11,050)
Surrenders (1,964)
----------
Net proceeds from equity transactions 1,131,085
----------
NET INCREASE IN NET ASSETS 1,178,623
NET ASSETS (Beginning of year) 0
----------
NET ASSETS (End of year) $1,178,623
==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
=====================================
<TABLE>
<CAPTION>
Carillon Fund, Inc.
S&P 500 Index Subaccount
-----------------------------
Year ended December 31, 1996
<S> <C>
OPERATIONS
Net investment income $ 25,396
Net realized gain on investments 11,131
Net unrealized appreciation of investments 744,401
----------
Net increase in net assets resulting
from operations 780,928
----------
EQUITY TRANSACTIONS
Contract purchase payments 5,067,645
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 4,416,451
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (325,162)
Surrenders (47,296)
----------
Net proceeds from equity transactions 9,111,638
----------
NET INCREASE IN NET ASSETS 9,892,566
NET ASSETS (Beginning of year) 0
----------
NET ASSETS (End of year) $9,892,566
==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
=====================================
<TABLE>
<CAPTION>
TCI Portfolios, Inc.
Growth Subaccount
-----------------------------
Year ended December 31, 1996
<S> <C>
OPERATIONS
Net investment expense $ (23,280)
Net realized loss on investments (3,651)
Net unrealized depreciation of investments (188,669)
----------
Net decrease in net assets resulting
from operations (215,600)
----------
EQUITY TRANSACTIONS
Contract purchase payments 2,210,548
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,995,290
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (107,926)
Surrenders (39,703)
----------
Net proceeds from equity transactions 4,058,209
----------
NET INCREASE IN NET ASSETS 3,842,609
NET ASSETS (Beginning of year) 0
----------
NET ASSETS (End of year) $3,842,609
==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
NOTES TO FINANCIAL STATEMENTS
================================
DECEMBER 31, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Carillon Account of The Union Central Life Insurance Company
(the Account) is a separate account registered under the
Investment Company Act of 1940, as amended, as a unit
investment trust. The Account was established on February 6,
1984 by resolution of the Board of Directors of The Union
Central life Insurance Company (Union Central) and commenced
operations on June 7, 1985. Carillon Account is comprised of
ten subaccounts, each of which invests in a corresponding
Portfolio of Carillon Fund, Inc., Scudder Variable Life
Investment Fund, MFS Variable Insurance Trust, or TCI
Portfolios, Inc. (the "Funds"). The Funds are no-load,
diversified, open-end management investment companies
registered under the Investment Company Act of 1940, as
amended. The shares of Carillon Fund, Inc. are sold only to
Union Central and its separate accounts to fund the benefits
under certain variable annuity contracts. Carillon
Investments, Inc., a broker-dealer registered under the
Securities Exchange Act of 1934 and a wholly-owned subsidiary
of Union Central , serves as the distributor of variable
annuity contracts issued by Carillon Fund, Inc. The shares of
Scudder Variable Life Investment Fund are available and are
being marketed exclusively as a pooled funding vehicle for life
insurance companies writing all types of variable life
insurance policies and variable annuity contracts. Scudder
Investor Services, Inc., a wholly-owned subsidiary of Scudder
Stevens & Clark Inc. serves as distributor of variable life
insurance policies and variable annuity contracts issued by
Scudder Variable Life Investment Fund. MFS Fund Distributors,
Inc., a wholly-owned subsidiary of MFS, is the distributor of
the shares issued by the MFS Variable Insurance Trust.
Twentieth Century Securities, Inc. a wholly-owned subsidiary of
Twentieth Century Companies, Inc. serves as the distributor of
variable annuity and variable life insurance contracts issued
by TCI Portfolios, Inc.
The assets of the Account are segregated from the other assets
of Union Central and the investment performance of the Account
is independent of the investment performance of both Union
Central's general assets and other separate accounts.
Investment valuation - Assets of the Account are invested in
shares of the Funds at the net asset value of the Fund shares.
Investments in Fund shares are subsequently valued at the net
asset value of the Fund shares held.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and
disclosure of contingent assets and labilities at the date of
the financial statements. Estimates also effect the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ for those estimates.
Securities transactions and investment income - Securities
transactions are recorded on the trade date (the date the order
to buy or sell is executed), and dividend income is recorded on
the ex-dividend date. Gains and losses on sales of Fund shares
are calculated on the first-in, first-out basis for financial
reporting and tax purposes. All dividends and distributions
from the Subaccount are reinvested in additional shares of the
respective Subaccount at the net asset value per share.
Federal income taxes - The operations of the Account form a
part of and are taxed with the operations of Union Central.
Union Central is taxed as a life insurance company under
Subchapter L of the Internal Revenue Code. Under existing
federal income tax law, separate account investment income and
capital gains are not taxed to the extent they are applied to
increase reserves under a contract issued in connection with
the Account. Investment income and realized capital gains and
losses on assets of the Account are automatically applied to
increase or decrease reserves under the contract. Accordingly,
no provision for federal income taxes has been made in these
financial statements.
NOTE 2 - INVESTMENT IN AFFILIATED AND NON-AFFILIATED FUND
The subaccounts of the Account held the following investment in
the corresponding Portfolios of Carillon Fund, Inc., Scudder
Variable Life Investment Fund, MFS Variable Insurance Trust,
and TCI Portfolio, Inc. as of December 31, 1996:
<TABLE>
<CAPTION>
Carillon Fund, Inc.
----------------------------------------------
Equity Capital Bond S&P 500
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value per share $ 19.45 $ 14.95 $ 10.91 $ 12.13
Number of shares 5,870,920 3,242,074 1,557,741 817,364
<CAPTION>
Scudder Variable Life Investment Fund
-------------------------------------
Money Capital
Market Growth International
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value per share $ 1.00 $ 16.50 $ 13.25
Number of shares 7,672,708 1,649,991 1,900,165
<CAPTION>
MFS Variable Insurance Trust
--------------------------------
Growth with Income High Income
Subaccount Subaccount
---------- ----------
<S> <C> <C>
Net asset value per share $ 12.98 $ 10.87
Number of shares 372,539 108,641
<CAPTION>
TCI Portfolios, Inc
-------------------
Growth
Subaccount
----------
<S> <C>
Net asset value per share $ 10.24
Number of shares 376,078
</TABLE>
NOTE 3 - ACCOUNT CHARGE
Mortality and expense risk charge - A mortality and expense
risk charge for Union Central at an annual rate of 1.2% of the
net assets of the Account is determined daily. The charge may
be increased or decreased by Union Central's Board of Directors
but cannot exceed a 1.7% annual rate. The mortality risk
results from a provision in the contract in which Union Central
agrees to make annuity payments in accordance with the annuity
tables, regardless of how long a particular annuitant or other
payee lives. The expense risk assumed by Union Central is the
risk that deductions for administration fees and surrender
charges will be insufficient to cover actual administrative and
distribution expenses.
Administrative fee - An administrative fee for Union Central,
at an annual rate of 0.25% of the net assets of the Account, is
determined daily. This fee is intended to defray expenses
incurred by Union Central in connection with premium billing
and collection, record keeping, processing death benefit
claims, cash surrenders and contract changes, calculating
accumulation unit values, reporting and other communications to
contract owners, and other similar expenses and overhead costs.
NOTE 4 - SELECTED PER UNIT DATA
The following selected per unit data is computed on the basis
of an accumulation unit outstanding at December 31, of each
year except as noted.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CARILLON FUND, INC.
EQUITY SUBACCOUNT
Accumulation unit value $41.68 $33.97 $27.15
Number of accumulation units
outstanding, end of period 2,723,705.33 2,337,986.47 1,981,958.18
Payout unit value $41.68 $33.97
Number of payout units
outstanding, end of period 9,142.02 9,795.88
CAPITAL SUBACCOUNT
Accumulation unit value $18.37 $16.21 $14.39
Number of accumulation units
outstanding, end of period 2,632,591.00 2,521,521.39 2,271,374.95
BOND SUBACCOUNT
Accumulation unit value $25.21 $23.87 $20.34
Number of accumulation units
outstanding, end of period 672,511.33 574,420.86 508,398.32
S&P 500 SUBACCOUNT
Accumulation unit value $11.37<F4>
Number of accumulation units
outstanding, end of period 869,681.47
SCUDDER VARIABLE LIFE
INVESTMENT FUND
MONEY MARKET SUBACCOUNT<F3>
Accumulation unit value $16.03 $15.47 $14.85
Number of accumulation units
outstanding, end of period 477,679.12 368,443.98 280,575.27
CAPITAL GROWTH
SUBACCOUNT
Accumulation unit value $17.04 $14.39 $11.35
Number of accumulation units
outstanding, end of period 1,593,634.26 1,162,998.78 906,428.22
INTERNATIONAL
SUBACCOUNT
Accumulation unit value $16.05 $14.19 $12.96
Number of accumulation units
outstanding, end of period 1,564,590.89 1,220,160.02 1,095,214.21
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CARILLON FUND, INC.
EQUITY SUBACCOUNT
Accumulation unit value $26.63 $23.68 $21.49
Number of accumulation units
outstanding, end of period 1,723,790.37 1,312,947.47 1,057,669.36
Payout unit value
Number of payout units
outstanding, end of period
CAPITAL SUBACCOUNT
Accumulation unit value $14.47 $13.02 $12.24
Number of accumulation units
outstanding, end of period 1,790,938.05 1,181,036.39 627,636.09
BOND SUBACCOUNT
Accumulation unit value $20.98 $19.01 $17.92
Number of accumulation units
outstanding, end of period 513,613.17 348,420.48 283,492.73
S&P 500 SUBACCOUNT
Accumulation unit value
Number of accumulation units
outstanding, end of period
SCUDDER VARIABLE LIFE
INVESTMENT FUND
MONEY MARKET SUBACCOUNT<F3>
Accumulation unit value $14.53 $14.37 $14.12
Number of accumulation units
outstanding, end of period 119,598.28 120,546.54 83,622.68
CAPITAL GROWTH
SUBACCOUNT
Accumulation unit value $12.75 $10.70<F2>
Number of accumulation units
outstanding, end of period 439,913.95 70,218.22
INTERNATIONAL
SUBACCOUNT
Accumulation unit value $13.26 $9.76<F2>
Number of accumulation units
outstanding, end of period 362,171.94 43,624.42
<CAPTION>
1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
CARILLON FUND, INC.
EQUITY SUBACCOUNT
Accumulation unit value $14.98 $17.98 $16.32 $12.57
Number of accumulation units
outstanding, end of period 936,036.25 799,268.16 561,681.97 521,066.65
Payout unit value
Number of payout units
outstanding, end of period
CAPITAL SUBACCOUNT
Accumulation unit value $9.85<F1>
Number of accumulation units
outstanding, end of period 279,289.41
BOND SUBACCOUNT
Accumulation unit value $15.42 $14.40 $13.20 $12.48
Number of accumulation units
outstanding, end of period 285,369.81 250,631.38 225,777.14 224,899.83
S&P 500 SUBACCOUNT
Accumulation unit value
Number of accumulation units
outstanding, end of period
SCUDDER VARIABLE LIFE
INVESTMENT FUND
MONEY MARKET SUBACCOUNT<F3>
Accumulation unit value $13.58 $12.71 $11.85 $11.23
Number of accumulation units
outstanding, end of period 103,404.70 75,006.15 52,665.63 50,466.90
CAPITAL GROWTH
SUBACCOUNT
Accumulation unit value
Number of accumulation units
outstanding, end of period
INTERNATIONAL
SUBACCOUNT
Accumulation unit value
Number of accumulation units
outstanding, end of period
CAPTION
<PAGE>
1996
<S> <C>
MFS VARIABLE
INSURANCE TRUST
GROWTH WITH INCOME
SUBACCOUNT
Accumulation unit value $11.35<F4>
Number of accumulation units
outstanding, end of period 425,068.19
HIGH INCOME
SUBACCOUNT
Accumulation unit value $10.84<F4>
Number of accumulation units
outstanding, end of period 108,772.82
TCI PORTFOLIOS, INC.
GROWTH
SUBACCOUNT
Accumulation unit value $9.06<F4>
Number of accumulation units
outstanding, end of period 424,022.29
<FN>
<F1> Commencement of operations was May 1, 1990, with a beginning
accumulation unit value of $10.00.
<F2> Commencement of operations was May 1, 1992, with a beginning
accumulation unit value of $10.00.
<F3> Assets of Carillon Money Market Subaccount were transferred to the
Scudder Money Market Subaccount on November 12, 1993.
<F4> Commencement of operations was May 1, 1996, with a beginning
accumulation value of $10.00.
</TABLE>
<PAGE>
Consolidated Financial Statements
The Union Central Life
Insurance Company and Subsidiaries
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1996 and 1995
CONTENTS
Page
Report of Independent Auditors.......................... 1
Consolidated Balance Sheets as of
December 31, 1996 and 1995.............................. 2
Consolidated Statements of Income for the years ended
December 31, 1996 and 1995.............................. 3
Consolidated Statements of Equity for the years ended
December 31, 1996 and 1995.............................. 4
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1995........................ 5
Notes to Consolidated Financial Statements.............. 6
<PAGE>
(letterhead)
ERNST & YOUNG LLP
1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
Phone: 513 621 6454
Report of Independent Auditors
To the Board of Directors
The Union Central Life Insurance Company
We have audited the accompanying consolidated balance sheets of
The Union Central Life Insurance Company and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of income, equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of The Union Central Life Insurance Company
and subsidiaries at December 31, 1996, and 1995, and the
consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & Young LLP
March 24, 1997
<PAGE>
The Union Central Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale
at fair value (amortized cost: $2,749,772 $2,817,219
1996 - $2,727,178; and 1995 - $2,744,458)
Equity securities available-for-sale
at fair value
(cost: 1996 - $54,504 and 1995 - $45,998) 61,458 51,824
Cash and short-term investments 1,040 11,438
Other invested assets 42,490 34,058
Mortgage loans 663,351 591,978
Real estate 58,601 61,196
Policy loans 206,889 207,855
---------- ----------
Total investments 3,783,601 3,775,568
Accrued investment income 47,491 46,868
Deferred policy acquisition costs 414,458 383,563
Property, plant and equipment, at cost,
less accumulated depreciation
(1996 - $55,798 and 1995 - $53,726) 22,561 21,679
Federal income tax recoverable 6,394 --
Other assets 89,251 79,141
Separate account assets 1,000,469 729,792
---------- ----------
Total assets $5,364,225 $5,036,611
========== ==========
LIABILITIES AND EQUITY
Policy liabilities:
Future policy benefits $1,892,875 $1,861,520
Deposit funds 1,568,566 1,595,829
Policy and contract claims 28,413 28,587
Policyholders' dividends 37,492 35,957
---------- ----------
Total policy liabilities 3,527,346 3,521,893
Deferred revenue 130,176 134,464
Accrued commissions, expenses and taxes 16,373 24,461
Other liabilities 49,604 41,768
Deferred federal income taxes 35,149 42,892
Federal income tax payable -- 890
Surplus notes payable 49,740 --
Separate account liabilities 1,014,960 735,334
---------- ----------
Total liabilities 4,823,348 4,501,702
MINORITY INTEREST IN SUBSIDIARY'S EQUITY 46,076 49,165
EQUITY
Policyholders' equity 481,799 456,203
Unrealized gain on
available-for-sale securities 13,002 29,541
---------- ----------
Total equity 494,801 485,744
---------- ----------
Total liabilities and equity $5,364,225 $5,036,611
========== ==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1996 1995
---- ----
<S> <C> <C>
REVENUE
Insurance revenue:
Traditional insurance premiums $136,448 $133,068
Universal life policy charges 77,149 69,088
Annuities 34,740 35,128
Net investment income 296,912 290,548
Net realized losses on investments (19,113) (7,147)
Other 6,162 7,074
-------- --------
Total revenue 532,298 527,759
BENEFITS AND EXPENSES
Benefits 184,368 170,208
Increase in reserves for
future policy benefits 2,985 12,132
Interest expense:
Universal life 50,461 47,683
Investment products 95,654 100,081
Underwriting, acquisition
and insurance expenses 130,582 135,273
Policyholders' dividends 17,306 20,247
-------- --------
Total benefits and expenses 481,356 485,624
Income before federal income taxes
and minority interest in
subsidiary (income) loss 50,942 42,135
Federal income tax expense 22,642 14,347
-------- --------
Income before minority interest in
subsidiary (income) loss 28,300 27,788
Minority interest in
subsidiary (income) loss (2,704) 1,458
-------- --------
Net Income $ 25,596 $ 29,246
======== ========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Available-
Policyholders' for-Sale Total
Equity Securities Equity
------------- ------------- ---------
<S> <C> <C> <C>
Balance at
December 31, 1994 $ 426,957 $(100,401) $ 326,556
Net income 29,246 -- 29,246
Net unrealized
appreciation -- 129,942 129,942
--------- --------- ---------
Balance at
December 31, 1995 456,203 29,541 485,744
--------- --------- ---------
Net income 25,596 -- 25,596
Net unrealized
depreciation -- (16,539) (16,539)
--------- --------- ---------
Balance at
December 31, 1996 $ 481,799 $ 13,002 $ 494,801
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 25,596 $ 29,246
Adjustments to net income not affecting cash:
Interest credited to interest
sensitive products 95,654 100,081
Interest credited to universal life policies 50,461 47,683
Accrual of discounts on investments, net (1,487) (4,443)
Net realized losses on investments 19,113 7,147
Depreciation 6,472 4,019
Amortization of deferred policy
acquisition costs 33,523 35,744
Amortization of deferred revenue (6,476) (8,974)
Deferred federal income taxes (benefit) 4,134 (2,429)
Change in operating assets and liabilities:
Accrued investment income (623) (2,885)
Policy cost deferred (40,471) (41,246)
Revenue deferred 2,188 4,656
Policy liabilities (72,417) (41,922)
Federal income tax recoverable (payable) (54) 845
Change in other liabilities (17,127) (12,634)
Other items, net 11,557 5,048
---------- ----------
Cash Provided by Operating Activities 110,043 119,936
---------- ----------
INVESTING ACTIVITIES
Costs of investments acquired (3,393,082) 2,879,846)
Proceeds from sale, maturity or repayment of
investments 3,297,247 2,779,000
(Increase) decrease in policy loans 966 (1,037)
Purchases of property and equipment, net (6,986) (4,249)
---------- ----------
Cash Used in Investing Activities (101,855) (106,132)
---------- ----------
FINANCING ACTIVITIES
Receipts from universal life and
investment contracts 534,974 514,772
Withdrawals from universal life and
investment contracts (603,300) (529,487)
Cash provided by issuance of surplus notes 49,740 --
---------- ----------
Cash Used by Financing Activities (18,586) (14,715)
---------- ----------
Decrease in cash and short term investments (10,398) (911)
---------- ----------
Cash and short term investments
at beginning of year 11,438 12,349
---------- ----------
Cash and short term investments
at end of year $ 1,040 $ 11,438
========== ==========
Supplemental disclosure of
cash flow information:
Cash paid during the year
for federal income taxes $27,905 $20,785
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Organization
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles (GAAP) and include the accounts of The Union Central
Life Insurance Company (Union Central) and its subsidiaries: The
Manhattan Life Insurance Company (Manhattan Life), a mixed
charter life insurance company of which Union Central owns 73% of
the outstanding guarantee capital shares, Carillon Advisers, Inc.
(CAI), a registered investment advisor company, wholly owned,
Carillon Investments, Inc. (CII) a broker dealer, wholly owned,
and Carillon Marketing Agency, Inc. (CMAI) an insurance agency,
wholly owned. The consolidated entity will be referred to as
"the Company". All significant intercompany accounts and
transactions have been eliminated in the accompanying
consolidated financial statements. Union Central also has the
following unconsolidated investment affiliates: Carillon Fund,
Inc., a variable products mutual fund consisting of four
investment portfolios (equity, bond, asset allocation, and S&P
500 indexed); Carillon Investment Trust, a mutual fund; and
Summit Investment Trust, a high-yield mutual fund. In addition,
Carillon Advisors, Inc., owns 51% of First Summit Capital
Management, a registered investment advisor.
The Company provides a wide spectrum of financial products and
related services for the benefit of individual, group and pension
policyholders. Such products and services include insurance to
provide for financial needs resulting from loss of life or income
and management of funds accumulated for preretirement and
retirement needs.
The Company is licensed to do business in all 50 states in the
United States.
The preparation of financial statements requires management to
make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates
and assumptions could change in the future as more information
becomes known, which could impact the amounts reported and
disclosed herein.
Accounting Changes
On November 15, 1995, the Financial Accounting Standards Board
(FASB) issued a Special Report "A Guide to Implemention of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities"(SFAS 115 Special Report). In accordance with
provisions in the SFAS 115 Special Report, the Company
reclassified all "Held-to-Maturity" securities to "Available-for-
Sale." The adoption had an immaterial effect on the Company's
equity.
In 1995, the Company adopted FASB Statement No. 114," Accounting
by Creditors for Impairment of a Loan" as amended by FASB
Statement No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures." The effect of adoption
was immaterial.
Investments
Fixed maturity and equity securities classified as available-for-
sale are carried at fair value with net unrealized gains and
losses reported as a separate component of equity.
Other investments are reported on the following bases:
* Mortgage loans on real estate are carried at their
aggregate unpaid balance less unamortized discount and
less an allowance for possible losses.
* Real estate acquired through foreclosure is carried at
the lower of cost or its net realizable value.
* Policy loans are reported at unpaid balances.
* Cash and short-term investments presented on the Balance
Sheets consist of cash-in-bank, cash-in-transit and
commercial paper that has a maturity date of 90 days or
less from the date acquired.
The fair values of fixed maturity and equity securities represent
quoted market values from published sources or calculated market
values using the "yield method" if no quoted market values are
obtainable.
Realized gains and losses, net of related deferred policy
acquisition cost amortization, on sales of investments, and
declines in the value of investments judged to be other-than-
temporary, are recognized on a specific identification basis.
Interest is not accrued on mortgage loans or bonds for which
principal or interest payments are determined to be
uncollectible.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable agency expenses have been deferred.
Deferred policy acquisition costs are amortized consistent with
the methods described in "Policy Liabilities, Revenues, Benefits
and Expenses," and the effect of realized gains and losses on
deferred policy acquisition cost amortization is restored or
amortized and is netted against "Net realized losses on
investments". Amortization of deferred policy acquisition costs
totalled $33,523,000 and $35,774,000, net of the effect of
realized losses on amortization of ($9,176,000) and ($5,180,000)
for the years ended December 31, 1996 and 1995, respectively.
Deferred policy acquisition costs for participating life and
universal life business are adjusted to reflect the impact of
unrealized gains and losses on fixed maturity securities
available-for-sale. These adjustments totalled $7,143,000, and
$21,914,000 at 1996 and 1995, respectively.
Property, Plant and Equipment
Property, plant and equipment is valued at historical cost less
accumulated depreciation in the Balance Sheets. It consists
primarily of Union Central's home office, capital leases for
furniture and equipment, furniture and fixtures and electronic
data processing equipment.
Depreciation is computed with the straight-line method over the
estimated useful lives of the respective assets, not to exceed 10
years for office furniture and 5 years for electronic data
processing equipment. Depreciation is computed for leasehold
improvements with the straight-line method over the shorter of
the remaining lease term or useful life of the improvements.
Deposit Funds
The liability for deposit funds is generally established at the
policyholders' accumulated cash values plus amounts provided for
guaranteed interest.
Policy Claims
Policy claim reserves represent the estimated ultimate net cost
of all reported and unreported claims incurred. In addition, a
claim adjustment expense reserve is held to account for the
expenses associated with administering these claims. The
reserves for unpaid claims are estimated using individual case
basis valuations and statistical analyses. The claim adjustment
expense reserve is estimated using statistical analyses. These
estimates are subject to the effects of trends in claim severity
and frequency. Although some variability is inherent in such
estimates, management believes that the reserves for claims and
claim related expenses are adequate. The estimates are
continually reviewed and adjusted as necessary as experience
develops or new information becomes known; and such adjustments
are included in current operations.
Dividends to Policyholders
Union Central's dividend liability is the amount estimated to
have accrued to policyholders' as of each year end. Manhattan
Life's dividend liability is based on the dividend scale in
effect at the time the policy was issued.
Separate Accounts
Separate Account assets and liabilities reported in the
accompanying financial statements pertain to segregated funds
which are administered for pension and other clients, including
purchasers of Union Central's variable insurance and annuity
contracts. Other than amounts derived from, or otherwise
attributable to, the General Account (which amounts are included
in surplus), assets of Separate Accounts are not available to
fund the liabilities of the General Account. Separate Account
assets include common stocks, long-term bonds, mortgages and
short-term investments. Separate Account liabilities represent
reserves established to meet withdrawal and future benefits
payment contractual provisions. Union Central derives certain
fees for maintaining and managing the Separate Accounts, but
bears no investment risk on these assets, except to the extent
that it participates in a particular Separate Account.
Investment risk associated with market value changes are borne by
the owner of the contract and not by Union Central.
Recognition of Premium Revenues and Related Costs
POLICY LIABILITIES, REVENUES, BENEFITS AND EXPENSES
Traditional Insurance Products
Traditional insurance products include those products with fixed
and guaranteed premiums and benefits and consist primarily of
whole life insurance policies, term insurance policies and
disability income policies. Premiums for traditional products
are recognized as revenue when due.
The liability for future policy benefits for participating
traditional life is computed using a net level premium method and
the guaranteed mortality and dividend fund interest. The
mortality and interest assumptions are equivalent to statutory
assumptions. The liabilities for future policy benefits and
expenses for nonparticipating traditional life policies and
disability income policies are generally computed using a net
level premium method and assumptions for investment yields,
morbidity, and withdrawals based principally on company
experience projected at the time of policy issue, with provision
for possible and adverse deviations. Interest assumptions for
participating traditional life reserves for all policies ranged
from 2.25% to 5.50% for the years ended 1996 and 1995.
The costs of acquiring new traditional business, principally
commissions, certain policy issue and underwriting expenses (such
as medical examination and inspection report fees) and certain
agency expenses, all of which vary with and are primarily related
to the production of new and renewal business, are deferred to
the extent that such costs are deemed recoverable through future
gross premiums. Such non-participating deferred acquisition
costs are amortized over the anticipated premium paying period of
the related policies, generally not to exceed 30 years, using
assumptions consistent with those used to develop policy benefit
reserves. For participating life insurance products, deferred
policy acquisition costs are being amortized in proportion to
estimated gross margins of the related policies. Gross margins
are determined for each issue year and are equal to premiums plus
investment income less death claims, surrender benefits,
administrative costs, policyholder dividends, and the increase in
reserve for future policy benefits. The future investment yields
are assumed to range from 7.36% to 8.62% for the years ended 1996
and 1995. Changes in dividend payouts are assumed with changes
in yields.
Universal Life and Other Interest Sensitive Products
Interest sensitive products include universal life and single
premium whole life products. They are distinguished by the
existence of a separately definable fund that is credited with
interest and from which any policy charges are taken. Revenues
for these products consist of policy charges for the cost of
insurance, policy administration charges, and surrender charges
that have been assessed against policyholder account balances
during the period.
Benefit reserves for universal life and other interest sensitive
products are computed in accordance with the retrospective
deposit method and represent policy account balances before
applicable surrender charges. Policy benefits that are charged
to expense include benefit claims incurred in the period in
excess of related policy account balances and interest credited
to account balances. Interest crediting rates ranged from 4.75%
to 7.60% for the years ended 1996 and 1995.
The cost of acquiring universal life and other interest sensitive
products, principally commissions, certain policy issue and
underwriting expenses (such as medical examination and inspection
report fees) and certain agency expenses, all of which vary with
and are primarily related to the production of new and renewal
business, are deferred to the extent that such costs are deemed
recoverable through future estimated gross profits. Acquisition
costs for universal life and other interest sensitive products
are amortized over the life of the policies in proportion to the
present value of expected gross profits from surrender charges
and investment, mortality and expense margins. The amortization
is adjusted retrospectively when estimates of current or future
gross profits (including the impact of investment gains and
losses) to be realized from a group of products are revised.
Amounts assessed policyholders that represent revenue for
services to be provided in future periods are reported as
unearned revenue and recognized in income over the life of the
policies, using the same assumptions and factors as are used to
amortize deferred acquisition costs. These charges consist of
policy fees and premium loads that are larger in the initial
policy years than they are in the later policy years.
Group Products
Group products consist primarily of group life insurance, and
group long and short term disability income products. Premiums
for group insurance products are recognized as revenue when due.
The liabilities for future policy benefits and expenses for group
life and disability income products are computed using statutory
methods and assumptions, which approximate net level premium
reserves using assumptions for investment yields, mortality, and
withdrawals based principally on company experience projected at
the time of policy issue, with provisions for possible adverse
deviations. Interest assumptions are based on assumed investment
yields that range from 2.00% to 6.00% for the years ended 1996
and 1995.
The costs of acquiring new group life and disability income
business, principally commissions, certain policy issue and
underwriting expenses (such as medical examination and inspection
report fees) and certain agency expenses, all of which vary with
and are primarily related to the production of new and renewal
business, are deferred to the extent that such costs are deemed
recoverable through future gross premiums. Such deferred
acquisition costs are amortized over the anticipated premium
paying period of the related policies, generally not to exceed
ten years.
Pension Products
Pension products include deferred annuities, guaranteed
investment contracts and payout annuities. Revenues for the
deferred annuity products and guaranteed investment contracts
consist of investment income on policy funds, asset charges,
contract administration fees, and surrender charges that have
been assessed against policyholder account balances. Expenses
for deferred annuity and guaranteed investment contracts products
include the interest credited on policy funds and expenses
incurred in the administration and maintenance of the contracts.
For payout annuities, premiums are recognized as revenue when due
and expenses exclude the interest credited on policy funds.
Benefit reserves for the deferred annuity contracts and
guaranteed investment contracts represent the policy account
balances before applicable surrender charges. Interest
assumptions on payout annuities are based on assumed investment
yields that ranged from 2.00% to 6.00% for the years ended 1996
and 1995.
Commissions and other related costs of acquiring annuity
contracts that vary with and are primarily related to the
production of new and renewal business are deferred to the extent
that such costs are deemed recoverable through future estimated
gross profits. Acquisition costs are amortized over the life of
the contracts in direct proportion to the present value of
expected gross profits from surrender charges and investment and
expense margins. The amortization is adjusted retrospectively
when estimates of current or future gross profits (including the
impact of investment gains or losses) to be realized on a group
of contracts are revised.
Reinsurance
Reinsurance premiums and claims are accounted for on bases
consistent with those used in accounting for the original
policies issued and the terms of the reinsurance contracts.
Premiums and benefits are reported net of reinsured amounts.
Allocation of Manhattan Life's Income and Equity
Manhattan Life's charter provides for the allocation of its
profits between its shareholders and its policyholders on a one-
eighth/seven-eighths basis. The profits allocated are equal to
income after taxes and interest on the Guaranteed Capital Reserve
((GCR) see Note 5 for further discussion) but before policyholder
dividends. Manhattan Life's policyholders' and minority
shareholders' share of profits/losses are included in minority
interest in subsidiary's (income) loss in the Statements of
Income. Manhattan Life's policyholders' and minority
shareholders' equity is included in minority interest in
subsidiary's equity in the Balance Sheets, and includes
policyholders' and minority shareholders' share of Manhattan
Life's change in unrealized gains or (losses) on available for
sale securities. (See Note 5 for more in-depth discussion of
Manhattan Life's corporate charter.)
Federal Income Taxes
The Company accounts for income taxes using the liability method
for financial accounting and reporting of income taxes. Under
this method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying the
applicable tax rate to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities.
NOTE 2 - INVESTMENTS
Available-for-sale securities are summarized as follows:
<TABLE>
<CAPTION>
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1996:
- -----------------
U.S. treasury securities
and obligations of U.S.
government corporations
and agencies $ 49,325 $ 325 $ (189) $ 49,461
Corporate securities and other 1,484,274 4,617 (9,385) 1,509,506
Mortgage-backed securities
and collateralized mortgage
obligations 1,185,669 17,289 (20,409) 1,182,549
Debt securities issued by
foreign governments 7,910 346 -- 8,256
---------- ------- -------- ----------
Subtotal 2,727,178 52,577 (29,983) 2,749,772
Equity securities 54,504 6,997 (43) 61,458
---------- ------- -------- ----------
Total $2,781,682 $59,574 $(30,026) $2,811,230
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1995:
- -----------------
U.S. treasury securities
and obligations of U.S.
government corporations
and agencies $ 84,278 $ 1,689 $ -- $ 85,967
Corporate securities and other 1,290,356 77,993 (5,548) 1,362,801
Mortgage-backed securities
and collateralized mortgage
obligations 1,364,415 30,116 (30,880) 1,363,651
Debt securities issued by
foreign governments 5,409 42 (651) 4,800
---------- -------- -------- ----------
Subtotal 2,744,458 109,840 (37,079) 2,817,219
Equity securities 45,998 5,826 -- 51,824
---------- -------- -------- ----------
Total $2,790,456 $115,666 $(37,079) $2,869,043
========== ======== ======== ==========
</TABLE>
Fixed maturity available-for-sale securities, at
December 31, 1996, are summarized by stated maturity
as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
(in thousands)
<S> <C> <C>
Due in one year or less $ 4,859 $ 4,923
Due after one year through five years 193,625 197,055
Due after five years through ten years 622,628 632,021
Due after ten years 227,356 228,858
---------- ----------
Subtotal 1,048,468 1,062,857
Mortgage-backed securities 1,185,669 1,182,549
Other securities with multiple
repayment dates 493,041 504,366
---------- ----------
Total $2,727,178 $2,749,772
========== ==========
</TABLE>
Significant components of the unrealized gain on available-
for-sale securities included in equity on the accompanying
Balance Sheets are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Gross unrealized gain on available-
for-sale securities $ 29,548 $ 78,587
Amortization of deferred policy
acquisition costs (7,143) (21,914)
Minority interests (1,573) (7,426)
Deferred taxes (7,830) (19,706)
---------- ----------
Net unrealized gain on available-
for-sale securities $ 13,002 $ 29,541
========== ==========
</TABLE>
See Note 10 for discussion of the methods and assumptions used by
the Company in estimating the fair values of fixed maturity
available-for-sale securities.
At December 31, 1996 and 1995, the Company held unrated or less-
than-investment grade (investment grade is defined as "Baa3" and
higher on Moody's ratings and "BBB-" and higher on Standard and
Poor's bond ratings) corporate bonds of $177,364,000 and
$127,215,000. Those holdings amounted to 6.5% and 4.5%,
respectively, of the Company's investments in bonds and 3.3% and
2.5%, respectively, of the Company's total assets. The holdings
of less-than-investment grade bonds are widely diversified and of
satisfactory quality based on the Company's investment policies
and credit standards.
Proceeds, gross realized gains, and gross realized losses from
the sales and maturities of available-for-sale securities
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Proceeds $3,170,351 $2,679,377
Gross realized gains 28,154 33,705
Gross realized losses 55,069 44,778
</TABLE>
At December 31, 1996 and 1995, investments in bonds of
$6,452,000 and $4,683,000, respectively, were on deposit
with state insurance departments to satisfy regulatory
requirements.
The Company has no material off-balance sheet risk.
Mortgage loans are stated at their aggregate unpaid balances
on the Balance Sheets, less unamortized discounts.
Activity in the allowance for mortgage loss is summarized
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Balances at the beginning of the year $ 2,711 $ 2,836
Provisions (release of provisions)
for potential mortgage loan loss 263 1,875
Losses charged against the mortgage
loan loss reserve (750) (2,000)
--------- ---------
Balance at the end of the year $ 2,224 $ 2,711
========= =========
</TABLE>
The provision for mortgage losses has fluctuated between periods.
The Company establishes the mortgage reserve based upon its
continuing review of the mortgage portfolio and individual
problem mortgages. The allowance for potential loan losses is
affected to a significant degree by general economic conditions.
While the Company believes it has provided adequate mortgage
reserves, subsequent economic and market conditions may require
establishing additional reserves.
The Company's mortgage portfolio is monitored closely through the
review of loan and property information such as debt service
coverage, annual operating statements and property inspection
reports. This information is evaluated in light of current
economic conditions and other factors such as geographic and
property-type loan concentrations. This evaluation is part of
the regular review to determine whether adjustments to the
allowance for potential loan losses are warranted. Management
believes the mortgage loss reserve is sufficient to provide for
potential loan losses. However, management cannot predict with
assurance where the economy is headed or how the mortgage and
real estate portfolios would be affected by various economic
circumstances.
A summary of the characteristics of the Company's mortgage
portfolio (before deducting valuation reserves of $2,224,000 and
$2,711,000 at December 31, 1996 and 1995, respectively) follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------
Principal Percent of
Region Balance Principal
- ------ --------- ----------
(in thousands)
<S> <C> <C>
New England and Mid-Atlantic $ 75,893 11.4%
South Atlantic 109,859 16.5
North Central 150,586 22.6
South Central 70,968 10.7
Mountain 93,394 14.0
Pacific 164,875 24.8
--------- ------
Total $ 665,575 100.0%
========= ======
Property Type
Apartment and residential $ 106,099 15.9%
Warehouses and industrial 111,363 16.7
Retail and shopping center 225,105 33.8
Offices 199,011 30.0
Other 23,997 3.6
--------- ------
Total $ 665,575 100.0%
========= ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------
Principal Percent of
Region Balance Principal
- ------ --------- ----------
(in thousands)
<S> <C> <C>
New England and Mid-Atlantic $ 89,760 15.1%
South Atlantic 80,576 13.5
North Central 141,540 23.8
South Central 62,353 10.5
Mountain 73,483 12.4
Pacific 146,977 24.7
--------- ------
Total $ 594,689 100.0%
========= ======
Property Type
Apartment and residential $ 137,949 23.2%
Warehouses and industrial 94,864 16.0
Retail and shopping center 184,416 31.0
Offices 172,314 29.0
Other 5,146 .8
--------- ------
Total $ 594,689 100.0%
========= ======
</TABLE>
Real estate consists of investment real estate under lease and
foreclosed real estate. The investment real estate under lease
is depreciated over 40 years. The cost of the property totalled
$17,383,000 at December 31, 1996 and 1995, and accumulated
depreciation totalled $4,212,000 and $3,839,000 at December 31,
1996 and 1995, respectively. The net book value of foreclosed
real estate was $45,430,000 and $47,652,000 at December 31, 1996
and 1995, respectively.
NOTE 3 - REINSURANCE
In the ordinary course of business, the Company assumes and cedes
reinsurance with other insurers and reinsurers. These
arrangements provide greater diversification of business and
limit the maximum net loss potential on large or hazardous risks.
Reinsurance ceded contracts do not relieve the Company from its
obligations to policyholders. Reinsurance ceded is recorded as
an asset and is recorded in "Other assets" in the Balance Sheets.
The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its
obligations for reinsurance ceded to it under the reinsurance
agreements. Failure of reinsurers to honor their obligations
could result in losses to the Company; consequently, allowances
will be established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses
from reinsurance insolvencies, the Company evaluates the
financial condition of its reinsurers and monitors concentrations
of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers. No
losses are anticipated, and, based on management's evaluation,
there are no concentrations of credit risk at December 31, 1996
and 1995. The Company retains the risk for varying amounts of
individual or group insurance written up to a maximum of
$1,000,000 on any one life or $4,000 per month disability risk
and reinsures the balance.
Reinsurance transactions with other insurance companies for the
years ended December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------
Direct Assumed Ceded Net
------ ------- ----- ---
(in thousands)
<S> <C> <C> <C> <C>
Life insurance in force $29,748,174 $595,713 $4,177,415 $26,166,472
Premiums and other
considerations:
Traditional insurance
premiums and universal life $ 231,158 $ 10,693 $ 28,254 $ 213,597
Annuity 34,740 -- -- 34,740
----------- -------- ---------- -----------
Total $ 265,898 $ 10,693 $ 28,254 $ 248,337
=========== ======== ========== ===========
<CAPTION>
December 31, 1995
------------------------------------------
Direct Assumed Ceded Net
------ ------- ----- ---
(in thousands)
<S> <C> <C> <C> <C>
Life insurance in force $29,548,758 $667,125 $4,037,446 $26,178,437
=========== ======== ========== ===========
Premiums and other
considerations:
Traditional insurance
premiums and universal life $ 216,126 $ 11,122 $ 25,092 $ 202,156
Annuity 35,128 -- -- 35,128
----------- -------- ---------- -----------
Total $ 251,254 $ 11,122 $ 25,092 $ 237,284
=========== ======== ========== ===========
</TABLE>
Benefits paid or provided were reduced by $18,747,000 and
$27,155,000 at December 31, 1996 and 1995, respectively, for
estimated recoveries under reinsurance treaties.
Union Central had ceded 22.5% of a block of ordinary life
insurance under a coinsurance/modified coinsurance agreement in
1988. The amount of life insurance in-force ceded under the
agreement was $160,127,000 at December 31, 1995. This
reinsurance agreement was terminated January 1, 1996. There was
no effect on net income in 1996.
The Company, nor any of its related parties control, either
directly or indirectly, any reinsurers in which the Company
conducts business. No policies issued by the Company have been
reinsured with a foreign company which is controlled, either
directly or indirectly, by a party not primarily engaged in the
business of insurance.
The Company has not entered into any reinsurance agreements in
which the reinsurer may unilaterally cancel any reinsurance for
reasons other than nonpayment of premiums or other similar
credits.
NOTE 4 - FEDERAL INCOME TAX
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets are as follows :
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $ 146,947 $ 141,329
Basis differences on bonds 1,740 784
Unrealized gains - SFAS 115 7,830 19,706
Other 2,647 2,745
--------- ---------
Total deferred tax liabilities 159,164 164,564
--------- ---------
Deferred tax assets:
Policyholder dividends 11,100 11,994
Future policy benefits 76,471 74,240
Premium - based DAC adjustment 23,643 21,253
Investment valuation reserves 1,147 1,610
Retirement plan accruals 9,494 9,976
Investment income differences 273 479
Basis differences on bonds and mortgages 266 266
Other 1,621 1,854
--------- ---------
Total deferred tax assets 124,015 121,672
--------- ---------
Net deferred tax liabilities $ 35,149 $ 42,892
========= =========
</TABLE>
Significant components of the provision for income
taxes attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Current $ 18,509 $ 16,776
Deferred 4,133 (2,429)
--------- ---------
Total $ 22,642 $ 14,347
========= =========
</TABLE>
Federal income tax expense is calculated based on applying the
statutory corporate tax rate to taxable income, and adjusting
this amount for permanent differences between deductions allowed
for financial statement purposes versus federal income tax
purposes. Significant differences would include the surplus tax
adjustment applicable to Union Central and the small company
deduction for life insurance companies that was available to
Manhattan Life prior to completing the reverse stock split
transaction described in Note 14.
Prior to 1984, a portion of Manhattan Life's income was not
subject to income tax, but was accumulated for income tax
purposes in a special memorandum tax account designated
"policyholders' surplus account" (PSA). Under provisions of the
Tax Reform Act of 1984, the PSA was frozen at its December 31,
1983 balance. The PSA will become subject to tax at current
rates if these amounts are distributed or if the balance of the
account exceeds certain limitations under the Internal Revenue
Code. The balance in the PSA at December 31, 1996 was $1,348,000
and the maximum tax at current rates would be $472,000.
NOTE 5 - SHAREHOLDER DIVIDENDS AND RESTRICTION ON TRANSFER OF
FUNDS FROM SUBSIDIARY
As stated in Note 1, Manhattan Life's charter provides for the
allocation of its profits between its shareholders and its
policyholders on a one-eight/seven-eighths basis. The profits
allocated are equal to income after taxes and interest on the
Guaranteed Capital Reserve (GCR) but before policyholder
dividends.
In administering Manhattan Life's charter's profit-sharing
provision, Manhattan Life and the New York Insurance Department
(the Department) have deemed the shareholders' portion of
Manhattan Life's profits to be equal to $1 for every $7 of
policyholder dividends paid on traditional, participating
contracts. Manhattan Life's charter provides for three types of
shareholder distributions, including distribution based on
profits:
a) Interest at a specified rate on the par value of the
guarantee capital shares issued and outstanding
($195,000 annually), which may be paid in any year
dividends are distributed to policyholders and is
not subject to prior regulatory approval,
b) A distribution of the shareholders' portion of Manhattan
Life's profits. Such amounts may, at the discretion of
the Company's Board of Directors, be distributed as a
stock dividend of additional guarantee capital shares,
paid in cash subject to certain limits and prior
regulatory approval, or reserved for the benefit of the
shareholders in the GCR, and
c) Interest, at the Company's portfolio earnings rate on
invested assets, on the accumulated balance in the GCR.
Manhattan Life's cash distributions to shareholders are subject
to prior approval by the Department. Further, Manhattan Life and
the Department have agreed to the following guidelines under
which shareholder distributions from the GCR would be permitted,
subject to prior approval by the Department:
If Manhattan Life's statutory-basis surplus is less than or
equal to 9% of its statutory policy reserves, then principal
and interest distributions are limited to the lesser of the
prior year statutory gain from operations (after
policyholders' dividends and federal income taxes and before
realized gains and losses), or the prior year's increase in
statutory surplus or,
If its statutory-basis surplus exceeds 9% of statutory policy
reserves, the principal and interest distributions are limited
to the greater of the prior year statutory gain from
operations (after policyholders' dividends and federal income
taxes and before realized gains and losses), or the prior year
increase in statutory surplus.
The foregoing limits are subject to adjustment, by the
Department, for unusually large realized gains or the effects of
surplus relief reinsurance transactions. Since Union Central
plans to eliminate minority interests in the Manhattan Life's
guarantee capital shares by using a reverse stock split to reduce
all outstanding minority shares to fractional shares payable in
cash, Manhattan Life made no cash dividend payments to its
shareholders from principal or interest accumulated in the GCR
for the year ended December 31, 1996. See Note 14 of Notes to
the Consolidated Financial Statements for detailed discussion
about the reverse stock split. Based on the formula described
above, no shareholder dividends were made for the year ended
December 31, 1995, as Manhattan Life recorded both a statutory
loss before net realized gains and losses and a decrease in
statutory surplus.
The GCR represents a restricted segment of statutory unassigned
surplus, and as such, does not represent a commitment or
liability to pay shareholder dividends. For financial statements
prepared in accordance with generally accepted accounting
principles, the GCR is included in shareholders' equity. The
balance in the GCR of $16,127,000 and $14,910,000 and the
Company's share of $11,740,000 and $10,854,000 is included in
"Policyholders' equity" on the Balance Sheets at December 31,
1996 and 1995, respectively. The minority shareholders' share of
the GCR is included in minority interest in the Balance Sheets.
The ratio of Manhattan Life's surplus to its policy reserves was
7.59% and 7.70%, respectively. Interest added to the GCR
amounted to $1,230,000 and $995,000, for the years ended December
31, 1996 and 1995, respectively.
The following table summarizes the allocation of the Manhattan
Life's net income between the shareholders and the policyholders:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Distributable income:
Net income $ 1,832 $ 1,446
Policyholders' dividends and
participation in operations 4,222 3,157
Less interest credited to GCR (1,230) (995)
--------- ---------
Distributable income $ 4,824 $ 3,608
========= =========
Shareholders' share of net income:
1/8 of distributable income $ 602 451
Interest credited to GCR 1,230 995
--------- ---------
Net income $ 1,832 $ 1,446
========= =========
Union Central's share $ 1,334 $ 1,052
========= =========
Other shareholders' share of distributable
income (included in minority interest in
subsidiary (income) loss in the Statements
of Income)
$ 498 $ 394
========= =========
Policyholders' 7/8th share of distributable
income (included in minority interest in
subsidiary (income) loss in the Statements
of Income) $ 4,222 $ 3,157
========= =========
</TABLE>
Manhattan Life is the only existing life insurance company
domiciled in New York which has authorized and outstanding
guarantee capital shares. Neither applicable New York state law
nor Manhattan Life's charter contain express provisions
establishing the extent of the interest of the holders of the
guarantee capital shares in the statutory unassigned surplus
(total surplus less guarantee capital shares and GCR) of
Manhattan Life and there has never been a judicial determination
of the extent of such interest. Further, the laws applicable to
Manhattan Life do not provide for its voluntary liquidation or
dissolution; the Company may only be liquidated under the
supervision of the New York Superintendent of Insurance in the
event of insolvency. In such a liquidation or dissolution, the
entire assets of Manhattan Life would be used to satisfy claims
of creditors and policyholders and there would be no statutory
unassigned surplus for distribution to the holders of the
guarantee capital shares. Accordingly, in the opinion of counsel
to Manhattan Life, no unqualified legal opinion can be rendered
as to the degree, if any, to which the holders of the guarantee
capital shares would be entitled to participate in any current or
liquidating distribution of unassigned surplus. However, in the
view of such counsel, if there should occur a liquidation or
other winding-up of Manhattan Life's business in which assets
exceeded liabilities on policies and the claims of other
creditors, or if there should occur a partial distribution of
surplus in the absence of such a liquidation or winding-up,
although there are reasonable arguments which could be made to
the effect that the entire unassigned surplus would be
distributable solely to the policyholders or solely to the
shareholders, the more likely outcome if the question should be
litigated is that it would be held that one-eighth of the
unassigned surplus would be distributable to the shareholders and
seven-eighths to the policyholders.
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
Leases
The leases for office space for Manhattan Life and various field
agency offices vary in duration from 1 to 15 years. Some of
these leases include escalation clauses which vary with levels of
operating expense. Rental expense under these operating leases
totalled $3,907,000 and $3,413,000 in 1996 and 1995,
respectively. The Company also leases furniture and equipment
under operating leases which expire in 2001. Rental expense
under these leases totalled $182,000 and $206,000 in 1996 and
1995, respectively.
At December 31, 1996, the future minimum lease payments for all
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
(in thousands)
<C> <C>
1997 $ 3,847
1998 3,047
1999 2,362
2000 2,057
2001 1,923
After 2001 2,621
-------
Total $15,857
=======
</TABLE>
The Company also has capital leases for office furniture.
Lease expense under these leases was $466,000 and $493,000
in 1996 and 1995, respectively.
At December 31, 1996 the future minimum lease payments for
all noncancelable capital leases are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
(in thousands)
<C> <C>
1997 $ 470
1998 470
1999 470
2000 470
2001 39
-------
Total $ 1,919
=======
</TABLE>
Other Commitments
At December 31, 1996, the Company has outstanding agreements to
fund 41 mortgages totalling $37,280,000 in early 1997. In
addition, the Company has committed to invest $20,800,000 in
limited partnerships during the years 1997 to 2000. These
transactions are in the normal course of business for the
Company.
Litigation
In the normal course of business, the Company is party to various
claims and litigation primarily arising from claims made under
insurance policies and contracts. Those actions are considered
by the Company in estimating the policy and contract liabilities.
The Company's management believes that the resolution of those
actions will not have a material adverse effect on the Company's
financial position or results of operations.
Guaranty Fund Assessments
The economy and other factors have caused an increase in the
number of insurance companies that are under regulatory
supervision. This circumstance is expected to result in an
increase in assessments by state guaranty funds, or voluntary
payments by solvent insurance companies, to fund policyholder
losses or liabilities of insurance companies that become
insolvent. These assessments may be deferred or forgiven under
most guaranty laws if they would threaten an insurers financial
strength and, in certain instances, may be offset against future
premium taxes. There were no charges to income in 1996 or 1995.
The estimated liability of $1,399,000 at December 31, 1996 was
based on data provided by the National Organization of Life and
Health Insurance Guaranty Associations and is included in "Other
liabilities" on the Balance Sheets.
NOTE 7 - STATUTORY SURPLUS AS REPORTED TO REGULATORY AUTHORITIES
Union Central and Manhattan Life file statutory-basis financial
statements with regulatory authorities. Union Central's
statutory-basis financial statements are prepared in conformity
with accounting practices prescribed or permitted by the
Department of Insurance of Ohio, Union Central's state of
domicile. Manhattan Life's statutory - basis financial
statements are prepared in conformity with accounting practices
prescribed or permitted by the Department of Insurance of New
York, Manhattan Life's state of domicile. Surplus as reflected
in the statutory-basis financial statements are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Capital and surplus
Union Central $ 277,202 $ 201,493
=========== ===========
Manhattan Life $ 28,211 $ 28,770
=========== ===========
</TABLE>
The National Association of Insurance Commissioners is currently
in the process of recodifying statutory accounting practices, the
result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. The project,
expected to be completed in 1999 will likely change certain
prescribed accounting practices, and may result in changes to the
accounting practices the Company uses to prepare its statutory
financial statements.
NOTE 8 - EMPLOYEE BENEFITS
The Company has pension plans covering substantially all of its
employees (The Plans). Benefits are based on years of service
and the employee's highest five consecutive years of compensation
out of the last ten years. The contributions totalled $2,750,000
and $2,393,000 in 1996 and 1995, respectively. The Company's
funding policy is to contribute an amount between the minimum
required to meet ERISA funding standards and the maximum amount
that can be deducted for federal income tax purposes.
Pension expense includes the following components:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Service cost-benefits earned during the year $ 1,982 $ 1,913
Interest cost on projected benefit obligation 5,330 4,453
Actual return on plan assets (4,786) (4,286)
Net amortization and deferral 625 639
------- -------
Net pension expense included in "Underwriting,
acquisition, and insurance expenses"
at end of year $ 3,151 $ 2,719
======= =======
</TABLE>
The following table setting forth the Plans' funded status and
the pension liability included in "Other liabilities" in the
Company's Balance Sheets is based on the latest actuarial report
available, which is as of October 1, 1996 and 1995.
<TABLE>
<CAPTION>
Union Central
December 31,
------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Actuarial present value
of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$43,920 and $34,444 for 1996
and 1995 respectively $ 50,954 $ 39,714
======== ========
Projected benefit obligation $ 60,216 $ 47,122
Plan assets at fair value 41,912 38,062
-------- --------
Projected benefit obligation
higher than plan assets 18,304 9,060
Unrecognized net gain (16,184) (7,718)
Unrecognized net obligation being
recognized over 15 years 409 450
Adjustment required to recognize
minimum liability 6,514 348
-------- --------
Pension liability included in
"Other liabilities" at end of year $ 9,043 $ 2,140
======== ========
<CAPTION>
Manhattan Life
December 31,
------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Actuarial present value
of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$17,674 and $16,084 for 1996
and 1995 respectively $ 17,886 $ 16,173
======== ========
Projected benefit obligation $ 19,840 $ 18,239
Plan assets at fair value 16,865 16,616
-------- --------
Projected benefit obligation
higher than plan assets 2,975 1,623
Unrecognized net (gain) loss (1,344) 249
Prior service cost not yet recognized
in net periodic pension cost (11) (14)
Unrecognized net obligation being
recognized over 15 years (325) (371)
Adjustment required to recognize
minimum liability 135 60
-------- --------
Pension liability included in
"Other liabilities" at end of year $ 1,430 $ 1,547
======== ========
</TABLE>
The unfunded accumulated benefit obligation (ABO) will vary from year to
year as changes in the market value of the plans' assets differs from
changes in the ABO. The ABO varies from year to year as the rate used
to discount future pension benefits related to the past service of plan
participants changes. The discount rate at each valuation date reflects
available rates on high quality fixed income investments. The
investment strategy for the plans' assets is designed to achieve
somewhat higher yields over the long term than would be achieved by
investing entirely in high quality fixed income investments. Therefore,
the market value of the plans' assets and the ABO do not change in the
same amount from year to year. The Company believes that its current
funding policy will be adequate to meet all
future plan obligations over the long term.
<TABLE>
<CAPTION>
Union Central
December 31,
------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Assumptions used to determine
the status of the plans were:
Discount rate 7.25% 8.50%
Rate of increase in future compensation levels 4.25% 5.00%
Expected long-term rate of return on assets 8.50% 8.50%
<CAPTION>
Manhattan Life
December 31,
------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Assumptions used to determine
the status of the plans were:
Discount rate 7.25% 8.00%
Rate of increase in future compensation levels 4.25% 5.00%
Expected long-term rate of return on assets 8.50% 8.00%
</TABLE>
Plan assets are primarily composed of mutual funds, unallocated
insurance funds, and guaranteed interest contracts. At December 31,
1996 and 1995, Union Central's and Manhattan Life's pension plans
invested $37,261,000 and $32,460,000, respectively, in affiliated mutual
funds.
The Company has contributory savings plans for employees meeting certain
service requirements which qualifies under Section 401(k) of the
Internal Revenue Code. These plans allows eligible employees to
contribute up to certain prescribed limits of their pre-tax
compensation, with the Company matching 50% of the first 6% of
participants' contributions. The Company's matching contributions to
these Plans were $1,199,000 and $1,206,000 for 1996 and 1995,
respectively. The value of the Plans' assets were $43,905,000 and
$37,401,000 at December 31, 1996 and 1995, respectively. The assets are
held in the Company's deposit fund, in guaranteed interest contracts, or
under the variable accounts of a group annuity policy sponsored by the
Company. At December 31, 1996 and 1995, $17,436,000 and $14,718,000,
respectively, was invested in affiliated mutual funds.
NOTE 9 - POSTRETIREMENT BENEFITS
The Company provides certain health care and life insurance benefits for
its eligible retired employees. The plans provide postretirement
medical and life benefits to full time employees who have worked 15
years and attained age 55 while in service with the Company. The plans
are contributory and contains other cost-sharing features such as
deductibles and coinsurance. The accounting of the plans anticipates
future cost-sharing changes which are consistent with the Company's
expressed intent to require current and future retirees to pay the cost
of medical, prescription drug and dental benefits in excess of 175
percent of the costs incurred by the Company to provide such benefits in
1993.
The accumulated postretirement benefit obligation ("APBO") at December
31, 1996, and 1995 totalled $19,294,000 and $19,027,000, respectively.
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's Balance Sheets:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Plan Assets: $ 6,934 $ 6,052
Accumulated postretirement benefit obligation:
Retirees 12,610 12,298
Fully eligible active plan participants 2,541 3,353
Other active plan participants 4,143 3,376
------- -------
Accumulated postretirement benefit
obligation in excess of plan assets 12,360 12,975
Unrecognized net gain from past experience (4,172) (3,213)
------- -------
Accrued postretirement benefit cost included
in "Other liabilities" at end of year $16,532 $16,188
======= =======
</TABLE>
Net periodic postretirement benefit cost included
the following components:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Service cost $ 393 $ 321
Interest cost 1,375 1,393
Expected return on assets (1,279) (331)
Net amortization and deferral 738 (232)
------- -------
Net periodic postretirement benefit cost
included in "Underwriting, acquisition,
and insurance expenses" at end of year $ 1,227 $ 1,151
======= =======
</TABLE>
The plan assets are invested in Carillon Capital Fund, an affiliated
mutual fund.
The health care cost trend rate assumption has an insignificant effect
on the amounts reported. To illustrate, increasing the assumed health
care cost trend rates by one percentage point in each year would
increase the postretirement benefit obligation as of December 31, 1996
by $124,000 and the interest cost and estimated eligibility cost
components of the net periodic postretirement benefit cost by $6,000
and less than $1,000, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 7.50% at December 31,
1996 and 1995, respectively.
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported
in the balance sheets for these instruments approximate their fair
values.
Investment securities: Fair values for bonds and preferred stock
are based on quoted market prices, where available. If quoted
market prices are not available, fair values are estimated using
values obtained from independent securities broker dealers or
quoted market prices of comparable instruments. The fair values
of common stock in Company sponsored mutual funds are based on
quoted market prices and are recognized in "Equity securities"
on the Balance Sheets.
Mortgage loans: The fair values for commercial and residential
mortgages in good standing are estimated using discounted cash
flow analysis using interest rates currently being offered for
similar loans to borrowers with similar credit ratings in
comparison with actual interest rates and maturity dates.
Fair values for mortgages with potential loan losses are based
on discounted cash flow analysis of the underlying properties.
Policy loans: Management is unable to ascertain the estimated
life of the policy loan portfolio. Due to the excessive costs
which would be incurred to determine this information,
management considers the estimation of its fair value to be
impracticable. The nature of a policy loan insures that the
outstanding loan balance will be fully recoverable because the
balance owed to the Company is always equal to or lower than
the cash value of the insurance policy owed to the policyholder.
Policy loans are stated at their aggregate unpaid balance in the
balance sheets.
Investment contracts: Fair values for the Company's liabilities
under investment-type insurance contracts are estimated using
discounted cash flow calculations, based on interest rates
currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
The carrying amounts and fair values of the Company's mortgage loans
and liabilities for instrument type contracts are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(in thousands)
<S> <C> <C> <C> <C>
Mortgage loans $ 663,351 $ 702,843 $ 591,978 $ 625,492
</TABLE>
The carrying amounts and fair values of the Company's
liabilities for investment-type insurance contracts are
as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(in thousands)
<S> <C> <C> <C> <C>
Group annuities $ 871,481 $ 867,562 $ 923,583 $ 927,544
S.P.D.A.* 359,469 355,074 346,230 340,848
S.P.I.A.** 28,910 31,557 32,222 36,169
Variable annuities 167,336 165,103 166,485 164,267
Supplementary contracts 58,989 59,330 61,062 60,942
Traditional annuities 20,414 20,636 14,970 15,002
Guaranteed interest contracts 17,138 17,120 18,154 18,201
Other 5,989 5,989 6,039 6,039
---------- ---------- ---------- ----------
Total $1,529,726 $1,522,371 $1,568,745 $1,569,012
========== ========== ========== ==========
</TABLE>
* Single premium deferred annuities
** Single premium immediate annuities
The Company's other insurance contracts are excluded from Statement of
Financial Accounting Standard (SFAS-107), "Disclosures about Fair Value
of Financial Instruments", disclosure requirements. However, the fair
values of liabilities under all insurance contracts are taken into
consideration in the Company's overall management of interest rate
risk, which minimizes exposure to changing interest rates through the
matching of investment maturities with amounts due under insurance
contracts. Additional data with respect to the carrying value and fair
value of the Company's investments is disclosed in Note 2.
NOTE 12 - LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for unpaid claims and claim adjustment
expense is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Balance as of January 1 $132,670 $122,343
Incurred related to:
Current year 143,216 140,333
Prior years 7,237 5,878
-------- --------
Total incurred 150,453 146,211
Paid related to :
Current year 103,245 98,019
Prior years 38,370 37,865
-------- --------
Total paid 141,615 135,884
-------- --------
Balance as of December 31 $141,508 $132,670
======== ========
</TABLE>
As a result of changes in estimates of insured events in prior years,
the provision of claims and claim adjustment expenses, increased by
$7,237,000 and $5,989,000 in 1996 and 1995 due to lower than expected
rates of claim terminations. Included in the above balances are
reinsurance recoverables of $1,287,000 and $2,713,000 at 1996 and
1995, respectively.
NOTE 13 - SURPLUS NOTES
On November 1, 1996, Union Central issued $50,000,000 of 8.20% Surplus
Notes (Notes). These Notes mature on November 1, 2026 and may not be
redeemed prior to maturity. The Notes are unsecured and subordinated
to all present and future policy claims, prior claims and senior
indebtedness. Subject to prior written approval of the Superintendent
of the Ohio Insurance Department, these Notes will pay interest semi-
annually on May 1 and November 1. Interest expense of $637,000 was
accrued as of December 31, 1996, and is recorded in "Other
liabilities" in the Balance Sheets. In connection with issuing the
Notes, Union Central incurred and capitalized $765,000 of issuance
cost. This cost is recorded in "Other assets" in the Balance Sheets,
and will be amortized to expense over the life of the Notes.
NOTE 14 - SUBSEQUENT EVENTS
At December 31, 1996 and 1995, Union Central owned approximately 73%
of Manhattan Life's guarantee capital shares. On January 28, 1997,
the guarantee capital shareholders constituting at least two-thirds of
the outstanding guarantee capital shares of Manhattan Life (including
the shares owned by Union Central) approved Union Central's plan to
eliminate the minority interests in Manhattan Life's guarantee capital
shares by effecting a reverse stock split (the "Plan") that had
previously been approved by the New York Insurance Department. Under
the Plan, each holder of guarantee capital shares received a cash
payment in lieu of the issuance of any resulting fractional guarantee
capital shares, with the Company becoming sole remaining holder of
Manhattan Life's guarantee capital shares. The cost of redeeming the
fractional shares, approximately $6,800,000, was funded by Manhattan
Life; however, as part of the Plan, Union Central made a cash
contribution of approximately $1,800,000 to Manhattan Life's guarantee
capital share account.
<PAGE>
CARILLON FUND, INC.
- ----------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information is not a prospectus. Much
of the information contained in this Statement of Additional Information
expands upon subjects discussed in the Prospectus. Accordingly, this
Statement should be read in conjunction with Carillon Fund, Inc.'s
("Fund") current Prospectus, dated May 1, 1997, which may be obtained by
calling the Fund at (513) 595-2600, or writing the Fund at P.O. Box
40409, Cincinnati, Ohio 45240-0409.
TABLE OF CONTENTS
Page
Investment Policies (7).................................. 2
Money Market Instruments and Investment Techniques..... 2
Certain Risk Factors Relating to High-Yield, High-Risk Bonds 6
Investments in Foreign Securities........................6
Futures Contracts...................................... 7
Options ............................................... 8
Lending Portfolio Securities...........................13
Investment Restrictions..................................13
Portfolio Turnover ......................................16
Management of the Fund (13)..............................17
Directors and Officers.................................17
Investment Adviser ....................................19
Payment of Expenses....................................20
Advisory Fee...........................................21
Investment Advisory Agreement..........................21
Administration.........................................22
Service Agreement......................................23
Securities Activities of Adviser.......................23
Determination of Net Asset Value (14)....................24
Purchase and Redemption of Shares (14)...................24
Taxes (15)...............................................25
Portfolio Transactions and Brokerage.....................25
General Information (2)..................................26
Capital Stock .........................................26
Voting Rights..........................................27
Additional Information ................................28
Independent Auditors ....................................28
( ) indicates page on which the corresponding section appears in the
Prospectus.
UCCF 515 4-97
<PAGE>
CARILLON FUND, INC.
- --------------------------------------------------------
INVESTMENT POLICIES
The following specific policies supplement the Fund's "Investment
Objectives and Policies" set forth in the Prospectus.
Money Market Instruments and Investment Techniques
Certain money market instruments and investment techniques are
described below. Money market instruments may be purchased extensively
by the Capital Portfolio. They may also be purchased by the Equity,
Bond and S&P 500 Index ("Index Portfolio") Portfolios to a very limited
extent (to invest otherwise idle cash) or on a temporary basis (if
invested in money market instruments for defensive purposes).
Small Bank Certificates of Deposit. The Fund may invest in certificates
of deposit issued by commercial banks, savings banks, and savings and
loan associations having assets of less than $1 billion, provided that
the principal amount of such certificates is insured in full by the
Federal Deposit Insurance Corporation ("FDIC"). The FDIC presently
insures accounts up to $100,000, but interest earned above such amount
is not insured by the FDIC.
Repurchase Agreements. A repurchase agreement is an instrument under
which the purchaser (i.e., one of the Portfolios) acquires ownership of
the obligation (the underlying security) and the seller (the "issuer" of
the repurchase agreement) agrees, at the time of sale, to repurchase the
obligation at a mutually agreed upon time and price, thereby determining
the yield during the purchaser's holding period. This results in a
fixed rate of return insulated from market fluctuations during such
period. The underlying securities will only consist of securities in
which the respective Portfolio may otherwise invest. Repurchase
agreements usually are for short periods, normally under one week, and
are considered to be loans under the Investment Company Act of 1940.
Repurchase agreements will be fully collateralized at all times and
interest on the underlying security will not be taken into account for
valuation purposes. The investments by a Portfolio in repurchase
agreements may at times be substantial when, in the view of the Adviser,
unusual market, liquidity, or other conditions warrant.
If the issuer of the repurchase agreement defaults and does not
repurchase the underlying security, the Portfolio might incur a loss if
the value of the underlying security declines, and the Fund might incur
disposition costs in liquidating the underlying security. In addition,
if the issuer becomes involved in bankruptcy proceedings, the Portfolio
may be delayed or prevented from obtaining the underlying security for
its own purposes. In order to minimize any such risk, the Portfolio
will only engage in repurchase agreements with recognized securities
dealers and banks determined to present minimal credit risk by the
Adviser, under the direction and supervision of the Board of Directors.
U.S. Government Obligations. Securities issued and guaranteed as to
principal and interest by the United States Government include a variety
of Treasury securities, which differ only in their interest rates,
maturities and times of issuance. Treasury bills have a maturity of one
year or less. Treasury notes have maturities of one to seven years and
Treasury bonds generally have a maturity of greater than five years.
Government Agency Securities. Government agency securities that are
permissible investments consist of securities either issued or
guaranteed by agencies or instrumentalities of the United States
Government. Agencies of the United States Government which issue or
guarantee obligations include, among others, Export-Import Banks of the
United States, Farmers Home Administration, Federal Housing
Administration, Government National Mortgage Association ("GNMA"),
Maritime Administration, Small Business Administration and The Tennessee
Valley Authority. Obligations of instrumentalities of the United States
Government include securities issued or guaranteed by, among others, the
Federal National Mortgage Association ("FNMA"), Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate
Credit Banks, Banks for Cooperatives, and the U.S. Postal Service. Some
of these securities, such as those guaranteed by GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those
issued by The Tennessee Valley Authority, are supported by the right of
the issuer to borrow from the Treasury; while still others, such as
those issued by the Federal Land Banks, are supported only by the credit
of the instrumentality. The Fund's primary usage of these types of
securities will be GNMA certificates and FNMA and FHLMC mortgage-backed
obligations which are discussed in more detail below.
Certificates of Deposit. Certificates of deposit are generally short-
term, interest-bearing negotiable certificates issued by banks or
savings and loan associations against funds deposited in the issuing
institution.
Time Deposits. Time Deposits are deposits in a bank or other financial
institution for a specified period of time at a fixed interest rate for
which a negotiable certificate is not received.
Bankers' Acceptance. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an
international commercial transaction (to finance the import, export,
transfer or storage of goods). The borrower is liable for payment as
well as the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date. Most acceptances have maturities
of six months or less and are traded in secondary markets prior to
maturity.
Commercial Paper. Commercial paper refers to short-term, unsecured
promissory notes issued by corporations to finance short-term credit
needs. Commercial paper is usually sold on a discount basis and has a
maturity at the time of issuance not exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a remaining
maturity of less than one year tend to become extremely liquid and are
traded as money market securities. Such issues with between one and two
years remaining to maturity tend to have greater liquidity and
considerably less market value fluctuations than longer-term issues.
When-issued and Delayed-delivery Securities. From time to time, in the
ordinary course of business, each Portfolio of the Fund may purchase
securities on a when-issued or delayed-delivery basis i.e., delivery and
payment can take place a month or more after the date of the
transactions. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during this period.
At the time a Portfolio makes the commitment to purchase securities on a
when-issued or delayed-delivery basis, the Fund will record the
transaction and thereafter reflect the value, each day, of such security
in determining the net asset value of such Portfolio. At the time of
delivery of the securities, the value may be more or less than the
purchase price. Each Portfolio will also establish a segregated account
with the Fund's custodian bank in which it will maintain cash or cash
equivalents or other Portfolio securities equal in value to commitments
for such when-issued or delayed-delivery securities.
GNMA Certificates GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely
payment of interest and principal is guaranteed by the full faith and
credit of the U.S. government. GNMA certificates differ from typical
bonds because principal is repaid monthly over the term of the loan
rather than returned in a lump sum at maturity. Because both interest
and principal payments (including prepayments) on the underlying
mortgage loans are passed through to the holder of the certificate, GNMA
certificates are called "pass-through" securities.
Although the mortgage loans in the pool have maturities of up to 30
years, the actual average life of the GNMA certificates typically will
be substantially less because the mortgages are subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment
rates vary widely and may be affected by changes in market interest
rates. In periods of falling interest rates, the rate of prepayment
tends to increase, thereby shortening the actual average life of the
GNMA certificates. Conversely, when interest rates are rising, the rate
of prepayment tends to decrease, thereby lengthening the actual average
life of the GNMA certificates. Accordingly, it is not possible to
predict accurately the average life of a particular pool. Reinvestment
of prepayments may occur at higher or lower rates that the original
yield on the certificates. Due to the prepayment feature and the need to
reinvest prepayments of principal at current rates, GNMA certificates
can be less effective than typical bonds of similar maturities at
"locking-
in" yields during periods of declining interest rates, although they may
have comparable risks of decline in value during periods of rising
interest rates.
FNMA and FHLMC Mortgage-Backed Obligations The Federal National
Mortgage Association ("FNMA"), a federally chartered and privately owned
corporation, issues pass-through securities representing an interest in
a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest but this guarantee is not backed by
the full faith and credit of the U.S. government. The Federal Home Loan
Mortgage Corporation ("FHLMC"), a corporate instrumentality of the
United States, issues participation certificates that represent an
interest in a pool of conventional mortgage loans. FHLMC guarantees the
timely payment of interest and the ultimate collection of principal and
maintains reserves to protect holders against losses due to default, but
the certificates are not backed by the full faith and credit of the U.S.
government. As is the case with GNMA certificates, the actual maturity
of and realized yield on particular FNMA and FHLMC pass-through
securities will vary based on the prepayment experience of the
underlying pool of mortgages.
Mortgage-Related Securities Each Portfolio of the Fund other than
the S&P 500 Index Portfolio may invest in collateralized mortgage
obligations ("CMOs") or mortgage-backed bonds issued by financial
institutions such as commercial banks, savings and loan associations,
mortgage banks and securities broker-dealers (or affiliates of such
institutions established to issue these securities). CMOs are
obligations fully collateralized directly or indirectly by a pool of
mortgages on which payments of principal and interest are dedicated to
payment of principal and interest on the CMOs. Payments on the
underlying mortgages (both interest and principal) are passed through to
the holders, although not necessarily on a pro rata basis, on the same
schedule as they are received. Mortgage-backed bonds are general
obligations of the issuer fully collateralized directly or indirectly by
a pool of mortgages. The mortgages serve as collateral for the issuer's
payment obligations on the bonds, but interest and principal payments on
the mortgages are not passed through either directly (as with GNMA
certificates and FNMA and FHLMC pass-through securities) or on a
modified basis (as with CMOs). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity
of a CMO but not that of a mortgage-backed bond (although, like many
bonds, mortgage-backed bonds may be callable by the issuer prior to
maturity).
Each Portfolio of the Fund other than the S&P 500 Index Portfolio
may also invest in a variety of more risky CMOs, including interest only
("IOs"), principal only ("POs"), inverse floaters, or a combination of
these securities. Stripped mortgage-backed securities ("SMBS") are
usually structured with several classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage assets. A common type of SMBS will have one class receiving all
of the interest from the mortgage assets (an IO), while the other class
will receive all of the principal (a PO). However, in some instances,
one class will receive some of the interest and most of the principal
while the other class will receive most of the interest and the
remainder of the principal. If the underlying mortgage assets experience
greater-than-anticipated or less-than-
anticipated prepayments of principal, the Fund may fail to fully recoup
its initial investment or obtain its initially assumed yield on some of
these securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to
changes in interest rates. The yields on classes of SMBS that have more
uncertain timing of cash flows are generally higher than prevailing
market yields on other mortgage-backed securities because there is a
greater risk that the initial investment will not be fully recouped or
received as planned over time.
Each Portfolio of the Fund other than the S&P 500 Index Portfolio
may invest in another CMO class known as leveraged inverse floating rate
debt instruments ("inverse floaters"). The interest rate on an inverse
floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may
be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the
index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in their market
values. Accordingly, the duration of an inverse floater may exceed its
stated final maturity.
Certain CMOs may be deemed to be illiquid securities for purposes
of the Fund's 10% limitation on investments in such securities. The
investment adviser limits investments in more risky CMOs (IOs, POs,
inverse floaters) to no more than 5% of its total assets.
Certain Risk Factors Relating to High-Yield, High-Risk Bonds
The descriptions below are intended to supplement the material in
the Prospectus regarding high-yield, high-risk bonds.
Sensitivity to Interest Rates and Economic Changes. High-yield bonds
are very sensitive to adverse economic changes and corporate
developments and their yields will fluctuate over time. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the
Portfolio may incur losses or expenses in seeking recovery of amounts
owed to it. In addition, periods of economic uncertainty and changes
can be expected to result in increased volatility of market prices of
high-yield bonds and the Portfolio's net asset value.
Payment Expectations. High-yield bonds may contain redemption or call
provisions. If an issuer exercised these provisions in a declining
interest rate market, the Portfolio would have to replace the security
with a lower-yielding security, resulting in a decreased return for
investors. Conversely, a high-yield bond's value will decrease in a
rising interest rate market, as will the value of the Portfolio's
assets. If the Portfolio experiences unexpected net redemptions, this
may force it to sell high-yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which expenses can be
spread and possibly reducing the Portfolio's rate of return.
Liquidity and Valuation. There may be little trading in the secondary
market for particular bonds, which may affect adversely the Portfolio's
ability to value accurately or dispose of such bonds. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis,
may decrease the values and liquidity of high-yield bonds, especially in
a thin market.
Investments in Foreign Securities
American Depositary Receipts. American Depositary Receipts ("ADRs") may
be issued in sponsored or unsponsored programs. In sponsored programs,
the issuer makes arrangements to have its securities traded in the form
of ADRs; in unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although the regulatory
requirements with respect to sponsored and unsponsored programs are
generally similar, the issuers of unsponsored ADRs are not obligated to
disclose material information in the United States and, therefore, such
information may not be reflected in the market value of the ADRs.
Foreign Exchange. If a foreign country cannot generate sufficient
earnings from foreign trade to service its external debt, it may need to
depend on continuing loans and aid from foreign governments, commercial
banks, multilateral organizations, and inflows of foreign investment.
The cost of servicing external debt will also generally be adversely
affected by rising international interest rates because many external
debt obligations bear interest at rates which are adjusted based upon
international interest rates. The ability to service external debt will
also depend on the level of the relevant government's international
currency reserves and its access to foreign currencies. Currency
devaluations may affect the ability of an obligor to obtain sufficient
foreign currencies to service its external debt.
Foreign Currency Exchange Transactions. Each Portfolio that engages in
foreign currency exchange transactions may do so on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange currency
market, or on a forward basis to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale,
for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying transactions, a Portfolio attempts to protect
itself against possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or
sold and the date on which related payments are made or received.
Portfolios will not enter into forward contracts for longer-
term hedging purposes. The possibility of changes in currency exchange
rates will be incorporated into the long-term investment considerations
when purchasing the investment and subsequent considerations for
possible sale of the investment.
Foreign Markets. Delays in settlement which may occur in connection
with transactions involving foreign securities could result in temporary
periods when a portion of the assets of a portfolio is uninvested and no
return is earned thereon. The inability of a portfolio to make intended
security purchases due to settlement problems could cause the portfolio
to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result in losses
to a portfolio due to subsequent declines in values of the portfolio
securities or, if the portfolio has entered into a contract to sell the
security, possible liability to the purchaser. Certain foreign markets,
especially emerging markets, may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. A portfolio could be adversely affected
by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the
portfolio of any restrictions on investments.
Foreign Debt Securities. Investing in foreign debt securities will
expose the Portfolios to the direct or indirect consequences of
political, social or economic changes in the industrialized developing
and emerging countries that issue the securities. The ability and
willingness of obligor or the governmental authorities that control
repayment of their external debt to pay principal and interest on such
debt when due may depend on general economic and political conditions
within the relevant country. Additional country-related factors unique
to foreign issuers which may influence the ability or willingness to
service debt include, but are not limited to, a country's cash flow
situation, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of its debt service burden to the
economy as a whole, and its government's relationships with the
International Monetary Fund, the World Bank and other international
agencies.
Futures Contracts
For hedging purposes, including protecting the price or interest
rate of securities that the Portfolio intends to buy, the S&P 500 Index
Portfolio may enter into futures contracts that relate to securities in
which it may directly invest and indices comprised of such securities
and may purchase and write call and put options on such contracts. As a
temporary investment strategy until the Index Portfolio reaches $25
million in net assets, the Index Portfolio may invest up to 100% of its
assets in such futures and/or options contracts. Thereafter, the
Portfolio may invest up to 20% of its assets in such futures and/or
options contracts. The Index Portfolio does not intend to enter into
futures contracts that are not traded on exchanges or boards of trade.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments such as U.S. Treasury bills,
notes and bonds, commercial paper and bank certificates of deposit or
the cash value of a financial instrument index at a specified future
date at a price agreed upon when the contract is made. A stock index
futures contract is a contract to buy or sell specified units of a stock
index at a specified future date at a price agreed upon when the
contract is made. The value of a unit is based on the current value of
the contract index. Under such contracts no delivery of the actual
stocks making up the index takes place. Rather, upon expiration of the
contract, settlement is made by exchanging cash in an amount equal to
the difference between the contract price and the closing price of the
index at expiration, net of variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures contract is
closed out by buying or selling an identical offsetting futures
contract. Upon entering into a futures contract, the Portfolio is
required to deposit an initial margin with the Custodian for the benefit
of the futures broker. The initial margin serves as a "good faith"
deposit that the Portfolio will honor their futures commitments.
Subsequent payments (called "variation margin"} to and from the broker
are made on a daily basis as the price of the underlying investment
fluctuates. In the event of the bankruptcy of the futures broker that
holds margin on behalf of the Portfolio, the Portfolio may be entitled
to return of margin owed to it only in proportion to the amount received
by the broker's other customers. The Adviser will attempt to minimize
this risk by monitoring the creditworthiness of the futures brokers with
which the Portfolio does business.
Because the value of index futures depends primarily on the value
of their underlying indexes, the performance of the broad-based
contracts will generally reflect broad changes in common stock prices.
However, because the Portfolio may not be invested in precisely the same
proportion as the S&P 500, it is likely that the price changes of the
Portfolio's index futures positions will not match the price changes of
the Portfolio's other investments.
Options on futures contracts give the purchaser the right to assume
a position at a specified price in a futures contract at any time before
expiration of the option contract.
Options
The Bond and Capital Portfolios may sell (write) listed options on
U.S. Treasury Securities and options on contracts for the future
delivery of U.S. Treasury Securities as a means of hedging the value of
such securities owned by the Portfolio. The S&P 500 Index Portfolio may
enter into futures contracts that relate to securities in which it may
directly invest and indices comprised of such securities and may
purchase and write call and put options on such contracts.
As a writer of a call option, a Portfolio may terminate its
obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the option
previously written. However, once the Portfolio has been assigned an
exercise notice, the Portfolio will be unable to effect a closing
purchase transaction. There can be no assurance that a closing purchase
transaction can be effected when the Portfolio so desires.
The Portfolio will realize a profit from a closing transaction if
the price of the transaction is less than the premium received from
writing the option; the Portfolio will realize a loss from a closing
transaction if the price of the transaction is more than the premium
received from writing the option. Since the market value of call
options generally reflects increases in the value of the underlying
security, any loss resulting from the closing transaction may be wholly
or partially offset by unrealized appreciation of the underlying
security. Conversely, any gain resulting from the closing transaction
may be wholly or partially offset by unrealized depreciation of the
underlying security. The principal factors affecting the market value
of call options include supply and demand, the current market price and
price volatility of the underlying security, and the time remaining
until the expiration date.
Although the Bond and Capital Portfolios will write only options on
U.S. Treasury Securities and options on futures contracts with respect
to such securities which are traded on a national exchange or Board of
Trade, and the S&P 500 Index Portfolio will write only options on
securities among the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500"*) and options of futures contracts with respect to such
securities, there is no assurance that a liquid secondary market will
exist for any particular option. In the event it is not possible to
effect a closing transaction, the Portfolio will not be able to sell the
underlying security, until the option expires or the option is exercised
by the holder.
*The S&P 500 is an unmanaged index of common stocks comprised of 500
industrial, financial, utility and transportation companies. "Standard
& Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500(R)", and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Carillon Fund. The Portfolio is not sponsored,
endorsed, sold or promoted by Standard & Poor's ("S&P"). S&P makes no
representation or warranty, express or implied, to the beneficial owners
of the Portfolio or any member of the public regarding the advisability
of investing in securities generally or in the Portfolio particularly or
the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to Carillon Fund is the licensing
of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to
Carillon Fund or the Portfolio. S&P has no obligation to take the needs
of Carillon Fund or the beneficial owners of the Portfolio into
consideration in determining, composing or calculating the S&P 500
Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Portfolio or the timing of
the issuance or sale of the Portfolio or in the determination or
calculation of the equation by which the Portfolio is to be converted
into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CARILLON
FUND, BENEFICIAL OWNERS OF THE PORTFOLIO, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING
LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Portfolio will effect a closing transaction to realize a profit
on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of an underlying security prior to the
expiration date of the option, or to allow for the writing of another
call option on the same underlying security with either a different
exercise price or expiration date or both.
Possible reasons for the absence of a liquid secondary market on an
exchange include the following: (a) insufficient trading interest in
certain options; (b) restrictions on transactions imposed by an
exchange; (c) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (d) inadequacy of the facilities of an exchange or the
Clearing Corporation to handle trading volume; or (e) a decision by one
or more exchanges to discontinue the trading of options or impose
restrictions on types of orders. There can be no assurance that higher
than anticipated trading activity or order flow or other unforeseen
events might not at times render the trading facilities inadequate and
thereby result in the institution of special trading procedures or
restrictions which could interfere with the Portfolio's ability to
effect closing transactions.
The Bond and Capital Portfolios may write call options on futures
contracts on U.S. Treasury Securities as a hedge against the adverse
effect of expected increases in interest rates on the value of Portfolio
securities, in order to establish more definitely the effective return
on securities held by the Portfolio. The S&P 500 Index Portfolio will
write call options on futures contracts on the S&P 500 or securities
included therein only for hedging purposes to protect the price of
securities it intends to buy and when such transactions enable it to
correlate its investment performance more closely to that of the S&P 500
than would a direct purchase of securities included in the S&P 500. The
Portfolios will not write options on futures contracts for speculative
purposes.
A futures contract on a debt security is a binding contractual
commitment which will result in an obligation to make or accept
delivery, during a specified future time, of securities having
standardized face value and rate of return. Selling a futures contract
on debt securities (assuming a short position) would give the Portfolio
a legal obligation and right as seller to make future delivery of the
security against payment of the agreed price.
Upon the exercise of a call option on a futures contract, the
writer of the option (the Portfolio) is obligated to sell the futures
contract (to deliver a long position to the option holder) at the option
exercise price, which will presumably be lower than the current market
price of the contract in the futures market. However, as with the
trading of futures, most participants in the options markets do not seek
to realize their gains or losses by exercise of their option rights.
Instead, the holder of an option will usually realize a gain or loss by
buying or selling an offsetting option at a market price that will
reflect an increase or a decrease from the premium originally paid.
Nevertheless, if an option on a futures contract written by the
Portfolio is exercised, the Portfolio intends to either close out the
futures contract by purchasing an offsetting futures contract, or
deliver the underlying securities immediately, in order to avoid
assuming a short position. There can be no assurance that the Portfolio
will be able to enter into an offsetting transaction with respect to a
particular contract at a particular time, but it may always deliver the
underlying security.
As a writer of options on futures contracts, the Portfolio will
receive a premium but will assume a risk of adverse movement in the
price of the underlying futures contract. If the option is not
exercised, the Portfolio will gain the amount of the premium, which may
partially offset unfavorable changes in the value of securities held in
the Portfolio. If the option is exercised, the Portfolio might incur a
loss in the option transaction which would be reduced by the amount of
the premium it has received.
While the holder or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting
option, the Portfolio's ability to establish and close out options
positions at fairly established prices will be subject to the
maintenance of a liquid market. The Portfolio will not write options on
futures contracts unless, in the Adviser's opinion, the market for such
options has sufficient liquidity that the risks associated with such
options transactions are not at unacceptable levels.
Risks. While options will be sold in an effort to reduce certain risks,
those transactions themselves entail certain other risks. Thus, while
the Portfolio may benefit from the use of options, unanticipated changes
in interest rates or security price movements may result in a poorer
overall performance for the Portfolio than if it had not entered into
any options transactions. The price of U.S. Treasury Securities futures
are volatile and are influenced, among other things, by changes in
prevailing interest rates and anticipation of future interest rate
changes. The price of S&P 500 futures are also volatile and are
influenced, among other things, by changes in conditions in the
securities markets in general. .
In the event of an imperfect correlation between a futures position
(and a related option) and the Portfolio position which is intended to
be protected, the desired protection may not be obtained. The
correlation between changes in prices of futures contracts and of the
securities being hedged is generally only approximate. The amount by
which such correlation is imperfect depends upon many different
circumstances, such as variations in speculative market demand for
futures and for debt securities (including technical influences in
futures trading) and differences between the financial instruments being
hedged and the instruments underlying the standard options on futures
contracts available for trading.
Due to the imperfect correlation between movements in the prices of
futures contracts and movements in the prices of the underlying debt
securities, the price of a futures contract may move more than or less
than the price of the securities being hedged. If the price of the
future moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective and if the price of
the securities being hedged has moved in an unfavorable direction, the
Portfolio would be in a better position than if it had not hedged at
all. If the price of the futures moves more than the price of the
security, the Portfolio will experience either a gain or loss on the
option on the future which will not be completely offset by movements in
the price of the securities which are the subject of the hedge.
The market prices of futures contracts and options thereon may be
affected by various factors. If participants in the futures market
elect to close out their contracts through offsetting transactions
rather than meet margin deposit requirements, distortions in the normal
relationship between the debt securities and futures markets could
result. Price distortions could also result if investors in futures
contracts make or take delivery of underlying securities rather than
engage in closing transactions. This could occur, for example, if there
is a lack of liquidity in the futures market. From the point of view of
speculators, the deposit requirements in the futures markets are less
onerous than margins requirements in the securities markets;
accordingly, increased participation by speculators in the futures
market could cause temporary price distortions. A correct forecast of
interest rate trends by the adviser may still not result in a successful
hedging transaction because of possible price distortions in the futures
market and because of the imperfect correlation between movements in the
prices of debt securities and movements in the prices of futures
contracts. A well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.
Limitations on the Use of Options on Futures. The Portfolio will only
write options on futures that are traded on exchanges and are
standardized as to maturity date and underlying financial instrument.
The principal exchanges in the United States for trading options on
Treasury Securities are the Board of Trade of the City of Chicago and
the Chicago Mercantile Exchange. These exchanges and trading options on
futures are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission ("CFTC").
It is the Fund's opinion that it is not a "commodity pool" as
defined under the Commodity Exchange Act and in accordance with rules
promulgated by the CFTC.
The Portfolio will not write options on futures contracts for which
the aggregate premiums exceed 5% of the fair market value of the
Portfolio's assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into (except
that, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount generally may be excluded in computing
the 5%).
All of the futures options transactions employed by the Portfolio
will be BONA FIDE hedging transactions, as that term is used in the
Commodity Exchange Act and has been interpreted and applied by the CFTC.
To ensure that its futures options transactions meet this standard, the
Fund will enter into such transactions only for the purposes and with
the intent that CFTC has recognized to be appropriate.
Custodial Procedures and Margins. The Fund's Custodian acts as the
Fund's escrow agent as to securities on which the Fund has written call
options and with respect to margin which the Fund must deposit in
connection with the writing of call options on futures contracts. The
Clearing Corporation (CC) will release the securities or the margin from
escrow on the expiration of the call, or when the Fund enters into a
closing purchase transaction. In this way, assets of the Fund will
never be outside the control of the Fund's custodian, although such
control might be limited by the escrow receipts issued.
At the time the Portfolio sells a call option on a contract for
future delivery of U.S. Treasury Securities ("Treasury futures
contract"), it is required to deposit with its custodian, in an escrow
account, a specified amount of cash or U.S. Government securities
("initial margin"). The account will be in the name of the CC. The
amount of the margin generally is a small percentage of the contract
amount. The margin required is set by the exchange on which the
contract is traded and may be modified during the term of the contract.
The initial margin is in the nature of a performance bond or good faith
deposit, and it is released from escrow upon termination of the option
assuming all contractual obligations have been satisfied. The Portfolio
will earn interest income on its initial margin deposits.
In accordance with the rules of the exchange on which the option is
traded, it might be necessary for the Portfolio to supplement the margin
held in escrow. This will be done by placing additional cash or U.S.
Government securities in the escrow account. If the amount of required
margin should decrease, the CC will release the appropriate amount from
the escrow account.
The assets in the margin account will be released to the CC only if
the Portfolio defaults or fails to honor its commitment to the CC and
the CC represents to the custodian that all conditions precedent to its
right to obtain the assets have been satisfied.
Lending Portfolio Securities
The S&P 500 Index Portfolio may lend portfolio securities with a
value up to 10% of its total assets. Such loans may be terminated at
any time. The Portfolio will continuously maintain as collateral cash
or obligations issued by the U.S. government, its agencies or
instrumentalities in an amount equal to not less than 100% of the
current market value (on a daily marked-to-
market basis) of the loaned securities plus declared dividends and
accrued interest. While portfolio securities are on loan, the borrower
will pay the Portfolio any income accruing thereon, and the Portfolio
may invest or reinvest the collateral (depending on whether the
collateral is cash or U.S. Government securities) in portfolio
securities, thereby earning additional income. Loans are typically
subject to termination by the Portfolio in the normal settlement time,
currently five business days after notice, or by the borrower on one
day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the
Portfolio and its shareholders. The Portfolio may pay reasonable
finders', borrowers', administrative, and custodial fees in connection
with a loan of its securities. The Adviser will review and monitor the
creditworthiness of such borrowers on an ongoing basis.
The S&P 500 Index Portfolio may invest in Standard & Poor's
Depositary Receipts(R) ("SPDRs(R)"). SPDRs are units of beneficial
interest in a unit investment trust, representing proportionate
undivided interests in a portfolio of securities in substantially the
same weighting as the component common stocks of the S&P 500. While the
investment objective of such a unit investment trust is to provide
investment results that generally correspond to the price and yield
performance of the component common stocks of the S&P 500, there can be
no assurance that this investment objective will be met fully. As SPDRs
are securities issued by an investment company, non-fundamental
restriction (5) below restricts purchases of SPDRs to 5% of the
Portfolio's assets.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental restrictions
relating to the investment of assets of the Portfolios and other
investment activities. These are fundamental policies and may not be
changed without the approval of holders of the majority of the
outstanding voting shares of each Portfolio affected (which for this
purpose means the lesser of: [i] 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are
represented, or [ii] more than 50% of the outstanding shares). A change
in policy affecting only one Portfolio may be effected with the approval
of the majority of the outstanding voting shares of that Portfolio only.
The Fund's fundamental investment restrictions provide that no Portfolio
of the Fund is allowed to:
(1) Issue senior securities (except that each Portfolio may borrow
money as described in restriction [9] below).
(2) With respect to 75% of the value of its total assets, invest
more than 5% of its total assets in securities (other than securities
issued or guaranteed by the United States Government or its agencies or
instrumentalities) of any one issuer.
(3) Purchase more than either: (i) 10% in principal amount of the
outstanding debt securities of an issuer, or (ii) 10% of the outstanding
voting securities of an issuer, except that such restrictions shall not
apply to securities issued or guaranteed by the United States Government
or its agencies or instrumentalities.
(4) Invest more than 25% of its total assets in the securities of
issuers primarily engaged in the same industry. For purposes of this
restriction, gas, gas transmission, electric, water, and telephone
utilities each will be considered a separate industry. This restriction
does not apply to obligations of banks or savings and loan associations
or to obligations issued or guaranteed by the United States Government,
its agencies or instrumentalities.
(5) Purchase or sell commodities, commodity contracts, or real
estate, except that each Portfolio may purchase securities of issuers
which invest or deal in any of the above, and except that each Portfolio
may invest in securities that are secured by real estate. This
restriction does not apply to obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities or to
futures contracts or options purchased by the S&P 500 Index Portfolio in
compliance with non-fundamental restrictions [8 and 9] below.
(6) Purchase any securities on margin (except that the Fund may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities) or make short sales of
securities or maintain a short position.
(7) Make loans, except through the purchase of obligations in
private placements or by entering into repurchase agreements (the
purchase of publicly traded obligations not being considered the making
of a loan).
(8) Lend its securities, except that the S&P 500 Index Portfolio
may lend securities in compliance with non-fundamental restriction [7]
below.
(9) Borrow amounts in excess of 10% of its total assets, taken at
market value at the time of the borrowing, and then only from banks
(and, in the case of the S&P 500 Index Portfolio by entering into
reverse repurchase agreements) as a temporary measure for extraordinary
or emergency purposes, or to meet redemption requests that might
otherwise require the untimely disposition of securities, and not for
investment or leveraging.
(10) Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by such
Portfolio.
(11) Underwrite securities of other issuers except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
selling shares of each Portfolio and except as it may be deemed such in
a sale of restricted securities.
(12) Invest more than 10% of its total assets in repurchase
agreements maturing in more than seven days, "small bank" certificates
of deposit that are not readily marketable, and other illiquid
investments.
The Fund has also adopted the following additional investment
restrictions that are not fundamental and may be changed by the Board of
Directors without shareholder approval. Under these restrictions, no
Portfolio of the Fund may:
(1) Participate on a joint (or a joint and several) basis in any
trading account in securities (but this does not prohibit the "bunching"
of orders for the sale or purchase of Portfolio securities with the
other Portfolios or with other accounts advised or sponsored by the
Adviser or any of its affiliates to reduce brokerage commissions or
otherwise to achieve best overall execution).
(2) Purchase or retain the securities of any issuer, if, to the
knowledge of the Fund, officers and directors of the Fund, the Adviser
or any affiliate thereof each owning beneficially more than 1/2% of one
of the securities of such issuer, own in the aggregate more than 5% of
the securities of such issuer.
(3) Purchase or sell interests in oil, gas, or other mineral
exploration or development programs, or real estate mortgage loans,
except that each Portfolio may purchase securities of issuers which
invest or deal in any of the above, and except that each Portfolio may
invest in securities that are secured by real estate mortgages. This
restriction does not apply to obligations or other securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities.
(4) Invest in companies for the purpose of exercising control
(alone or together with the other Portfolios).
(5) Purchase securities of other investment companies with an
aggregate value in excess of 5% of the Portfolio's total assets, except
in connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer's
commission or profit, other than customary broker's commission, is
involved, and only if immediately thereafter not more than 10% of such
Portfolio's total assets, taken at market value, would be invested in
such securities.
The Fund has also adopted the following additional investment
restrictions that are not fundamental and may be changed by the Board of
Directors without shareholder approval. Under these restrictions:
The S&P 500 Index Portfolio of the Fund may not:
(6) Lend portfolio securities with an aggregate value of more than
10% of its total assets.
(7) Invest more than 20% of its assets in futures contracts and/or
options on futures contracts, except as a temporary investment strategy
until the Index Portfolio reaches $25 million in net assets, the Index
Portfolio may invest up to 100% of its assets in such futures and/or
options contracts.
(8) Invest in options unless no more than 5% of its assets is paid
for premiums for outstanding put and call options (including options on
futures contracts) and unless no more than 25% of the Portfolio's assets
consist of collateral for outstanding options.
If a percentage restriction (for either fundamental or
nonfundamental policies) is adhered to at the time of investment, a
later increase or decrease in percentage beyond the specified limit
resulting from a change in values of portfolio securities or amount of
net assets shall not be considered a violation.
In addition to the investment restrictions described above, the
Fund will comply with restrictions contained in any current insurance
laws in order that the assets of The Union Central Life Insurance
Company's ("Union Central") separate accounts may be invested in Fund
shares.
PORTFOLIO TURNOVER
Each Portfolio has a different expected annual rate of Portfolio
turnover, which is calculated by dividing the lesser of purchases or
sales of Portfolio securities during the fiscal year by the monthly
average of the value of the Portfolio's securities (excluding from the
computation all securities, including options, with maturities at the
time of acquisition of one year or less). A high rate of Portfolio
turnover generally involves correspondingly greater brokerage commission
expenses, which must be borne directly by the Portfolio. Turnover rates
may vary greatly from year to year as well as within a particular year
and may also be affected by cash requirements for redemptions of each
Portfolio's shares and by requirements which enable the Fund to receive
certain favorable tax treatments. The Portfolio turnover rates will, of
course, depend in large part on the level of purchases and redemptions
of shares of each Portfolio. Higher Portfolio turnover can result in
corresponding increases in brokerage costs to the Portfolios of the Fund
and their shareholders. However, because rate of Portfolio turnover is
not a limiting factor, particular holdings may be sold at any time, if
investment judgment or Portfolio operations make a sale advisable.
The annual Portfolio turnover rates for the Equity Portfolio were
52.53% and 34.33%, respectively, for 1996 and 1995. The annual
Portfolio turnover rates for the Bond Portfolio were 202.44% and
111.01%, respectively, for 1996 and 1995. The annual Portfolio turnover
rates for the Capital Portfolio were and 53.11% and 43.83%,
respectively, for 1996 and 1995. The annual turnover rate for the S&P
500 Index Portfolio was 1.09% for 1996.
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The directors and executive officers of the Fund and their
principal occupations during the past five years are set forth below.
Unless otherwise noted, the address of each executive officer and
director is 1876 Waycross Road, Cincinnati, Ohio 45240.
<TABLE>
<CAPTION>
Position(s)
Name, Address with Principal Occupation(s)
and Age the Fund During Past Five Years
- ------------- ----------- ----------------------
<S> <C> <C>
George M. Callard, M.D. Director Professor of Clinical
3021 Erie Avenue Surgery, University of
Cincinnati, Ohio 45208 Cincinnati
(Age 63)
George L. Clucas* Director, Senior Vice President,
(53) President and Union Central; Director,
Chief Executive President and Chief
Officer Executive Officer,
Carillon Advisers, Inc.
("Adviser"); Director,
Carillon Investments,
Inc. ("CII")
Theodore H. Emmerich Director Consultant; former Partner,
1201 Edgecliff Place Ernst & Whinney, Accountants
Cincinnati, Ohio 45206
(70)
James M. Ewell Director Retired Senior Vice
9000 Indian Ridge Road President and Director,
Cincinnati, Ohio 45243 The Procter and Gamble
(81) Company
Richard H. Finan Director Attorney at Law;
11137 Main Street President Pro Tempore
Cincinnati, Ohio 45241 of the Ohio State Senate
(62)
Jean Patrice Director Interim President, Cincinnati
Harrington, S.C. State Technical and Community
3217 Whitfield Avenue College; Former Executive
Cincinnati, Ohio 45220 Director, Cincinnati Youth
(71) Collaborative; President
Emeritus (formerly, President)
College of Mt. St. Joseph
John H. Jacobs* Director Executive Vice President,
(50) Union Central; prior to
June, 1995, Officer and
employee, Union Central
Charles W. McMahon Director Retired Senior Vice
2031 W. Galbraith Road, #E President and Director,
Cincinnati, Ohio 45239 Union Central
(78)
Harry Rossi* Director Director Emeritus, Union
641 Flagstaff Drive Central; Director,
Cincinnati, Ohio 45215 Adviser; former Chairman,
(77) President and Chief
Executive Officer,
Union Central
Stephen R. Hatcher Senior Vice Executive Vice President
(54) President and Chief Financial
Officer, Union Central;
prior to June, 1995, officer
and employee, Union Central
John F. Labmeier Vice President Second Vice President,
(48) and Secretary Associate General
Counsel and Assistant
Secretary, Union Central;
Vice President and Secretary,
CII; Secretary, Adviser
Thomas G. Knipper Controller Assistant Controller,
(39) Union Central; prior to
July, 1995, Treasurer of
The Gateway Trust and Vice
President and Controller
of Gateway Advisers, Inc.
PJ Barker Assistant Investment Accounting Manager,
(27) Controller Union Central; prior to June,
1993, Senior Staff
Accountant, Arther
Andersen LLP
Joseph A. Tucker Treasurer Assistant to the Treasurer,
(62) Union Central; prior to
October 1992, Officer
and employee, Union Central
John M. Lucas Assistant Assistant Counsel and
(46) Secretary Assistant to the Secretary,
Union Central; prior to
October, 1992, Officer
and employee, Union Central
</TABLE>
* Messrs. Clucas, Jacobs and Rossi are considered to be "interested
persons" of the Fund (within the meaning of the Investment Company Act
of 1940) because of their affiliation with the Adviser.
Each of the directors also serves as a trustee of Carillon
Investment Trust.
All directors who are not "interested persons" of the Company are
members of the Audit Committee.
As of the date of this Statement of Additional Information,
officers and directors of the Fund do not own any of the outstanding
shares of the Fund. Directors who are not officers or employees of
Union Central or Adviser are paid a fee plus actual out-of-pocket
expenses by the Fund for each meeting of the Board of Directors
attended. Total fees and expenses incurred for 1996 were $44,810.<PAGE>
<TABLE>
<CAPTION>
Compensation Table
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total
Person, Compensation Retirement Retirement Compensation
Position From Benefits Benefits From Registrant
Registrant Accrued As Upon and Fund
Part of Retirement Complex*
Fund Expenses Paid to
Directors
<S> <C> <C> <C> <C>
George M. Callard, 7,300** -- -- 10,600
M.D.
Director
George L. Clucas N/A N/A N/A N/A
Director
Theodore H. Emmerich 7,500 -- -- 10,800
Director
James M. Ewell 7,300 -- -- 10,600
Director
Richard H. Finan 7,300 -- -- 10,600
Director
Jean Patrice
Harrington, S.C. 7,300 -- -- 10,600
Director
John H. Jacobs N/A N/A N/A N/A
Director
Charles W. McMahon 7,300** -- -- 10,600
Director
Harry Rossi N/A N/A N/A N/A
Director
</TABLE>
* Each of the Directors also serves as a Trustee of Carillon
Investment Trust.
** Messrs. Callard and McMahon have been deferring their compensation
each year. As of December 31, 1996, the total amount deferred,
including interest, was as follows: Dr. Callard - $62,476; Mr. McMahon
- - $25,223.
Investment Adviser
The Fund has entered into an Investment Advisory Agreement
("Agreement") with Carillon Advisers, Inc. ("Adviser") whose principal
business address is 1876 Waycross Road, Cincinnati, Ohio 45240 (P.O. Box
40407, Cincinnati, Ohio 45240). The Adviser was incorporated under the
laws of Ohio on August 18, 1986, and is a wholly-owned subsidiary of
Union Central. Executive officers and directors of the Adviser who are
affiliated with the Fund are George L. Clucas, President and Chief
Executive Officer; Thomas G. Knipper, Treasurer; and John F. Labmeier,
Secretary.
Pursuant to the Agreement, the Fund has retained the Adviser to
manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of Portfolio securities. The Adviser
is at all times subject to the direction and supervision of the Board of
Directors of the Fund.
The Adviser continuously furnishes an investment program for each
Portfolio, is responsible for the actual management of each Portfolio
and has responsibility for making decisions to buy, sell or hold any
particular security. The Adviser obtains and evaluates such information
and advice relating to the economy, securities markets, and specific
securities as it considers necessary or useful to continuously manage
the assets of the Portfolios in a manner consistent with their
investment objectives, policies and restrictions. The Adviser considers
analyses from various sources, makes necessary investment decisions and
effects transactions accordingly. The Adviser also performs certain
administrative functions for the Fund. The Adviser may utilize the
advisory services of subadvisers for one or more of the Portfolios.
Payment of Expenses
Under the terms of the Agreement, in addition to managing the
Fund's investments, the Adviser, at its expense, maintains certain of
the Fund's books and records (other than those provided by Firstar Trust
Company, by agreement) and furnishes such office space, facilities,
equipment, and clerical help as the Fund may reasonably require in the
conduct of business. In addition, the Adviser pays for the services of
all executive, administrative, clerical, and other personnel, including
officers of the Fund, who are employees of Union Central. The Adviser
also bears the cost of telephone service, heat, light, power and other
utilities provided to the Fund. Expenses not expressly assumed by the
Adviser under the Agreement will be paid by the Fund.
Each Portfolio pays all other expenses incurred in its operation
and a portion of the Fund's general administration expenses allocated on
the basis of the asset size of the respective Portfolios. Expenses
other than the Adviser's fee that are borne directly and paid
individually by a Portfolio include, but are not limited to, brokerage
commissions, dealer markups, expenses incurred in the acquisition of
Portfolio securities, transfer taxes, transaction expenses of the
custodian, pricing services used by only one or more Portfolios, and
other costs properly payable by only one or more Portfolios. Expenses
which are allocated on the basis of size of the respective Portfolios
include custodian (portion based on asset size), dividend disbursing
agent, transfer agent, bookkeeping services (except annual per Portfolio
base charge), pricing, shareholder's and directors' meetings, directors'
fees, proxy statement and Prospectus preparation, registration fees and
costs, fees and expenses of legal counsel not including employees of the
Adviser, membership dues of industry associations, postage, insurance
premiums including fidelity bond, and all other costs of the Fund's
operation properly payable by the Fund and allocable on the basis of
size of the respective Portfolios. The Adviser will pay any expenses of
the S&P 500 Index Portfolio, other than the advisory fee for that
Portfolio, to the extent that such expenses exceed .30% of that
Portfolio's net assets.
Depending on the nature of a legal claim, liability or lawsuit,
litigation costs, payment of legal claims or liabilities and any
indemnification relating thereto may be directly applicable to a
Portfolio or allocated on the basis of the size of the respective
Portfolios. The directors have determined that this is an appropriate
method of allocation of expenses.
The Agreement also provides that if the total operating expenses of
the Fund, exclusive of the advisory fee, taxes, interest, brokerage fees
and certain legal claims and liabilities and litigation and
indemnification expenses, as described in the Agreement, for any fiscal
year exceed 1.0% of the average daily net assets of the Fund, the
Adviser will reimburse the Fund for such excess, up to the amount of the
advisory fee for that year. Such amount, if any, will be calculated
daily and credited on a monthly basis.
Advisory Fee
As full compensation for the services and facilities furnished to
the Fund and expenses of the Fund assumed by the Adviser, the Fund pays
the Adviser monthly compensation calculated daily as described on page
11 of the Prospectus. The compensation after all waivers for each
Portfolio was as follows:
<TABLE>
<CAPTION>
Equity Bond Capital S&P 500 Index
Year Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
1996 $1,436,998 $384,084 $1,032,861 $8,233
1995 $1,108,596 $314,237 $913,378 -0-
1994 $924,881 $273,068 $766,664 N/A
</TABLE>
There is no assurance that the Portfolios will reach a net asset
level high enough to realize a reduction in the rate of the advisory
fee. Any reductions in the rate of advisory fee will be applicable to
each Portfolio separately in accordance with the schedule of fees
applicable to each Portfolio.
Investment Advisory Agreement
The Investment Advisory Agreement was initially approved by the
Fund's Board of Directors, including a majority of the directors who are
not interested persons of the Adviser, on March 22, 1984. Unless
earlier terminated as described below, the Agreement will continue in
effect from year to year if approved annually: (a) by the Board of
Directors of the Fund or by a majority of the outstanding shares of the
Fund, including a majority of the outstanding shares of each Portfolio;
and (b) by a majority of the directors who are not parties to such
contract or interested persons (as defined by the Investment Company Act
of 1940) of any such party. The Agreement is not assignable and may be
terminated without penalty by the Fund on 60 days notice, and by the
Adviser on 90 days notice. On March 27, 1997, the Agreement was
approved for continuance for one (1) year by the Board of Directors by
unanimous vote of those present, including a majority of the directors
who are not parties to such contract or interested persons of any such
party.
On March 21, 1990, the Board of Directors took steps to activate
the Capital Portfolio of the Fund by authorizing the issuance of shares
of that Portfolio to a separate account of Union Central. The Board of
Directors also approved an amendment to the Investment Advisory
Agreement so as to make the Agreement applicable to the Capital
Portfolio and to specify the advisory fee payable by it. The Board
determined that the amendment did not affect the interests of the
classes of Fund shares other than Capital Portfolio shares and that
therefore only the holders of Capital Portfolio shares were entitled to
vote on the amendment. On May 1, 1990, the Union Central separate
account invested $15.2 million in the Capital Portfolio in exchange for
1,390,516 shares at a price of $10.95 per share. Union Central, as
legal owner of the Capital Portfolio shares purchased by its separate
account and as sole shareholder of the Capital Portfolio, approved the
Agreement as amended.
On September 15, 1995, the Board of Directors took steps to
activate the S&P 500 Index Portfolio of the Fund by authorizing the
issuance of shares of that Portfolio. On December 13, 1995, the Board
of Directors also approved an amendment to the Investment Advisory
Agreement so as to make the Agreement applicable to the Index Portfolio
and to specify the advisory fee payable by it. The Board determined
that the amendment did not affect the interests of the classes of Fund
shares other than Index Portfolio shares and that therefore only the
holders of Index Portfolio shares were entitled to vote on the
amendment. The sole shareholder of the Index Portfolio approved the
Agreement as amended on January 3, 1996.
The Investment Advisory Agreement provides that the Adviser shall
not be liable to the Fund or to any shareholder for any error of
judgment or mistake of law or for any loss suffered by the Fund or by
any shareholder in connection with matters to which the Investment
Advisory Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence, or reckless disregard on the
part of the Adviser in the performance of its duties thereunder. In the
case of administration services, the Adviser will be held to a normal
standard of liability.
The Agreement in no way restricts the Adviser from acting as
investment manager or adviser to others.
If the question of continuance of the Agreement (or adoption of any
new Agreement) is presented to shareholders, continuance (or adoption)
with respect to a Portfolio shall be effective only if approved by a
majority vote of the outstanding voting securities of that Portfolio.
If the shareholders of any one or more of the Portfolios should fail to
approve the Agreement, the Adviser may nonetheless serve as an adviser
with respect to any Portfolio whose shareholders approved the Agreement.
Administration
The Adviser is responsible for providing certain administrative
functions to the Fund and has entered into an Administration Agreement
with Carillon Investments, Inc. ("CII") under which CII furnishes
substantially all of such services for an annual fee of .20% of the
average net assets of the Bond, Capital and Equity Portfolios, and .05%
of the average net assets of the S&P 500 Index Portfolio. The fee is
borne by the Adviser, not the Fund. Under the Administration Agreement,
CII is obligated to provide persons for clerical, accounting,
bookkeeping, administrative and other similar services, to supply office
space, stationery and office supplies, and to prepare tax returns,
reports to stockholders, and filings with the Securities and Exchange
Commission and state securities authorities.
Service Agreement
Under a Service Agreement between the Adviser and Union Central,
Union Central has agreed to make available to the Adviser the services
of certain employees of Union Central on a part-time basis for the
purpose of better enabling the Adviser to fulfill its obligations to the
Fund under the Agreement. Pursuant to the Service Agreement, the
Adviser shall reimburse Union Central for all costs allocable to the
time spent on the affairs of the Adviser by the employees provided by
Union Central. In performing their services for the Adviser pursuant to
the Service Agreement, the specified employees shall report and be
solely responsible to the officers and directors of the Adviser or
persons designated by them. Union Central shall have no responsibility
for the investment recommendations or decisions of the Adviser. The
obligation of performance under the Agreement is solely that of the
Adviser and Union Central undertakes no obligation in respect thereto
except as otherwise expressly provided in the Service Agreement. The
Service Agreement was approved by the shareholders of the Equity, Bond
and Capital Portfolios at a meeting held on March 20, 1992. The sole
shareholder of the S&P 500 Index Portfolio approved the Service
Agreement on January 3, 1996.
Securities Activities of Adviser
Securities held by the Fund may also be held by Union Central or by
other separate accounts or mutual funds for which the Adviser acts as an
adviser. Because of different investment objectives or other factors, a
particular security may be bought by Union Central or by the Adviser or
for one or more of its clients, when one or more other clients are
selling the same security. If purchases or sales of securities for one
or more of the Fund's Portfolios or other clients of the Adviser or
Union Central arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for
the Fund's Portfolios, Union Central, and other clients in a manner
deemed equitable to all. To the extent that transactions on behalf of
more than one client of the Adviser during the same period may increase
the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.
On occasions when the Adviser deems the purchase or sale of a
security to be in the best interests of the Fund as well as other
accounts or companies, it may, to the extent permitted by applicable
laws and regulations, but will not be obligated to, aggregate the
securities to be sold or purchased for the Fund (or for two or more
Portfolios) with those to be sold or purchased for other accounts or
companies in order to obtain more favorable execution and low brokerage
commissions. In that event, allocation of the securities purchased or
sold, as well as the expenses incurred in the transaction, will be made
by the Adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Fund Portfolio(s) and
to such other accounts or companies. In some cases this procedure may
adversely affect the size of the position obtainable for a Portfolio.
DETERMINATION OF NET ASSET VALUE
As described on page 12 of the Prospectus, the net asset value of
shares of the Fund is determined once daily, Monday through Friday as of
the close of regular trading on the New York Stock Exchange (normally
4:00 p.m., Eastern Time), when there are purchases or redemptions of
Fund shares, except: (i) when the New York Stock Exchange is closed
(currently New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day); and
(ii) any day on which changes in the value of the Portfolio securities
of the Fund will not materially affect the current net asset value of
the shares of a Portfolio.
Securities held by the Portfolios, except for money market
instruments maturing in 60 days or less, will be valued as follows:
Securities which are traded on stock exchanges (including securities
traded in both the over-the-counter market and on exchange), or listed
on the NASDAQ National Market System, are valued at the last sales price
as of the close of the New York Stock Exchange on the day the securities
are being valued, or, lacking any sales, at the closing bid prices.
Securities traded only in the over-the-counter market are valued at the
last bid prices quoted by brokers that make markets in the securities at
the close of trading on the New York Stock Exchange. Securities and
assets for which market quotations are not readily available are valued
at fair value as determined in good faith by or under the direction of
the Board of Directors.
Money market instruments with a remaining maturity of 60 days or
less are valued on an amortized cost basis. Under this method of
valuation, the instrument is initially valued at cost (or in the case of
instruments initially valued at market value, at the market value on the
day before its remaining maturity is such that it qualifies for
amortized cost valuation); thereafter, the Fund assumes a constant
proportionate amortization in value until maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the
market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price that would be received
upon sale of the instrument.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, only to Union
Central and its separate accounts. It is possible that at some later
date the Fund may offer shares to other investors.
The Fund is required to redeem all full and fractional shares of
the Fund for cash at the net asset value per share. Payment for shares
redeemed will generally be made within seven days after receipt of a
proper notice of redemption. The right to redeem shares or to receive
payment with respect to any redemption may only be suspended for any
period during which: (a) trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission or
such exchange is closed for other than weekends and holidays; (b) an
emergency exists, as determined by the Securities and Exchange
Commission, as a result of which disposal of Portfolio securities or
determination of the net asset value of a Portfolio is not reasonably
practicable; and (c) the Securities and Exchange Commission by order
permits postponement for the protection of shareholders.
TAXES
Each Portfolio of the Fund will be treated as a separate entity for
federal income tax purposes. Each Portfolio has qualified and has
elected to be taxed as a "regulated investment company" under the
provisions of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If a Portfolio qualifies as a "regulated
investment company" and complies with the provisions of the Code by
distributing substantially all of its net income (both ordinary income
and capital gain), the Portfolio will be relieved from federal income
tax on the amounts distributed.
In order to qualify as a regulated investment company, in each
taxable year each Portfolio must, among other things: (a) derive at
least 90 percent of its gross income from dividends, interest, payments
with respect to loans of securities, and gains from the sale or other
disposition of stocks or securities or foreign currencies (subject to
the authority of the Secretary of the Treasury to exclude certain
foreign currency gains) or other income (including, but not limited to,
gains from options, futures, or forward contracts which are ancillary to
the Portfolio's principal business of investing in stocks or securities
or options and futures with respect to stocks or securities) derived
with regard to its investing in such stocks, securities or currencies;
and (b) derive less than 30 percent of its gross income from gains
(without deduction for losses) realized on the sale or other disposition
of any of the following held for less than three months: securities,
options, futures or forward contracts (other than options, futures or
forward contracts on foreign currencies) or certain foreign currencies.
In order to meet the requirements noted above, the Fund may be required
to defer disposing of certain options, futures contracts and securities
beyond the time when it might otherwise be advantageous to do so. These
requirements may also affect the Fund's investments in various ways,
such as by limiting the Fund's ability to:(a) sell investments held for
less than three months; (b) effect closing transactions on options
written less than three months previously; (c) write options for a
period of less than three months; and (d) write options on securities
held for less than the long-term capital gains holding period. For a
discussion of tax consequences to owners of annuity contracts, see the
Prospectus for those contracts.
The discussion of "Taxes" in the Prospectus, in conjunction with
the foregoing, is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect as
interpreted by the Courts and the Internal Revenue Service.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is primarily responsible for the investment decisions
of each Portfolio, including decisions to buy and sell securities, the
selection of brokers and dealers to effect the transactions, the placing
of investment transactions, and the negotiation of brokerage
commissions, if any. No Portfolio has any obligation to deal with any
dealer or group of dealers in the execution of transactions in Portfolio
securities. In placing orders, it is the policy of the Fund to obtain
the most favorable net results, taking into account various factors,
including price, dealer spread or commission, if any, size of the
transaction, and difficulty of execution. While the Adviser generally
seeks reasonably competitive spreads or commissions, the Portfolios will
not necessarily be paying the lowest spread or commission available.
If the securities in which a particular Portfolio of the Fund
invests are traded primarily in the over-the-counter market, where
possible the Portfolio will deal directly with the dealers who make a
market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their
own account. On occasion, securities may be purchased directly from the
issuer. Bonds and money market instruments are generally traded on a
net basis and do not normally involve either brokerage commissions or
transfer taxes. The cost of Portfolio securities transactions of each
Portfolio will consist primarily of brokerage commission or dealer or
underwriter spreads.
While the Adviser seeks to obtain the most favorable net results in
effecting transactions in the Portfolio securities, brokers who provide
supplemental investment research to the Adviser may receive orders for
transactions by the Fund. Such supplemental research service ordinarily
consists of assessments and analyses of the business or prospects of a
company, industry, or economic sector. If, in the judgment of the
Adviser, the Fund will be benefited by such supplemental research
services, the Adviser is authorized to pay commissions to brokers
furnishing such services which are in excess of commissions which
another broker may charge for the same transaction. Information so
received will be in addition to and not in lieu of the services required
to be performed by the Adviser under its Investment Advisory Agreement.
The expenses of the Adviser will not necessarily be reduced as a result
of the receipt of such supplemental information. In some cases, the
Adviser may use such supplemental research in providing investment
advice to its other advisory accounts.
During 1996, 26% of the Fund's total brokerage was allocated to
brokers who furnish statistical data or research information. Brokerage
commissions paid during 1996, 1995 and 1994 were $475,382, $349,679 and
$232,642, respectively.
GENERAL INFORMATION
Capital Stock
The Fund was incorporated in Maryland on January 30, 1984. The
authorized capital stock of the Fund consists of sixty-million shares of
common stock, par value ten cents ($0.10) per share. Fifty-five million
shares of the authorized capital stock is currently divided into the
following classes: Equity Portfolio consisting of twenty-million
authorized shares; Capital Portfolio consisting of fifteen-million
authorized shares; Bond Portfolio consisting of ten-million authorized
shares; and S&P 500 Index Portfolio consisting of ten-million
authorized shares.
The balance of the shares may be issued to the existing Portfolios,
or to new Portfolios having the number of shares and descriptions,
powers, and rights, and the qualifications, limitations, and
restrictions as the Board of Directors may determine. The Board of
Directors may also change the designation of any Portfolio and may
increase or decrease the number of authorized shares of any Portfolio,
but may not decrease the number of authorized shares of any Portfolio
below the number of shares then outstanding.
Each issued and outstanding share is entitled to participate
equally in dividends and distributions declared by the respective
Portfolio and, upon liquidation or dissolution, in net assets of such
Portfolio remaining after satisfaction of outstanding liabilities.
Voting Rights
In accordance with an amendment to the Maryland General Corporation
Law, the Board of Directors of the Fund has adopted an amendment to its
Bylaws providing that unless otherwise required by the Investment
Company Act of 1940, the Fund shall not be required to hold an annual
shareholder meeting unless the Board of Directors determines to hold an
annual meeting. The Fund intends to hold shareholder meetings only when
required by law and such other times as may be deemed appropriate by its
Board of Directors.
All shares of common stock have equal voting rights (regardless of
the net asset value per share) except that on matters affecting only one
Portfolio, only shares of the respective Portfolio are entitled to vote.
The shares do not have cumulative voting rights. Accordingly, the
holders of more than 50% of the shares of the Fund voting for the
election of directors can elect all of the directors of the Fund if they
choose to do so and in such event the holders of the remaining shares
would not be able to elect any directors.
Matters in which the interests of all Portfolios are substantially
identical (such as the election of directors or the approval of
independent public accountants) will be voted on by all shareholders
without regard to the separate Portfolios. Matters that affect all
Portfolios but where the interests of the Portfolios are not
substantially identical (such as approval of the Investment Advisory
Agreement) would be voted on separately by each Portfolio. Matters
affecting only one Portfolio, such as a change in its fundamental
policies, are voted on separately by that Portfolio.
Matters requiring separate shareholder voting by Portfolio shall
have been effectively acted upon with respect to any Portfolio if a
majority of the outstanding voting securities of that Portfolio votes
for approval of the matter, notwithstanding that: (1) the matter has not
been approved by a majority of the outstanding voting securities of any
other Portfolio; or (2) the matter has not been approved by a majority
of the outstanding voting securities of the Fund.
The phrase "a majority of the outstanding voting securities" of a
Portfolio (or of the Fund) means the vote of the lesser of: (1) 67% of
the shares of the Portfolio (or the Fund) present at a meeting if the
holders of more than 50% of the outstanding shares are present in person
or by proxy; or (2) more than 50% of the outstanding shares of the
Portfolio (or the Fund).
As noted in the Prospectus, Union Central currently has voting
control of the Fund. With voting control, Union Central could make
fundamental and substantial changes (such as electing a new Board of
Directors, changing the investment adviser or advisory fee, changing a
Portfolio's fundamental investment objectives and policies, etc.)
regardless of the views of Contract Owners. However, under current
interpretations of presently applicable law, Contract Owners are
entitled to give voting instructions with respect to Fund shares held in
registered separate accounts and therefore all Contract Owners would
receive advance notice before any such changes could be made.
Additional Information
This Statement of Additional Information and the Prospectus do not
contain all the information set forth in the registration statement and
exhibits relating thereto, which the Fund has filed with the Securities
and Exchange Commission, Washington, D.C., under the Securities Act of
1933 and the Investment Company Act of 1940, to which reference is
hereby made.
INDEPENDENT AUDITORS
The financial statements of the Fund have been audited by Deloitte
& Touche LLP, 1700 Courthouse Plaza NE, Dayton, Ohio 45402, independent
auditors, whose report follows. The financial statements are included
in this Statement of Additional Information in reliance upon the report
of Deloitte & Touche LLP, given upon their authority as experts in
auditing and accounting.
<PAGE>
CARILLON FUND, INC.
Financial Statements
December 31, 1996
<PAGE>
CARILLON FUND, INC.
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of Carillon Fund, Inc.
We have audited the accompanying statements of assets and
liabilities of Carillon Fund, Inc. (consisting of the Equity
Portfolio, Capital Portfolio, Bond Portfolio and the S&P 500
Index Portfolio), including the schedules of investments, as of
December 31, 1996, and the related statements of operations for
the year then ended, and the statements of changes in net assets
and financial highlights for the periods ended December 31, 1996
and December 31, 1995, respectively. These financial statements
and financial highlights ("financial statements") are the
responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements based on our
audits. The financial highlights presented for periods prior to
December 31, 1995 were audited by other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of each of the
Portfolios of Carillon Fund, Inc. as of December 31, 1996, the
results of their operations for the year then ended, and the
changes in their net assets and the financial highlights for the
periods ended December 31, 1996 and December 31, 1995,
respectively, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Dayton, Ohio
February 3, 1997
CARILLON FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
S&P 500
Equity Capital Bond Index
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in
securities, at value $282,646,476 $156,298,562 $88,078,300 $29,275,723
(cost $222,263,315;
$144,685,532;
$86,040,107;
$26,294,249)
Cash 3,375 -- -- --
Receivables:
Shares sold 1,033,820 348,253 106,559 179,916
Securities sold 5,144,647 1,864,018 -- 17,389
Interest and Dividends 575,981 879,817 1,368,459 43,553
Prepaid expenses
and other 12,911 8,460 5,022 1,195
------------ ------------ ----------- -----------
289,417,210 159,399,110 89,558,340 29,517,776
------------ ------------ ----------- -----------
LIABILITIES
Payables:
Investment securities
purchased 1,145,250 -- 3,567,982 --
Shares purchased -- 45 66 180,224
Investment advisory fees 134,253 90,306 34,737 8,233
Custodial and portfolio
accounting fees 6,794 7,868 5,954 6,022
Professional fees 6,149 5,462 5,618 5,299
Bank overdraft -- -- 218,525 23
Variation margin -- -- -- 102,200
Other accrued expenses 1,041 1,543 4,275 11,165
Deferred compensation
for directors -- -- 87,054 --
------------ ------------ ----------- -----------
1,293,487 105,224 3,924,211 313,166
------------ ------------ ----------- -----------
NET ASSETS
Paid-in capital 192,682,992 134,247,020 83,411,472 25,912,734
Undistributed net
investment income 734,698 982,540 -- 42,252
Distributions in excess
of net investment
income -- -- (296,645) --
Accumulated net realized
gain/(loss) 34,322,872 12,451,296 481,109 218,750
on investments
Net unrealized 60,383,161 11,613,030 2,038,193 3,030,874
appreciation on ------------ ------------ ----------- -----------
investments and
futures contracts
$288,123,723 $159,293,886 $85,634,129 $29,204,610
============ ============ =========== ===========
Shares authorized
($.10) par value 20,000,000 15,000,000 10,000,000 10,000,000
Shares outstanding 14,813,685 10,655,370 7,847,440 2,407,503
Net asset value,
offering, and
redemption price $19.45 $14.95 $10.91 $12.13
per share
</TABLE>
The accompanying notes are an integral part of
the financial statement.
<PAGE>
<TABLE>
<CAPTION>
CARILLON FUND, INC.
STATEMENTS OF OPERATIONS
Year Ended December 31, 1996
S&P 500
Equity Capital Bond Index
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> >c? <C> <C>
INVESTMENT INCOME
Interest $ 1,041,257 $ 6,227,142 $ 6,257,449 $ 135,283
Dividends (net of
foreign withholding
taxes of $117,559;
$41,233; $0; $2,598) 4,734,994 1,629,448 -- 311,295
----------- ----------- ----------- ----------
5,776,251 7,856,590 6,257,449 446,578
----------- ----------- ----------- ----------
EXPENSES
Investment advisory fees 1,436,998 1,032,861 384,084 48,985
Custodial fees and
expenses 61,313 46,599 22,157 14,140
Portfolio accounting fees 48,645 46,102 39,174 29,713
Professional fees 9,181 8,980 9,448 15,895
Director's fees 11,351 11,351 11,354 10,754
Transfer agent fees 6,010 6,054 6,089 5,853
Registration and
filing fees 8,919 8,590 7,616 2,493
Other 17,403 11,713 10,894 9,982
----------- ----------- ----------- ----------
1,599,820 1,172,250 490,816 137,815
Fees waived by the Adviser -- -- -- (40,752)
----------- ----------- ----------- ----------
1,599,820 1,172,250 490,816 97,063
----------- ----------- ----------- ----------
NET INVESTMENT INCOME 4,176,431 6,684,340 5,766,633 349,515
----------- ----------- ----------- ----------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON
INVESTMENTS AND
FUTURES CONTRACTS
Net realized gain
on investments 34,227,538 12,459,745 1,210,173 32,147
Net realized gain on
futures contracts -- -- -- 186,603
----------- ----------- ----------- ----------
34,227,538 12,459,745 1,210,173 218,750
----------- ----------- ----------- ----------
Net change in unrealized
appreciation/
(depreciation) on
investments 17,468,047 1,990,613 (1,316,722) 2,981,474
Net change in unrealized
appreciation/
(depreciation) on
futures contracts -- -- -- 49,375
----------- ----------- ----------- ----------
17,468,047 1,990,613 (1,316,722) 3,030,849
----------- ----------- ----------- ----------
NET REALIZED AND
UNREALIZED GAIN/
(L0SS) ON INVESTMENTS
AND FUTURES CONTRACTS 51,695,585 14,450,358 (106,549) 3,249,599
----------- ----------- ----------- ----------
NET INCREASE IN NET
ASSETS FROM OPERATIONS $55,872,016 $21,134,698 $5,660,084 $3,599,114
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
CARILLON FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Equity Portfolio
For the Year Ended December 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 4,176,431 $ 3,230,075
Net realized gain/(loss)
on investments and futures 34,227,538 9,962,775
Net change in unrealized
appreciation /(depreciation) on
investments and futures contracts 17,468,047 31,418,181
----------- -----------
55,872,016 44,611,031
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (3,889,965) (3,023,061)
In excess of net investment income -- --
Net realized gain on investments (9,867,342) (12,644,665)
----------- -----------
(13,757,307) (15,667,726)
----------- -----------
FUND SHARE TRANSACTIONS
Proceeds from shares sold 41,762,282 29,948,214
Net asset value of shares
issued to shareholders
in reinvestment of distributions 13,757,307 15,667,726
Payments for shares redeemed (29,173,822) (12,692,274)
----------- -----------
26,445,767 32,923,666
----------- -----------
NET INCREASE IN NET ASSETS 68,560,476 61,866,971
NET ASSETS
Beginning of year 219,563,247 157,696,276
----------- -----------
End of year 288,123,723 219,563,247
=========== ===========
FUND SHARE TRANSACTIONS:
Sold 2,393,015 1,968,821
Issued in reinvestment
of distributions 809,878 1,111,633
Redeemed (1,660,244) (837,546)
----------- -----------
Net increase from fund
share transactions 1,542,649 2,242,908
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
CARILLON FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Capital Portfolio
For the Year Ended December 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 6,684,340 $ 6,696,820
Net realized gain on
investments and futures 12,459,745 1,973,190
Net change in unrealized
appreciation/(depreciation) on
investments and futures contracts 1,990,613 8,952,302
----------- -----------
21,134,698 17,622,312
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (6,050,397) (6,389,872)
In excess of net investment income -- --
Net realized gain on investments (2,002,549) (5,716,244)
----------- -----------
(8,052,946) (12,106,116)
----------- -----------
FUND SHARE TRANSACTIONS
Proceeds from shares sold 17,130,822 21,179,705
Net asset value of shares
issued to shareholders in
reinvestment of distributions 8,052,945 12,106,115
Payments for shares redeemed (24,594,141) (12,442,444)
----------- -----------
589,626 20,843,376
----------- -----------
NET INCREASE IN NET ASSETS 13,671,378 26,359,572
NET ASSETS
Beginning of year 145,622,508 119,262,936
----------- -----------
End of year 159,293,886 145,622,508
=========== ===========
FUND SHARE TRANSACTIONS:
Sold 1,199,385 1,579,714
Issued in reinvestment of
distributions 570,034 922,915
Redeemed (1,729,493) (928,220)
----------- -----------
Net increase from fund
share transactions 39,926 1,574,409
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
CARILLON FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Bond Portfolio
For the Year Ended December 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 5,766,633 $5,184,573
Net realized gain/(loss)
on investments and futures 1,210,173 (162,632)
Net change in unrealized
appreciation/(depreciation) on
investments and futures contracts (1,316,722) 6,104,034
----------- ----------
5,660,084 11,125,975
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (6,340,623) (5,049,814)
In excess of net investment income (320,260) --
Net realized gain on investments -- --
----------- ----------
(6,660,883) (5,049,814)
----------- ----------
FUND SHARE TRANSACTIONS
Proceeds from shares sold 17,850,341 12,251,770
Net asset value of shares issued
to shareholders in reinvestment
of distributions 6,660,883 5,049,814
Payments for shares redeemed (11,443,995) (5,739,318)
----------- ----------
13,067,229 11,562,266
----------- ----------
NET INCREASE IN NET ASSETS 12,066,430 17,638,427
NET ASSETS
Beginning of year 73,567,699 55,927,272
----------- ----------
End of year 85,634,129 73,567,699
=========== ==========
FUND SHARE TRANSACTIONS:
Sold 1,633,803 1,141,491
Issued in reinvestment
of distributions 621,662 469,937
Redeemed (1,054,560) (538,145)
----------- ----------
Net increase from fund
share transactions 1,200,905 1,073,283
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
CARILLON FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
S&P 500 Index Portfolio
For the
Period from
For the Year December 29,
Ended 1995 to
December 31, December 31,
------------ ------------
1996 1995
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 349,515 $ 123
Net realized gain/(loss) on
investments and futures 218,750 --
Net change in unrealized
appreciation/(depreciation) on
investments and futures contracts 3,030,849 25
----------- --------
3,599,114 148
----------- --------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (307,386) --
In excess of net investment income -- --
Net realized gain on investments -- --
----------- --------
(307,386) --
----------- --------
FUND SHARE TRANSACTIONS
Proceeds from shares sold 30,917,430 305,000
Net asset value of shares
issued to shareholders 307,386 --
in reinvestment of dividends
and distributions
Payments for shares redeemed (5,617,082) --
----------- --------
25,607,734 305,000
----------- --------
NET INCREASE IN NET ASSETS 28,899,462 305,148
NET ASSETS
Beginning of year 305,148 --
----------- --------
End of year 29,204,610 305,148
=========== ========
FUND SHARE TRANSACTIONS:
Sold 2,850,416 30,500
Issued in reinvestment of
distributions 26,989 --
Redeemed (500,402) --
----------- --------
Net increase from fund
share transactions 2,377,003 30,500
=========== ========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
CARILLON FUND, INC.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
EQUITY PORTFOLIO
SHARES/
PRINCIPAL VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS - 92.28%
BANKING & FINANCIAL SERVICE - 17.48%
ABN Amro Holdings NV Sponsored ADR 32,868 2,135,788
Allied Capital Corporation 28,571 449,993
Banco Bhif ADR* 75,000 1,228,125
Banco Frances Rio Pla Sponsored ADR 28,750 790,625
Banco Latinoamericano
De Exportanciones Sponsored ADR 75,000 3,806,250
Capital American Financial
Corporation 30,000 1,091,250
Charter One Financial, Incorporated 52,500 2,205,000
Chile Fund Incorporated 80,000 1,670,000
Community First Bankshares 91,545 2,517,488
Corus Bankshares, Incorporated 70,000 2,257,500
Czech Republic Fund 109,000 1,444,250
Deutsche Bank AG Sponsored ADR 42,000 1,959,497
FPIC Insurance Group, Incorporated* 150,000 2,025,000
Gainsco, Incorporated 217,762 2,095,959
Jefferies Group, Incorporated 64,000 2,584,000
Mid Ocean Limited Order Shares 40,000 2,100,000
Penncorp Financial Group Corporation 95,000 3,420,000
RLI Corporation 68,625 2,290,359
Raymond James Financial Corporation 66,100 1,991,263
Standard Federal Bancorporation 57,900 3,293,063
Thai Fund, Incorporated 102,500 1,691,250
Union Planters Corporation* 50,000 1,950,000
Washington Federal, Incorporated 85,100 2,255,150
Zions Bancorporation 30,000 3,120,000
------------
50,371,810
------------
CAPITAL GOOD - 11.87%
AGCO Corporation 59,400 1,700,325
Astec Industries, Incorporated* 75,000 712,500
Breed Technologies, Incorporated 90,000 2,340,000
Cemex SA Sponsored ADR 125,000 971,786
Crossman Communitites, Incorporated* 80,000 1,360,000
D.R. Horton, Incorporated 100,000 1,087,500
Deere & Company 68,000 2,762,500
Ford Motor Company 55,000 1,753,125
Griffon Corporation* 209,600 2,567,600
Kysor Industries Corporation* 75,000 2,446,875
Lindsay Manufacturing Company 117,862 5,510,048
Medusa Corporation 80,300 2,760,313
Schult Homes Corporation 50,000 1,175,000
Scotsman Industries, Incorporated 40,000 945,000
Strattec Security Corporation* 145,000 2,646,250
Toll Brothers, Incorporated* 90,000 1,755,000
Woodhead Industries, Incorporated 50,500 694,375
Visx, Incorporated* 45,000 995,625
------------
34,183,822
------------
CONSUMER CYCLICAL - 4.61%
Chromcraft Revington, Incorporated* 75,000 2,081,250
CPAC, Incorporated 125,000 1,875,000
Donnkenny, Incorporated* 100,000 462,500
Galey & Lord, Incorporated* 9,700 144,288
NCI Building Systems, Incorporated* 80,700 2,784,150
Pillowtex Corporation 56,900 1,024,200
Roberds, Incorporated* 90,000 742,500
Southern Energy Home 150,000 1,725,000
Tractor Supply Company* 30,000 618,750
Winsleow Furniture, Incorporated* 188,300 1,835,925
------------
13,293,563
------------
CONSUMER NON-DURABLE -10.87%
Advocat, Incorporated* 100,500 728,625
Allied Healthcare Products,
Incorporated 65,100 480,113
Charoen Pok Feedmill ADR 100,000 1,450,850
Conso Products Company 146,250 1,882,969
Crown Books Corporation* 29,900 351,325
Dart Group Corporation - Class A 7,500 697,500
Dairy Farm International
Holdings Sponsored ADR 200,000 804,998
Footstar, Incorporated* 68,200 1,696,475
GT Bicycles, Incorporated* 134,900 1,736,838
Helen of Troy Ltd, Bermuda* 177,000 3,894,000
IHOP Corporation* 87,000 2,055,375
King World Productions, Incorporated* 50,000 1,843,750
Morningstar Group, Incorporated* 121,000 2,374,625
Nam Tai Electronics, Incorporated* 187,500 1,453,125
Oakley, Incorporated 73,200 796,050
Orthofix International NV* 113,036 932,547
Schlotzsky's, Incorporated* 137,900 1,379,000
Shopko Stores, Incorporated 110,700 1,660,500
Titan Wheel International,
Incorporated 95,000 1,211,250
Toy Biz, Incorporated* 120,000 2,340,000
Utah Medical Products, Incorporated* 115,200 1,540,800
------------
31,310,715
------------
ENERGY - 11.52%
Apache Corporation 58,118 2,055,924
Callon Petroleum Company* 110,000 2,090,000
Cross Timbers Oil Company 70,000 1,758,750
Geoscience Corporation* 50,000 650,000
Giant Industries, Incorporated 165,000 2,310,000
Global Industries, Incorporated 100,000 1,862,500
Holly Corporation 90,000 2,407,500
Nuevo Energy Company* 45,000 2,340,000
Offshore Energy Development* 80,000 1,220,000
Plains Resources, Incorporated* 120,000 1,875,000
St. Mary Land & Exploration 60,000 1,492,500
Southern Mineral Corporation* 350,000 2,056,250
Stone Energy Corporation* 93,900 2,805,263
Total S.A. Sponsored ADR 42,958 1,729,060
Trizec Hahn Corporation 75,000 1,650,000
Vastar Resources Incorporated* 50,000 1,900,000
YPF S.A. Sponsored ADR 55,000 1,388,750
Zeigler Coal Holdings Company 75,000 1,603,125
------------
33,194,622
------------
MANUFACTURING -14.21%
ABT Building Products Company* 145,000 3,625,000
AEP Industries, Incorporated* 107,550 5,915,250
Alltrista Corporation* 86,000 2,214,500
BWAY Corporation* 110,000 2,103,750
Bayer A G Sponsored ADR 110,000 4,482,478
Carbide Graphite Group Incorporated* 130,000 2,551,250
Echo Bay Mines Limited 90,000 596,250
Holophane Corporation 75,000 1,425,000
Falcon Products, Incorporated 147,730 2,105,153
Kevco Incorporated* 140,000 1,960,000
Matthews International Corporation
- Class A 77,000 2,175,250
Minorco Sponsored ADR 90,000 1,873,125
Pohang Iron & Steel Corporation 75,000 1,518,750
Shanghai Petro Chemical Company
Limited Sponsored ADR 40,000 1,175,000
Shelter Components Corporation 100,250 1,228,063
Sybron Chemicals, Incorporated* 65,200 1,043,200
Triangle Pacific Corporation* 92,500 2,225,781
York Group, Incorporated 140,000 2,730,000
------------
40,947,800
------------
REAL ESTATE - 11.78%
Associated Estates Realty Corporation 65,000 1,543,750
Commercial Net Lease Realty* 99,300 1,576,388
Evans Withycombe Residential 92,000 1,932,000
Health Care Property Investments,
Incorporated 47,400 1,659,000
Healthcare Realty Trust, Incorporated 111,400 2,952,100
Highwoods Properties, Incorporated* 40,000 1,350,000
Hospitality Properties Turst,
Incorporated 64,000 1,856,000
IRT Property Company 172,300 1,981,450
LTC Properties, Incorporated 95,000 1,757,500
Merry Land & Investment Company 115,000 2,472,500
Mid-America Apartment Communities 80,000 2,310,000
National Health Investors,
Incorporated 40,000 1,515,000
Public Storage, Incorporated 80,000 2,480,000
Shurgard Storage Centers,
Incorporated 70,000 2,073,750
Trinet Corporate Realty Trust
Incorporated 58,000 2,059,000
United Dominion Realty Trust
Incorporated 132,000 2,046,000
Winston Hotels, Incorporated 175,000 2,384,375
------------
33,948,813
------------
SERVICE - 1.78%
Comcast Corporation 50,000 893,750
Devon Group, Incorporated* 85,000 2,337,500
PCA International, Incorporated 55,200 897,000
Right Management Consultants 44,600 992,350
------------
5,120,600
------------
TECHNOLOGY - 3.46%
Cybex Corporation* 160,000 2,280,000
DH Technology, Incorporated* 135,000 3,240,000
Digi International, Incorporated* 95,000 902,500
Kemet Corporation* 60,000 1,395,000
Recoton Corporation* 143,000 2,136,062
9,953,562
TRANSPORTATION - 2.77%
Atlantic Southeast Airlines
Incorporated 95,000 2,078,125
Illinois Central Corporation
- Class A 82,500 2,640,000
Landstar, Incorporated* 40,000 930,000
Midwest Express Holdings* 65,000 2,340,000
------------
7,988,125
------------
UTILITY - 1.93%
CMS Energy Corporation 50,000 1,681,250
Empresa Nacional
De Electricidad Sponsored ADR 29,400 2,058,000
Tuscon Electric Power Company 110,000 1,828,750
------------
5,568,000
------------
Total Common Stocks
(cost $ 205,498,271) $265,881,432
------------
SHORT-TERM INVESTMENTS - 5.82%
COMMERCIAL PAPER - 5.37%
Army Airforce (5.600% due 01/01/97) 2,000,000 2,000,000
CC USA (5.400% due 02/06/97) 1,000,000 994,600
ConAgra, Incorporated
(5.450% due 01/03/97) 1,000,000 999,697
Circus Circus (5.500% due 01/08/97) 2,000,000 1,997,861
Dana Credit Corporation
(5.480% due 01/16/97) 1,500,000 1,496,575
Telecommunications, Incorporated
(5.700% due 01/24/97) 1,000,000 996,358
Textron Financial Corporation
(5.570% due 02/11/97) 2,000,000 1,987,313
Public Service Electric & Gas
(5.450% due 01/07/97) 1,000,000 999,092
Viacom (5.660% due 01/21/97) 2,000,000 1,993,711
White Consolidated Industries,
Incorporated(5.480% due 01/24/97) 2,000,000 1,992,998
------------
15,458,205
------------
VARIABLE RATE DEMAND NOTES<F1> - .45%
Johnson Controls, Incorporated
(5.529% due 01/01/97) 1,306,839 1,306,839
------------
Total Short-Term Investments
(cost $16,765,044) 16,765,044
------------
TOTAL INVESTMENTS - 98.10%
(cost $222,263,315)<F2> 282,646,476
------------
OTHER ASSETS AND LIABILITIES - 1.9% 5,477,247
------------
TOTAL NET ASSETS - 100% $288,123,723
============
- -----------------
* Non-income producing
(ADR) American Depository Receipt
<FN>
<F1>) Interest rates vary periodically based on current market
rates. The maturity shown for each variable rate demand note is
the later of the next scheduled interest rate adjustment date or
the date on which principal can be recovered through demand.
Information as of December 31, 1996.
<F2> Represents cost for Federal income tax purposes. Gross
unrealized appreciation and depreciation of securities at
December 31, 1996 was $69,683,138 and $9,299,977, respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial
statements
<PAGE>
CARILLON FUND, INC.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
CAPITAL PORTFOLIO
SHARES/
PRINCIPAL VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS - 34.38%
BANKING & FINANCIAL SERVICE - 8.42%
Allied Capital Corporation 34,285 539,992
Banco BHIF ADR* 50,000 818,750
Banco Latinoamericano
de Exportaciones ADR 30,000 1,522,500
Black Rock Strategic Term Trust 75,000 600,000
Charter One Financial Incorporated 42,000 1,764,000
Corus Bankshares Incorporated 25,000 806,250
Deutsche Bank AG Sponsored ADR 18,000 839,784
FPIC Insurance Group Incorporated* 60,000 810,000
Gainsco Incorporated 63,000 606,375
New Germany Fund 72,229 966,063
RLI Corporation 30,480 1,017,270
Templeton Global Income Fund 125,000 890,625
Thai Fund Incorporated 55,000 907,500
Washington Federal Incorporated 50,000 1,325,000
------------
13,414,109
------------
CAPITAL GOOD - 2.57%
Astec Industries Incorporated* 50,000 475,000
Griffon Corporation* 55,000 673,750
Lindsay Manufacturing Incorporated 32,908 1,538,449
Lonrho PLC - Sponsored ADR 150,000 319,574
Strattec Security Corporation* 60,000 1,095,000
------------
4,101,773
------------
CONSUMER CYCLICAL - 2.15%
Chromcraft Revington Inc.* 25,000 693,750
NCI Building Systems Incorporated* 35,000 1,207,500
Southern Energy Homes 65,000 747,500
Winsleow Furniture Incorporated* 80,000 780,000
------------
3,428,750
------------
CONSUMER NON-DURABLE - 1.87%
GT Bicycles Incorporated* 80,000 1,030,000
Helen of Troy Limited, Bermuda* 51,000 1,122,000
IHOP Corporation* 35,000 826,875
------------
2,978,875
------------
ENERGY - 2.50%
Callon Petroleum Company* 35,000 665,000
Giant Industries Incorporated 87,400 1,223,600
Offshore Energy Development* 43,000 655,750
Stone Energy Corporation* 27,000 806,625
YPF S.A. Sponsored ADR 25,000 631,250
------------
3,982,225
------------
MANUFACTURING -8.29%
ABT Building Products Company* 45,000 1,125,000
AEP Industries, Incorporated* 45,831 2,520,705
Bayer AG Sponsored ADR 75,000 1,629,992
Bway Corporation* 44,000 841,500
Carbide Graphite Group* 60,000 1,177,500
Holly Corporation 20,000 535,000
Newmont Mining Corporation 20,000 895,000
Pohang Iron & Steel Company 32,000 648,000
Royal Oak Mines Incorporated* 125,000 406,250
Santa Fe Pacific Gold Corporation 35,000 538,125
TVX Gold Incorporated* 120,000 930,000
Vaal Reefs Exploration
& Mining Limited ADR* 120,100 43,119
York Group Incorporated 62,000 1,209,000
------------
13,199,191
------------
REAL ESTATE - 7.03%
Associated Estates Realty
Corporation 50,000 1,187,500
Columbus Realty Trust 46,000 1,046,500
Hospitality Properties Trust 33,000 957,000
IRT Properties Company 85,000 977,500
LTC Properties Incorporated 46,000 851,000
Merry Land & Investment Company 60,000 1,290,000
Mid-America Apartment Communities 40,000 1,155,000
Shurgard Storage Centers Incorporated 43,000 1,273,875
United Dominion Realty Trust 75,000 1,162,500
Winston Hotels Incorporated 95,000 1,294,375
------------
11,195,250
------------
TECHNOLOGY - 1.55%
DH Technology, Incorporated* 59,760 1,434,240
Recoton Corporation* 69,000 1,030,688
------------
2,464,928
------------
Total Common Stocks (cost $43,838,220) 54,765,101
------------
PREFERRED STOCKS - .40%
MANUFACTURING -.40%
Freeport McMoRan Copper & Gold Series 20,000 640,000
------------
Total Preferred Stock (cost $709,838) 640,000
------------
U.S. TREASURY OBLIGATIONS - 13.18%
8.000% due 01/15/97 1,000,000 1,000,313
8.500% due 04/15/97 500,000 503,906
6.750% due 02/28/97 650,000 651,016
6.750% due 05/31/97 1,000,000 1,004,063
7.875% due 04/15/98 500,000 511,719
5.500% due 02/28/99 1,000,000 991,250
6.000% due 10/15/99 5,900,000 5,900,000
5.750% due 10/31/00 1,000,000 986,875
7.500% due 11/15/01 500,000 526,406
6.375% due 08/15/02 1,750,000 1,761,485
5.875% due 02/15/04 100,000 97,375
7.250% due 05/15/04 3,500,000 3,683,750
7.875% due 11/15/04 3,100,000 3,382,875
------------
Total U.S. Treasury Notes
($20,735,403) 21,001,033
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS - 12.51%
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 3.16%
1662 H (6.250% due 01/15/09) 1,007,738 989,065
1442 FA (5.970% due 11/15/07) 1,000,000 907,605
77 F (8.500% due 06/15/17) 23,592 23,592
1559 VP (5.500% due 02/15/20) 1,700,000 1,625,744
1399 PAC (7.000% due 09/15/22) 596,484 568,131
1631 SB (6.527% due 12/15/23) 1,450,000 911,855
------------
5,025,992
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 7.82%
Remic 93-12 ED
(7.500% due 02/25/06) 1,645,000 1,692,039
Remic 1992-163 PN
(7.000% due 07/25/07) 1,500,000 1,501,020
Remic 92-117 J
(7.500% due 07/25/20) 1,000,000 1,013,637
Remic 92-119 E
(8.000% due 07/25/20) 1,000,000 1,021,846
Remic 92-112E
(8.000% due 12/25/20) 1,500,000 1,534,255
Remic 93-127 FA
(5.430% due 10/25/21) 1,000,000 951,862
Remic 1992-39 FB
(6.190% due 03/25/22) 2,000,000 1,936,180
Remic 92-66 F
(5.906% due 05/25/22) 1,007,444 1,008,482
Remic 1993-119 SB
(7.595% due 07/25/23) 2,572,882 1,803,790
------------
12,463,111
------------
PRIVATE SECTOR - 1.53%
Prudential Home Mortgage Securities
(7.500% due 07/25/10) 521,233 515,531
Merrill Lynch Mortgage Investors
(6.438% due 09/15/17) 2,000,000 1,920,000
------------
2,435,531
------------
Total Collateralized Mortgage
Obligations (cost $20,294,887) 19,924,634
------------
MORTGAGE - BACKED SECURITIES - 9.25%
FEDERAL HOME LOAN MORTGAGE
CORPORATION - .82%
7.500% due 06/01/07 50,933 51,379
9.500% due 10/01/08 230,479 247,019
8.250% due 03/01/12 119,734 123,764
8.500% due 03/01/16 95,105 98,830
7.500% due 07/01/17 57,995 58,149
11.000% due 04/01/19 55,195 61,646
11.000% due 11/01/19 53,485 59,736
11.000% due 05/01/20 213,091 237,904
11.000% due 06/01/20 332,322 371,297
------------
1,309,724
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 8.08%
10.000% due 02/01/04 6,768 7,235
9.500% due 09/01/05 150,099 158,380
9.000% due 11/01/05 68,885 72,112
7.500% due 03/25/07 1,200,000 1,220,681
8.000% due 05/01/07 145,405 149,688
6.000% due 12/01/08 868,950 842,360
5.500% due 01/01/09 900,305 857,694
6.000% due 03/01/09 984,158 954,043
5.500% due 04/01/09 888,742 843,620
8.500% due 03/01/19 12,085 12,654
6.500% due 02/01/26 806,877 770,124
6.500% due 03/01/26 201,918 192,720
7.000% due 03/01/26 1,944,740 1,903,336
7.000% due 07/01/26 1,961,895 1,919,593
7.500% due 07/01/26 2,959,197 2,959,375
------------
12,863,615
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - .35%
9.000% due 11/15/16 103,445 111,000
10.500% due 11/20/19 291,488 318,313
9.000% due 12/15/19 126,525 134,961
------------
564,274
------------
Total Mortgage Backed Securities
(cost $14,273,212) 14,737,613
------------
CORPORATE BONDS AND NOTES - 5.56%
COMMUNICATIONS AND MEDIA - .57%
Loewen Group International, Inc.
(8.2500% due 04/15/03) 900,000 908,104
------------
FINANCE COMPANY - .32%
Helicon Group
(11.0000% due 11/01/03) 500,000 510,000
------------
FINANCIAL SERVICES - .52%
Pacific Gulf Properties, Inc.
(8.375% due 02/15/01) 750,000 825,000
------------
GAMING INDUSTRY - .16%
Circus Circus Enterprises, Inc.
(10.625% due 06/15/97) 250,000 255,124
------------
INSURANCE - .09%
The Penn Central Corp.
(9.750% due 08/01/99) 130,000 136,857
------------
MISCELLANEOUS - .65%
Toll Corp. (10.500% due 03/15/02) 500,000 517,500
Parisian (9.875% due 07/15/03) 500,000 510,000
------------
1,027,500
------------
OIL & GAS EXPLORATION SERVICES - .97%
Maxus Debentures
(11.250% due 05/01/13) 208,000 213,200
Rowan Companies
(11.875% due 12/10/01) 750,000 795,000
Trans Texas Gas, Corp.
(11.500% due 06/15/02) 500,000 540,625
------------
1,548,825
------------
REAL ESTATE - .33%
GE Capital Marketing Services, Inc.
(6.0000% due 08/25/09) 568,877 531,547
------------
TELEPHONE & TELECOMMUNICATIONS- .75%
United Telecommunications, Inc.
(9.750% due 04/01/00) 156,000 169,674
TCI Communications Inc
(8.6500% due 09/15/04) 1,000,000 1,023,856
------------
1,193,530
UTILITIES - ELECTRIC - 1.20%
Connecticut Light & Power Co.
1st Ref Mtg. (7.625% due 04/01/97) 677,000 677,240
New Orleans Public Service Inc.
1st Mtg. (8.670% due 04/01/05) 1,200,000 1,237,629
------------
1,914,869
------------
Total Corporate Bonds
(cost $ 8,455,147) 8,851,356
------------
SHORT-TERM INVESTMENTS - 22.84%
COMMERCIAL PAPER - 17.71%
Army Airforce (5.600% due 01/10/97) 2,000,000 2,000,000
Case Credit Corporation
(5.530% due 02/03/97) 1,000,000 994,931
Circus Circus Enterprises Inc.
(5.500% due 01/08/97) 2,000,000 1,997,861
Conagra Inc. (5.450% due 01/03/97) 2,000,000 1,999,394
Dana Credit Corporation
(5.480% due 01/21/97) 1,000,000 996,956
Hanson Financial
(5.620% due 03/14/97) 1,500,000 1,483,140
IES Diversified
(5.550% due 01/27/97) 1,000,000 995,992
IES Diversified
(5.670% due 01/31/97) 1,500,000 1,492,913
Illinois Power Fuel Company
(5.450% due 01/14/97) 2,000,000 1,996,064
Nabisco Inc (5.450% due 01/13/97) 1,000,000 998,183
New York State Gas & Electric
(5.950% due 01/24/97) 2,000,000 1,992,397
Penn Power & Light Energy
(5.450% due 01/08/97) 1,000,000 998,940
Penn Power & Light Energy
(5.480% due 01/22/97) 1,000,000 996,803
Public Service Electric & Gas
(5.450% due 01/07/97) 1,000,000 999,092
Public Service Electric & Gas
(5.450% due 01/10/97) 1,000,000 998,638
Telecommunications Inc
(5.700% due 01/24/97) 2,300,000 2,291,624
Textron Financial Group
(5.550% due 02/10/97) 1,000,000 993,833
Textron Inc.
(5.5700% due 02/11/97) 1,000,000 993,656
Viacom (5.700% due 01/24/97) 1,000,000 996,358
White Consolidated Industries, Inc
(5.480% due 01/24/97) 1,000,000 996,499
White Consolidated Industries, Inc
(5.530% due 02/03/97) 1,000,000 994,931
------------
28,208,205
------------
VARIABLE RATE DEMAND NOTES - 5.13%
American Family Financial Services
(5.509% due 01/01/97) 1,485,013 1,485,013
Johnson Controls, Inc.
(5.529% due 01/01/97) 6,157,736 6,157,736
Wisconsin Electric Power Company
(5.549% due 01/01/97) 527,871 527,871
------------
8,170,620
------------
Total Short Term Investments
(cost $36,378,825) 36,378,825
------------
TOTAL INVESTMENTS - 98.12%
(cost $144,685,532)<F2> 156,298,562
------------
OTHER ASSETS AND LIABILITIES - 1.88% 2,995,324
------------
TOTAL NET ASSETS - 100% $159,293,886
------------
- -----------------
* Non-Income producing
(ADR) American Depository Receipt
<FN>
<F1> Interest rates vary periodically based on current market
rates. Rates shown are as of December 31, 1996. The maturity
shown for each variable rate demand note is the later of the
next scheduled interest rate adjustment date or the date on
which principal can be recovered through demand. Information as
of December 31, 1996.
<F2> Represents cost for Federal income tax purposes. Gross
unrealized appreciation and depreciation of securities at
December 31, 1996 was $14,144,348 and $2,531,318 respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
CARILLON FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1996
BOND PORTFOLIO
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL VALUE
--------- -----
<S> <C> <C>
U.S. TREASURY OBLIGATIONS - 35.51%
U.S. TREASURY BOND - 5.41%
6.250% due 08/15/23 $3,000,000 $ 2,811,570
6.000% due 02/15/26 2,000,000 1,819,376
-----------
4,630,946
-----------
U.S. TREASURY NOTES - 25.30%
6.000% due 10/15/99 4,000,000 4,000,000
6.700% due 04/30/00 2,000,000 2,038,126
7.750% due 02/15/01 2,500,000 2,642,188
5.625% due 02/28/01 2,000,000 1,960,626
5.875% due 11/15/05 5,000,000 4,823,440
6.500% due 08/15/05 1,000,000 1,006,875
7.000% due 07/15/06 5,000,000 5,195,315
-----------
21,666,570
-----------
U.S. TREASURY STRIPS - 4.80%
0.000% due 02/15/00 3,250,000 2,695,290
0.000% due 08/15/02 2,000,000 1,416,780
-----------
4,112,070
-----------
Total U.S. Treasury Notes
(cost $30,002,142) 30,409,583
-----------
MORTGAGE - BACKED SECURITIES - 3.43%
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 1.10%
7.500% due 02/01/02 46,747 47,331
9.500% due 04/01/05 77,932 82,169
7.500% due 06/01/07 112,097 113,080
11.000% due 05/01/10 13,069 14,596
12.500% due 08/01/10 18,983 21,794
8.000% due 11/01/16 55,327 56,382
9.500% due 02/01/18 76,207 81,827
6.500% due 07/01/23 553,517 532,356
-----------
949,535
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 2.14%
12.000% due 04/01/00 69,694 75,095
9.000% due 08/01/01 50,968 53,341
8.500% due 01/01/02 47,751 49,676
10.500% due 06/01/04 16,138 17,207
10.500% due 05/01/05 200,712 214,009
6.500% due 06/01/08 1,141,030 1,128,683
8.000% due 08/01/17 289,120 294,360
-----------
1,832,371
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - .19%
11.000% due 03/15/10 61,600 68,029
9.000% due 05/15/20 86,210 90,844
-----------
158,873
-----------
Total Mortgage-Backed Securities
(cost $2,892,682) 2,940,779
-----------
COLLATERALIZED MORTGAGE
OBLIGATIONS - 7.97%
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 3.56%
59 E (8.900% due 11/15/20) 965,123 1,007,820
106 G (8.250% due 12/15/20) 1,000,000 1,031,890
1770 B (8.250% due 01/15/24) 1,000,000 1,004,836
-----------
3,044,546
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - .26%
Remic (9.500% due 12/25/18) 212,032 225,191
-----------
PRIVATE SECTOR - 4.15%
Securitized Asset Sales, Inc.
(6.500% due 07/25/08) 305,789 291,457
CMC Securities Corp.
(0.000% due 12/25/08) 401,817 301,298
Country Wide Mortgage-Backed
Securities, Inc.(6.000% due 03/01/09) 876,358 807,073
Capstead Mortgage Securities Corp.
(10.950% due 02/01/14) 215,719 215,934
Greenwich Capital Acceptance
(8.238% due 08/25/24) 989,978 858,806
NWA Trust No. 2 Class B
(10.230% due 06/21/14) 950,769 1,083,310
-----------
3,557,878
-----------
Total Collateralized Mortgage
Obligations (cost $6,559,333) 6,827,615
-----------
CORPORATE BONDS AND NOTES - 50.43%
AIR TRANSPORTATION - 1.22%
Continental Airlines
(7.820% due 10/15/23) 1,000,000 1,033,140
-----------
BANK & BANK HOLDING COMPANIES - 4.17%
Comerica Inc. (9.750% due 05/01/99) 500,000 534,041
First Tennessee (8.070% due 01/06/27) 2,000,000 2,002,240
Nationsbank Corp.
(7.625% due 04/15/05) 1,000,000 1,034,698
-----------
3,570,979
-----------
COMMUNICATIONS AND MEDIA - 8.59%
Arch Communication Group
(0.000% due 03/15/08) 1,000,000 571,250
Call-Net Enterprises
(0.000% due 12/01/04) 1,250,000 1,025,000
CF Cable TV Inc.
(9.125% due 07/15/07) 1,000,000 1,070,000
Continental Cablevision
(8.300% due 05/15/06) 1,000,000 1,067,038
CS Wireless Systems
(0.000% due 03/01/06) 500,000 180,000
Jones Intercable, Inc.
(9.625% due 03/15/02) 500,000 525,000
Neodata Service (12.000% due 05/01/03) 1,000,000 1,052,500
Peoples Choice TV (0.000% due06/01/04) 2,000,000 840,000
Time Warner Inc. (8.110% due 08/15/06) 1,000,000 1,024,735
-----------
7,355,523
-----------
CONGLOMERATES - 1.78%
Figgie International Inc.
(9.875% due 10/01/99) 1,000,000 1,040,000
JB Poindexter & Company
(12.500% due 05/15/04) 500,000 487,500
-----------
1,527,500
-----------
CONSUMER PRODUCTS -2.59%
Coleman Holdings
(0.000% due 05/27/98) 1,000,000 833,750
Pillowtex Corporation
(10.000% due 11/15/06) 500,000 520,000
Revlon Consumer Products Corp.
(0.00% due 03/15/98) 1,000,000 867,500
-----------
2,221,250
-----------
ENERGY - 1.34%
Coastal Corp.(9.7500% due 08/01/03) 1,000,000 1,144,986
-----------
FINANCE COMPANIES - 1.79%
Ahmanson Capital Trust
(8.360% due 12/01/26) 1,500,000 1,536,615
-----------
FOOD, BEVERAGE, & TOBACCO -3.45%
Dimon Inc. (8.875% due 06/01/06) 1,000,000 1,037,500
RJR Nabisco, Inc.
(7.625% due 09/15/03) 500,000 482,059
Great American Cookie, Inc.
(10.875% due 01/15/01) 500,000 455,000
Nabisco Inc. (7.550% due 06/15/15) 1,000,000 978,312
-----------
2,952,871
-----------
FOREIGN - 1.12%
Quebec Province CDA
(7.125% due 02/09/24) 1,000,000 955,040
-----------
GAMING INDUSTRY - 5.84%
Argosy Gaming (13.2500% due 06/01/04) 1,000,000 927,500
Boomtown, Inc. 1st Mortgage
(11.500% due 11/01/03) 1,000,000 1,047,500
Casino Magic of Louisiana
(13.000% due 08/15/03) 1,000,000 987,500
Empress River Casino Finance Corp.
(10.750% due 04/01/02) 1,000,000 1,077,500
Hollywood Casino Corp.
(12.750% due 11/01/03) 1,000,000 960,000
-----------
5,000,000
-----------
HEALTH CARE - 1.80%
Columbia / HCA Healthcare Corp.
(7.690% due 06/15/25) 1,000,000 1,026,254
Foundation Health Corp.
(7.750% due 06/01/03) 500,000 516,881
-----------
1,543,135
-----------
INSURANCE - 4.92%
Berkley (W.R.) Corp.
(9.875% due 05/15/08) 500,000 595,056
Farmers Insurance Exhange
(8.500% due 04) 1,000,000 1,046,903
Leucadia National Corp.
(8.250% due 06/15/05) 1,000,000 1,036,976
Penn Central Corp.
(9.750% due 08/01/99) 500,000 526,374
Prudential Insurance
(8.100% due 07/15/15) 1,000,000 1,010,504
-----------
4,215,813
-----------
MANUFACTURING - 4.31%
General Instrument Corporation
(5.000% 06/15/00) 500,000 532,500
International Knife & Saw Corp.
(11.375% due 11/15/06) 1,000,000 1,035,000
International Wire Group Inc.
(11.750% due 06/01/05) 500,000 535,000
Safelite Glass Corporation
(9.875% due 12/15/06) 500,00 515,000
Terex Corp. (13.750% due 05/15/02) 1,000,000 1,075,000
-----------
3,692,500
-----------
MISCELLANEOUS - .60%
Sea Containers (10.500% due 07/01/03) 500,000 512,500
-----------
OIL & GAS - DOMESTIC - .63%
Penzoil Company (9.625% due 11/15/99) 500,000 535,737
-----------
OIL & GAS - SERVICES - 3.17%
Mitchell Energy Development Corp.
(6.750% due 02/15/04) 750,000 707,585
PDV America, Inc.
(7.750% due 08/01/00) 1,000,000 1,005,453
Petro (12.500% due 06/01/02) 1,000,000 1,000,000
-----------
2,713,038
-----------
PAPER & FOREST PRODUCTS - .62%
Westvaco Corp. (10.300% due 01/15/19) 500,000 532,396
-----------
RETAIL - GENERAL - 1.23%
Hook - SuperX Inc.
(10.125% due 06/01/02) 1,000,000 1,057,132
-----------
STEELS AND METALS - 1.26%
Gulf States Steel
(13.500% due 04/15/03) 500,000 472,500
UCAR Global Enterprises Inc.
(12.000% due 01/15/05) 530,000 610,163
-----------
1,082,663
-----------
Total Corporate Bond and Notes
(cost $42,252,009) 43,182,818
-----------
COMMON STOCKS - .04%
ENERGY - .04%
Mesa Incorproated* 6,417 33,689
-----------
Total Common Stocks (cost $ 24,365) 33,689
-----------
WARRANTS - 0.00%
RETAIL-FOOD - 0.00%
Great American Cookie Warrants 90 2,250
TECHNOLOGY - .06%
CS Wireless Systems 138 1
Terex Corporation Appreciation Rights 4,000 40
-----------
Total Warrants (cost $ 28,050) 2,291
-----------
PREFERRED STOCKS - 1.05%
BANKING AND FINANCIAL SERVICE - 1.05%
Earthshell Container Corporation
Series A
Cumulative Senior Convertible 8%<F1> 500 900,000
-----------
Total Preferred Stocks (cost $500,000) 900,000
-----------
SHORT TERM INVESTMENTS - 4.42%
VARIABLE RATE DEMAND NOTES<F2> - 4.42%
American Family (5.509% due 01/01/97) 661,231 661,231
Johnson Controls Inc.
(5.529% due 01/01/97) 2,145,196 2,145,196
Pitney Bowes Credit Corp.
(5.507% due 01/01/97) 42,913 42,913
Sara Lee (5.487% due 01/01/97) 797,184 797,184
Southwestern Bell Telephone Co.
(5.487% due 01/01/97) 135,000 135,000
-----------
Total Short-Term Investments
(cost $3,781,525) 3,781,525
-----------
TOTAL INVESTMENTS - 102.85%
(cost $86,040,107)<F3> 88,078,300
-----------
OTHER ASSETS AND LIABILITIES - (2.85)% (2,444,171)
-----------
TOTAL NET ASSETS - 100% $85,634,129
===========
- -----------------------
* Non-Income Producing
<FN>
<F1> 144A- Privately placed security traded among qualified
institutional buyers.
<F2> Interest rates vary periodically based on current market rates.
Rates shown are as of December 31, 1996. The maturity shown for each
variable rate demand note is the later of the next scheduled interest
adjustment date or the date on which principal can be recovered through
demand. Information shown is as of December 31, 1996.
<F3> Represents cost for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at December 31, 1996 was
$3,185,795 and $1,147,602 respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of
the financial statments.
<PAGE>
CARILLON FUND, INC.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
S&P 500 INDEX PORTFOLIO
COMMON STOCKS - 82.48%
SHARES VALUE
------ -----
<S> <C> <C>
BANKING & FINANCIAL SERVICE - 11.85%
Aetna Life & Casulaty Company 667 53,318
Allstate Corporation 2,000 115,750
American Express Company 2,100 118,650
American General Corporation 900 36,788
American International Group 2,000 216,500
Banc One Corporation 1,890 81,270
Bank of Boston Corporation 700 44,975
Bank of New York Incorporated 1,700 57,375
BankAmerica Corporation 1,600 159,600
Bankers Trust New York Corporation 300 25,875
Barnett Banks, Incorporated 1,000 41,125
Boatmen's Bancshares, Incorporated 800 51,600
Chase Manhattan Corporation 2,012 179,571
Chubb Group 800 43,000
CIGNA Corporation 300 40,988
Citicorp 1,600 164,800
Comerica, Incorporated 600 31,425
CoreStates Financial Corporation 1,100 57,063
Dean Witter, Discover & Company 700 46,375
Federal Home Loan Mortgage Corporation 800 88,100
Federal National Mortgage Association 4,800 178,800
First Bank System, Incorporated 700 47,775
First Chicago NBD Corporation 1,400 75,250
First Union Corporation 1,300 96,200
Fleet Financial Group, Incorporated 1,200 59,850
General RE Corporation 400 63,100
Great Western Financial 500 14,500
Green Tree Financial Corporation 600 23,175
Household International, Incorporated 500 46,125
ITT Hartford Group Incorporated 500 33,750
KeyCorp 1,000 50,500
Lincoln National Corporation 500 26,250
Marsh & McLennan Companies, Incorporated 400 41,600
MBNA Corporation 850 35,275
Mellon Bank Corporation 600 42,600
Merrill Lynch & Company, Incorporated 800 65,200
Morgan (J. P.) & Company 900 87,863
Morgan Stanley Group Incorporated 700 39,988
National City Corporation 1,100 49,363
NationsBank Corporation 1,000 97,750
Norwest Corporation 1,600 69,600
PNC Bank Corporation 1,500 56,438
Providian Corp. 500 25,688
Republic New York Corporation 300 24,488
SAFECO Corporation 600 23,663
Salomon, Incorporated 500 23,563
SunTrust Banks, Incorporated 1,200 59,100
Transamerica Corporation 400 31,600
Travelers Group, Incorporated 2,733 124,010
US Bancorp 700 31,456
Wachovia Corporation 800 45,200
Wells Fargo & Company 433 116,802
-----------
3,460,670
-----------
CAPITAL GOOD - 4.56%
AMP, Incorporated 1,100 42,213
Caterpillar, Incorporated 900 67,725
Cooper Industries, Incorporated 600 25,275
Deere & Company 1,200 48,750
Dover Company 600 30,150
Emerson Electric Company 1,100 106,425
Foster Wheeler Corporation 300 11,138
General Electric Company 7,100 702,013
Grainger (WW), Incorporated 300 24,075
Illinois Tool Works, Incorporated 600 47,925
Ingersoll-Rand Company 500 22,250
Scientific-Atlanta, Incorporated 500 7,500
Tenneco, Incorporated 900 40,613
Tyco International Limited 800 42,300
Westinghouse Electric Corporation 1,900 37,763
WMX Technologies, Incorporated 2,300 75,038
-----------
1,331,153
-----------
CONSUMER CYCLICAL - 6.02%
American Greetings Company Class A 500 14,188
American Stores Company 700 28,613
Black & Decker Corp. 500 15,063
Chrysler Corporation 3,200 105,600
CVS Corporation 500 20,688
Dayton Hudson Corporation 1,100 43,175
Eaton Corporation 400 27,900
Federated Department Stores Incorporated* 1,000 34,125
Ford Motor Company 5,300 168,938
Gap (The), Incorporated 1,300 39,163
General Motors Corporation 3,400 189,550
Genuine Parts Company 900 40,050
Goodyear Tire & Rubber Company 800 41,100
HFS, Incorporated 600 35,850
Home Depot, Incorporated 2,100 105,263
Johnson Controls 300 24,863
K Mart Corporation* 2,200 22,825
Lowe's Companies, Incorporated 800 28,400
May Department Stores Company 1,200 56,100
NIKE, Incorporated 1,300 77,675
PACCAR, Incorporated 200 13,600
Penney, (J.C.) Company, Incorporated 1,100 53,625
Reebok International, Incorporated 300 12,600
Rite Aid Corporation 500 19,875
Sears, Roebuck & Company 1,700 78,413
Tandy Corporation 300 13,200
Limited (The), Incorporated 1,290 23,704
Toys "R" Us, Incorporated* 1,200 36,000
TRW, Incorporated 600 29,700
V.F. Corporation 400 27,000
Wal-Mart Stores, Incorporated 11,000 251,625
Walgreen Company 1,000 40,000
Whirlpool Corporation 500 23,313
Woolworth Corporation* 700 15,313
-----------
1,757,097
-----------
CONSUMER NON-DURABLE - 21.53%
Abbott Laboratories 3,400 172,550
Albertson's, Incorporated 1,200 42,750
American Brands, Incorporated 800 39,700
American Home Products Corporation 2,800 164,150
Andrew Corporation 300 15,919
Anheuser-Busch Companies, Incorporated 2,200 88,000
Archer-Daniels-Midland Company 2,495 54,890
Automatic Data Processing, Incorporated 1,400 60,025
Avon Products, Incorporated 600 34,275
Baxter International, Incorporated 1,300 53,300
Becton, Dickinson Company 700 30,363
Block, H&R Incorporated 500 14,500
Boston Scientific Corporation* 800 48,000
Bristol-Meyers Squibb Company 2,300 250,125
Browning-Ferris Industries, Incorporated 1,000 26,250
Brunswick Corporation 500 12,000
Campbell Soup Company 1,000 80,250
Clorox Co. 300 30,113
Coca-Cola Company 10,900 573,613
Cognizant Corporation 800 26,400
Colgate-Palmolive Company 600 55,350
Columbia/HCA Healthcare Corporation 3,050 124,288
Comcast Corporation 900 16,031
ConAgra, Incorporate, Class A. Special 1,100 54,725
CPC International, Incorporated 700 54,250
CUC International, Incorporated 1,850 43,938
Donnelly (RR) & Sons Company 800 25,100
Dow Jones, & Company, Incorporated 600 20,325
Dun & Bradstreet Corporation 1,200 28,500
Gannett Company, Incorporated 800 59,900
General Mills, Incorporated 700 44,363
Gillette Company 1,900 147,725
Heinz (H.J.) Company 1,700 60,775
Harrahs Entertainment, Incorporated* 500 9,938
Hershey Foods Corporation 900 39,375
Hilton Hotels Corporation 900 23,513
International Flavors & Fragrance,
Incorporated 500 22,500
Interpublic Group Companies,
Incorporated 600 28,500
Johnson & Johnson 5,800 288,550
Kellogg Company 1,000 65,625
King World Producation, Incorporated* 300 11,063
Kroger Company* 700 32,550
Lilly,(Eli) & Company 2,400 175,200
Loews Corporation 600 56,550
Manor Care 400 10,800
Mattel, Incorporated 1,250 34,688
Marriott International 600 33,150
McDonalds Corporation 3,100 140,275
McGraw Hill Companies, Incorporated 600 27,675
Medtronic, Incorporated 1,100 74,800
Merck & Company, Incorporated 5,300 420,025
PepsiCo, Incorporated 6,700 195,975
Pfizer, Incorporated 2,800 232,050
Pharmacia & Upjohn, Incorporated 2,200 87,175
Philip Morris Companies, Incorporated 3,600 405,450
Procter & Gamble Company 3,000 322,500
Ralston-Ralston Purina Group 500 36,688
Sara Lee Corporation 2,300 85,675
Schering-Plough Corporation 1,600 103,600
Seagrams Company, Limited 1,700 65,875
St. Jude Medical* 400 17,050
Sysco Corporation 900 29,363
Tele-Communications, Incorporated* 1,600 20,900
Tenet Healthcare Corporation* 1,100 24,063
Time Warner, Incorporated 2,600 97,500
Tribune Company 400 31,550
UST, Incorporated 800 25,900
United HealthCare Corporation 900 40,500
Viacom, Inc. - Class B* 1,300 45,338
Walt Disney Company, The 3,019 210,198
Warner-Lambert Company 1,300 97,500
Wendy's International 700 14,350
Winn-Dixie Stores, Incorporated 700 22,138
Wrigley, (Wm), Jr. Company 500 28,125
-----------
6,286,683
-----------
ENERGY - 7.95%
Amerada Hess Corporation 500 28,938
Amoco Corporation 2,300 185,150
Atlantic Richfield Company 800 106,000
Burlington Resources, Incorporated 600 30,225
Chevron Corporation 2,800 182,000
Columbia Gas System, Incorporated 300 19,088
Dresser Industries, Incorporated 1,200 37,200
Enron Corporation 1,100 47,438
Exxon Corporation 5,300 519,400
Halliburton Company 600 36,150
Kerr-McGee Company 300 21,600
Mobil Corporation 1,700 207,825
Occidental Petroleum 1,600 37,400
Phillips Petroleum Company 1,300 57,525
Royal Dutch Petroleum Company ADR 2,300 392,725
Schlumberger Limited 1,400 139,825
Sun Company, Incorporated 700 17,063
Texaco, Incorporated 1,200 117,750
USX-Marathon 1,400 33,425
Union Pacific Resources Group 1,092 31,941
Unocal Corporation 1,100 44,688
Williams Companies 750 28,125
-----------
2,321,481
-----------
MANUFACTURING - 7.68%
Air Products & Chemicals, Incorporated 600 41,475
Alcan Aluminum Limited 1,500 50,438
Allegheny Teledyne, Incorporated 800 18,400
Aluminum Company of America 1,100 70,125
Applied Materials Incorporated* 900 32,344
Barrick Gold 1,800 51,750
Bemis Company 300 11,063
Bethlehem Steel Corporation* 700 6,300
Centex Corporation 100 3,763
Champion International Corporation 500 21,625
Corning, Incorporated 1,100 50,875
Crown Cork & Seal Company, Incorporated 600 32,625
Dow Chemical Company 1,200 94,050
DuPont (E.I.) De Nemours & Company 2,500 235,938
Eastman Chemical Company 400 22,100
Eastman Kodak Company 1,500 120,375
Englehard Corporation 600 11,475
Fluor Corporation 500 31,375
Freeport McMoran Copper 600 17,925
Fresenius Medical Care* 400 56
Georgia-Pacific Company 500 36,000
Grace, (WR) & Company 400 20,700
Great Lakes Chemical Corporation 400 18,700
Hercules, Incorporated 600 25,950
Inco, Limited 1,100 35,063
International Paper Company 1,300 52,488
ITT Corporation 600 26,025
Kimberly-Clark Corporation 1,300 123,825
Louisiana-Pacific Corporation 600 12,675
Mallincrokdt Group, Incorporated 500 22,063
Masco Corporation 800 28,800
Minnesota Mining & Manufacturing Company 1,900 157,463
Mead Corporation 300 17,438
Monsanto Company 2,700 104,963
Morton International, Incorporated 700 28,525
Nalco Chemical Company 400 14,450
Newmont Mining Corporation 1,200 53,700
Nucor Corporation 500 25,500
Owens Corning 300 12,788
Phelps Dodge Corporation 500 33,750
Placer Dome, Incorporated 1,200 26,100
PPG Industries, Incorporated 900 50,513
Praxair Incorporated 700 32,288
Reynolds Metals Company 400 22,550
Rohm & Haas 300 24,488
Rubbermaid, Incorporated 800 18,200
Sherwin- Williams 500 28,000
Silicon Graphics Incorporated* 900 22,950
Union Camp Corporation 400 19,100
Union Carbide Corporation 700 28,613
Unilever (N.V.) ADR 700 122,675
USX-US Steel Group 500 15,688
Weyerhaeuser Company 1,000 47,375
Worthington Industries, Incorporated 500 9,063
-----------
2,242,546
-----------
SERVICE - 0.21%
Alco Standard Corporation 600 30,975
Service Corporation International 1,100 30,800
-----------
61,775
-----------
TECHNOLOGY - 13.04%
3COM Corporation* 800 58,700
Advanced Micro Devices, Incorporated* 700 18,025
AirTouch Communications, Incorporated* 2,300 58,075
AlliedSignal Incorporated 1,300 87,100
Amgen, Incorporated* 1,200 65,250
Boeing Company 1,542 164,030
Cabletron Systems, Incorporated 800 26,600
Cisco Systems, Incorporated 2,900 184,513
COMPAQ Computers Corporation* 1,100 81,675
Computer Associates International,
Incorporated 1,600 79,600
Computer Sciences Corporation* 400 32,850
Digital Equipment Corporation* 700 25,463
Dell Computer Corporation 800 42,500
First Data Corporation 2,000 73,000
Hewlett-Packard Company 4,700 236,175
Honeywell, Incorporated 600 39,450
Intel Corporation 3,700 484,469
International Business Machines
Corporation 2,300 347,300
Lockheed Martin Corporation 900 82,350
LSI Logic Corporation* 600 16,050
Lucent Technologies 2,785 128,806
McDonnell Douglas Corporation 1,000 64,000
Micron Technology Incorporated 1,000 29,125
Microsoft Corporation* 5,200 429,650
Motorola Incorporated 2,600 159,575
Nothern Telecom, Limited 1,200 74,250
Novell, Incorporated* 1,600 15,150
Oracle Systems Corporation 2,900 121,075
Perkin-Elmer Corporation 300 17,663
Pitney-Bowes Incorporated 800 43,600
Raytheon Company 1,100 52,938
Rockwell International Corporation 1,000 60,875
Seagate Technology, Incorporated 1,000 39,500
Sun Microsystems, Incorporated 1,600 41,100
Tandem Computer Incorporated* 600 8,250
Tektronix, Incorporated 200 10,250
Tellabs, Incorporated 800 30,100
Texas Instruments, Incorporated 900 57,375
Textron Incorporated 400 37,700
Unisys Corporation* 900 6,075
United Technologies Corporation 1,200 79,200
Western Atlas, Incorporated* 300 21,263
Xerox Corporation 1,500 78,938
-----------
3,809,633
-----------
TRANSPORTATION - 1.51%
AMR Corporation* 400 35,250
Burlington Northern Santa Fe Corporation 900 77,738
Caliber System, Incorporated 300 5,775
Conrail Incorporated 400 39,850
CSX Corporation 1,300 54,925
Delta Air Lines 400 28,350
Federal Express 600 26,700
Laidlaw Incorporated 1,400 16,100
Norfolk Southern Company 700 61,250
Ryder System 500 14,063
Southwest Airlines Company 700 15,488
Union Pacific Corporation 1,100 66,138
-----------
441,627
-----------
UTILITY - 8.13%
ALLTELL Corporation 1,000 31,375
American Electric Power Company,
Incorporated 1,000 41,125
AT&T Corporation 6,900 300,150
Ameritech Corporation 2,500 151,563
Baltimore Gas & Electric Company 800 21,400
Bell Atlantic Corporation 2,000 129,500
BellSouth Corporation 4,300 173,613
Carolina Power & Light Company 700 25,550
Central & Southwest Corporation 1,000 25,625
CinergyCorporation 700 23,363
Coastal Corporation 500 24,438
Consolidated Edison Co. of N.Y.,
Incorporated 900 26,325
Consolidated Natural Gas Company 500 27,625
Dominion Resources 900 34,650
Duke Power 1,000 46,250
DTE Energy Company 700 22,663
Edison International 1,900 37,763
Entergy Corporation 1,000 27,750
FPL Group Incorporated 1,000 46,000
General Public Utilities Corporation 600 20,175
GTE Corporation 3,800 172,900
Houston Industries, Incorporated 1,100 24,888
MCI Communications Corporation 3,000 98,063
Niagara Mohawk Power Corporation* 600 5,925
NYNEX Corporation 2,000 96,250
Pacific Gas & Electric Company 1,900 39,900
Pacific Telesis Group 1,800 66,150
PacifiCorp 1,400 28,700
PanEnergy Corporation 700 31,500
PECO Energy Company 900 22,725
Public Service Enterprise Group,
Incorporated 900 24,525
SBC Communications 2,600 134,550
Southern Company 2,900 65,613
Sprint Corporation* 1,600 63,800
Sonat, Incorporated 400 20,600
Texas Utilities Company 1,000 40,750
Unicom Corporation 1,000 27,125
Union Electric Company 600 23,100
U.S. West Communications Group 2,100 67,725
US West Media Group* 2,200 40,700
WorldCom, Incorporated 1,700 44,306
-----------
2,376,698
-----------
Total Common Stocks (cost $21,107,889) 24,089,363
<CAPTION>
SHORT-TERM INVESTMENTS - 17.76%
PRINCIPAL VALUE
--------- -----
<S> <C> <C>
US Treasury Bill<F2>
(5.360% due 05/01/97) $5,200,00 5,112,578
Portico US Federal Money Market Fund 73,782 73,782
-----------
Total Short-Term Investments
(cost $5,186,360) 5,186,360
-----------
TOTAL INVESTMENTS -
100.24% (cost $26,294,249)<F1> 29,275,723
-----------
OTHER ASSETS AND LIABILITIES - (0.24%) (71,113)
-----------
TOTAL NET ASSETS - 100% $29,204,610
- -----------
*Non-income producing
(ADR) American Depository Receipt
<FN>
<F1> Represents cost for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at December 31, 1996
was $3,401,349 and $370,475 respectively.
<F2> Security is held by the custodian in a segregated account for open
futures contracts. At December 31, 1996, the Fund's open futures contracts
were as follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
Unrealized Appreciation/
Type Contracts (Depreciation)
- ---- ---------- ------------
<S> <C> <C>
Standard & Poor's 500 Index (03/97) 10 $57,750
Standard & Poor's 500 Index (03/97) 2 6,350
Standard & Poor's 500 Index (03/97) 2 (14,700)
-------
$49,400
=======
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
CARILLON FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Carillon Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a no-load,
diversified, open-end management investment company. The shares
of the Fund are sold only to The Union Central Life Insurance
Company (Union Central) and its separate accounts to fund the
benefits under certain variable insurance and retirement
products. The Fund's shares are offered in four different
series - Equity Portfolio, Capital Portfolio, Bond Portfolio,
and S&P 500 Index Portfolio. The Equity Portfolio seeks long-
term appreciation of capital by investing primarily in common
stocks and other equity securities. The Capital Portfolio seeks
the highest total return through a combination of income and
capital appreciation consistent with the reasonable risks
associated with an investment portfolio of above-average quality
by investing in equity securities, debt instruments, and money
market instruments. The Bond Portfolio seeks a high level of
current income as is consistent with reasonable investment risk
by investing primarily in long-term, fixed-income, investment-
grade corporate bonds. The S&P 500 Index Portfolio seeks
investment results that correspond to the total return
performance of U.S. common stocks, as represented in the
Standard & Poor's 500 Index.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
SECURITIES VALUATION - Securities held in each Portfolio, except
for money market instruments maturing in 60 days or less, are
valued as follows: Securities traded on stock exchanges
(including securities traded in both the over-the-counter market
and on an exchange), or listed on the NASDAQ National Market
System, are valued at the last sales price as of the close of
the New York Stock Exchange on the day the securities are being
valued, or, lacking any sales, at the closing bid prices.
Securities traded only in the over-the-counter market are valued
at the last bid price, as of the close of trading on the New
York Stock Exchange, quoted by brokers that make markets in the
securities. Other securities for which market quotations are
not readily available are valued at fair value as determined in
good faith under procedures adopted by the Board of Directors.
Money market instruments with a remaining maturity of 60 days or
less held in each Portfolio are valued at amortized cost which
approximates market.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Securities
transactions are recorded on the trade date (the date the order
to buy or sell is executed). Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual
basis. All amortization of discount is recognized currently
under the effective interest method. Gains and losses on sales
of investments are calculated on the identified cost basis for
financial reporting and tax purposes.
FEDERAL TAXES - It is the intent of the Fund to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net
investment income and any net realized capital gains. Regulated
investment companies owned by the segregated asset accounts of a
life insurance company, held in connection with variable annuity
contracts, are exempt from excise tax on undistributed income.
Therefore, no provision for income or excise taxes has been
recorded.
DISTRIBUTIONS -Distributions from net investment income in all
Portfolios are declared and paid quarterly. Net realized
capital gains are distributed periodically, no less frequently
than annually. Distributions are recorded on the ex-dividend
date. All distributions are reinvested in additional shares of
the respective Portfolio at the net asset value per share.
The amount of distributions are determined in accordance with
federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax" differences
are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not
require reclassification. Distributions which exceed net
investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as
distributions in excess of net investment income or
distributions in excess of net realized capital gains. To the
extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
EXPENSES - Allocable expenses of the Fund are charged to each
Portfolio based on the ratio of the net assets of each Portfolio
to the combined net assets of the Fund. Nonallocable expenses
are charged to each Portfolio based on specific identification.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES - The Fund pays investment advisory
fees to Carillon Advisers, Inc. (the Adviser), under terms of an
Investment Advisory Agreement (the Agreement). Certain officers
and directors of the Adviser are affiliated with the Fund. The
Fund pays the Adviser, as full compensation for all services and
facilities furnished, a monthly fee computed separately for each
Portfolio on a daily basis, at an annual rate, as follows:
(a) for the Equity Portfolio - .65% of the first
$50,000,000, .60% of the next $100,000,000, and .50% of all over
$150,000,000 of the current net asset value:
(b) for Capital Portfolio - .75% of the first
$50,000,000, .65% of the next $100,000,000, and .50% of all over
$150,000,000 of the current net asset value.
(c) for the Bond Portfolio - .50% of the first
$50,000,000, .45% of the next $100,000,000, and .40% of all over
$150,000,000 of the current net asset value.
(d) for the S & P 500 Index Portfolio - .30% of the
current net asset value.
The Agreement provides that if the total operating expenses of
the Fund, exclusive of the advisory fee and certain other
expenses as described in the Agreement, for any fiscal quarter
exceed an annual rate of 1% of the average daily net assets of
the Equity, Capital , or Bond Portfolios, the Adviser will
reimburse the Fund for such excess, up to the amount of the
advisory fee for that year. The Adviser has agreed to waive its
advisory fee and pay any other expenses of the S&P 500 Index
Portfolio to the extent that such expenses exceed 0.60% of its
average annual net assets. As a result, for the year ended
December 31, 1996, the Adviser waived management fees of $40,752
for the S&P 500 Index Portfolio.
In addition to providing investment advisory services, the
Adviser is responsible for providing certain administrative
functions to the Fund. The Adviser has entered into an
Administration Agreement with Carillon Investments, Inc. (the
Distributor) under which the Distributor furnishes substantially
all of such services for an annual fee of .20% of the Fund's
average net assets for the Equity, Capital, and Bond Portfolios,
and .05% of the Fund's average net assets for the S & P 500
Index Portfolio. The fee is borne by the Adviser, not the Fund.
Carillon Advisers, Inc. and Carillon Investments, Inc. are
wholly-owned subsidiaries of Union Central.
DIRECTORS' FEES - Each director who is not affiliated with the
Adviser receives fees from the Fund for service as a director.
Members of the Board of Directors who are not affiliated with
the Adviser are eligible to participate in a deferred
compensation plan. The value of each director's deferred
compensation account will increase or decrease at the same rate
as if it were invested in shares of the Scudder Money Market
Fund.
NOTE 3 - FUTURES CONTRACTS
S&P 500 Index Portfolio ("Index") may purchase futures contracts
on the Standard & Poor's 500 Stock Index. These contracts
provide for the sale of a specified quantity of a financial
instrument at a fixed price at a future date. When Index enters
into a futures contract, it is required to deposit and maintain
as collateral such initial margin as required by the exchange on
which the contract is traded. Under terms on the contract,
Index agrees to receive from or pay to the broker an amount
among equal to the daily fluctuation in the value of the
contract (known as the variation margin). The variation margin
is recorded as unrealized gain or loss until the contract
expires or is otherwise closed, at which time the gain or loss
is realized. Index invests in futures as a substitute to
investing in the 500 common stock positions in the Standard &
Poor's 500 Index. The potential risk to Index is that the
change in the value in the underlying securities may not
correlate to the value of the contracts.
NOTE 4 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities for the year ended December
31, 1996 excluding short-term obligations, follow:
<TABLE>
<CAPTION>
Equity Capital Bond S&P 500
Portfolio Portfolio Portfolio Index
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Total Cost of
Purchases of:
Common Stocks $134,595,735 $32,689,304 $ 500,000 $21,253,070
U.S. Government
Securities -- 29,758,818 20,072,333 --
Corporate Bonds -- 4,655,726 143,754,858 --
------------ ----------- ------------ -----------
$134,595,735 $67,103,848 $164,327,191 $21,253,070
============ =========== ============ ===========
Total Proceeds
from Sales of:
Common Stocks $121,196,447 $45,862,233 $ 56,998 $ 148,079
U.S. Government
Securities -- 17,316,857 13,542,937 --
Corporate Bonds -- 5,810,391 137,605,856 --
------------ ----------- ------------ -----------
$121,196,447 $68,989,481 $151,205,791 $ 148,079
============ =========== ============ ===========
</TABLE>
<PAGE>
Note 5 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock
outstanding throughout the year.
<TABLE>
<CAPTION>
Equity Portfolio
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $16.54 $14.30 $14.58 $13.74 $12.60
------- ------- ------- ------- -------
Investment Activities:
Net investment income .29 .24 .20 .16 .19
Net realized and unrealized 3.61 3.36 .31 1.69 1.27
gains/(losses)
------- ------- ------- ------- -------
Total from Investment
Operations 3.90 3.60 .51 1.85 1.46
------- ------- ------- ------- -------
Distributions:
Net investment income (.27) (.23) (.19) (.16) (.19)
Net realized gains (.72) (1.13) (.60) (.85) (.13)
------- ------- ------- ------- -------
Total Distributions (.99) (1.36) (.79) (1.01) (.32)
------- ------- ------- ------- -------
Net Asset Value,
End of year $19.45 $16.54 $14.30 $14.58 $13.74
------- ------- ------- ------- -------
Total Return 24.52% 26.96% 3.42% 14.11% 11.78%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets .64% .66% .69% .70% .72%
Ratio of Net Investment
Income to Average Net Assets 1.66% 1.73% 1.45% 1.18% 1.47%
Portfolio Turnover Rate 52.53% 34.33% 40.33% 37.93% 46.75%
Average Commission Rate Paid $.0628<F1>
Net Assets, End of Year
(000's) $288,124 $219,563 $157,696 $138,239 $102,306
<FN>
<F1> Represents the dollar amount of commissions paid on Portfolio
transactions divided by the total number of shares purchased and sold for
which commissions were charged. Disclosure not required for periods prior
to fiscal 1996.
</FN>
</TABLE>
<PAGE>
Note 5 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the year.
<TABLE>
<CAPTION>
Capital Portfolio
Year Ended December 31
----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $13.72 $13.19 $13.81 $12.99 $12.82
Investment Activities:
Net investment income .63 .64 .52 .43 .42
Net realized and unrealized 1.36 1.15 (.39) 1.17 .56
gains/(losses)
Total from Investment
Operations 1.99 1.79 .13 1.60 .98
Distributions:
Net investment income (.57) (.64) (.52) (.42) (.42)
Net realized gains (.19) (.62) (.23) (.36) (.39)
Total Distributions (1.76) (1.26) (.75) (.78) (.81)
Net Asset Value,
End of year $14.95 $13.72 $13.19 $13.81 $12.99
Total Return 14.94% 14.28% .94% 12.72% 7.93%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets .77% .77% .80% .82% .88%
Ratio of Net Investment
Income to Average Net Assets 4.42% 4.99% 4.25% 3.31% 3.49%
Portfolio Turnover Rate 53.11% 43.83% 41.89% 32.42% 39.74%
Average Commission
Rate Paid .0615<F1>
Net Assets,
End of Year (000's) $159,294 $145,623 $119,263 $100,016 $68,674
<FN>
<F1> Represents the dollar amount of commissions paid on
Portfolio transactions divided by the total number of shares
purchased and sold for which commissions were charged.
Disclosure not required for periods prior to fiscal 1996.
</TABLE>
<PAGE>
Carillon Fund, Inc.
Notes to Financial Statements
Note 5 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period.
<TABLE>
<CAPTION>
Bond Portfolio
Year Ended December 31
----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $11.07 $10.04 $11.30 $10.91 $10.96
------ ------ ------ ------ ------
Investment Activities:
Net investment income .79 .88 .77 .73 .82
Net realized and unrealized (.04) .98 (.95) .54 (.01)
gains/(losses)
------ ------ ------ ------ ------
Total from Investment
Operations .75 1.86 (.18) 1.27 .81
------ ------ ------ ------ ------
Distributions:
Net investment income (.87) (.83) (.78) (.73) (.82)
In excess of net
investment income (.04) -- -- -- --
Net realized gains -- -- (.30) (.15) (.04)
------ ------ ------ ------ ------
Total Distributions (.91) (.83) (1.08) (.88) (.86)
------ ------ ------ ------ ------
Net Asset Value,
End of period $10.91 $11.07 $10.04 $11.30 $10.91
====== ====== ====== ====== ======
Total Return 7.19% 19.03% (1.63%) 11.94% 7.65%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets .62% .65% .68% .66% .69%
Ratio of Net Investment
Income to Average Net Assets 7.24% 7.43% 7.21% 6.65% 7.59%
Portfolio Turnover Rate 202.44% 111.01% 70.27% 137.46% 40.91%
Net Assets,
End of Year (000's) $85,634 $73,568 $55,929 $54,128 $38,557
</TABLE>
<PAGE>
Note 5 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the year.
<TABLE>
<CAPTION>
S & P 500 Index Portfolio
Year Ended
December 31, 1996<F1>
---------------------
<S> <C>
Net Asset Value,
Beginning of Year $ 10.00
Investment Activities:
Net investment income .20
Net realized and unrealized 2.12
gains/(losses) -------
Total from Investment Operations 2.32
Distributions:
Net investment income (.19)
Net realized gains --
Total Distributions (.19)
Net Asset Value,
End of Year $ 12.13
Total Return, not annualized 23.37%
Ratios/Supplemental Data:
Ratio of Net Expenses to
Average Net Assets .59%<F2>
Ratio of Net Investment
Income to Average Net Assets 2.14%<2>
Portfolio Turnover Rate 1.09%
Average Commission Rate Paid $ .0601<F3>
Net Assets, End of Year (000's) $ 29,205
<FN>
<F1> The portfolio commenced operation on December 29, 1995. The financial
highlights table for the period ending December 31, 1995 is not presented
because the activity for the period did not round to $0.01 in any category
of the reconciliation of beginning to ending net asset value per share. The
ratios and total return were all less than 0.1%. The net assets at December
31, 1995 were $305,148.
<F2> The ratios of net expenses to average net assets would have increased
and net investment income to average net assets would have decreased by .25%
for the year ended December 31, 1996, had the Adviser not waived a portion
of its fee.
<F3> Represents the dollar amount of commissions paid on Portfolio
transactions divided by the total number of shares purchased and sold for
which commissions were charged. Disclosure not required for periods prior
to fiscal 1996.
</FN>
</TABLE>
