<cover page>
(on upper quarter of page)
VA (in large letters - the V in black and the A in white on a
black rectangle)
Variable Annuity
Union Central (logo)
1998 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
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 accumula-
tion 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 Equity Portfolio, Bond Portfolio,
Capital Portfolio and S&P 500 Index Portfolio of Carillon Fund,
Inc. (the "Carillon Fund"); 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 of American Century Variable Portfolios,
Inc. (the "American Century Fund"); 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 25.
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, 1998, 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, 1998.
TABLE OF CONTENTS
Page
DEFINITIONS ................................................. 4
SUMMARY ..................................................... 5
SUMMARY OF SEPARATE ACCOUNT EXPENSES ........................ 8
PERFORMANCE DATA ............................................ 11
ACCUMULATION UNIT VALUES .................................... 12
THE UNION CENTRAL LIFE INSURANCE COMPANY AND CARILLON ACCOUNT.14
Union Central .......................................... 14
Carillon Account ....................................... 14
The Funds .............................................. 14
Additions, Deletions, or Substitutions of Investments .. 16
THE CONTRACT ................................................ 16
Purchasing a Contract .................................. 16
Premiums ............................................... 16
Crediting of Accumulation Units ........................ 17
Value of Accumulation Units ............................ 17
Transfers .............................................. 18
Special Transfers - Dollar Cost Averaging .............. 19
Portfolio Rebalancing Plan ............................. 19
Interest Sweep ......................................... 19
Surrenders ............................................. 20
Personal Income Plan ................................... 20
CHARGES AND OTHER DEDUCTIONS ................................ 21
Administration Fee ..................................... 21
Mortality and Expense Risk Charge ...................... 21
Surrender Charge (Contingent Deferred Sales Charge) .... 21
Terminal Illness/Confinement ....................... 22
Premium Taxes .......................................... 23
Fund Expenses .......................................... 23
BENEFITS UNDER THE CONTRACT ................................. 23
Death Benefits ......................................... 23
Annuity Payments ....................................... 24
THE GUARANTEED ACCOUNT ...................................... 25
GENERAL MATTERS ............................................. 26
FEDERAL TAX MATTERS ......................................... 27
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM .... 29
DISTRIBUTION OF THE CONTRACTS ............................... 29
VOTING RIGHTS ............................................... 29
PREPARING FOR YEAR 2000 ..................................... 30
FINANCIAL STATEMENTS ........................................ 30
APPENDIX A .................................................. 31
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.
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.
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 Sections
408 (traditional and Simple IRA's) and 408A (Roth IRA's) 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 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 14, 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
25.
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 16.
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 28). Certain surrenders may be subject to a surrender
charge (see page 21) 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 27).
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 18. 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 26.
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
24.
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 23.
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 21.
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. Union
Central also reserves the right to waive this fee for select
classes of employer sponsored retirement plan contracts. 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 21.
As compensation for Union Central's assumption of the mortality
and expense risks, a charge that is currently 1.0% 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 21. In
accordance with state laws, premium taxes will be deducted from
some policies. See "Premium Taxes," page 23.
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 14.
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***
<TABLE>
<CAPTION>
Separate Account Annual Expenses (as a percentage of average account value)
Equity Bond Capital
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
Mortality and Expense Risk Charge 1.00% 1.00% 1.00%
Administration Fee .25% .25% .25%
Total Separate Account Annual Expenses 1.25% 1.25% 1.25%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Capital Scudder Money
Index Growth International Market
Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C>
Mortality and
Expense Risk Charge 1.00% 1.00% 1.00% 1.00%
Administration Fee .25% .25% .25% .25%
Total Separate Account
Annual Expenses 1.25% 1.25% 1.25% 1.25%
</TABLE>
<TABLE>
<CAPTION>
Capital Growth With High
Appreciation Income Income
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
Mortality and Expense Risk Charge 1.00% 1.00% 1.00%
Administration Fee .25% .25% .25%
Total Separate Account
Annual Expenses 1.25% 1.25% 1.25%
</TABLE>
<TABLE>
<CAPTION>
Emerging Templeton
Growth International
Subaccount Subaccount
<S> <C> <C>
Mortality and Expense Risk Charge 1.00% 1.00%
Administration Fee .25% .25%
Total Separate Account Annual Expenses 1.25% 1.25%
</TABLE>
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* 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.
<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 .56% .48% .68% .30%
Other Expenses .06% .12% .09% .20%
Total Carillon Fund, Inc.
Annual Expenses .62% .60% .77% .50%
<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 .47% .83% .37%
Other Expenses .04% .17% .09%
Total Scudder Variable Life
Investment Fund Annual Expenses .51% 1.00% .46%
</TABLE>
<TABLE>
<CAPTION>
American Century Variable Portfolios, Inc. Annual Expenses
VP Capital Appreciation Portfolio
<S> <C>
Management Fees 1.00%
Other Expenses++
Total American Century Variable
Portfolios, Inc. Annual Expenses 1.00%
<CAPTION>
MFS Variable Insurance Trust Annual Expenses+*
Emerging
Growth With High Income Growth
Income Series(2) Series(2) Series
<S> <C> <C> <C>
Management Fees .75% .75% .75%
Other Expenses
(after fee reductions) .25% .25% .12%
Total MFS Variable Insurance
Trust Annual Expenses 1.00% 1.00% .87%
<CAPTION>
Templeton Variable Products Series Fund Annual Expenses+
Templeton
International
Fund Class 2
<S> <C>
Management Fees .69%
Rule 12b-1 Fees .25%
Other Expenses .19%
Total Fund Annual Expenses 1.13%
</TABLE>
+ Templeton International Fund Class 2 has a distribution plan
or "Rule 12b-1 plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1,
1997, figures (other than "12b-1 Fees") are estimates for 1998
based on the historical expenses of the Fund's Class 1 shares
for the fiscal year ended December 31, 1997, except that
Management Fees and Total Fund Operating Expenses have also been
restated to reflect the management fee schedule approved by
shareholders and effective May 1, 1997. Actual Management Fees
and Total Fund Operating Expenses during 1997 were lower. See
fund prospectus for details. For each other Portfolio figures
are based on the actual expenses incurred by the Portfolio for
the year ended December 31, 1997. Actual Portfolio expenses may
vary.
++ 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 these Series,
subject to reimbursement by these Series, such that each such
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
Growth With Income Series and the High Income Series would be
0.35% and 0.40%, respectively, and "Total Operating Expenses"
would be 1.10% and 1.15%, respectively, for these Series.
<PAGE>
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 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
Equity Subaccount $92 $128 $153 $230
Bond Subaccount $92 $127 $152 $228
Capital Subaccount $94 $132 $160 $246
S&P 500 Index Subaccount $91 $124 $147 $217
Capital Growth Subaccount $91 $124 $147 $218
Scudder International Subaccount $96 $139 $172 $270
Money Market Subaccount $91 $123 $145 $213
Capital Appreciation Subaccount $96 $139 $172 $270
Growth With Income Subaccount $96 $139 $172 $270
High Income Subaccount $96 $139 $172 $270
Emerging Growth Subaccount $95 $135 $165 $257
Templeton International Subaccount $97 $137 $168 $259
</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 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
Equity Subaccount $20 $62 $107 $230
Bond Subaccount $20 $61 $106 $228
Capital Subaccount $22 $67 $114 $246
S&P 500 Index Subaccount $19 $58 $100 $217
Capital Growth Subaccount $19 $59 $101 $218
Scudder International Subaccount $24 $74 $126 $270
Money Market Subaccount $18 $57 $98 $213
Capital Appreciation Subaccount $24 $74 $126 $270
Growth With Income Subaccount $24 $74 $126 $270
High Income Subaccount $24 $74 $126 $270
Emerging Growth Subaccount $23 $70 $120 $257
Templeton International Subaccount $25 $72 $122 $259
</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 21, and the accompanying Prospectuses. The
table does not reflect any deduction made for premium taxes that
may be applicable (see page 23).
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 1997 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.
<PAGE>
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 sur-
render. 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.
ACCUMULATION UNIT VALUES
(for a unit outstanding throughout the period)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EQUITY SUBACCOUNT
Accumulation unit
value at beginning
of period $41.682 $33.969 $27.147 $26.628 $23.676
Accumulation unit
value at end of
period $49.527 $41.682 $33.969 $27.147 $26.628
Number of
accumulation units
outstanding,
end of period 2,907,000 2,723,705 2,337,986 1,981,958 1,723,790
Payout unit value 49.527 $41.682 $33.969 $27.147
Number of payout
units outstanding,
end of period 8,952 9,142 9,796 10,476
<CAPTION>
Year ended December 31,
--------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EQUITY SUBACCOUNT
Accumulation unit
value at beginning
of period $21.491 $14.979 $17.977 $16.316 $12.565
Accumulation unit
value at end of
period $23.676 $21.491 $14.979 $17.977 $16.316
Number of
accumulation units
outstanding,
end of period 1,312,947 1,057,669 936,036 799,268 561,682
Payout unit value
Number of payout
units outstanding,
end of period
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BOND SUBACCOUNT
Accumulation unit
value at beginning
of period $25.210 $23.865 $20.341 $20.977 $19.014
Accumulation unit
value at end of
period $27.584 $25.210 $23.865 $20.341 $20.977
Number of accumulation
units outstanding,
end of period 766,722 672,511 574,421 508,398 513,613
<CAPTION>
Year ended December 31,
--------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BOND SUBACCOUNT
Accumulation unit
value at beginning
of period $17.921 $15.424 $14.403 $13.199 $12.475
Accumulation unit
value at end of
period $19.014 $17.921 $15.424 $14.403 $13.199
Number of accumulation
units outstanding,
end of period 348,420 283,493 285,370 250,631 225,777
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL SUBACCOUNT
Accumulation unit
value at beginning
of period $18.367 $16.214 $14.394 $14.467 $13.022
Accumulation unit
value at end of period $19.439 $18.367 $16.214 $14.394 $14.467
Number of accumulation
units outstanding,
end of period 2,590,389 2,632,591 2,521,521 2,271,375 1,790,938
<CAPTION>
Year ended December 31,
--------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL SUBACCOUNT
Accumulation unit
value at beginning
of period $12.241 $ 9.850 $10.000<F1>
Accumulation unit
value at end of period $13.022 $12.241 $ 9.850
Number of accumulation
units outstanding,
end of period 1,181,036 627,636 279,289
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
S&P 500 INDEX
SUBACCOUNT
Accumulation unit
value at beginning
of period $11.375 $10.00<F2>
Accumulation unit
value at end of
period $14.878 $11.375
Number of accumulation
units outstanding,
end of period 2,041,455 869,681
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL GROWTH
SUBACCOUNT
Accumulation unit
value at beginning
of period $17.041 $14.394 $11.351 $12.749 $10.700
Accumulation unit
value at end of
period $22.803 $17.041 $14.394 $11.351 $12.749
Number of accumulation
units outstanding,
end of period 1,896,320 1,593,634 1,162,999 906,428 439,914
<CAPTION>
Year ended December 31,
--------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL GROWTH
SUBACCOUNT
Accumulation unit
value at beginning
of period $10.000<F3>
Accumulation unit
value at end of
period $10.700
Number of accumulation
units outstanding,
end of period 70,218
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SCUDDER INTERNATIONAL
SUBACCOUNT
Accumulation unit
value at beginning
of period $16.054 $14.192 $12.958 $13.259 $9.760
Accumulation unit
value at end of period $17.256 $16.054 $14.192 $12.958 $13.259
Number of accumulation
units outstanding,
end of period 1,669,242 1,564,591 1,220,160 1,095,214 362,172
<CAPTION>
Year ended December 31,
---------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SCUDDER INTERNATIONAL
SUBACCOUNT
Accumulation unit
value at beginning
of period $10.000<F3>
Accumulation unit
value at end of period 9.760
Number of accumulation
units outstanding,
end of period 43,624
<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.
</FN>
</TABLE>
<PAGE>
ACCUMULATION UNIT VALUES
(for a unit outstanding throughout the period)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MONEY MARKET
SUBACCOUNT
Accumulation unit
value at beginning
of period $16.028 $15.468 $14.850 $14.526 $14.369
Accumulation unit
value at end of period $16.627 $16.028 $15.468 $14.850 $14.526
Number of accumulation
units outstanding,
end of period 433,296 477,679 368,444 280,575 119,598
<CAPTION>
Year ended December 31,
--------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MONEY MARKET
SUBACCOUNT
Accumulation unit
value at beginning
of period $14.122 $13.576 $12.709 $11.846 $11.226
Accumulation unit
value at end of period $14.369 $14.122 $13.576 $12.709 $11.846
Number of accumulation
units outstanding,
end of period 120,547 83,623 103,405 75,006 52,666
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION
SUBACCOUNT
Accumulation unit
value at beginning
of period $9.062 $10.000<F2>
Accumulation unit
value at end of period $8.640 $9.062
Number of accumulation
units outstanding,
end of period 640,421 424,022
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GROWTH WITH INCOME
SUBACCOUNT
Accumulation unit
value at beginning
of period $11.352 $10.000<F2>
Accumulation unit
value at end of period $14.521 $11.352
Number of accumulation
units outstanding,
end of period 1,002,705 425,068
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HIGH INCOME SUBACCOUNT
Accumulation unit
value at beginning
of period $10.841 $10.000<F2>
Accumulation unit
value at end of period $12.139 $10.841
Number of accumulation
units outstanding,
end of period 269,398 108,723
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EMERGING GROWTH
SUBACCOUNT
Accumulation unit
value at beginning
of period $10.000<F3>
Accumulation unit
value at end of period $12.409
Number of accumulation
units outstanding,
end of period 224,193
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TEMPLETON INTERNATIONAL
SUBACCOUNT
Accumulation unit value
at beginning of period $10.000<F3>
Accumulation unit value
at end of period $10.893
Number of accumulation
units outstanding,
end of period 266,657
<FN>
<F2> Commencement of operations was May 1, 1996.
<F3> Commencement of operations was May 1, 1997.
</FN>
</TABLE>
<PAGE>
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 Kemper
Investments, Inc. is the investment adviser to the Scudder Fund.
The investment adviser to the American Century Fund 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. (The Carillon Fund has one additional
Portfolio that is not available through the Contract). 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 several 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 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 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 providing proper instructions to Union
Central in a form acceptable to Union Central.
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 25.
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 0.00003% 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 at its Home Office.
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: Contract Owners are eligible to effect
transfers pursuant to telephone instructions unless they elect
out of the option by writing 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 or
other designated identifiers. 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 or other designated identifiers. 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 16.)
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 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 in
writing on forms provided by Union Central. Surrenders cannot be
made by telephone. Surrenders include, but are not limited to,
transactions commonly referred to as withdrawals, external
transfers, rollovers and exchanges under Section 1035 of the
Code. The amount available is the Accumulation Value at the end
of the valuation period during which Union Central receives the
proper 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 26. 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 28.
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 21. 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 21.) 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 also reserves the
right to waive this fee for select classes of employer sponsored
retirement plan contracts. 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 1997 was $754,374.
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 1.0% 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 .7% for mortality risk and .3% 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 1997 was $3,683,113.
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:
Contract Year 1 2 3 4 5 6 7 8 Thereafter
--------------------------------------------
7% 7% 6% 5% 4% 3% 2% 1% 0%
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 20) 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
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
29.
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 27.
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.
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 24.
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.
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.
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 20.
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, 408A 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.
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, 408 and
408A 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 22), 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 "Massachustees business trust." Massachusetts
business trust law does not require the Trust to hold annual
shareholder meetings.
PREPARING FOR YEAR 2000
Like all financial services providers, Union Central utilizes
systems that may be affected by Year 2000 transition issues and
it relies on service providers, including banks, custodians, and
investment managers that also may be affected. Union Central
and its affiliates have developed, and are in the process of
implementing, a Year 2000 transition plan, and are confirming
that their service providers are also so engaged. The resources
that are being devoted to this effort are substantial. It is
difficult to predict with precision whether the amount of
resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on Union Central. However, as of
the date of this prospectus, it is not anticipated that Contract
Owners will experience negative effects on their investment, or
on the services provided in connection therewith, as a result of
Year 2000 transition implementation. Union Central currently
anticipates that its systems will be Year 2000 compliant on or
about January 2, 1999, but there can be no assurance that Union
Central will be successful. The failure of Union Central or one
of its service providers to achieve timely and complete
compliance could materially impair Union Central's ability to
conduct its business, including its ability to accurately and
timely value interests in the Contracts.
FINANCIAL STATEMENTS
Financial statements of CA and Union Central are included in the
SAI which may be obtained without charge by writing or
telephoning Union Central at: address - P.O. Box 40409,
Cincinnati, Ohio 45240-0409; telephone - 1-800-999-1840.
APPENDIX A
IRA DISCLOSURE STATEMENT
Part I of this statement is designed to help you understand the
requirements, as they exist for tax years beginning on and after
1-1-98, of federal tax law which apply to your traditional
Individual Retirement Annuity (traditional IRA), your Simplified
Employee Pension IRA (SEP-IRA for employer contributions), or to
one purchased by your spouse (see Spousal IRAs below). Part II
describes the requirements for your SIMPLE IRA, and Part III
describes the requirements for your Roth IRA. 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)
Part I. Traditional IRA and SEP-IRA
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. (Combined contributions to a
traditional IRA and Roth IRA may not exceed $2,000 for the
taxable year.) 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 during any part of that year. 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 his or her situation, but you are not,
deductibility for your traditional IRA will be phased out as
described below, 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 $30,000 for taxable
years beginning in 1998. The Threshold Level if you are married
and file a joint tax return is $50,000 for taxable years
beginning in 1998, 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 $30,000 for 1998. The Threshold
Level is established for future years as follows:
<TABLE>
<CAPTION>
Joint Returns
The applicable
For taxable years beginning in: Threshold Level
<S> <C>
1999 $51,000
2000 $52,000
2001 $53,000
2002 $54,000
2003 $60,000
2004 $65,000
2005 $70,000
2006 $75,000
2007 and thereafter $80,000
"Single" Returns
The applicable
For taxable years beginning in: Threshold Level
<S> <C>
1999 $31,000
2000 $32,000
2001 $33,000
2002 $34,000
2003 $40,000
2004 $45,000
2005 and thereafter $50,000
</TABLE>
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.
If you and your spouse file a joint tax return, and only one of
you is an active participant, the applicable Threshold Level for
the one who is not an active participant is $150,000 and the
denominator of the fraction given above remains at $10,000.
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 ($10,000 in 1998 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. Compensation is limited to $160,000 in 1998 ( 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 traditional IRA or SEP-IRA
during or after the tax year in which you attain age 70 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 a traditional 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 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 contribution 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 contributed for your own IRA and your
own Roth IRA. This means that the total contributions that can be
made to your and your spouse's IRAs can be as much as $4,000 for
the taxable year.
The amount which your spouse may deduct for a spousal IRA is
limited by application of the rules for active participation as
described in "Eligibility Requirements," above.
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 paragraphs are met.
Rollover Contributions
Once every year, you are permitted to withdraw any portion of the
value of your traditional IRA or SEP-IRA and reinvest it in
another traditional IRA. Withdrawals may also be made from other
traditional IRAs and contributed to this IRA. This transfer of
funds from one traditional 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 traditional 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 or borrow on your IRA or SEP-IRA.
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 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 described in the following sentences. 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. In addition,
the 10% penalty does not apply to surrenders for qualified higher
education expenses or for withdrawals up to $10,000 which is a
qualified first-time home distribution.
Qualified higher education expenses include tuition, as well as
room and board, fees, books, supplies and equipment required for
enrollment or attendance at a post-secondary education
institution. Such qualified higher education expenses may be
incurred by you or your spouse, or any child or grandchild of you
or your spouse. A qualified first-time home distribution is one
which is used within 120 days to rebuild, build or buy your
principal residence or the principal residence of your spouse,
child, grandchild or ancestor in a situation in which you or your
spouse did not have any ownership interest in a principal
residence in the two years ending on the date of acquisition of
the residence at issue.
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, and there is no 10% penalty for payments due
to your death.
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.
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 Contributions X Total Distributions =
Nontaxable Distribution
- ------------------------------------- (for the year)
(for the year)
Year-end total of traditional
IRA account balances
To compute the year-end total of traditional IRA account balances
you treat all of your traditional IRAs as a single IRA. This
includes all traditional 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 not so 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 or 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 your 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.
Part II. SIMPLE IRA
A SIMPLE-IRA is one that is issued in conjunction with your
employer's "savings incentive match plan for employees" (SIMPLE-
IRA plan) which meets the requirements of Section 408 (p) of the
Internal Revenue Code (Code). You should consult with your
employer concerning the actual provisions of the SIMPLE-IRA plan
pertaining to participation requirements, the amount of employee
and employer contributions and other SIMPLE-IRA plan provisions.
The following discussion concerns your SIMPLE-IRA in place of the
discussion concerning a traditional IRA or SEP-IRA in Part I,
above or the discussion in Part III of Roth IRA, unless otherwise
noted.
Contributions
Your SIMPLE IRA will accept only a cash contribution made by an
employer on your behalf under a SIMPLE-IRA plan that meets the
requirements of Section 408(p) of the Code, and a rollover
contribution or a transfer of assets from another SIMPLE-IRA of
yours. No other contributions will be accepted.
Any refund of premiums (other than those attributable to excess
contributions) will be applied, before the close of the calendar
year following the year of the refund, toward the payment of
future premiums or the purchase of additional benefits.
Rollovers and Transfers
Prior to the expiration of the two-year period beginning on the
date you first participated in any SIMPLE-IRA plan maintained by
your employer, any rollover or transfer by you of funds from this
SIMPLE-IRA must be made to another SIMPLE-IRA of yours. Any
distribution of funds to you during this two-year period may be
subject to a 25% additional tax if you do not roll over the amount
distributed into a SIMPLE-IRA. After the expiration of this two-
year period, you may roll over or transfer funds to any of your
IRAs that are qualified under Section 408(a), (b) or (p) of the
Code.
Premature Distributions, Distributions and Reporting to the IRS
Rules similar to those pertaining to SEP-IRAs as discussed in Part
I, above, in relation to premature distributions and distributions
generally apply to your SIMPLE-IRA. See the section entitled
"Reporting to the IRS" in Part I for an appropriate discussions of
those requirements.
Prototype Status
The Internal Revenue Service reviewed the format of your SIMPLE
IRA and issued an opinion letter on September 26, 1997, to the
Union Central Life Insurance Company stating that your policy
qualifies as a prototype SIMPLE-IRA.
Part III. Roth IRA
The Taxpayer Relief Act of 1997 created a new type of IRA called
the Roth IRA, effective for tax years beginning in 1998. Such an
IRA must meet the requirements of Section 408A of the Code. The
following discussion concerns your Roth IRA in place of the
discussion concerning a traditional IRA or SEP-IRA in Part I, or
the discussion of the SIMPLE-IRA in Part II, above, unless
otherwise noted.
Contributions
If your Roth IRA is not designated as a Roth Conversion IRA, then,
except in the case of a rollover contribution described in Section
408A(e) of the Code, it will accept only cash contributions and
only up to a maximum amount of $2,000 for any of your tax years.
(The aggregate amount of contributions for all of your Roth IRAs
and traditional IRAs may not exceed $2,000.) If this Roth IRA is
designated as a Roth Conversion IRA, no contributions other than
IRA Conversion Contributions made during the same tax year will be
accepted. Contributions may be made even after you attain age 70
1/2.
A Roth Conversion IRA is a Roth IRA that accepts only IRA
Conversion Contributions made during the same tax year.
IRA Conversion Contributions are amounts rolled over, transferred,
or considered transferred from a non-Roth IRA to a Roth IRA. A
non-Roth IRA is an individual retirement account or annuity
described in Section 408(a) or 408(b) of the Code, other than a
Roth IRA.
Any refund of premiums (other than those attributable to excess
contributions) will be applied, before the close of the calendar
year following the year of the reund, toward the payment of future
premiums or the purchase of additional benefits.
Limitations on Contributions
The $2,000 limit described in the previous section is gradually
reduced to $0 between certain levels of Adjusted Gross Income
("AGI"). If you are single, the $2,000 annual contributions is
phased out between AGI of $95,000 and $110,000; if you are married
and file jointly, between AGI of $150,000 and $160,000; and if you
are married and file separately, between $0 and $10,000. You may
not make an IRA Conversion Contribution during a tax year if your
AGI for that year exceeds $100,000 or if you are married and file
a separate return for that tax year.
If you should contribute more than the maximum contribution amount
to your Roth IRA, the excess amount will be considered an "excess
contribution." You are permitted to withdraw an excess
contribution from your Roth 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. (See Reporting to the IRS in Part I, above.).
Tax Treatment of Contributions
No federal tax deduction is allowed for your contributions to a
Roth IRA.
Required Distribution on Benefits (Required Only Upon Your Death)
(The term "designated beneficiary" means any individual designated
as beneficiary by you.)
A. If you die before your entire interest is distributed and
your surviving spouse is not your sole designated beneficiary,the
entire remaining interest will at your election, or it you have
not so elected, at the election of the designated beneficiary,
either:
(1) be distributed by December 31 of the year containing the
fifth anniversary of your death; or
(2) be distributed over the life expectancy of the designated
beneficiary starting no later than December 31 of the year
following your death. If distributions do not begin by the date
described in (2) above, distribution method (1) will apply.
B. In the case of distribution method (A)(2) above, to determine
the minimum annual payment for each year, divide your entire
interest as of the close of business on December 31 of the
preceding year, by the life expectancy of the designated
beneficiary, using the attained age of the designated beneficiary
as of the beneficiary's birthday in the year disbributions are
required to commence, and subtract one for each subsequent year.
C. If your spouse is your sole designated beneficiary on your
death, such spouse will then be treated as you, the person
originally establishing this Roth IRA.
Taxation of Distributions.
A distribution from your Roth IRA is not includible in income if
it is a "qualified distribution." A "qualified distribution" is
one that is not made within the first five years beginning with
the first tax year in which you made a contribution to your Roth
IRA, and which is made when you are at least age 59-1/2 or totally
disabled or to your estate upon your death or due to a qualified
first-time home distribution. (See the discussion under the
Premature Distributions section of Part I, above, concerning what
a qualified first-time home distribution is.)
If a distribution from your Roth IRA is not a qualified
distribution as described in the previous paragraph, it will be
includible in your income to the extent that it is not treated as
made from a contribution. This is determined by adding your
current distribution to the total amount of all previous
distributions and comparing this total with the amount of your
contributions to your Roth IRA.
As with a Traditional IRA, you may not use your Roth IRA as a
security for a loan or borrow on your Roth IRA.
Prototype Status
Internal Revenue Service review of your Roth IRA is pending.
<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
five separate Portfolios, four of which are offered pursuant to
this Prospectus: 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, 1998, 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, 1998
UCCF 514 4-98<PAGE>
CARILLON FUND, INC.
- -------------------------------------------------------------
TABLE OF CONTENTS
Page
The Fund ..................................... 2
Annual Fund Operating Expenses ............... 3
Financial Highlights ......................... 4
Investment Objectives and Policies ........... 8
Equity Portfolio ........................ 8
Bond Portfolio .......................... 8
Capital Portfolio ...................... 9
S&P 500 Index Portfolio ................. 10
Principal Risk Factors ................. 11
Investment in Foreign Securities ....... 12
Foreign Currency Transactions .......... 13
Repurchase Agreements .................. 13
Reverse Repurchase Agreements .......... 14
Futures Contracts and
Options on Futures Contracts ......... 14
Options ................................ 14
Options on Securities Indices .......... 15
Collateralized Mortgage Obligations .... 15
Lending Portfolio Securities ........... 15
Other Information ...................... 16
The Fund and Its Management ................. 16
Investment Adviser ..................... 16
Advisory Fee ........................... 16
Expenses .............................. 17
Capital Stock ......................... 17
Purchase and Redemption of Shares ........... 17
Dividends and Distributions ................. 18
Taxes ....................................... 18
Custodian, Transfer and
Dividend Disbursing Agent .............. 18
Preparing for Year 2000 ..................... 18
Appendix
Bond and Commercial Paper Ratings ...... 19
THE FUND
Carillon Fund, Inc. (the "Fund"), a Maryland corporation,
is a no-load, diversified, open-end investment company. The Fund
has five 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 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.
<PAGE>
ANNUAL FUND OPERATING EXPENSES
EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
S&P 500
Equity Bond Capital Index
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Management Fees .56% .48% .68% .30%
Other Expenses .06% .12% .09% .20%
---- ---- ---- ----
Total Operating
Expenses .62% .60% .77% .50%
</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 $6 $20 $35 $78
Bond Portfolio $6 $19 $34 $75
Capital Portfolio $8 $25 $43 $96
S&P 500 Index Portfolio $5 $16 $28 $63
</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.
- ----------
+ 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.
FINANCIAL HIGHLIGHTS
The financial information in the tables which follow (pages 4-
8), insofar as it pertains to each of the five years in the
period ended December 31, 1997, has been audited in conjunction
with the annual audit of the financial statements of the Fund.
The financial statements for the year ended December 31, 1997,
have been audited by Deloitte & Touche LLP, whose unqualified
report thereon is included in the Statement of Additional
Information. The financial statements for the years ended
December 31, 1996 and December 31, 1995 have been audited by
Deloitte & Touche LLP. The financial statements for the years
ended December 31, 1994 and December 31, 1993 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,
----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $19.45 $16.54 $14.30 $14.58 $13.74
Investment Activities:
Net investment income .23 .29 .24 .20 .16
Net realized and
unrealized gains (losses) 3.23 3.61 3.36 .31 1.69
------ ------ ------ ------ ------
Total from Investment
Operations 3.46 3.90 3.60 .51 1.85
Distributions:
Net investment income (.27) (.27) (.23) (.19) (.16)
Net realized gains (2.29) (.72) (1.13) (.60) (.85)
------ ------ ------ ------ ------
Total Distributions (2.56) (.99) (1.36) (.79) (1.01)
Net Asset Value,
End of year $20.35 $19.45 $16.54 $14.30 $14.58
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Total Return<F2> 20.56% 24.52% 26.96% 3.42% 14.11%
Ratio of Expenses to
Average Net Assets .62% .64% .66% .69% .70%
Ratio of Net Investment
Income to Average
Net Assets 1.23% 1.66% 1.73% 1.45% 1.18%
Portfolio Turnover Rate 57.03% 52.53% 34.33% 40.33% 37.93%
Average Commission
Rate Paid <F3> $.0600 $.0628
Net Assets, End of Period
(in thousands) $335,627 $288,124 $219,563 $157,696 $138,239
<CAPTION>
Year ended December 31,
----------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $12.60 $ 8.81 $10.79 $10.88 $ 8.57
Investment Activities:
Net investment income .19 .20<F1> .28<F1> .58 .38
Net realized and
unrealized gains (losses) 1.27 3.79 (1.91) .69 2.33
------ ------ ------ ------ ------
Total from Investment
Operations 1.46 3.99 (1.63) 1.27 3.71
Distributions:
Net investment income (.19) (.20) (.31) (.59) (.34)
Net realized gains (.13) -- (.04) (.77) (.06)
------ ------ ------ ------ ------
Total Distributions (.32) (.20) (.35) (1.36) (.40)
Net Asset Value,
End of year $13.74 $12.60 $ 8.81 $10.79 $10.88
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Total Return<F2> 11.78% 45.55% (15.45%) 11.79% 31.79%
Ratio of Expenses to
Average Net Assets .72% .75%<F1> .82%<F1> .95% .95%
Ratio of Net Investment
Income to Average
Net Assets 1.47% 1.79%<F1> 2.98%<F1> 5.34% 3.74%
Portfolio Turnover Rate 46.75% 55.17% 99.90% 61.49% 57.98%
Average Commission
Rate Paid <F3>
Net Assets, End of Period
(in thousands) $102,306 $79,352 $52,514 $56,194 $37,723
<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>
FINANCIAL HIGHLIGHTS
(Continued)
Bond Portfolio
--------------
Year ended December 31,
----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
[S] [C] [C] [C] [C] [C]
Net Asset Value,
Beginning of year $10.91 $11.07 $10.04 $11.30 $10.91
Investment Activities:
Net investment income .79 .79 .88 .77 .73
Net realized and
unrealized gains (losses) .37 (.04) .98 (.95) .54
------ ------ ------ ------ ------
Total from Investment
Operations 1.16 .75 1.86 (.18) 1.27
Distributions:
Net investment income (.72) (.87) (.83) (.78) (.73)
In excess of net
investment income -- (.04) -- -- --
Net realized gains (.06) -- -- (.30) (.15)
------ ------ ------ ------ ------
Total Distributions (.78) (.91) (.83) (1.08) (.88)
Net Asset Value,
End of year $11.29 $10.91 $11.07 $10.04 $11.30
------ ------ ------ ------ ------
Ratios/Supplemental Data:
Total Return<F1> 11.02% 7.19% 19.03% (1.63%) 11.94%
Ratio of Expenses to
Average Net Assets .60% .62% .65% .68% .66%
Ratio of Net Investment
Income to Average
Net Assets 7.15% 7.24% 7.43% 7.21% 6.65%
Portfolio Turnover Rate 113.41% 202.44% 111.01% 70.27% 137.46%
Net Assets, End of Period
(in thousands) $99,892 $85,634 $73,568 $55,929 $54,128
[CAPTION]
Year ended December 31,
----------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
[S] [C] [C] [C] [C] [C]
Net Asset Value,
Beginning of year $10.96 $10.10 $10.02 $ 9.82 $ 9.96
Investment Activities:
Net investment income .82 .86 .81 .83 .85
Net realized and
unrealized gains (losses) (.01) .87 .03 .20 (.13)
------ ------ ------ ------ ------
Total from Investment
Operations .81 1.73 .84 1.03 .72
Distributions:
Net investment income (.82) (.87) (.76) (.83) (.86)
In excess of net
investment income -- -- -- -- --
Net realized gains (.04) -- -- -- --
------ ------ ------ ------ ------
Total Distributions (.86) (.87) (.76) (.83) (.86)
Net Asset Value,
End of year $10.91 $10.96 $10.10 $10.02 $ 9.82
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Total Return<F1> 7.65% 17.89% 8.66% 10.72% 7.36%
Ratio of Expenses to
Average Net Assets .69% .73% .79% .86% .82%
Ratio of Net Investment
Income to Average
Net Assets 7.59% 8.27% 8.57% 8.38% 8.34%
Portfolio Turnover Rate 40.91% 39.82% 110.90% 17.70% 24.11%
Net Assets, End of Period
(in thousands) $38,557 $31,009 $24,446 $15,941 $12,460
[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.
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
<TABLE>
<CAPTION>
Capital Portfolio
-----------------
Year ended December 31,
----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of period $14.95 $13.72 $13.19 $13.81 $12.99
Investment Activities:
Net investment income .62 .63 .64 .52 .43
Net realized and
unrealized gains
(losses) .37 1.36 1.15 (.39) 1.17
------ ------ ------ ------ ------
Total from Investment
Operations .99 1.99 1.79 .13 1.60
Distributions:
Net investment income (.66) (.57) (.64) (.52) (.42)
Net realized gains (1.18) (.19) (.62) (.23) (.36)
------ ------ ------ ------ ------
Total Distributions (1.84) (.76) (1.26) (.75) (.78)
Net Asset Value,
End of period $14.10 $14.95 $13.72 $13.19 $13.81
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Total Return<F2> 7.40% 14.94% 14.28% .94% 12.72%
Ratio of Expenses
to Average Net Assets .77% .77% .77% .80% .82%
Ratio of Net Investment
Income to Average
Net Assets 4.22% 4.42% 4.99% 4.25% 3.31%
Portfolio Turnover Rate 60.84% 53.11% 43.83% 41.89% 32.42%
Average Commission
Rate Paid<F4> $.0531 $.0615
Net Assets, End of Period
(in thousands) $148,830 $159,294 $145,623 $119,263 $100,016
<CAPTION>
Year ended Period ended
December 31, 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%<F3>
Portfolio Turnover Rate 39.74% 47.93% 16.02%
Average Commission
Rate Paid<F4>
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>
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
<TABLE>
<CAPTION>
S&P 500 Index Portfolio
-----------------------
Year Ended December 31,
-----------------------
1997 1996<F1>
---- ----
<S> <C> <C>
Net Asset Value,
Beginning of Year $12.13 $10.00
Investment Activities:
Net investment income .20 .20
Net realized and unrealized
gains/(losses) 3.72 2.12
------ ------
Total from Investment Operations 3.92 2.32
Distributions:
Net investment income (.21) (.19)
Net realized gains (.10) --
------ ------
Total Distributions (.31) (.19)
Net Asset Value,
End of Year $15.74 $12.13
------ ------
Total Return, not annualized 32.72% 23.37%
Ratios/Supplemental Data
Ratio of Net Expenses to
Average Net Assets .50% .59%<F2>
Ratio of Net Investment
Income to Average Net Assets 1.48% 2.14%<F2>
Portfolio Turnover Rate 9.06% 1.09%
Average Commission Rate Paid<F3> $.0453 $.0601
Net Assets, End of Year (000's) $55,595 $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 11.) As of
February 27, 1998, 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 14.
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 8 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 14.
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 INTERRUPTION
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)");provided,
however, that the Index Portfolio reserves the right to increase
the percentage of assets it may invest in SPDRs(R) to 10% to the
extent that such an increase would be permitted by applicable
law. 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 1997:
<TABLE>
<CAPTION>
S&P 500 Returns (1926-1997)
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% -0.9% 3.1%
Average 13.0% -- -- --
</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 may
be subject to abrupt or erratic price fluctuations, and are
expected to be more volatile and more uncertain as to payments
of interest and principal. Developing countries may have
relatively unstable governments, economies based only on a few
industries, and securities markets that trade only a small
number of securities. 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.
<PAGE>
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. 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 five classes of stock, one for each
Portfolio.
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 until May, 1998.
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.
Effective May 1, 1998, Michelle E. Stevens and Gary R.
Rodmaker will be primarily responsible for the day-to-day
management of the Capital Portfolio. Mrs. Stevens is the Senior
Equity Analyst of the Adviser and has been affiliated with the
Adviser and Union Central as an equity analyst since 1993. She
has also been primarily responsible for the day-to-day
management of the Fund's Micro-Cap Portfolio since its inception
in November, 1997. Prior to becoming affiliated with the
Adviser and Union Central, Mrs. Stevens attended the University
of Cincinnati, where she earned an MBA in Finance in June, 1993.
Mr. Rodmaker is the Fixed Income Portfolio Manager of the
Adviser and has been affiliated with the Adviser and Union
Central as an investment analyst since 1989. He has also been
primarily responsible for the day-to-day management of the S&P
500 Index Portfolio since its inception in December, 1995.
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 five 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 (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. 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. Other-
wise, 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.
PREPARING FOR YEAR 2000
Like all financial services providers, the Adviser utilizes
systems that may be affected by Year 2000 transition issues. In
addition to the Adviser, the Fund relies on service providers,
including the Fund's custodian, transfer agent, and dividend
disbursing agent, that also may be affected. The Adviser has
advised the Fund that it has developed, and is in the process of
implementing, a Year 2000 transition plan. Management of the
Fund is in the process of confirming that the service providers
to the Fund are also engaged in similar transition plans. While
the Adviser has made representations to Management that each
party is implementing a Year 2000 transition plan, the resources
that are being devoted to this effort are substantial and it is
difficult to predict with precision whether the amount of
resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on their operations. However, as
of the date of this Prospectus, it is not anticipated that
shareholders will experience negative effects on their
investment, or on the services provided in connection therewith,
as a result of Year 2000 transition implementation. The Adviser
has advised Management that it currently anticipates that its
systems will be Year 2000 compliant on or about January 2, 1999,
but there can be no assurance that they will be successful, or
that interaction with other service providers will not impair
the Adviser's services at that time.
<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: April 27, 1998
Accession No. 0001029869-98-000539
<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, 1998
Accession No. 0000088053-98-000351
<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: April 27, 1998
Accession No. 0000814680-98-000008
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: May 1, 1998
Accession No. 0000829959-98-000021
<PAGE>
CARILLON ACCOUNT
CARILLON FUND, INC.
- -----------------------------------------------------
STATEMENTS OF
ADDITIONAL INFORMATION
May 1, 1998
- ----------------------------------------------------
UC 188 5-98
<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, 1998
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, 1998, 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>
1997 $3,447,836
1996 $2,723,411
1995 $1,636,172
</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,
1997.
<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 18.82% 15.91% 14.70% 13.57%
Bond 8/26/85 9.42% 7.72% 8.26% 8.56%
Capital 5/2/90 5.84% 8.34% - 9.05%
S&P 500 Index 5/1/96 30.80% - - 26.89%
Scudder International 5/1/92 7.49% 12.07% - 10.10%
Capital Growth 5/1/92 33.81% 16.34% - 15.64%
Money Market * 7/15/85 3.75% 2.95% 3.99% 4.11%
Capital Appreciation 5/1/96 -4.66% - - -8.39%
Growth with Income 5/1/96 27.92% - - 45.21%
High Income 5/1/96 11.98% - - 21.39%
Emerging Growth 5/1/97 - - - 24.09%
Templeton International 5/1/97 - - - 8.93%
<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 10.41% 14.84% 14.52% 13.28%
Bond 8/26/85 1.67% 6.73% 8.08% 8.30%
Capital 5/2/90 -1.65% 7.34% - 8.77%
S&P 500 Index 5/1/96 21.55% - - 21.38%
Scudder International 5/1/92 -0.12% 11.04% - 9.39%
Capital Growth 5/1/92 24.35% 15.27% - 14.90%
Money Market * 7/15/85 -3.60% 1.99% 3.81% 3.85%
Capital Appreciation 5/1/96 -11.41% - - -12.37%
Growth with Income 5/1/96 18.87% - - 19.62%
High Income 5/1/96 4.05% - - 7.44%
Emerging Growth 5/1/97 - - - 15.34%
Templeton International 5/1/97 - - - 1.24%
</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. 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.
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.
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, 1997 and the
statements of financial condition of Union Central at December
31, 1997 and 1996 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, 1997
<PAGE>
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.'s Equity, Capital, Bond, and S&P 500 Index
Subaccounts, the Scudder Variable Life Investment Fund's Money
Market, Capital Growth, and International Subaccounts, the MFS
Variable Insurance Trust's Growth with Income, High Income, and
Emerging Growth subaccounts, the American Century Variable
Portfolios, Inc.'s Growth Subaccount and the Templeton Variable
Products Series Fund's Templeton International Subaccount) as of
December 31, 1997, 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, 1997, 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, 1997, 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 2, 1998<PAGE>
Carillon Account
Statement of Assets and Liabilities
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Carillon Fund, Inc.
(affiliated issuers)
Equity Capital Bond S&P 500 Index
Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C>
ASSETS
Investments in securities
of unaffiliated issuers,
at value (cost $7,206,727;
$32,053,355; $24,010,681;
$12,468,334; $3,031,854;
$2,774,076; $5,787,297;
$2,963,559)
Investments in shares
of Carillon Fund, Inc.,
t value (cost $108,933,827;
$48,431,215; $20,470,292;
$25,281,160) $144,427,295 $ 50,359,938 $ 21,150,664 $ 30,373,908
------------ ------------ ------------ ------------
Total Assets $144,427,295 $ 50,359,938 $ 21,150,664 $ 30,373,908
============ ============ ============ ============
LIABILITIES
Payable to The Union
Central Life Insurance
Company for mortality
and expense risk
charges, and
administration fee $ 8,110 $ 4,305 $ 1,243 $ 442
Net Assets Attributable
to Contract Owners'
Equity Subacount:
2,907,000.69 Accumulation
Units @ $49.52728 143,975,837
8,951.59 Payout
Units @ $49.52728 443,348
Capital Subaccount:
2,590,388.93 Accumulation
Units @ $19.43941 50,355,633
Bond Subaccount:
766,722.29 Accumulation
Units @ $27.58420 21,149,421
S & P 500 Index Subaccount:
2,041,455.30 Accumulation
Units @ $14.87834 30,373,466
Money Market Subaccount:
433,295.76 Accumulation
Units @ $16.62749
Capital Growth Subaccount:
1,896,319.89 Accumulation
Units @ $22.80317
International Subaccount:
1,669,242.06 Accumulation
Units @ $17.25641
Growth with Income Subaccount
1,002,704.64 Accumulation
Units @ $14.52080
High Income Subaccount
269,397.73 Accumulation
Units @ $12.13880
Emerging Growth Subaccount
224,192.63 Accumulation
Units @ $12.40912 <PAGE>
Growth Subaccount
640,420.71 Accumulation
Units @ $8.64025
Templeton International Subaccount
266,656.62 Accumulation
Units @ $10.89275
Total Liabilities $144,427,295 $ 50,359,938 $ 21,150,664 $ 30,373,908
============ ============ ============ ============
<CAPTION>
Scudder Variable Life
Investment Fund
(unaffiliated issuers)
Market Growth International
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
ASSETS
Investments in securities
of unaffiliated
issuers, at value
(cost $7,206,727;
$32,053,355; $24,010,681;
$12,468,334; $2,963,559) $ 7,206,727 $43,240,275 $28,803,133
Investments in shares
of Carillon Fund, Inc.,
at value (cost $108,933,827;
$48,431,215; $20,470,292;
$25,281,160) ----------- ----------- -----------
Total Assets $ 7,206,727 $43,240,275 $28,803,133
=========== =========== ===========
LIABILITIES
Payable to The Union Central
Life Insurance Company for
mortality and expense risk
charges, and administration fee $ 2,106 ($ 1,830) ($1,992)
Net Assets Attributable
to Contract Owners'
Equity Subacount:
2,907,000.69 Accumulation
Units @ $49.52728
8,951.59 Payout
Units @ $49.52728
Capital Subaccount:
2,590,388.93 Accumulation
Units @ $19.43941
Bond Subaccount:
766,722.29 Accumulation
Units @ $27.58420
S&P 500 Index Subaccount:
2,041,455.30 Accumulation
Units @ $14.87834
Money Market Subaccount:
433,295.76 Accumulation
Units @ $16.62749 7,204,621
Capital Growth Subaccount:
1,896,319.89 Accumulation
Units @ $22.80317 43,242,105
International Subaccount:
1,669,242.06 Accumulation
Units @ $17.25641 28,805,125
Growth with Income Subaccount
1,002,704.64 Accumulation
Units @ $14.52080
High Income Subaccount
269,397.73 Accumulation
Units @ $12.13880
Emerging Growth Subaccount
224,192.63 Accumulation
Units @ $12.40912<PAGE>
Growth Subaccount
640,420.71 Accumulation
Units @ $8.64025
Templeton International Subaccount
266,656.62 Accumulation
Units @ $10.89275 ----------- ----------- -----------
Total Liabilities $ 7,206,727 $43,240,275 $28,803,133
=========== =========== ===========
<CAPTION>
MFS Variable
Insurance Trust
(unaffiliated issuers)
Growth High Emerging
with Income Income Growth
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
ASSETS
Investments in securities
of unaffiliated
issuers, at value
(cost $7,206,727;
$32,053,355; $24,010,681;
$12,468,334; $2,963,559) $14,559,914 $ 3,270,212 $ 2,782,006
Investments in shares
of Carillon Fund, Inc.,
at value (cost $108,933,827;
$48,431,215; $20,470,292;
$25,281,160) ----------- ----------- -----------
Total Assets $14,559,914 $ 3,270,212 $ 2,782,006
=========== =========== ===========
LIABILITIES
Payable to The Union Central
Life Insurance Company for
mortality and expense risk
charges, and administration fee ($ 160) $ 47 ($ 27)
Net Assets Attributable
to Contract Owners'
Equity Subacount:
2,907,000.69 Accumulation
Units @ $49.52728
8,951.59 Payout
Units @ $49.52728
Capital Subaccount:
2,590,388.93 Accumulation
Units @ $19.43941
Bond Subaccount:
766,722.29 Accumulation
Units @ $27.58420
S&P 500 Index Subaccount:
2,041,455.30 Accumulation
Units @ $14.87834
Money Market Subaccount:
433,295.76 Accumulation
Units @ $16.62749
Capital Growth Subaccount:
1,896,319.89 Accumulation
Units @ $22.80317
International Subaccount:
1,669,242.06 Accumulation
Units @ $17.25641
Growth with Income Subaccount
1,002,704.64 Accumulation
Units @ $14.52080 14,560,074
High Income Subaccount
269,397.73 Accumulation
Units @ $12.13880 3,270,165
Emerging Growth Subaccount
224,192.63 Accumulation
Units @ $12.40912 2,782,033<PAGE>
Growth Subaccount
640,420.71 Accumulation
Units @ $8.64025
Templeton International Subaccount
266,656.62 Accumulation
Units @ $10.89275 ----------- ----------- -----------
Total Liabilities $14,559,914 $ 3,270,212 $ 2,782,006
=========== =========== ===========
<CAPTION>
American
Century Variable Templeton Variable
Portfolios, Inc. Products Series Fund
(unaffiliated issuers) (unaffiliated issuers)
Templeton
Growth International
Subaccount Subaccount
<S> <C> <C>
ASSETS
Investments in securities
of unaffiliated
issuers, at value
(cost $7,206,727;
$32,053,355; $24,010,681;
$12,468,334; $ 5,533,627 $ 2,904,453
$3,031,854; $2,774,076;
$5,787,297; $2,963,559)
Investments in shares
of Carillon Fund, Inc.,
at value (cost $108,933,827;
$48,431,215; $20,470,292;
$25,281,160) ----------- -----------
Total Assets $ 5,533,627 $ 2,904,453
=========== ===========
LIABILITIES
Payable to The Union Central
Life Insurance Company for
mortality and expense risk
charges, and administration fee $ 232 ($ 171)
Net Assets Attributable
to Contract Owners'
Equity Subacount:
2,907,000.69 Accumulation
Units @ $49.52728
8,951.59 Payout
Units @ $49.52728
Capital Subaccount:
2,590,388.93 Accumulation
Units @ $19.43941
Bond Subaccount:
766,722.29 Accumulation
Units @ $27.58420
S&P 500 Index Subaccount:
2,041,455.30 Accumulation
Units @ $14.87834
Money Market Subaccount:
433,295.76 Accumulation
Units @ $16.62749
Capital Growth Subaccount:
1,896,319.89 Accumulation
Units @ $22.80317
International Subaccount:
1,669,242.06 Accumulation
Units @ $17.25641
Growth with Income Subaccount
1,002,704.64 Accumulation
Units @ $14.52080
High Income Subaccount
269,397.73 Accumulation
Units @ $12.13880
Emerging Growth Subaccount
224,192.63 Accumulation
Units @ $12.40912<PAGE>
Growth Subaccount
640,420.71 Accumulation
Units @ $8.64025 5,533,395
Templeton International Subaccount
266,656.62 Accumulation
Units @ $10.89275 2,904,624
----------- -----------
Total Liabilities $ 5,533,627 $ 2,904,453
=========== ===========
</TABLE>
<PAGE>
CARILLON ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Carillon Fund, Inc.
(affiliated issuers)
Equity Capital Bond S&P 500 Index
Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income $15,563,894 $ 6,150,366 $ 1,342,479 $ 403,217
----------- ----------- ----------- -----------
EXPENSES
Mortality and expense
risk charge 1,539,270 597,585 227,028 236,057
Administration fee 315,272 122,397 46,500 48,349
----------- ----------- ----------- -----------
Total expenses 1,854,542 719,982 273,528 284,406
----------- ----------- ----------- -----------
NET INVESTMENT
INCOME (EXPENSE) 13,709,352 5,430,384 1 ,068,951 118,811
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain(loss) on
investments 2,760,942 577,152 34,777 219,061
Net unrealized
appreciation (depreciation)
of investments 6,066,663 (3,122,210) 673,620 4,348,348
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 8,827,605 (2,545,058) 708,397 4,567,409
----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS FROM
OPERATIONS $22,536,957 $ 2,885,326 $ 1,777,348 $ 4,686,220
=========== =========== =========== ===========
<CAPTION>
Scudder Variable Life
Investment Fund
(unaffiliated issuers)
Money Capital
Market Growth International
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income $ 413,434 $2,455,798 $ 619,181
---------- ---------- ----------
EXPENSES
Mortality and expense
risk charge 95,513 429,635 341,939
Administration fee 19,563 87,998 70,036
---------- ---------- ----------
Total expenses 115,076 517,633 411,975
---------- ---------- ----------
NET INVESTMENT
INCOME (EXPENSE) 298,358 1,938,165 207,206
---------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments -- 546,856 641,941
---------- ---------- ----------
Net unrealized appreciation
(depreciation) of investments) -- 7,226,508 1,106,621
---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS) -- 7,773,364 1,748,562
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 298,358 $9,711,529 $1,955,768
---------- ---------- ----------
<CAPTION>
INVESTMENT INCOME
Dividend income $ 413,434 $2,455,798 $ 619,181
---------- ---------- ----------
EXPENSES
Mortality and expense
risk charge 95,513 429,635 341,939
Administration fee 19,563 87,998 70,036
---------- ---------- ----------
Total expenses 115,076 517,633 411,975
---------- ---------- ----------
NET INVESTMENT
INCOME (EXPENSE) 298,358 1,938,165 207,206
---------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments -- 546,856 641,941
---------- ---------- ----------
Net unrealized appreciation
(depreciation)
of investments -- 7,226,508 1,106,621
---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS -- 7,773,364 1,748,562
---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
FROM OPERATIONS $ 298,358 $9,711,529 $1,955,768
========== ========== ==========
<CAPTION>
MFS Variable
Insurance Trust
(unaffiliated issuer)
Growth High Emerging
with Income Income Growth
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income $ 337,790 $ -- $ --
---------- ---------- ----------
EXPENSES
Mortality and expense
risk charge 109,045 25,850 10,808
Administration fee 22,334 5,295 2,214
---------- ---------- ----------
Total expenses 131,379 31,145 13,022
---------- ---------- ----------
NET INVESTMENT
INCOME (EXPENSE) 206,411 (31,145) (13,022)
---------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments 80,328 20,126 34,777
Net unrealized appreciation
(depreciation)
of investments 1,773,391 247,666 7,930
---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 1,853,719 267,792 42,707
---------- ---------- ----------
NET INCREASE(DECREASE) IN NET
ASSETS FROM OPERATIONS $2,060,130 $ 236,647 $ 29,685
========== ========== ==========
<CAPTION>
American
Century Variable Templeton Variable
Portfolios, Inc. Products Series Fund
(unaffiliated issuer) (unaffiliated issuer)
Templeton
Growth International
Subaccount Subaccount
---------- ----------
<S> <C> <C>
INVESTMENT INCOME
Dividend income $ 84,275 $ --
---------- ----------
EXPENSES
Mortality and expense
risk charge 57,367 13,016
Administration fee 11,750 2,666
---------- ----------
Total expenses 69,117 15,682
---------- ----------
NET INVESTMENT 15,158 (15,682)
---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments (98,024) 8,496
Net unrealized appreciation
(depreciation) of investments (65,002) (59,106)
---------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (163,026) (50,610)
---------- ----------
NET INCREASE(DECREASE)
IN NET ASSETS FROM
OPERATIONS $ (147,868) $ (66,292)
========== ==========
</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,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $13,709,352 $ 3,699,161
Net realized gain on investments 2,760,942 1,812,837
Net unrealized appreciation of investments 6,066,663 14,393,952
----------- -----------
Net increase in net assets resulting
from operations 22,536,957 19,905,950
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 15,986,143 17,670,408
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 4,738,400 6,004,201
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (4,719,121) (3,610,691)
Surrenders (8,033,026) (5,812,606)
----------- -----------
Net proceeds from equity transactions 7,972,396 14,251,312
NET INCREASE IN NET ASSETS 30,509,353 34,157,262
NET ASSETS (Beginning of year) 113,909,832 79,752,570
------------ -------------
NET ASSETS (End of year) $144,419,185 $113,909,832
------------ ------------
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Capital Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 5,430,384 $ 1,708,176
Net realized gain on investments 577,152 438,750
Net unrealized appreciation
(depreciation) of investments (3,122,210) 3,452,457
----------- -----------
Net increase in net assets resulting
from operations 2,885,326 5,599,383
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 5,608,723 5,734,653
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,616,500 1,976,596
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (4,360,920) (3,029,990)
Surrenders (3,745,584) (2,813,935)
----------- -----------
Net proceeds (withdrawals)
from equity transactions (881,281) 1,867,324
----------- -----------
NET INCREASE IN NET ASSETS 2,004,045 7,466,707
NET ASSETS (Beginning of year) 48,351,588 40,884,881
----------- -----------
NET ASSETS (End of year) $50,355,633 $48,351,588
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Bond Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 1,068,951 $ 1,042,377
Net realized gain (loss) on investments 34,777 (13,540)
Net unrealized appreciation
(depreciation) of investments 673,620 (163,522)
----------- -----------
Net increase in net assets resulting
from operations 1,777,348 865,315
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 3,714,158 3,598,278
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,466,270 1,232,814
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (1,131,879) (1,607,281)
Surrenders (1,630,662) (843,649)
----------- -----------
Net proceeds from equity transactions 2,417,887 2,380,162
----------- -----------
NET INCREASE IN NET ASSETS 4,195,235 3,245,477
NET ASSETS (Beginning of year) 16,954,186 13,708,709
----------- -----------
NET ASSETS (End of year) $21,149,421 $16,954,186
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
Money Market Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 298,358 $ 229,531
----------- -----------
Net increase in net assets
resulting from operations 298,358 229,531
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 6,937,504 6,319,738
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 2,421,088 2,438,282
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (9,231,596) (6,169,979)
Surrenders (876,835) (860,396)
----------- -----------
Net proceeds (withdrawals) from
equity transactions (749,839) 1,727,645
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (451,481) 1,957,176
NET ASSETS (Beginning of year) 7,656,102 5,698,926
----------- -----------
NET ASSETS (End of year) $ 7,204,621 $ 7,656,102
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
Capital Growth Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 1,938,165 $ 1,436,584
Net realized gain on investments 546,856 165,975
Net unrealized appreciation of investments 7,266,508 2,198,938
----------- -----------
Net increase in net assets resulting
from operations 9,711,529 3,801,497
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 6,744,341 6,225,412
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 3,049,342 2,457,281
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (1,329,403) (1,294,901)
Surrenders (2,090,905) (772,653)
----------- -----------
Net proceeds from equity transactions 6,373,375 6,615,139
----------- -----------
NET INCREASE IN NET ASSETS 16,084,904 10,416,636
NET ASSETS (Beginning of year)
27,157,201 16,740,565
----------- -----------
NET ASSETS (End of year) $43,242,105 $27,157,201
----------- -----------
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
International Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment $ 207,206 $ 118,682
Net realized gain on investments 641,941 171,655
Net unrealized appreciation of investments 1,106,621 2,292,031
----------- -----------
Net increase in net assets resulting
from operations 1,955,768 2,582,368
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 4,154,168 4,746,264
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,336,600 2,157,750
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (2,286,229) (824,341)
Surrenders (1,472,467) (861,194)
----------- -----------
Net proceeds from equity transactions 1,732,072 5,218,479
----------- -----------
NET INCREASE IN NET ASSETS 3,687,840 7,800,847
NET ASSETS (Beginning of year) 25,117,285 17,316,438
----------- -----------
NET ASSETS (End of year) $28,805,125 $25,117,285
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MFS Variable Insurance Trust
Growth with Income Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 206,411 $ 54,330
Net realized gain on investments 80,328 3,524
Net unrealized appreciation of investments 1,773,391 318,190
----------- -----------
Net increase in net assets resulting
from operations 2,060,130 376,044
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 5,560,205 2,163,387
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 2,638,400 2,336,016
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (299,135) (36,171)
Surrenders (224,688) (14,114)
----------- -----------
Net proceeds from equity transactions 7,674,782 4,449,118
----------- -----------
NET INCREASE IN NET ASSETS 9,734,912 4,825,162
NET ASSETS (Beginning of year) 4,825,162 --
----------- -----------
NET ASSETS (End of year) $14,560,074 $ 4,825,162
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MFS Variable Insurance Trust
High Income Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income (expense) ($ 31,145) $ 56,091
Net realized gain on investments 20,126 755
Net unrealized appreciation
(depreciation) of investments 247,666 (9,308)
----------- -----------
Net increase in net assets resulting
from operations 236,647 47,538
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 1,413,011 740,317
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 591,126 403,782
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (77,101) (11,050)
Surrenders (72,141) (1,964)
----------- -----------
Net proceeds from equity transactions 1,854,895 1,131,085
----------- -----------
NET INCREASE IN NET ASSETS 2,091,542 1,178,623
NET ASSETS (Beginning of year) 1,178,623 0
NET ASSETS (End of year) $ 3,270,165 $ 1,178,623
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Carillon Fund, Inc.
S&P 500 Index Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 118,811 $ 25,396
Net realized gain on investments 219,061 11,131
Net unrealized appreciation of investments 4,348,348 744,401
----------- -----------
Net increase in net assets resulting
from operations 4,686,220 780,928
----------- -----------
EQUITY TRANSACTIONS
Contract purchase payments 12,093,801 5,067,645
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 5,500,238 4,416,451
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (1,006,314) (325,162)
Surrenders (793,045) (47,296)
----------- -----------
Net proceeds from equity transactions 15,794,680 9,111,638
----------- -----------
NET INCREASE IN NET ASSETS 20,480,900 9,892,566
NET ASSETS (Beginning of year) 9,892,566 --
----------- -----------
NET ASSETS (End of year) $30,373,466 $ 9,892,566
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
American Century Variable Portfolios, Inc.
Growth Subaccount
Year ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income (expense) $ 15,158 $ (23,280)
Net realized loss on investments (98,024) (3,651)
Net unrealized depreciation
of investments (65,002) (188,669)
---------- ----------
Net decrease in net assets
resulting from operations (147,868) (215,600)
---------- ----------
EQUITY TRANSACTIONS
Contract purchase payments 1,843,602 2,210,548
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 959,074 1,995,290
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (820,744) (107,926)
Surrenders (143,278) (39,703)
---------- ----------
Net proceeds from equity transactions 1,838,654 4,058,209
---------- ----------
NET INCREASE IN NET ASSETS 1,690,786 3,842,609
NET ASSETS (Beginning of year) 3,842,609 --
---------- ----------
NET ASSETS (End of year) $5,533,395 $3,842,609
---------- ----------
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MFS Variable Insurance Trust
Emerging Growth Subaccount
Year ended December 31, 1997
<S> <C>
OPERATIONS
Net investment expense ($ 13,022)
Net realized gain on investments 34,777
Net unrealized appreciation of investments 7,930
Net decrease in net assets resulting
from operations 29,685
----------
EQUITY TRANSACTIONS
Contract purchase payments 1,784,772
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,173,883
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (185,498)
Surrenders (20,809)
----------
Net proceeds from equity transactions 2,752,348
----------
NET INCREASE IN NET ASSETS 2,782,003
NET ASSETS (Beginning of year) --
----------
NET ASSETS (End of year) $2,782,033
==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
Templeton Variable Products Series Fund
Templeton International Subaccount
Year ended December 31, 1997
<S> <C>
OPERATIONS
Net investment expense ($ 15,682)
Net realized gain on investments 8,496
Net unrealized depreciation of investments (59,106)
Net decrease in net assets
resulting from operations (66,292)
----------
EQUITY TRANSACTIONS
Contract purchase payments 1,661,111
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,368,511
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (49,883)
Surrenders (8,823)
----------
Net proceeds from equity transactions 2,970,916
----------
NET INCREASE IN NET ASSETS 2,904,624
NET ASSETS (Beginning of year) --
----------
NET ASSETS (End of year) $2,904,624
==========
</TABLE>
<PAGE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 twelve
subaccounts, each of which invests in a corresponding Portfolio
of Carillon Fund, Inc., Scudder Variable Life Investment Fund,
MFS Variable Insurance Trust, American Century Variable
Portfolios, Inc., or Tempelton Variable Product Series Fund (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. American Century
Investment Services, Inc., an affiliate of the fund's investment
manager, serves as distributor of variable annuity contracts
issued by American Century Variable Portfolios, Inc.; Franklin
Templeton Distributors, Inc. serves as the distributor of
variable annuity and variable life insurance contracts issued by
Templeton Variable Products Series Fund.
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.
Impact of Year 2000 (Unaudited) - Some of Union Central's
computer programs were written using two digits rather than four
to define the applicable year. As a result, those computer
programs have software that may recognize a date using 00' as
the year 1900 rather than the year 2000. Union Central software
incorrectly recognizing a date would cause the Company's
computing environment to not function as expected. Among the
results could be miscalculations causing disruptions of
operations.
A comprehensive assessment of Union Central's Year 2000
sensitive software has been performed and the primary risks and
required software modifications have been identified. Union
Central will both modify existing software, and install new
software, in time to ensure the Year 2000 problem does not
impact its operations, or the operations of Carillon Account.
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,
American Century Variable Portfolio, Inc., and Templeton
Variable Products Series Fund as of December 31, 1997:
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Equity Capital Bond S&P 500
Subaccount Subaccount Subaccount Subaccount
Net asset value per share $ 20.35 $ 14.10 $ 11.29 $ 15.74
Number of shares 7,097,164 3,571,627 1,873,398 1,929,727
<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 $ 20.63 $ 14.11
Number of shares 7,206,727 2,095,990 2,041,328
<CAPTION>
MFS Variable Insurance Trust
Growth Emerging
with Income High Income Growth
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
Net asset value per share $ 16.44 $ 12.35 $ 16.14
Number of shares 885,640 264,795 172,367
<CAPTION>
American Century Variable Portfolios, Inc.
Growth
Subaccount
<S> <C>
Net asset value per share $ 9.68
Number of shares 571,656
<CAPTION>
Templeton Products Series Fund
International
Subaccount
<S> <C>
Net asset value per share $ 20.14
Numbers of shares 144,213
</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>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CARILLON FUND, INC.
EQUITY SUBACCOUNT
Accumulation unit
value $49.53 $41.68 $33.67 $27.15
$26.63
Number of
accumulation units
outstanding,
end of period 2,907,000.69 2,723,705.33 2,337,986.47 1,981,958.18
1,723,790.37
Payout unit value $49.53 $41.68 $33.97
Number of payout
units outstanding,
end of period 8,951.59 9,142.02 9,795.88
CAPITAL SUBACCOUNT
Accumulation
unit value $19.44 $18.37 $16.21 $14.39
$14.47
Number of
accumulation units
outstanding,
end of period 2,590,388.93 2,632,591.00 2,521,521.39 2,271,374.95
1,790,938.05
BOND SUBACCOUNT
Accumulation
unit value $27.58 $25.21 $23.87 $20.34
$20.98
Number of
accumulation units
outstanding,
end of period 766,722.29 672,511.33 574,420.86 508,398.32
513,613.17
S&P 500 SUBACCOUNT
Accumulation unit
value $14.88 $11.37<F4>
Number of
accumulation units
outstanding,
end of period 2,041,455.30 869,681.47
SCUDDER
VARIABLE LIFE
INVESTMENT FUND
MONEY MARKET
SUBACCOUNT<F3>
Accumulation
unit value $16.63 $16.03 $15.47 $14.85 $14.53
units
outstanding,
end of period 433,295.76 477,679.12 368,443.98 280,575.27
119,598.28
CAPITAL GROWTH
SUBACCOUNT
Accumulation
unit value $22.80 $17.04 $14.39 $11.35
$12.75
Number of
accumulation units
outstanding,
end of period 1,896,319.89 1,593,634.26 1,162,998.78 906,428.22
439,913.95
INTERNATIONAL
SUBACCOUNT
Accumulation
unit value $17.26 $16.05 $14.19 $12.96
$13.26
Number of
accumulation units
outstanding,
end of period 1,669,242.06 1,564,590.89 1,220,160.02 1,095,214.21
362,171.94
INSURANCE TRUST
GROWTH WITH INCOME
SUBACCOUNT
Accumulation
unit value $14.52 $11.35<F4>
Number of
accumulation units
outstanding,
end of period 1,002,704.64 425,068.19
HIGH INCOME
SUBACCOUNT
Accumulation
unit value $12.14 $10.84<F4>
Number of
accumulation units
outstanding,
end of period 269,397.73 108,772.82
EMERGING GROWTH
SUBACCOUNT
Accumulation
unit value $12.41<F5>
Number of
accumulation units
outstanding,
end of period 224,192.63
AMERICAN CENTURY
VARIABLE
PORTFOLIOS, INC.
GROWTH
SUBACCOUNT
Accumulation
unit value $8.64 $9.06<F4>
Number of
accumulation units
outstanding,
end of period 640,420.71 424,022.29
TEMPLETON PRODUCTS
SERIES FUND
GROWTH
SUBACCOUNT
Accumulation
unit value $10.89<F5>
Number of
accumulation units
outstanding,
end of period 266,656.62
<CAPTION>
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
CARILLON FUND, INC.
EQUITY SUBACCOUNT
Accumulation
unit value $23.68 $21.49 $14.98 $17.98
$16.32
Number of
accumulation units
outstanding,
end of period 1,312,947.47 1,057,669.36 936,036.25 799,268.16
561,681.97
Payout unit value
Number of payout units
CAPITAL SUBACCOUNT
Accumulation
unit value $13.02 $12.24 $9.85<F1>
Number of
accumulation units
outstanding,
end of period 1,181,036.39 627,636.09 279,289.41
BOND SUBACCOUNT
Accumulation
unit value $19.01 $17.92 $15.42 $14.40
$13.20
Number of
accumulation units
outstanding,
end of period 348,420.48 283,492.73 285,369.81 250,631.38
225,777.14
S&P 500 SUBACCOUNT
Accumulation
unit value
Number of
accumulation units
outstanding,
end of period 2,041,455.30 869,681.47
SCUDDER
VARIABLE LIFE
INVESTMENT FUND
MONEY MARKET
SUBACCOUNT<F3>
Accumulation
unit value $14.37 $14.12 $13.58 $12.71
$11.85
Number of
accumulation units
outstanding,
end of period 120,546.54 83,622.68 103,404.70 75,006.15
52,665.63
CAPITAL GROWTH
SUBACCOUNT
Accumulation
unit value $10.70<F2>
Number of
accumulation units
outstanding,
end of period 70,218.22
INTERNATIONAL
SUBACCOUNT
Accumulation
unit value $9.76<F2>
Number of
accumulation units
outstanding,
end of period 43,624.42
<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
<F5> Commencement of operations was May 1, 1997, with a beginning accumulation
value of $10.00.
</FN>
</TABLE>
<PAGE>
Consolidated Financial Statements
The Union Central Life
Insurance Company and Subsidiaries
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996
CONTENTS
Page
Report of Independent Auditors ...................... 1
Consolidated Balance Sheets ......................... 2
Consolidated Statements of Income ................... 3
Consolidated Statements of Equity ................... 4
Consolidated Statements of Cash Flows ............... 5
Notes to Consolidated Financial Statements .......... 6
<PAGE>
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, 1997 and 1996, 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, 1997, and 1996, and the
consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted
accounting principles.
March 16, 1998
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale
at fair value (amortized cost: $2,758,113 $2,749,772
1997 - $2,697,869;
and 1996 - $2,727,178)
Equity securities available-for-sale
at fair value (cost: 1997 - $59,675
and 1996 - $54,504) 63,138 61,458
Cash and short-term investments 4,872 1,040
Other invested assets 54,342 42,490
Mortgage loans 744,395 663,351
Real estate 50,409 58,601
Policy loans 203,481 206,889
---------- ----------
Total investments 3,878,750 3,783,601
Accrued investment income 48,846 47,491
Deferred policy acquisition costs 371,295 414,458
Property, plant and equipment,
at cost, less accumulated
depreciation (1997 - $59,096
and 1996 - $55,798) 24,205 22,561
Federal income tax recoverable 6,595 6,394
Other assets 91,758 89,251
Separate account assets 1,288,349 1,000,469
---------- ----------
Total assets $5,709,798 $5,364,225
========== ==========
LIABILITIES AND EQUITY
Policy liabilities:
Future policy benefits $1,933,823 $1,892,875
Deposit funds 1,549,965 1,568,566
Policy and contract claims 31,869 28,413
Policyholders' dividends 37,624 37,492
---------- ----------
Total policy liabilities 3,553,281 3,527,346
Deferred revenue 110,130 130,176
Accrued commissions, expenses and taxes 21,391 16,373
Other liabilities 32,620 49,604
Deferred federal income taxes 33,341 35,149
Surplus notes payable 49,749 49,740
Separate account liabilities 1,310,391 1,014,960
---------- ----------
Total liabilities 5,110,903 4,823,348
MINORITY INTEREST IN SUBSIDIARY'S EQUITY 42,391 46,076
EQUITY
Policyholders' equity 531,164 481,799
Unrealized gain on available-for-sale securities 25,340 13,002
---------- ----------
Total equity 556,504 494,801
---------- ----------
Total liabilities and equity $5,709,798 $5,364,225
========== ==========
</TABLE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
REVENUE
Insurance revenue:
Traditional insurance premiums $ 131,974 $ 136,448
Universal life policy charges 88,645 80,746
Annuities 37,569 34,740
Net investment income 298,509 296,912
Net realized gains (losses) on investments 20,617 (22,710)
Other 8,059 6,162
---------- ----------
Total revenue 585,373 532,298
BENEFITS AND EXPENSES
Benefits 181,587 184,368
Increase (decrease) in reserves for
future policy benefits (7,912) 2,985
Interest expense:
Universal life 53,756 50,461
Investment products 91,239 95,654
Underwriting, acquisition and insurance expense 168,504 130,582
Policyholders' dividends 20,304 17,306
---------- ----------
Total benefits and expenses 507,478 481,356
Income before federal income tax and minority
interest in subsidiary income 77,895 50,942
Federal income tax expense 27,175 22,642
---------- ----------
Income before minority interest in
subsidiary income 50,720 28,300
Minority interest in subsidiary income (2,034) (2,704)
---------- ----------
Net Income $ 48,686 $ 25,596
========== ==========
</TABLE>
<PAGE> THE UNION CENTRAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain on
Policyholders' Available-for-Sale Total
Equity Securities Equity
------------- ------------------ ------
<S> <C> <C> <C>
Balance at January 1, 1996 $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
-------- -------- --------
Net income 48,686 -- 48,686
Net unrealized appreciation -- 12,338 12,338
Other 679 -- 679
-------- -------- --------
Balance at December 31, 1997 $531,164 $ 25,340 $556,504
======== ======== ========
</TABLE>
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 48,686 $ 25,596
Adjustments to net income not affecting cash:
Interest credited to universal life policies 53,756 50,461
Interest credited to interest sensitive products 91,239 95,654
Accrual of discounts on investments, net (2,610) (1,487)
Net realized (gains) and losses on investments (20,617) 22,710
Depreciation 4,355 6,472
Amortization of deferred policy acquisition costs 60,979 33,523
Amortization of deferred revenue (17,633) (10,073)
Deferred federal income tax (benefit) (9,452) 4,134
Change in operating assets and liabilities:
Accrued investment income (1,355) (623)
Policy cost deferred (41,608) (40,471)
Revenue deferred 2,340 2,188
Policy liabilities (53,705) (72,417)
Federal income tax recoverable (payable) 294 (54)
Change in other liabilities (15,786) (17,127)
Other items, net 10,630 11,557
---------- ----------
Cash Provided by Operating Activities 109,513 110,043
---------- ----------
INVESTING ACTIVITIES
Costs of investments acquired (3,295,204) (3,393,082)
Proceeds from sale, maturity or repayment of
investments 3,264,331 3,297,247
Decrease in policy loans 3,408 966
Purchases of property and equipment, net (5,627) (6,986)
---------- ----------
Cash Used in Investing Activities (33,092) (101,855)
---------- ----------
FINANCING ACTIVITIES
Receipts from universal life
and investment contracts 607,809 534,974
Withdrawals from universal life
and investment contracts (673,586) (603,300)
Cash provided by issuance of surplus notes -- 49,740
Purchase of stock from minority shareholders (6,812) --
---------- ----------
Cash Used by Financing Activities (72,589) (18,586)
---------- ----------
Increase (decrease) in cash
and short term investments 3,832 (10,398)
---------- ----------
Cash and short term investments
at beginning of year 1,040 11,438
---------- ----------
Cash and short term investments at end of year $ 4,872 $ 1,040
========== ==========
Supplemental disclosure
of cash flow information:
Cash paid during the year
for federal income taxes $ 36,297 $ 27,905
Cash paid during the year
for interest on surplus notes $ 4,066 $ --
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
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 the following
subsidiaries: The Manhattan Life Insurance Company (Manhattan
Life), a mixed charter life insurance company of which Union
Central owns 100% of the outstanding guarantee capital shares,
Carillon Advisers, Inc. (CAI), a registered investment advisor
company, wholly-owned and Carillon Investments, Inc. (CII) a
registered broker dealer, 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 five investment portfolios (equity, bond,
asset allocation, S&P 500 indexed and micro-cap); Summit
Investment Trust, consisting of two mutual funds (Summit
Emerging Markets Bond Fund, an emerging markets corporate and
government bond mutual fund and Summit High Yield Fund, a high-
yield bond 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 of 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.
At December 31, 1996, 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 Union Central becoming sole remaining holder of
Manhattan Life's guarantee capital shares. The cost of
redeeming the fractional shares, $6,812,000, was funded by
Manhattan Life; however, as part of the Plan, Union Central made
a cash contribution of $1,823,000 to Manhattan Life's guarantee
capital share account. As a result of effecting the reverse
stock split, Union Central's policyholders equity increased by
$1,919,000. This represents the cumulative prior years' amount
of the minority shareholders' share of Manhattan Life's
shareholders equity of $8,731,000, less the cost of redeeming
the fractional shares. The increase in policyholders' equity is
included in "Other" in the Statements of Equity. In connection
with effecting the reverse stock split, the Company incurred and
capitalized $2,782,000 of issuance cost. This cost was recorded
in "Other assets" in the Balance Sheets, and will be amortized
under the straight-line method to expense over 15 years.
Amortization of capitalized expenses was commenced in 1997 with
$185,000 amortized to "Underwriting, acquisition and insurance
expense" in the Statements of Income.
The Company adopted in 1997 FASB Statement No. 125," Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". 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 on sales of investments, net of
related deferred policy acquisition cost and unearned revenue
amortization, 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.
The Company purchases call options to hedge insurance contracts
whose credited interest is linked to returns in Standard &
Poor's 500 Stock Index (Index) based on a formula which applies
participation rates to the returns in the Index. Call options
are contracts which give the option purchaser the right, but not
the obligation, to buy securities at a specified price during a
specified period. The Company holds call options which expire
quarterly until December 31, 1998. The Company paid initial
fees (the option premium) to enter the option contracts. The
Index call options give the Company the right to receive cash at
settlement if the closing Index value is above the strike price.
These proceeds do not result in income to the Company because
the hedged insurance contracts would be credited interest for an
equivalent amount.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to the call options. To
minimize this risk, the Company only enters into private options
contracts with counterparties having Standard & Poor's credit
ratings of AA- or above or listed contracts guaranteed by the
Chicago Board Options Exchange. The credit exposure is limited
to the value of the call options at December 31, 1997, and is
immaterial to the Company.
The call options were carried at their fair value of $1,877,000
at December 31, 1997, and were reflected in "Other invested
assets" in the Balance Sheets. The liabilities for the hedged
insurance contracts were adjusted based on the market value of
the call options of $1,877,000, and were reflected in "Deposit
funds" in the Balance Sheets.
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 gains (losses) on
investments". Amortization of deferred policy acquisition costs
totalled $60,979,000 and $33,523,000, net of the effect of
realized gains and (losses) on amortization of $13,309,000 and
($9,176,000) for the years ended December 31, 1997 and 1996,
respectively, and were included in "Underwriting, acquisition
and insurance expense" in the Statements of Income. Deferred
policy acquisition costs are adjusted to reflect the impact of
unrealized gains on available-for-sale securities. Adjustments
reducing deferred policy acquisition costs related to unrealized
gains totalled $17,627,000, and $7,143,000 at 1997 and 1996,
respectively.
In 1997, the Company revised its estimates of future gross
profits, and as a result amortization of deferred policy
acquisition costs included in "Underwriting, acquisition and
insurance expense" in the Statements of Income was increased by
$16,988,000.
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 represent funds that are
separately administered for our individual annuity, group
annuity and variable universal life lines of business, and for
which the contract holders rather than the Company bear the
investment risk. Separate account contract holders have no
claim against the assets of the general account of the Company.
Separate account investments are carried at market value.
Investment income and gains and losses from these accounts
accrue directly to contract holders and are not included in the
accompanying financial statements. 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.
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 adverse deviations. Interest assumptions for
participating traditional life reserves for all policies ranged
from 2.25% to 8.87% for the years ended 1997 and 1996.
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 reserves for future policy benefits. The future investment
yields are assumed to range from 7.3% to 8.6% for the years
ended 1997 and 1996. 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 4.5%
to 7.6% for the years ended 1997 and 1996.
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.
Amortization of unearned revenue totalled $17,633,000 and
$10,073,000, net of the effect of realized gains (losses) on
amortization of $4,752,000 and ($3,597,000) for the years ended
December 31, 1997 and 1996, respectively, and was included in
"Universal life policy charges" in the Statements of Income.
In 1997, the Company revised its estimates of future gross
profits, and as a result amortization of unearned revenue
included in "Universal life policy charges" in the Statements of
Income was increased by $5,999,000.
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 7.5% to 8.1% for the years ended 1997 and 1996.
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 and payout
annuities. Revenues for the deferred annuity products consist
of investment income on policy funds, mortality and expense
charges, contract administration fees, and surrender charges
that have been assessed against policyholder account balances.
Expenses for deferred annuity 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 while
expenses exclude the interest credited on policy funds.
Benefit reserves for the deferred annuity contracts represent
the policy account balances before applicable surrender charges.
Interest assumptions on payout annuities are based on assumed
investment yields that ranged from 2.0% to 8.0% for the years
ended 1997 and 1996.
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
policyholders' dividends. As a result of the reverse stock
split described in Note 1, in 1997 only Manhattan Life's
policyholders' share of profits/losses were included in
"Minority Interest in Subsidiary's Income" in the Statements of
Income. In 1996, Manhattan Life's policyholders' and minority
shareholders' share of profits/losses were included in "Minority
Interest in Subsidiary's Income" in the Statements of Income.
In 1997, Manhattan Life's policyholders' equity was included in
"Minority Interest in Subsidiary's Equity" in the Balance
Sheets, and includes policyholders' share of Manhattan Life's
change in unrealized gains on available-for-sale securities. In
1996, Manhattan Life's policyholders' and minority shareholders'
equity was 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 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.
Reclassifications
Previously reported amounts for 1996 have in some instances been
reclassified to conform to the 1997 presentation.
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> <S> <C> <C> <C>
DECEMBER 31, 1997:
U.S. treasury securities
and obligations of U.S.
government corporations
and agencies $ 213,411 $ 1,891 $ (238) $ 215,064
Corporate securities and other 1,447,640 50,318 (5,320) 1,492,638
Mortgage-backed securities,
collateralized mortgage
obligations and
other structured securities 1,028,745 20,386 (7,169) 1,041,962
Debt securities issued
by foreign governments 8,073 376 -- 8,449
---------- ------- -------- ----------
Subtotal 2,697,86 72,971 (12,727) 2,758,113
Equity securities 59,675 4,142 (679) 63,138
---------- ------- -------- ----------
Total $2,757,544 $77,113 $(13,406) $2,821,251
========== ======= ======== ==========
DECEMBER 31, 1996:
U.S. treasury securities and obligations
of U.S. government corporations
and agencies $ 107,704 $ 469 $ (1,714) $ 106,459
Corporate securities and other 1,484,274 34,617 (9,385) 1,509,506
Mortgage-backed securities,
collateralized mortgage
obligations and other
structured securities 1,127,290 17,145 (18,884) 1,125,551
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>
Fixed maturity available-for-sale securities, at December 31,
1997, are summarized by stated maturity as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
(in thousands)
<S> <C> <C>
Due in one year or less $ 228 $ 230
Due after one year through five years 225,814 229,246
Due after five years through ten years 751,502 764,791
Due after ten years 239,541 247,434
---------- ----------
Subtotal 1,217,085 1,241,701
Mortgage-backed securities 1,065,212 1,078,310
Other securities with multiple
repayment dates 415,572 438,102
---------- ----------
Total $2,697,869 $2,758,113
========== ==========
</TABLE>
Significant components of the unrealized gain on available-for-
sale securities included in equity in the accompanying Balance
Sheets are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Gross unrealized gain on available-
for-sale securities $ 63,707 $ 29,548
Amortization of deferred policy
acquisition costs (17,627) (7,143)
Minority interests (4,607) (1,573)
Deferred taxes (16,133) (7,830)
-------- --------
Net unrealized gain on available-for-
sale securities $ 25,340 $ 13,002
-------- --------
</TABLE>
See Note 10 for discussion of the methods and assumptions used
by the Company in estimating the fair values of available-for-
sale securities.
At December 31, 1997 and 1996, 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 $198,255,000 and
$177,364,000. Those holdings amounted to 7.2% and 6.5%,
respectively, of the Company's investments in fixed maturities
and 3.5% and 3.3%, 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.
At December 31, 1997 and 1996, the Company invested $45,031,000
and $52,397,000 in affiliated mutual funds. The Company's
holdings in affiliated mutual funds were included in "Equity
securities available-for-sale at fair value" in the Balance
Sheets.
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,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Proceeds $3,148,909 $3,170,351
Gross realized gains 52,460 28,154
Gross realized losses 28,173 55,069
</TABLE>
At December 31, 1997 and 1996, investments in bonds of
$6,450,000 and $6,178,000, respectively, were on deposit with
state insurance departments to satisfy regulatory requirements.
Mortgage loans are stated at their aggregate unpaid balances in
the Balance Sheets, less unamortized discounts.
Activity in the allowance for mortgage loss is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
(in thousands)
<S> <C> <C>
Balances at the beginning of the year $ 2,224 $ 2,711
Provisions for potential
mortgage loan loss 1,307 263
Losses charged against the mortgage
loan loss reserve (2,093) (750)
Balance at the end of the year $ 1,438 $ 2,224
======= =======
</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 $1,438,000 and
$2,224,000 at December 31, 1997 and 1996, respectively) follows:
<TABLE>
<CAPTION>
December 31, 1997
Principal Percent of
Balance Principal
------- ---------
(in thousands)
<S> <C> <C>
Region
New England and Mid-Atlantic $ 52,400 7.0%
South Atlantic 122,648 16.4
North Central 190,928 25.6
South Central 80,335 10.8
Mountain 111,684 15.0
Pacific 187,838 25.2
--------- -----
Total $ 745,833 100.0 %
========= =====
Property Type
Apartment and residential $ 106,190 14.2%
Warehouses and industrial 127,960 17.2
Retail and shopping center 243,152 32.6
Offices 238,970 32.0
Other 29,561 4.0
--------- -----
Total $ 745,833 100.0%
========= =====
<CAPTION>
December 31, 1997
Principal Percent of
Balance Principal
------- ---------
(in thousands)
<S> <C> <C>
Region
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>
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
$17,481,000 and $17,383,000 at December 31, 1997 and 1996,
respectively, and accumulated depreciation totalled $4,586,000
and $4,212,000 at December 31, 1997 and 1996, respectively. The
book value of foreclosed real estate was $37,514,000 and
$45,430,000 at December 31, 1997 and 1996, respectively. The
decrease in foreclosed real estate is a result of the sale of
four properties in 1997.
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, 1997 and 1996. 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, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------
Direct Assumed Ceded Net
------ ------- ----- ---
(in thousands)
<S> <C> <C> <C> <C>
Life insurance in force $30,333,849 $556,694 $5,066,377 $25,824,166
=========== ======== ========== ===========
Premiums and other
considerations:
Traditional insurance
premiums and
universal life $ 240,155 $ 10,154 $ 29,690 $ 220,619
Annuity 37,569 -- -- 37,569
----------- -------- ---------- -----------
Total $ 274,724 $ 10,154 $ 26,690 $ 258,188
=========== ======== ========== ===========
<CAPTION>
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
=========== ======== ========== ===========
</TABLE>
Benefits paid or provided were reduced by $14,779,000 and
$18,747,000 at December 31, 1997 and 1996, respectively, for
estimated recoveries under reinsurance treaties.
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,
1997 1996
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $ 137,637 $ 146,947
Basis differences on bonds 1,382 1,740
Unrealized gains - SFAS 115 16,133 7,830
Other 3,835 2,647
--------- ---------
Total deferred tax liabilities 158,987 159,164
--------- ---------
Deferred tax assets:
Policyholders' dividends 11,393 11,100
Future policy benefits 74,225 76,471
Premium - based DAC adjustment 25,780 23,643
Investment valuation reserves 1,006 1,147
Retirement plan accruals 10,722 9,494
Investment income differences 499 273
Basis differences on bonds and mortgages 266 266
Other 1,755 1,621
--------- ---------
Total deferred tax assets 125,646 124,015
--------- ---------
Net deferred tax liabilities $ 33,341 $ 35,149
========= =========
</TABLE>
Significant components of the provision for income taxes
attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Current $ 36,603 $ 18,509
Deferred (9,428) 4,133
--------- ---------
Total $ 27,175 $ 22,642
========= =========
</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 in 1997 described in Note 1.
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, 1997 and 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
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. As Manhattan Life's
statutory-basis surplus was less than 9% of its statutory policy
reserves at December 31, 1996 and 1995, respectively, and a loss
from operations was recorded for the year ended December 31,
1995, and statutory surplus decreased for the year ended
December 31, 1996, no shareholder's dividends were paid in 1996
or 1997.
The GCR represents a restricted segment of statutory unassigned
surplus, and as such, does not represent a commitment or
liability to pay shareholder dividends. In Manhattan Life's
stand-alone financial statements prepared in accordance with
generally accepted accounting principles, the GCR is included in
shareholders' equity. The balance in the GCR of $12,750,000 and
$16,127,000 and the Company's share of $12,750,000 and
$11,740,000 was included in "Policyholders' equity" in the
Consolidated Balance Sheets at December 31, 1997 and 1996,
respectively. In 1996, the minority shareholders' share of the
GCR was included in "Minority Interest in Subsidiary's Equity"
in the Balance Sheets. Interest added to the GCR amounted to
$919,000 and $1,230,000, for the years ended December 31, 1997
and 1996, respectively.
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, all
of the 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 $3,972,000 and $3,907,000 in 1997 and 1996,
respectively. The Company also leases furniture and equipment
under operating leases which expire in 2001. Rental expense
under these leases included in "Underwriting, acquisition and
insurance expense" in the Statements of Income totalled $154,000
and $182,000 in 1997 and 1996, respectively.
At December 31, 1997, the future minimum lease payments for all
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
(in thousands)
<C> <C>
1998 $ 3,553
1999 2,893
2000 2,562
2001 2,316
2002 1,785
After 2002 1,112
-------
Total $14,221
=======
</TABLE>
The Company also has capital leases for office furniture. Lease
expense under these leases was $437,000 and $466,000 in 1997 and
1996, respectively.
At December 31, 1997 the future minimum lease payments for all
noncancelable capital leases are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
(in thousands)
<C> <C>
1998 $ 470
1999 470
2000 470
2001 39
-------
Total $ 1,449
=======
</TABLE>
Other Commitments
At December 31, 1997, the Company had outstanding agreements to
fund 33 mortgages totalling $52,263,000 in early 1998. In
addition, the Company has committed to invest $17,800,000 in
limited partnerships during the years 1998 to 2001. 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. The $300,800 and $0 charge to operations in 1997
and 1996, respectively, was included in "Underwriting,
acquisition and insurance expense" in the Statements of Income.
The estimated liability of $1,411,000 and $1,399,000 at December
31, 1997 and 1996 respectively, was based on data provided by
the National Organization of Life and Health Insurance Guaranty
Associations and is included in "Other liabilities" in 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,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Capital and surplus
Union Central $ 317,952 $ 277,202
========= =========
Manhattan Life $ 22,327 $ 28,211
========= =========
</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 1998, 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 $3,492,000 and $2,750,000 in 1997 and 1996,
respectively. The Company's funding policy is determined
according to regulations as specified by ERISA and subsequent
amendments.
Pension expense includes the following components:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Service cost-benefits earned
during the year $ 2,622 $ 1,982
Interest cost on projected
benefit obligation 5,689 5,330
Actual return on plan assets (4,373) (4,786)
Net amortization and deferral 390 625
-------- --------
Net pension expense included
in "Underwriting, acquisition,
and insurance expense" $ 4,328 $ 3,151
======== ========
</TABLE>
Also, $1,240,000 (net of tax) was charged directly to
policyholders' equity in 1997 as a result of recognizing an
additional minimum pension liability adjustment under Statement
of Financial Accounting Standard (SFAS-87) "Employers'
Accounting for Pensions", and is included in "Other" in the
Statements of Equity.
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, 1997 and 1996.
<TABLE>
<CAPTION>
Union Central
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$44,909 and $43,920 for 1997
and 1996, respectively $ 54,164 $ 50,954
======== ========
Projected benefit obligation $ 64,547 $ 60,216
Plan assets at fair value 48,836 41,912
-------- --------
Projected benefit obligation higher
than plan assets 15,711 18,304
Unrecognized net loss (12,660) (16,184)
Unrecognized net obligation being
recognized over 15 years 368 409
Adjustment required to recognize
minimum liability 1,907 6,514
-------- --------
Pension liability included in
"Other liabilities" at end of year $ 5,326 $ 9,043
======== ========
<CAPTION>
Manhattan Life
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Actuarial present value
of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$18,375 and $17,674 for 1997
and 1996, respectively $ 18,771 $ 17,886
======== ========
Projected benefit obligation $ 20,217 $ 19,840
Plan assets at fair value 16,817 16,865
-------- --------
Projected benefit obligation
higher than plan assets 3,400 2,975
Unrecognized net loss (1,826) (1,344)
Prior service cost not yet
recognized in net periodic
pension cost (8) (11)
Unrecognized net obligation being
recognized over 15 years (280) (325)
Adjustment required to recognize
minimum liability 2 135
-------- --------
Pension liability included in
"Other liabilities" at end of year $ 1,288 $ 1,430
======== ========
</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
1997 1996
---- ----
<S> <C> <C>
Union Centra
Assumptions used to determine the
status of the plans were:
Discount rate 7.25% 7.25%
Rate of increase in future
compensation levels 4.25% 4.25%
Expected long-term rate of
return on assets 8.50% 8.50%
<CAPTION>
Manhattan Life
1997 1996
---- ----
<S> <C> <C>
Assumptions used to determine the
status of the plans were:
Discount rate 7.25% 7.25%
Rate of increase in future
compensation levels 4.25% 4.25%
Expected long-term rate of
return on assets 8.50% 8.50%
</TABLE>
Plan assets are primarily composed of mutual funds, unallocated
insurance funds, and guaranteed interest contracts. At December
31, 1997 and 1996, Union Central's pension plans invested
$44,391,000 and $37,261,000, 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
$1,280,000 and $1,199,000 for 1997 and 1996, respectively. The
value of the Plans' assets were $52,519,000 and $44,240,000 at
December 31, 1997 and 1996, 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, 1997 and 1996,
$20,435,000 and $17,632,000, 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, 1997 and 1996 totalled $19,607,000 and $19,294,000,
respectively.
The following table presents the plan's funded status reconciled
with amounts recognized in the Company's Balance Sheets:
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Plan Assets $ 6,836 $ 6,934
Accumulated postretirement
benefit obligation:
Retirees 12,242 12,610
Fully eligible active plan participants 3,511 2,541
Other active plan participants 3,854 4,143
------- -------
Accumulated postretirement benefit
obligation in excess of
plan assets 12,771 12,360
Unrecognized net gain
from past experience (3,996) (4,172)
Other 336 --
------- -------
Accrued postretirement benefit cost
included in "Other liabilities" $16,431 $16,532
======= =======
</TABLE>
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Service cost $ 427 $ 393
Interest cost 1,350 1,375
Expected (gain) loss on assets 101 (1,279)
Net amortization and deferral (799) 738
------- -------
Net periodic postretirement benefit
cost included in "Underwriting,
acquisition, and insurance expense" $ 1,079 $ 1,227
======= =======
</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 Company's postretirement benefit
obligation as of December 31, 1997 by $188,000 and the interest
cost and estimated eligibility cost components of the net
periodic postretirement benefit cost by $13,000 and less than
$1,000, respectively.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% at
December 31, 1997 and 1996.
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 available-for-sale at
fair value" in 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 are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(in thousands)
<S> <C> <C> <C> <C>
Mortgage loans $745,833 $783,165 $665,575 $702,843
======== ======== ======== ========
</TABLE>
The carrying amounts and fair values of the Company's
liabilities for investment-type insurance contracts are as
follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Group annuities $ 809,990 $ 807,137 $ 871,481 $ 867,562
Single premium
deferred annuities 354,318 351,494 359,469 355,074
Single premium
immediate annuities 25,864 27,576 28,910 31,557
Variable annuities 175,197 172,917 167,336 165,103
Supplementary contracts 56,472 58,157 58,989 59,330
Traditional annuities 24,181 24,465 20,414 20,636
Guaranteed interest
contracts 17,199 17,077 17,138 17,120
Flexible annuities 32,891 31,592 -- --
Other 7,193 7,193 5,989 5,989
---------- ---------- ---------- ----------
Total $1,503,305 $1,497,608 $1,529,726 $1,522,371
========== ========== ========== ==========
</TABLE>
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,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Balance as of January 1 $ 141,508 $ 132,670
Incurred related to:
Current year 138,719 143,216
Prior years 6,027 7,237
--------- ---------
Total incurred 144,746 150,453
--------- ---------
Paid related to :
Current year 94,462 103,245
Prior years 37,677 38,370
--------- ---------
Total paid 132,139 141,615
--------- ---------
Balance as of December 31 $ 154,115 $ 141,508
========= =========
</TABLE>
The balance in the liability for unpaid claims and claim
adjustment expenses is included in "Future policy benefits" and
"Policy and contract claims" in the Balance Sheets.
As a result of changes in estimates of insured events in prior
years, the provision of claims and claim adjustment expenses
increased by $6,027,000 and $7,237,000 in 1997 and 1996,
respectively, due to lower than expected rates of claim
terminations. Included in the above balances are reinsurance
recoverables of $986,000 and $1,287,000 at 1997 and 1996,
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 $4,100,000 and $637,000 was
incurred in 1997 and 1996, respectively, and was recorded as a
reduction of "Net investment income" in the Statements of
Income. 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. In 1997,
$25,000 of issuance cost was amortized to "Underwriting,
acquisition and insurance expense" in the Statements of Income.
Additionally, the Notes have an original issue discount of
$260,000, which is deducted from the balance of the Notes.
Issuance costs and original issue discount will be amortized
under the straight-line method over the term of the Notes. In
1997, $9,000 of amortization relating to original issue discount
was recorded in "Underwriting, acquisition and insurance
expense" in the Statements of Income.
NOTE 14 - IMPACT OF YEAR 2000 (UNAUDITED)
Some of the Company's computer programs were written using two
digits rather than four to define the applicable year. As a
result, those computer programs have software that may recognize
a date using "00" as the year 1900 rather than the year 2000.
Computer software incorrectly recognizing a date would cause the
Company's computing environment to not function as expected.
Among the results could be miscalculations causing disruptions
of operations.
A comprehensive assessment of the Company's Year 2000 sensitive
software has been performed and the primary risks and required
software modifications have been identified. The Company will
both modify existing software, and install new software, in time
to ensure the Year 2000 problem does not impact its operations.
<PAGE>
CARILLON FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
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, 1998, 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 .................................................. 9
Lending Portfolio Securities ............................. 13
Investment Restrictions .................................. 13
Portfolio Turnover ....................................... 16
Management of the Fund (14)............................... 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 (16)..................... 24
Purchase and Redemption of Shares (16) ................... 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 5-98<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, S&P 500 Index ("Index Portfolio")
and Micro-Cap 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 10% 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, or by purchase of
SPDRs 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 57.03% and 52.53%, respectively, for 1997 and 1996. The
annual Portfolio turnover rates for the Bond Portfolio were
113.41% and 202.44%, respectively, for 1997 and 1996. The
annual Portfolio turnover rates for the Capital Portfolio were
60.84% and 53.11%, respectively, for 1997 and 1996. The annual
Portfolio turnover rates for the S&P 500 Index Portfolio were
9.06% and 1.09%, respectively for 1997 and 1996. The annual
Portfolio turnover rate for the Micro-Cap Portfolio is expected
to be approximately 50%.
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 Surgery,
3021 Erie Avenue University of Cincinnati
Cincinnati, Ohio 45208
(Age 64)
George L. Clucas* Director, Senior Vice President, Union
(54) President and Central; Director, President
Chief Executive and Chief Executive Officer,
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
(71)
James M. Ewell Director Retired Senior Vice President
9000 Indian Ridge Road and Director, The Procter and
Cincinnati, Ohio 45243 Gamble Company
(82)
Richard H. Finan Director Attorney at Law; President
11137 Main Street of the Ohio State Senate
Cincinnati, Ohio 45241
(63)
Jean Patrice Director Former Interim President,
Harrington, S.C. Cincinnati State Technical and
3217 Whitfield Avenue Community College; Former
Cincinnati, Ohio 45220 Executive Director, Cincinnati
(75) Youth Collaborative; President
Emeritus (formerly, President)
College of Mount St. Joseph
John H. Jacobs* Director Executive Vice President,
(51) Union Central; prior to June,
1995, Officer and employee,
Union Central
Charles W. McMahon Director Retired Senior Vice President
2031 W. Galbraith Rd #E and Director, Union Central
Cincinnati, Ohio 45239
(78)
Harry Rossi* Director Director Emeritus, Union
8548 Wyoming Club Drive Central; Director, Adviser;
Cincinnati, Ohio 45215 former Chairman, President and
(78) Chief Executive Officer, Union
Central
Stephen R. Hatcher Senior Vice Executive Vice President and
(55) President Chief Financial Officer, Union
Central; prior to June, 1995,
Officer and employee, Union
Central
John F. Labmeier Vice President Second Vice President,
(49) and Secretary Associate General Counsel and
Assistant Secretary, Union
Central; Vice President and
Secretary, CII; Secretary,
Adviser
Thomas G. Knipper Controller Assistant Controller, Union
(40) Central; prior to July, 1995,
Treasurer of The Gateway Trust
and Vice President and
Controller of Gateway Advisers,
Inc.
Michael C. Peppers Treasurer Assistant Controller, Union
(46) Central
John M. Lucas Assistant Counsel and Assistant to
(47) Secretary 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 1997 were $49,876.
<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, 1997, the total
amount deferred, including interest, was as follows: Dr. Callard
- - $73,236; Mr. McMahon - $26,555.
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.
The Adviser will also pay any expenses of the Micro-Cap
Portfolio, other than the advisory fee for that Portfolio, to the
extent that such expenses exceed 1.00% 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 Micro-Cap
Year Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
1997 $1,731,351 $427,729 $1,058,086 $129,253 -0-
1996 $1,436,998 $384,084 $1,032,861 $ 8,233 N/A
1995 $1,108,596 $314,237 $ 913,378 -0- 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 20, 1998 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.
On June 16, 1997, the Board of Directors took steps to
activate the Micro-Cap Portfolio of the Fund by authorizing the
issuance of shares of that Portfolio. On September 18, 1997,
the Board of Directors also approved an amendment to the
Investment Advisory Agreement making the Agreement applicable to
the Micro-Cap Portfolio and specifying 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 Micro-Cap
Portfolio shares and that therefore only the holders of Micro-
Cap Portfolio shares were entitled to vote on the amendment.
The sole shareholder of the Micro-Cap Portfolio approved the
Agreement on December 10, 1997.
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, .10% of the average net assets of
the Micro-Cap Portfolio, 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. The sole shareholder of
the Micro-Cap Portfolio approved the Service Agreement on
December 10, 1997.
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 1997, 29% of the Fund's total brokerage was allocated
to brokers who furnish statistical data or research
information. Brokerage commissions paid during 1997, 1996 and
1995 were $587,069, $475,382 and $349,679, respectively.
GENERAL INFORMATION
Capital Stock
The Fund was incorporated in Maryland on January 30, 1984.
The authorized capital stock of the Fund consists of one hundred
and fifty million shares of common stock, par value ten cents
($0.10) per share. The shares of the authorized capital stock
are currently divided into the following classes: Equity
Portfolio consisting of forty million authorized shares; Capital
Portfolio consisting of thirty million authorized shares; Bond
Portfolio consisting of thirty million authorized shares; S&P
500 Index Portfolio consisting of thirty million authorized
shares; and Micro-Cap Portfolio consisting of twenty million
shares.
The Board of Directors may 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
YEAR ENDED DECEMBER 31, 1997
<PAGE>
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, including the schedules of investments, of Carillon
Fund, Inc., consisting of the Equity Portfolio, Capital
Portfolio, Bond Portfolio and the S&P 500 Index Portfolio, as of
December 31, 1997, and the related statements of operations for
the year then ended, the statements of changes in net assets for
the years ended December 31, 1997 and December 31, 1996,
respectively, and financial highlights for the periods ended
December 31, 1997, 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, 1997, by correspondence with the Funds' 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 Funds
as of December 31, 1997, the results of their operations for the
year then ended, and the changes in their net assets and the
financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Dayton, Ohio
February 12, 1998
<PAGE>
CARILLON FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
S&P 500
Equity Capital Bond Index
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities,
at value $330,299,046 $150,965,858 $98,239,839 $ 55,687,719
(cost $259,127,836;
$142,221,876; $94,380,244;
$43,705,163)
Cash ---- ---- ---- 37
Receivables:
Shares sold 277,598 58,316 93,459 214,644
Securities sold 6,147,350 1,005,213 ---- ----
Interest and Dividends 867,946 1,227,520 1,711,336 71,300
Prepaid expenses and other 25,213 14,032 7,211 3,151
------------ ------------ ----------- ------------
337,617,153 153,270,939 100,051,845 55,976,851
------------ ------------ ----------- ------------
LIABILITIES
Payables:
Investment securities
purchased 1,796,837 4,320,618 ---- 338,866
Open forward currency
contracts ---- 1,256 ---- ----
Shares redeemed ---- 2,921 58 1,808
Investment advisory fees 155,869 86,691 39,744 11,686
Custodial and portfolio
accounting fees 20,513 16,066 10,354 7,541
Professional fees 10,223 10,404 9,784 10,888
Bank overdraft 2,500 ---- ---- ----
Variation margin ---- ---- ---- 350
Other accrued expenses 3,751 3,113 2,156 11,043
Deferred compensation
for directors ---- ---- 97,653 ----
------------ ------------ ----------- ------------
1,989,638 4,441,069 159,749 382,182
------------ ------------ ----------- ------------
NET ASSETS
<PAGE>
Paid-in capital 220,719,673 132,294,897 94,656,867 41,736,548
Undistributed net
investment income 231,700 541,406 264,047 39,665
Accumulated net realized
gain/(loss) of 43,504,877 7,249,585 1,111,587 1,788,399
investments and
futures contracts
Net unrealized
appreciation on 71,171,210 8,743,982 3,859,595 12,030,057
investments and ------------ ------------ ----------- ------------
futures contracts
$335,627,460 $148,829,870 $99,892,096 $55,594,669
------------ ------------ ----------- ------------
Shares authorized
($.10) par value 40,000,000 30,000,000 30,000,000 30,000,000
Shares outstanding 16,490,901 10,558,921 8,851,441 3,530,958
Net asset value,
offering and
redemption price $20.35 $14.10 $11.29 $15.74
per share
</TABLE>
The accompanying notes are an integral part of the
financial statement.
<PAGE>
CARILLON FUND, INC.
STATEMENTS OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
S&P 500
Equity Capital Bond Index
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,523,662 $ 6,383,812 $ 6,944,771 $ 148,819
Dividends (net of
foreign withholding
taxes of $69,671;
$25,812; $0; $4,344) 4,247,554 1,428,148 --- 705,234
----------- ----------- ----------- -----------
5,771,216 7,811,960 6,944,771 854,053
----------- ----------- ----------- -----------
EXPENSES
Investment advisory fees 1,731,351 1,058,086 427,729 129,253
Custodial fees and
expenses 78,173 42,679 24,972 14,854
Portfolio accounting fees 52,484 46,068 38,753 29,379
Professional fees 12,941 12,858 13,739 16,352
Director's fees 12,361 12,361 11,938 12,676
Transfer agent fees 8,151 8,330 8,214 7,071
Registration and
filing fees 1,744 --- --- 2,189
Other 33,627 21,658 14,115 2,210
----------- ----------- ----------- -----------
1,930,832 1,202,040 539,460 213,984
----------- ----------- ----------- -----------
NET INVESTMENT INCOME 3,840,384 6,609,920 6,405,311 640,069
----------- ----------- ----------- -----------
REALIZED AND
UNREALIZED GAIN/(LOSS)
Net realized gain
on investments 43,526,118 7,443,577 1,127,264 1,063,996
Net realized gain
on futures contracts --- --- --- 775,950
----------- ----------- ----------- -----------
43,526,118 7,443,577 1,127,264 1,839,946
Net change in unrealized
appreciation/(depreciation)
of investments and
translation of assets and
liabilities in foreign
currencies 10,788,049 (2,869,048) 1,821,402 9,001,133
Net change in unrealized
appreciation/
(depreciation) of
investments and
futures contracts
and translation on
assets and liabilities
in foreign currencies --- --- --- (1,950)
----------- ----------- ----------- -----------
10,788,049 (2,869,048) 1,821,402 8,999,183
----------- ----------- ----------- -----------
NET REALIZED AND
UNREALIZED GAIN/(LOSS) 54,314,167 4,574,529 2,948,666 10,839,129
NET INCREASE IN
NET ASSETS
FROM OPERATIONS $58,154,551 $11,184,449 $ 9,353,977 $11,479,198
=========== =========== =========== ===========
</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
Year Ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income $ 3,840,384 $ 4,176,431
Net realized gain on
investments and futures 43,526,118 34,227,538
Net change in unrealized
appreciation/(depreciation)
on investments 10,788,049 17,468,047
------------ ------------
58,154,551 55,872,016
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (4,343,382) (3,889,965)
In excess of net investment income ----
Net realized gain on investments (34,344,113) (9,867,342)
------------ ------------
(38,687,495) (13,757,307)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from shares sold 27,675,023 41,762,282
Reinvestment of distributions 38,687,495 13,757,307
Payments for shares redeemed (38,325,837) (29,073,822)
------------ ------------
28,036,681 26,445,767
------------ ------------
NET INCREASE IN NET ASSETS 47,503,737 68,560,476
NET ASSETS
Beginning of year 288,123,723 219,563,247
------------ ------------
End of year $335,627,460 $288,123,723
============ ============
FUND SHARE TRANSACTIONS
Sold 1,441,326 2,393,015
Reinvestment of distributions 2,276,903 809,878
Redeemed (2,041,013) (1,660,244)
------------ ------------
Net increase from fund
share transactions 1,677,216 1,542,649
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON FUND, INC.
TATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Capital Portfolio
Year Ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income $ 6,609,920 $ 6,684,340
Net realized gain on
investments and futures 7,443,577 12,459,745
Net change in unrealized
appreciation/(depreciation) on
investments and futures contracts,
and translation of assets and
liabilities in foreign currencies (2,869,048) 1,990,613
------------ ------------
11,184,449 21,134,698
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (7,176,810) (6,050,397)
In excess of net investment income ----
Net realized gain on investments (12,519,532) (2,002,549)
------------ ------------
(19,696,342) (8,052,946)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from shares sold 12,291,701 17,130,822
Reinvestment of distributions 19,696,342 8,052,945
Payments for shares redeemed (33,940,166) (24,594,141)
------------ ------------
(1,952,123) 589,626
------------ ------------
NET INCREASE/(DECREASE)IN NET ASSETS (10,464,016) 13,671,378
NET ASSETS
Beginning of year 159,293,886 145,622,508
------------ ------------
End of year $148,829,870 $159,293,886
============ ============
FUND SHARE TRANSACTIONS
Sold 867,273 1,199,385
Reinvestment of distributions 1,450,496 570,034
Redeemed (2,414,218) (1,729,493)
Net increase/(decrease) from fund
share transactions (96,449) 39,926
============ ============
</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
Year Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income $ 6,405,311 $ 5,766,633
Net realized gain/(loss)
on investments and futures 1,127,264 1,210,173
Net change in unrealized
appreciation/(depreciation) on
investments and futures contracts 1,821,402 (1,316,722)
----------- -----------
9,353,977 5,660,084
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (5,860,151) (6,340,623)
In excess of net investment income (320,260)
Net realized gain on investments (481,254) ---
----------- -----------
(6,341,405) (6,660,883)
----------- -----------
FUND SHARE TRANSACTIONS
Proceeds from shares sold 19,937,289 17,850,341
Reinvestment of distributions 6,341,405 6,660,883
Payments for shares redeemed (15,033,299) (11,443,995)
----------- -----------
11,245,395 13,067,229
----------- -----------
NET INCREASE IN NET ASSETS 14,257,967 12,066,430
NET ASSETS
Beginning of year 85,634,129 73,567,699
----------- -----------
End of year $99,892,096 $85,634,129
=========== ===========
FUND SHARE TRANSACTIONS
Sold 1,786,820 1,633,803
Reinvestment of distributions 575,269 621,662
Redeemed (1,358,088) (1,054,560)
----------- -----------
Net increase from fund
share transactions 1,004,001 1,200,905
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
S&P 500 Index Portfolio
Year Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income $ 640,069 $ 349,515
Net realized gain on
investments and futures 1,839,946 218,750
Net change in unrealized
appreciation/(depreciation) on
investments and futures contracts 8,999,183 3,030,849
----------- -----------
11,479,198 3,599,114
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (642,656) (307,386)
Net realized gain on investments (270,297) ----
----------- -----------
(912,953) (307,386)
----------- -----------
FUND SHARE TRANSACTIONS
Proceeds from shares sold 35,592,857 30,917,430
Reinvestment of distributions 912,953 307,386
Payments for shares redeemed (20,681,996) (5,617,082)
----------- -----------
15,823,814 25,607,734
----------- -----------
NET INCREASE IN NET ASSETS 26,390,059 28,899,462
NET ASSETS
Beginning of year 29,204,610 305,148
----------- -----------
End of year $55,594,669 $29,204,610
=========== ===========
FUND SHARE TRANSACTIONS
Sold 2,463,755 2,850,416
Reinvestment of distributions 66,017 26,989
Redeemed (1,406,317) (500,402)
----------- -----------
Net increase from fund
share transactions 1,123,455 2 ,377,003
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
COMMON STOCKS - 90.63% SHARES/
PRINCIPAL VALUE
--------- ------------
<S> <C> <C>
BANKING & FINANCIAL SERVICE - 12.20%
Allied Capital Corporation $ 30,571 $ 680,204
Banco BHIF ADR 123,000 1,968,000
Banco Frances del Rio de la Plata S.A. ADR 86,000 2,354,250
Banco Latinoamericano
De Exportaciones Sponsored ADR 27,000 1,117,125
BankUnited Financial Corporation* 140,000 2,156,875
Charter One Financial, Incorporated 55,125 3,479,766
Chile Fund Incorporated 100,000 1,781,250
Czech Republic Fund 109,000 1,308,000
Deutsche Bank AG Sponsored ADR 42,000 2,966,556
Duff & Phelps Credit Rating Company 65,000 2,640,625
FPIC Insurance Group Incorporated* 172,500 5,024,063
Fahnestock Viner Holdings CL-A 150,000 2,615,625
First Bell Bancorp Incorporated 100,000 1,900,000
Hamilton Bancorp Incorporated 100,000 2,912,500
Jefferies Group, Incorporated 100,000 4,093,750
Raymond James Financial Corporation 99,150 3,935,016
------------
40,933,605
------------
CAPITAL GOODS - 4.38%
AGCO Corporation 59,400 1,737,450
DT Industries, Incorporated 50,000 1,700,000
Lindsay Manufacturing Company 151,793 6,584,021
LSI Industries 100,000 1,825,000
Omniquip International, Incorporated 143,000 2,851,063
------------
14,697,534
------------
CONSUMER CYCLICAL - 12.98%
Breed Technologies, Incorporated 63,000 1,149,750
CPAC, Incorporated 200,000 2,050,000
Cemex SA - Spons ADR "B" 200,000 2,123,578
Claire's Stores Incorporated 50,000 971,875
D.R. Horton Incorporated 150,000 2,606,250
Footstar Incorporated* 85,000 2,284,375
Griffon Corporation* 209,600 3,065,400
Kevco Incorporated* 140,000 2,310,000
Maxwell Shoe Company Incorporated - A* 167,500 1,800,625
NCI Building Systems, Incorporated* 80,700 2,864,850
Quaker Fabric Corporation* 100,000 1,962,500
Schult Homes 98,060 2,034,745
Southern Energy Home* 217,000 1,736,000
Stanley Furniture Company 91,900 2,561,713
Strattec Security Corporation* 145,000 3,697,500
Supreme International Corporation* 162,500 2,031,250
Tarrant Apparel Group* 140,000 2,187,500
Toll Brothers* 90,000 2,407,500
Winsloew Furniture, Incorporated* 188,300 2,730,350
VISX, Incorporated* 45,000 995,625
------------
43,571,386
------------
CONSUMER NON-DURABLE - 8.95%
Charoen Pok Feedmill ADR 100,000 706,140
Complete Management Incorporated* 175,000 2,450,000
Dairy Farm International
Holdings Sponsored ADR 200,000 1,079,995
Equity Marketing Incorporated* 105,500 2,637,500
GT Bicycles, Incorporated* 175,000 1,039,061
Gymboree Corporation* 75,000 2,053,125
ICN Pharmaceuticals, Incorporated 106,600 5,203,413
IHOP Corporation* 55,000 1,787,500
Lone Star Steakhouse* 95,000 1,662,500
Lunar Corporation* 100,000 2,050,000
National Health Investors, Incorporated 40,000 1,675,000
Orthofix International N.V. 125,536 1,475,048
Schlotzsky's, Incorporated* 156,900 2,294,663
Scientific Games Holdings Corporation* 72,600 1,470,150
Young Innovations, Incorporated* 136,000 2,448,000
------------
30,032,095
------------
ENERGY - 14.40%
Basin Exploration Incorporated* 60,000 1,065,000
Bayard Drilling Technologies* 125,000 2,031,250
Callon Petroleum Company* 140,000 2,279,375
Cross Timbers Oil Company 105,000 2,618,437
Domain Energy Corporation* 175,000 2,756,250
Giant Industries, Incorporated 205,000 3,895,000
Global Industries, Incorporated* 100,000 1,700,000
Gulf Island Fabrication, Incorporated 103,000 2,060,000
KCS Energy Incorporated 104,000 2,158,000
Marine Drilling Company, Incorporated* 110,000 2,282,500
Maverick Tube Corporation 45,000 1,111,563
Offshore Logistics Incorporated* 120,000 2,565,000
OYO Geospace Corporation* 20,000 377,500
Parker Drilling Company* 120,000 1,462,500
Plains Resources, Incorporated* 119,500 2,053,906
Pride International Incorporated 80,000 2,020,000
Southern Mineral Corporation* 350,000 1,925,000
St. Mary Land & Exploration 20,000 700,000
Stone Energy Corporation* 63,000 2,110,500
Unifab International Incorporated* 155,000 2,983,750
Vastar Resources Incorporated* 50,000 1,787,500
YPF S.A. Sponsored ADR 145,400 4,970,863
Zeigler Coal Holding Company 87,000 1,419,188
------------
48,333,082
------------
MANUFACTURING - 14.17%
AEP Industries, Incorporated* 3,950 121,956
BWAY Corporation* 165,000 3,774,375
Bayer A G Sponsored ADR* 75,000 2,803,043
Buckeye Technologies Incorporated* 51,000 2,358,750
Carbide Graphite Group Incorporated* 130,000 4,387,500
Elamex SA De CV 100,600 754,500
Fibermark, Incorporated* 115,000 2,472,500
Giant Cement Holding Incorporated* 58,500 1,352,813
Greif Brothers Corporation 82,800 2,773,800
Intermet Corporation 125,000 2,187,500
Matthews International Corporation 77,000 3,388,000
Medusa Corporation 80,300 3,357,544
Minorco Sponsored ADR 90,000 1,507,500
Mueller Industries* 50,000 2,950,000
Northwest Pipe Company* 125,800 3,019,200
Sybron Chemicals, Incorporated* 65,200 2,184,200
Tubos De Acero De Mex SA* 50,000 1,081,250
Triangle Pacific Corporation* 92,500 3,133,438
York Group, Incorporated 162,000 3,948,750
------------
47,556,619
------------
REAL ESTATE - 10.95%
Associated Estates Realty Corporation 105,000 2,487,188
City Developments Limited ADR 250,000 1,157,298
Commercial Net Lease Realty 99,300 1,774,988
Equity Residential Properties Trust 46,000 2,325,875
Healthcare Realty Trust 96,400 2,789,575
Health & Retirement Property Trust 75,000 1,500,000
Hospitality Properties Trust 64,000 2,104,000
IRT Property Company 82,000 968,625
Lexington Corporation Property 100,000 1,543,750
Merry Land & Investment Company 115,000 2,630,625
Mid-America Apartment Communities 80,000 2,285,000
Oasis Residential Incorporated 58,000 1,294,125
Omega Healthcare Investors, Incorporated 30,000 1,158,750
Pacific Gulf Properties 74,000 1,757,500
Parkway Properties Incorporated 42,000 1,441,125
RFS Hotel Investors Incorporated 90,000 1,794,375
Trinet Corporate Realty Trust Incorporated 80,000 3,095,000
United Dominion Realty Trust Incorporated 168,000 2,341,500
Winston Hotels, Incorporated 175,000 2,296,875
------------
36,746,174
------------
SERVICE - 1.00%
Devon Group, Incorporated* 73,000 3,358,000
TECHNOLOGY - 6.43%
AFC Cable Systems Incorporated* 125,000 3,718,750
Axiohm Technology* 11,438 194,446
Cybex Corporation* 160,000 3,920,000
Nam Tai Electronics, Incorporated 250,000 3,734,375
Performance Technologies Incorporated* 115,500 1,674,750
Recoton Corporation* 163,000 2,200,500
Vertex Communications Corporation* 80,000 1,930,000
Vtech Holdings Limited 142,900 4,214,178
------------
21,586,999
------------
TRANSPORTATION - 5.17%
ASA Holdings Incorporated 48,000 1,365,000
Comair Holdings Incorporated 187,500 4,523,438
Illinois Central Corporation CL A 82,500 2,810,156
Landstar, Incorporated* 90,000 2,373,750
Midwest Express Holdings* 97,500 3,784,219
Trico Marine Services* 85,000 2,496,875
------------
17,353,438
------------
Total Common Stocks (cost $ 232,995,606) 304,168,932
------------
SHORT-TERM INVESTMENTS - 7.78%
<CAPTION>
PRINCIPAL VALUE
--------- -----
<S> <C> <C>
VARIABLE RATE DEMAND NOTES<FN1> - 1.07%
American Family (5.639% due 01/01/98) 502,036 $ 502,036
General Mills (5.327% due 01/01/98) 353,000 353,000
Johnson Controls (5.327% due 01/01/98) 608,058 608,058
Pitney Bowes (5.327% due 01/01/98) 408,068 408,068
Sara Lee (5.322% due 01/01/98) 985,783 985,783
Warner Lambert (5.489 due 01/01/98) 581,180 581,180
Wisconsin Electric (5.487% due 01/01/98) 161,892 161,892
------------
3,600,017
------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 1.56%
(5.800% due 06/12/98) 1,500,000 $ 1,500,676
(5.760% due 07/08/98) 3,740,000 3,740,710
------------
5,241,386
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION- .89%
(5.710% due 06/23/98) 3,000,000 3,000,339
------------
FEDERAL HOME LOAN BANK - 1.14%
(6.200% due 06/10/98) 1,100,000 1,102,363
(5.390% due 02/11/98) 1,500,000 1,490,792
5.135% due 03/02/98) 1,250,000 1,247,977
------------
3,841,132
------------
FEDERAL FARM CREDIT BANK - .60%
(5.750% due 07/01/98) 2,000,000 2,000,302
COMMERCIAL PAPER - 2.52%
CSX Corporation (5.950% due 02/06/98) 2,500,000 2,485,125
Du Pont E I De Nemours (5.500% due 04/02/98) 2,000,000 1,972,194
Ford Motor Credit (5.690% due 01/27/98) 2,000,000 1,991,781
Hertz Corporation (5.560% due 01/08/98) 2,000,000 1,997,838
------------
8,446,938
------------
Total Short-Term Investments
(cost $26,132,230) 26,130,114
------------
TOTAL INVESTMENTS - 98.41%
(cost $259,127,836) <FN2> 330,299,046
OTHER ASSETS AND LIABILITIES - 1.59% 5,328,414
------------
TOTAL NET ASSETS - 100% $335,627,460
============
____________
Non-income producing
(ADR) American Depository Receipt
<FN>
<FN1> 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, 1997.
<FN2> Represents cost for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at December 31, 1997 for
financial reporting purposes was $84,920,427 and $13,749,217.
</FN>
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
Carillon Fund, Inc.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
CAPITAL PORTFOLIO
COMMON STOCKS - 37.14% SHARES/
PRINCIPAL VALUE
--------- ------------
<S> <C> <C>
BANKING & FINANCIAL SERVICE - 9.27%
AFP Provida S.A.* $ 48,400 $ 825,825
Allied Capital Corporation 36,685 816,240
Banco BHIF ADR 73,000 1,168,000
Banco Frances del Rio de la Plata S.A. ADR 35,000 958,125
Chile Fund 55,000 979,688
Fahnestock Viner Holdings Class-A 70,000 1,220,625
FPIC Insurance Group Incorporated* 65,000 1,893,125
Hyperion 1999 Term Trust 300,000 2,081,250
Income Opportunity Fund 1999 100,000 956,250
Income Opportunity Fund 2000 88,500 851,813
New Germany Fund 81,597 1,101,560
Templeton Global Income Fund 125,000 937,500
------------
13,790,001
------------
CAPITAL GOOD - 2.17%
AGCO Corporation 37,000 1,082,250
Lindsay Manufacturing, Company 49,362 2,141,077
------------
3,223,327
------------
CONSUMER CYCLICAL - 1.86%
Griffon Corporation* 55,000 804,375
NCI Building Systems Incorporated* 35,000 1,242,500
Winsloew Furniture Incorporated* 49,800 722,100
------------
2,768,975
------------
CONSUMER NON-DURABLE - 2.38%
GT Bicycles Incorporated* 80,000 475,000
Complete Management, Incorporated* 57,000 798,000
ICN Pharmaceuticals, Incorporated 27,000 1,317,938
Gymboree Corporateion* 33,000 903,375
Orthofix International N.V.* 4,000 47,000
------------
3,541,313
------------
ENERGY - 6.33%
Basin Exploration Incorporated* 44,000 781,000
Callon Petroleum Company* 35,000 569,844
Cross Timbers Oil Company 27,450 684,534
Domain Energy Corporation* 48,000 756,000
Giant Industries Incorporated 87,400 1,660,600
Gulf Island Fabrication, Incorporated 40,000 800,000
Pride International Incorporated* 46,000 1,161,500
Unifab International Incorporated* 50,000 962,500
YPF S.A. Sponsored ADR 60,000 2,051,250
------------
9,427,228
------------
MANUFACTURING - 4.78%
AEP Industries, Incorporated* 6,331 195,470
Bway Corporation 61,800 1,413,675
Carbide Graphite Group* 40,000 1,350,000
De Beers Centenary AG ADR 32,000 654,000
Northwest Pipe Company* 74,600 1,790,400
Royal Oak Mines Incorporated* 125,000 195,313
York Group Incorporated 62,000 1,511,250
------------
7,110,108
------------
REAL ESTATE - 6.51%
Associated Estates Realty Corporation 50,000 1,184,375
City Developments Limited ADR 95,000 439,770
Equity Residential Properties Trust 19,500 985,964
Merry Land & Investment Company 60,000 1,372,500
Mid-America Apartment Communities 40,000 1,142,500
Pacific Gulf Properties 43,500 1,033,125
Trinet Corporate Realty Trust 32,000 1,238,000
United Dominion Realty Trust 75,000 1,045,313
Winston Hotels Incorporated 95,000 1,246,875
------------
9,688,422
------------
TECHNOLOGY - 2.82%
AFC Cable Systems, Incorporated 23,750 706,563
Axiohm Technology* 5,420 92,140
Cybex Corporation* 20,000 490,000
Nam Tai Electronics 57,333 856,412
Vertex Communications Corporation* 34,100 822,663
Vtech Holdings Limited 42,000 1,238,597
------------
4,206,375
------------
TRANSPORTATION - 1.01%
Trico Marine Services* 51,000 1,498,125
Total Common Stocks (cost $47,441,092) 55,253,874
------------
FOREIGN COMMON STOCK - 1.23%
NORWAY - .69%
Petrolia Drilling ASA* 200,000 1,025,476
------------
MALAYSIA - .54%
Bumi Armada Berhad* 500,000 319,857
Road Builder Holdings BHD* 748,000 480,500
------------
800,357
------------
Total Foreign Common Stock (cost $2,216,981) 1,825,833
------------
PREFERRED STOCK - .32%
MANUFACTURING - .32%
Freeport McMoRan Copper & Gold Series 20,000 480,000
------------
Total Preferred Stock (cost $ 709,838) 480,000
------------
U.S. TREASURY OBLIGATIONS - 15.42%
7.875% due 04/15/98 500,000 503,438
5.750% due 12/31/98 2,000,000 2,002,500
5.500% due 02/28/99 1,000,000 998,125
6.000% due 10/15/99 5,900,000 5,933,188
7.500% due 11/15/01 500,000 530,313
6.375% due 08/15/02 1,750,000 1,795,391
5.750% due 08/15/03 3,000,000 3,002,814
5.875% due 02/15/04 100,000 100,906
7.250% due 05/15/04 2,000,000 2,158,750
7.875% due 11/15/04 5,300,000 5,924,408
------------
Total U.S. Treasury Obligations ($22,139,588) 22,949,833
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 11.30%
FEDERAL HOME LOAN MORTGAGE CORPORATION- 3.43%
1662 H (6.250% due 01/15/09) 760,362 752,895
1442 FA (5.730% due 11/15/07) 1,000,000 994,474
1559 VP (5.500% due 02/15/20) 1,700,000 1,662,940
1399 PAC (7.000% due 09/15/22) 596,484 591,105
1631 SB (5.850% due 12/15/23) 1,450,000 1,102,520
------------
5,103,934
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION- 6.52%
Remic 93-12 ED
(7.500% due 02/25/06) 1,645,000 1,714,048
Remic 92-117 J
(7.500% due 07/25/20) 1,000,000 1,014,325
Remic 93-127 FA
(5.130% due 10/25/21) 1,000,000 962,832
Remic 92-66 F
(6.218% due 05/25/22) 804,241 808,434
Remic 1993-163 PN
(7.000% due 07/25/07) 1,500,000 1,548,003
Remic 92-112 E
(8.000% due 12/25/20) 1,500,000 1,551,392
Remic 93-119 SB
(6.807% due 07/25/23) 2,572,882 2,103,962
------------
9,702,996
------------
PRIVATE SECTOR - 1.35%
Prudential Home Mortgage Securities
(7.500% due 07/25/10) 493,830 501,702
SLMA Med Term Note (5.850% due 06/10/98) 1,500,000 1,502,277
------------
2,003,979
------------
Total Collateralized Mortgage Obligations
(cost $16,455,259) 16,810,909
------------
MORTGAGE-BACKED SECURITIES - 2.95%
FEDERAL HOME LOAN MORTGAGE CORPORATION - .75%
7.500% due 06/01/07 36,785 37,203
9.500% due 10/01/08 182,147 193,299
8.250% due 03/01/12 93,943 96,931
8.500% due 03/01/16 88,054 92,128
7.500% due 07/01/17 32,324 33,028
11.000% due 04/01/19 41,157 46,374
11.000% due 11/01/19 52,944 59,656
11.000% due 05/01/20 173,444 195,336
11.000% due 06/01/20 326,695 368,287
------------
1,122,242
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -1.91%
10.00% due 02/01/04 2,064 2,197
9.500% due 09/01/05 116,671 122,113
9.000% due 11/01/05 36,130 37,706
7.500% due 03/25/07 1,200,000 1,241,510
8.000% due 05/01/07 116,876 120,950
5.500% due 01/01/09 799,034 776,302
5.500% due 04/01/09 554,612 537,769
------------
2,838,547
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - .29%
9.000% due 11/15/16 88,798 97,055
10.500% due 11/20/19 200,083 218,882
9.000% due 12/15/19 100,639 109,626
------------
425,563
------------
Total Mortgage-Backed Securities
(cost $4,227,599) 4,386,352
------------
CORPORATE BONDS AND NOTES - 9.83%
COMMUNICATIONS AND MEDIA - 1.70%
Lowen Group International, Inc.
(8.2500% due 04/15/03) 900,000 953,221
MCI Communications Corp. Sr. Notes
(7.500% due 08/20/04) 1,500,000 1,573,770
------------
2,526,991
------------
FINANCE COMPANY - .95%
Hutchison Whampoa (6.950% due 08/01/07) 1,500,000 1,413,390
REAL ESTATE - .35%
GE Capital Mortgage Services, Inc.
(6.000% due 08/25/09) 534,970 515,188
FINANCIAL SERVICES - .85%
Indah Kiat Sr. Notes (10.000% due 07/01/07) 1,500,000 1,260,000
ELECTRIC - .81%
New Orleans Public Service Notes
(8.670% due 04/01/05) 1,200,000 1,211,940
MISCELLANEOUS - 3.31%
Enersis (6.600% due 12/01/26) 1,500,000 1,521,043
Gulf Canada Res (8.350% due 08/01/06) 1,500,000 1,658,242
News American Holdings (8.500% due 02/15/05) 1,600,000 1,753,409
------------
4,932,694
------------
STEELS AND METALS - 1.12%
Pohang Iron & Steel Notes
(7.125% due 11/01/06) 2,250,000 1,662,435
TELECOMMUNICATION - .74%
TCI Communications Incorporated
(8.650% due 09/15/04) 1,000,000 1,098,802
------------
Total Corporate Bonds and Notes
(cost $ 14,464,404) 14,621,440
------------
SHORT-TERM INVESTMENTS - 23.26%
COMMERCIAL PAPER - 7.43%
Ford Motor Credit Corporation
(5.510% due 01/30/98) 1,000,000 995,561
Du Pont E I De Nemours
(5.500% due 03/03/98) 2,000,000 1,981,361
Du Pont E I De Nemours
(5.470% due 06/04/98) 1,500,000 1,464,901
General Electric Capital
( 5.510% due 04/03/98) 2,000,000 1,971,838
Lockheed Martin Corporation
(5.810% due 02/23/98) 2,000,000 1,982,893
Tryon Mortgage Funding (6.350% due 05/20/01) 699,146 697,713
Walt Disney Company (5.430% due 04/13/98) 2,000,000 1,969,230
------------
11,063,497
------------
VARIABLE RATE DEMAND NOTES <FN1> - 3.47%
American Family Financial Services
(5.639% due 01/01/98) 2,593,144 2,593,144
General Mills (5.327% due 01/01/98) 150,238 150,238
Johnson Controls (5.327% due 01/01/98) 546,000 546,000
Pitney-Bowes (5.327% due 01/01/98) 70,159 70,159
Warner Lambert (5.489% due 01/01/98) 1,584,684 1,584,684
Wisconsin Electric Power Company
(5.487% due 01/01/98) 226,000 226,000
------------
5,170,225
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.02
(5.840% due 06/18/98) 1,500,000 1,501,015
(5.710% due 06/23/98) 3,000,000 3,000,339
------------
4,501,354
------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 1.54%
(5.885% due 05/29/98) 2,285,000 2,286,661
------------
FEDERAL HOME LOAN BANK - 7.80%
(5.720% due 06/23/98) 2,000,000 2,000,278
(5.390% due 02/11/98) 2,000,000 1,987,723
(5.135% due 03/02/98) 1,500,000 1,497,573
(6.015% due 06/05/98) 2,000,000 2,002,610
(6.010% due 05/15/98) 2,000,000 2,002,162
(5.580% due 03/18/98) 2,150,000 2,125,534
------------
11,615,880
------------
Total Short-Term Investments
(cost $34,638,561) 34,637,617
------------
TOTAL INVESTMENTS - 101.45%
(cost $142,221,878)<FN2> 150,965,858
------------
OTHER ASSETS AND LIABILITIES - (1.45%) (2,135,988)
TOTAL NET ASSETS - 100% $148,829,870
___________________
*Non-Income producing
(ADR) American Depository Receipt
<CAPTION>
Open Foward Currency Contracts
U.S.
Dollar Unrealized
<S> Contract Contract Appreciation Delivery
Price Value (Depreciation) Date
-------- -------- -------------- --------
<S> <C> <C> <C> <C>
Liabilities
Malaysian Ringgit (buy) 3.7023 $34,344 $ (1,531) 01/02/98
Malaysian Ringgit (buy) 3.9500 $14,202 275 01/08/98
------- --------
$48,546 $ (1,256)
======= ========
<FN>
<FN1> Interest rates vary periodically based on current market rates.
Rates shown are as of December 31, 1997. 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 shown is as of December 31, 1997.
<FN2> Represents cost for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at December 31, 1997 for
financial reporting purposes was $12,576,088 and $3,832,106 respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1997
BOND PORTFOLIO
<TABLE>
<CAPTION>
U.S. TREASURY OBLIGATIONS - 30.69% SHARES/
PRINCIPAL VALUE
---------- -----------
<S> <C> <C>
U.S. TREASURY BOND - 2.00%
6.000% due 02/15/26 $2,000,000 $ 1,997,500
-----------
U.S. TREASURY NOTES - 24.26%
6.000% due 10/15/99 4,000,000 4,022,500
6.750% due 04/30/00 2,000,000 2,045,626
7.750% due 02/15/01 2,500,000 2,645,312
5.625% due 02/28/01 2,000,000 1,996,250
5.875% due 11/15/05 5,000,000 5,026,564
7.000% due 07/15/06 5,000,000 5,398,439
6.250% due 02/15/07 3,000,000 3,096,564
-----------
24,231,255
-----------
U.S. TREASURY STRIPS - 4.43%
0.000% due 02/15/00 3,250,000 2,885,610
0.000% due 08/15/02 2,000,000 1,539,900
-----------
4,425,510
-----------
Total U.S. Treasury Obligations
(cost $29,576,632) 30,654,265
-----------
MORTGAGE-BACKED SECURITIES - 2.53%
FEDERAL HOME LOAN MORTGAGE CORPORATION - .80%
7.500% due 02/01/02 32,205 32,960
9.500% due 04/01/05 62,862 66,162
7.500% due 06/01/07 80,959 81,879
11.000% due 05/01/10 8,956 9,921
12.500% due 08/01/10 15,184 17,300
8.000% due 11/01/16 45,606 47,130
9.500% due 02/01/18 75,034 79,957
6.500% due 07/01/23 463,769 460,644
-----------
795,953
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.59%
12.000% due 04/01/00 24,642 26,507
9.000% due 08/01/01 41,749 43,615
8.500% due 01/01/02 39,992 41,530
10.500% due 06/01/04 10,259 10,923
10.500% due 05/01/05 175,883 187,261
6.500% due 06/01/08 1,015,731 1,019,693
8.000% due 08/01/17 247,904 256,581
-----------
1,586,110
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - .14%
11.000% due 03/15/10 59,437 65,177
9.000% due 05/15/20 75,023 80,229
-----------
145,406
-----------
Total Mortgage-Backed Securities
(cost $2,454,904) 2,527,469
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 4.89%
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 3.19%
59-E (8.900% due 11/15/20) 1,054,610 1,104,963
106-G (8.250% due 12/15/20) 1,000,000 1,055,437
1770-B (8.250% due 01/15/24) 1,000,000 1,022,232
-----------
3,182,632
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - .18%
Remic 1988-30-D (9.500% due 12/25/18) 170,221 182,797
-----------
PRIVATE SECTOR - 1.52%
Securitized Asset Sales, Inc.1993-2 B2
(6.500% due 07/25/08) 286,716 283,044
CMC Securities Corp. 1993-E1E
(0.000% due 12/25/08) 355,703 274,617
Country Wide Mortgage-Backed Securities, Inc.
1994-8 B1 (6.000% due 03/01/09) 825,588 796,949
Capstead Mortgage Securities Corp. C-4
(10.950% due 02/01/14) 168,896 168,153
-----------
1,522,763
-----------
Total Collateralized Mortgage Obligations
(cost $5,516,151) 4,888,192
-----------
OTHER STRUCTURED SECURITIES - 6.25%
OTHER STRUCTURED - 6.25%
Chase Commercial Mortgage Sec.
(6.600% due 12/19/07) 2,609,885 2,488,369
Life Financial Home Loan Trust
(9.090% due 04/25/24) 2,000,000 2,017,500
NSCOR 1996-5 B1
(8.00% due 11/25/26) 1,648,468 1,735,013
-----------
Total Other Structured Securities
(cost $ 6,221,882) 6,240,882
-----------
CORPORATE BONDS AND NOTES - 49.70%
AIR TRANSPORTATION - 2.18%
Continental Airlines
(7.820% due 10/15/13) 980,392 1,047,245
NWA Trust No. 2 Class B
(10.230% due 06/21/14) 926,153 1,133,696
-----------
2,180,941
-----------
BANK & BANK HOLDING COMPANIES - 5.35%
Ahmanson Capital Trust
(8.360% due 12/01/26) 1,500,000 1,590,316
Nationsbank Corp. Notes
(7.625% due 04/15/05) 1,000,000 1,066,138
Svenska Handelsbanken
(7.125% due 03/07/07) 1,000,000 1,032,091
Zions Trust (8.536% due 12/15/26) 1,500,000 1,655,704
-----------
5,344,249
-----------
ENVIRONMENTAL SERVICES - 1.10%
Allied Waste North America
(10.250% due 12/01/06) 1,000,000 1,097,500
-----------
FINANCE COMPANIES - .80%
Arcadia Financial
(11.500% due 03/15/07) 800,000 808,000
-----------
FOOD, BEVERAGE, & TOBACCO - 2.60%
Great American Cookie Company
(10.875% due 01/15/01) 500,000 511,250
Nabisco Inc. (7.550% due 06/15/15) 1,000,000 1,062,078
RJR Nabisco, Inc. (7.625% due 09/15/03) 1,000,000 1,020,490
-----------
2,593,818
-----------
FOREIGN SOVEREIGN - 1.01%
Republic Of South Africa Notes
(8.375% due 10/17/06) 1,000,000 1,005,000
-----------
GAMING INDUSTRY - 4.08%
Alliance Gaming (10.000% due 08/01/07) 1,000,000 1,001,250
Argosy Gaming (13.2500% due 06/01/04) 1,000,000 1,045,000
Casino Magic of Louisiana
(13.000% due 08/15/03) 1,000,000 960,000
Empress River Casino Finance Corp.
(10.750% due 04/01/02) 1,000,000 1,075,000
-----------
4,081,250
-----------
GAS DISTRIBUTION - .90%
All Star Gas Corp. (7.000% due 07/15/04) 1,000,000 900,000
-----------
INSURANCE - 6.62%
Berkley (W.R.) Corp.
(9.875% due 05/15/08) 500,000 621,608
Conseco Finance (8.796% due 04/01/27) 1,500,000 1,684,019
Farmers Insurance Exhange
(8.500% due 08/01/04) 1,000,000 1,097,659
Leucadia National Corp.
(8.250% due 06/15/05) 1,000,000 1,071,378
Prudential Ins. Surplus Notes
(8.100% due 07/15/15) 1,000,000 1,070,129
USF&G Capital (8.470% due 01/10/27) 1,000,000 1,064,514
-----------
6,609,307
-----------
MANUFACTURING - 2.01%
International Knife & Saw Corp.
(11.375% due 11/15/06) 1,000,000 1,080,000
International Wire Group Inc.
(11.750% due 06/01/05) 500,000 547,500
Terex Corp. Sr. Sec. Notes
(13.250% due 05/15/02) 332,000 378,480
-----------
2,005,980
-----------
MEDIA & CABLE - 5.54%
Adelphia Communications
(12.500% due 05/15/02) 260,000 275,600
CF Cable TV Inc. (9.125% due 07/15/07) 1,000,000 1,080,000
Continental Cablevision
(8.300% due 05/15/06) 1,000,000 1,092,690
Jones Intercable, Inc. (8.875% due 04/01/07) 500,000 522,500
Peoples Choice TV (0.000% due06/01/04) 1,000,000 330,000
Spanish Broadcasting Systems
(11.000% due 03/15/04) 1,000,000 1,100,000
Turner Broadcasting Sr Notes
(8.110% due 8/15/06) 1,000,000 1,133,791
-----------
5,534,581
-----------
MEDIA CONGLOMERATE - 3.85%
News American Holdings
(9.250% due 02/01/13) 1,000,000 1,197,531
Time Warner Inc.
(8.110% due 08/15/06) 1,000,000 1,627,900
Viacom Inc Senior Notes
(7.750% due 06/01/05) 1,000,000 1,020,183
-----------
3,845,614
-----------
MISCELLANEOUS CORPORATE SERVICES - 1.08%
Neodata Services Misc. Corp. Ser.
(12.000% due 05/01/03) 1,000,000 1,075,000
-----------
OIL & GAS - DOMESTIC - .53%
Penzoil Company (9.625% due 11/15/99) 500,000 528,250
-----------
OIL & GAS - SERVICES - 2.78%
Mitchell Energy Development Corp.
(6.750% due 02/15/04) 1,750,000 1,760,244
PDV America, Inc. (7.750% due 08/01/00) 1,000,000 1,019,924
-----------
2,780,168
-----------
PAPER & FOREST PRODUCT - 1.37%
Indah Kiat Sr. Notes (10.000% due 07/01/07) 1,000,000 840,000
Westvaco Corp. (10.300% due 01/15/19) 500,000 529,600
-----------
1,369,600
-----------
RETAIL - .51%
Pamida Inc. Senior Notes
(11.750% due 03/15/03) 500,000 510,000
-----------
STEELS & METALS - .50%
Gulf States Steel 1st Mortgage
(13.500% due 04/15/03) 500,000 495,000
-----------
SUPERMARKET - .48%
Pueblo Xtra International
(9.500% due 08/01/03) 500,000 475,000
-----------
TELECOMMUNICATIONS - 6.41%
360 Communications Sr. Notes
(7.500% due 03/01/06) 1,500,000 1,557,390
Call-Net Enterprises
(0.000% due 12/01/04) 1,250,000 1,139,061
Crown Castle Sr. Notes
(0.000% due 11/15/07) 1,000,000 622,500
Dobson Communications Sr. Notes
(11.750% due 04/15/07) 1,000,000 1,056,250
Nextel Communications, Inc.
(0.000% due 09/15/07) 1,500,000 945,000
Talton Holdings Inc. Sr. Notes
(11.000% due 06/30/07) 1,000,000 1,085,000
-----------
6,405,201
-----------
Total Corporate Bonds and Notes
(cost $46,701,161) 49,644,459
-----------
COMMON STOCKS - .03%
ENERGY - .03%
Pioneer Natural Resources 916 26,507
-----------
Total Common Stocks (cost $ 24,339) 26,507
-----------
WARRANTS AND RIGHTS - 0.00%
RETAIL-FOOD - 0.00%
Great American Cookie Warrants 90 900
-----------
TECHNOLOGY - .00%
Terex Corporation Appreciation Rights 4,000 40
-----------
Total Warrants and rights(cost $ 28,050) 940
-----------
PREFERRED STOCKS - .90%
PACKAGING - .90%
Earthshell Container Corporation Series A
Cumulative Senior Convertible 8% <FN1> 500 900,000
-----------
Total Preferred Stocks (cost $500,000) 900,000
-----------
SHORT-TERM INVESTMENTS - 3.36%
VARIABLE RATE DEMAND NOTES <FN2> - 3.36%
American Family (5.639% due 01/01/98) 716,797 716,797
General Mills (5.327 due 01/01/98) 714,307 714,307
Johnson Controls Inc.
(5.327% due 01/01/98) 706,000 706,000
Pitney Bowes Credit Corp.
(5.327% due 01/01/98) 186,000 186,000
Sara Lee (5.322% due 01/01/98) 407,506 407,506
Warner Lambert (5.489% due 01/01/98) 440,230 440,230
Wisconsin Electric (5.487 due 01/01/98) 186,285 186,285
-----------
Total Short-Term Investments
(cost $3,357,125) 3,357,125
-----------
TOTAL INVESTMENTS - 98.35%
(cost $94,380,244)<3>
. 98,239,839
OTHER ASSETS AND LIABILITIES - 1.65% 1,652,257
------------
TOTAL NET ASSETS - 100% $99,892,096
============
* Non-Income Producing
<FN>
<FN1> 144A- Privately placed security traded among qualified institutional
buyers.
<FN2> Interest rates vary periodically based on current market rates.
Rates shown are as of December 31, 1997. 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, 1997.
<FN3> Represents cost for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at December 31, 1997, for
financial reporting purposes was $4,636,466 and $776,871.
</FN>
</TABLE>
The accompanying notes are an integral part of
the financial statements.
CARILLON FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
S&P 500 INDEX PORTFOLIO
<TABLE>
<CAPTION>
COMMON STOCKS - 91.40%
SHARES VALUE
------ -----
<S> <C> <C>
BANKING & FINANCIAL SERVICE - 15.35%
Aetna Life & Casualty Company $ 867 $ 61,178
Ahmanson (H. F.) & Company 700 46,856
Allstate Corporation 3,100 281,713
American Express Company 3,300 294,525
American General Corporation 1,300 70,281
American International Group 4,850 527,438
Aon Corporation 1,500 87,938
Banc One Corporation 4,290 233,001
Bank of New York Incorporated 2,300 132,969
BankAmerica Corporation 4,800 350,400
Bank of Boston Corporation 900 84,544
Bankers Trust New York Corporation 500 56,219
Barnett Banks, Incorporated 1,300 93,438
Beneficial Corporation 500 41,563
Charles Schwab Corporation 2,250 94,359
Chase Manhattan Corporation 2,712 296,964
Chubb Group 1,100 83,188
CIGNA Corporation 500 86,531
Citicorp 2,300 290,806
Comerica, Incorporated 700 63,175
Conseco, Inc. 1,700 77,244
CoreStates Financial Corporation 1,400 112,088
Equifax, Incorporated 1,300 46,069
Fannie Mae 7,400 422,263
Federal Home Loan Mortgage Corporation 4,800 201,300
Fifth Third Bancorp 1,300 106,275
First Chicago NBD Corporation 2,200 183,700
First Union Corporation 3,400 174,250
Fleet Financial Group, Incorporated 1,600 119,900
General Re Corporation 500 106,000
Golden West Financial 500 48,906
Green Tree Financial Corporation 800 20,950
Hartford Financial Services Group 600 56,138
Household International, Incorporated 600 76,538
Huntington Bancshares 1,600 57,600
Jefferson-Pilot Corporation 700 54,513
Keycorp 1,400 99,138
Lincoln National Corporation 600 46,875
Loews Corporation 800 84,900
Marsh & McLennan Companies, Incorporated 1,000 74,563
MBIA Incorporated 1,000 66,813
MBNA Corporation 3,562 97,287
Mellon Bank Corporation 1,600 97,000
Merrill Lynch & Company, Incorporated 2,000 145,875
MGIC Investment 1,000 66,500
Morgan (J. P.) & Company 1,200 135,450
Morgan Stanley Group Incorporated 4,185 247,438
National City Corporation 1,400 92,050
NationsBank Corporation 3,044 185,113
Norwest Corporation 4,600 177,675
PNC Bank Corp. 2,100 119,831
Progressive Corporation 600 71,925
Providian Financial Corporation 800 36,150
Republic New York Corporation 400 45,675
SAFECO Corporation 800 39,000
State Street Corporation 1,300 75,644
St. Paul Companies 700 57,444
SunAmerica 1,500 64,125
SunTrust Banks, Incorporated 1,500 107,063
Torchmark Corp 1,200 50,475
Transamerica Corporation 500 53,250
Travelers Group, Incorporated 7,985 430,192
UNUM Corporation 1,200 65,250
U.S. Bancorp 1,579 176,749
Wachovia Corporation 1,000 81,125
Washington Mutual, Incorporated 1,920 122,520
Wells Fargo & Company 533 80,920
-----------
8,534,835
-----------
CAPITAL GOODS - 5.64%
AMP, Incorporated 1,500 63,000
Avery Dennision Company 1,100 49,225
Browning-Ferris Industries 1,300 48,100
Case Corporation 600 36,263
Caterpillar, Incorporated 2,700 131,119
Cooper Industries, Incorporated 900 44,100
Corning Inc. 1,400 51,975
Deere & Company 1,500 87,469
Dover Corporation 1,600 57,800
Eaton Corporation 500 44,625
Emerson Electric Company 3,300 186,244
Foster Wheeler Corporation 400 10,825
General Electric Company 23,200 1,702,300
Illinois Tool Works, Incorporated 1,600 96,200
Ingersoll-Rand Company 900 36,450
Johnson Controls 800 38,200
PACCAR, Incorporated 400 21,000
Parker-Hannifin Corporation 1,050 48,169
Raychem Corporation 800 34,450
Tenneco, Incorporated 1,200 47,400
Thermo Electron Corporated* 1,300 57,850
Tyco International Limited 3,600 162,225
Waste Management Incorporated 2,900 79,750
-----------
3,134,739
-----------
CONSUMER CYCLICAL - 8.38%
American Greetings Company Class A 600 23,475
AutoZone Incorporated* 1,300 37,700
Black & Decker Corporation 500 19,531
Block, H&R Inc. 700 31,369
Brunswick Corporation 700 21,215
Chrysler Corporation 4,800 168,900
Cognizant Corporation 1,000 44,563
Costco Companies Incorporated* 1,800 80,325
Dana Corporation 1,000 47,500
Dayton Hudson Corporation 1,400 94,500
Dillard's Incorporated Class A 1,100 38,775
Dow Jones, & Company, Incorporated 700 37,581
Dun & Bradstreet Corporation 1,200 37,125
Eastman Kodak Company 2,400 145,950
Federated Department Stores Incorporated* 1,300 55,981
Ford Motor Company 8,000 389,500
Gannett Company, Incorporated 2,200 135,988
Gap (The), Incorporated 2,400 85,050
General Motors Corporation 5,200 315,250
Genuine Parts Company 1,950 66,178
Goodyear Tire & Rubber Company 1,100 69,988
Harrah's Enterainment Incorporated* 700 13,213
Hilton Hotels Corporation 1,700 50,575
Home Depot, Incorporated 5,200 306,150
International Flavors
& Fragrance, Incorporated 700 36,050
ITT Corporation 700 58,013
ITT Industries Incorporated 1,100 34,513
Kmart Corporation* 2,900 33,531
Knight-Ridder Incorporated 800 41,600
Lowe's Companies 1,000 47,688
Liz Claiborne, Incorporated 700 29,269
Marriott International, Inc. 900 62,325
Masco Corporation 1,200 61,050
Mattel, Incorporated 1,850 68,913
May Department Stores Company 1,600 84,300
McGraw-Hill Companies, Incorporated 800 59,200
Mirage Resorts Incorporated 1,600 36,400
New York Times, Company Class A 800 52,900
NIKE, Incorporated Class B 1,700 66,725
Nordstrom Incorporated 700 42,263
Owens Corning Fiberglass Corporation 400 13,650
Penney, (J.C.) Company, Incorporated 1,900 114,594
Reebok International Limited* 400 11,525
Sears, Roebuck & Company 2,800 126,700
Sherwin-Williams Company 1,200 33,300
Tandy Corporation 1,000 38,563
Limited (The), Incorporated 1,790 45,645
TJX Companies Incorporated 1,500 51,563
Toys "R" Us, Incorporated* 1,700 53,444
Tribune Company 1,000 62,250
TRW, Incorporated 900 48,038
V.F. Corporation 1,000 45,938
Wal-Mart Stores, Incorporated 16,500 650,719
Whirlpool Corporation 600 33,000
Woolworth Corporation* 1,000 20,375
Xerox Corporation 2,400 177,150
-----------
4,657,576
-----------
CONSUMER NON-DURABLE - 24.22%
Abbott Laboratories 5,500 360,594
Albertson's Incorporated 1,600 75,800
American Home Products Corporation 4,500 344,250
American Stores Company 1,800 37,013
Amgen, Inc. 1,600 86,600
Anheuser-Busch Companies, Incorporated 3,500 154,000
Archer-Daniels-Midland Company 3,669 79,571
Automatic Data Processing, Incorporated 1,900 116,613
Avon Products, Incorporated 800 49,100
Baxter International Incorporated 1,700 85,742
Becton, Dickinson Company 900 45,000
Bristol-Myers Squibb Company 7,000 662,370
Boston Scientific Corporation* 1,400 64,222
Campbell Soup Company 3,300 191,800
Cardinal Health, Incorporated 1,000 75,120
CBS Incorporated 4,700 138,354
Cendant Corporation* 4,472 153,740
Clorox Company 600 47,438
Coca-Cola Company 17,700 1,179,261
Colgate-Palmolive Company 1,600 117,600
Columbia/HCA Healthcare Corporation 3,950 117,019
Comcast Corporation Class A Special 2,300 72,594
ConAgra, Incorporated 3,000 98,438
CPC International, Incorporated 900 97,200
CVS Corporation 1,400 89,688
Donnelly (R.R.) & Sons Company 1,200 44,700
Fortune Brands, Inc. 1,100 40,769
General Mills, Incorporated 1,000 71,625
Gillette Company 3,900 391,706
Guidant Corporation 1,200 74,700
Heinz (H.J.) Company 2,300 116,869
Hershey Foods Corporation 1,100 68,131
Humana Incorporated* 1,500 31,125
Interpublic Group Companies, Incorporated 900 44,831
Johnson & Johnson 9,400 619,225
Kellogg Company 2,400 119,100
King World Productions, Incorporated* 500 28,875
Kroger Company* 1,600 59,100
Lilly (Eli) & Company 7,800 543,075
Mallincrokdt Group, Incorporated 700 26,600
Manor Care, Inc. 500 17,500
McDonald's Corporation 4,900 233,975
Medtronic, Incorporated 2,800 146,475
Merck & Company, Incorporated 8,700 924,375
Newell Company 1,300 55,250
PepsiCo, Inc. 10,900 397,169
Pfizer, Incorporated 9,300 693,431
Pharmacia & Upjohn, Incorporated 3,600 131,850
Philip Morris Companies, Inc. 17,100 774,844
Pioneer Hi-Bred International 700 75,075
Procter & Gamble Company 9,600 766,200
Quaker Oats Company 1,300 68,575
Ralston-Ralston Purina Group 600 55,763
Rite Aid Corporation 900 52,819
Rubbermaid, Incorporated 1,200 30,000
Sara Lee Corporation 3,400 191,463
Schering-Plough Corporation 5,200 323,050
Seagram Company, Limited 2,200 71,088
St. Jude Medical* 500 15,250
Sysco Corporation 1,300 59,231
Tele-Communications, Incorporated* 2,000 55,875
Tenet Healthcare Corporation* 1,900 62,938
Time Warner, Incorporated 3,500 217,000
Tricon Global Restaurants* 1,090 31,678
United HealthCare Corporation 1,100 54,654
UST, Incorporated 1,200 44,325
U.S. West Media Group* 3,700 106,838
Viacom, Incorporated - Class B* 1,700 70,442
Walgreen Company 2,800 87,850
Walt Disney Company, The 4,819 477,381
Warner-Lambert Company 1,900 235,600
Wendy's International 800 19,250
Winn-Dixie Stores Incorporated 900 39,319
Wrigley, (Wm.) Jr. Company 700 55,694
-----------
13,461,785
-----------
ENERGY - 8.29%
Amerada Hess Corporation 600 32,925
Amoco Corporation 3,600 306,450
Anadarko Petroleum Corporation 600 36,413
Ashland Inc. 800 42,950
Atlantic Richfield 2,400 192,300
Baker-Hughes Incorporated 1,500 65,438
Burlington Resources, Incorporated 900 40,331
Chevron Corporation 4,700 361,900
Columbia Gas System, Incorporated 400 31,425
Dresser Industries, Incorporated 1,400 58,713
Enron Corporation 2,200 91,438
Exxon Corporation 17,900 1,095,256
Halliburton Company 1,800 93,488
Kerr-McGee Corporation 400 25,325
Mobil Corporation 5,800 418,688
Occidental Petroleum 2,000 58,625
Pennzoil Company 400 26,725
Phillips Petroleum Company 1,600 77,800
Royal Dutch Petroleum Company ADR 15,300 829,069
Schlumberger Limited 3,600 289,800
Sun Company, Incorporated 800 33,650
Texaco, Incorporated 4,000 217,500
Union Pacific Resources Group 1,592 38,606
Unocal Corporation 1,400 54,338
USX-Marathon Group 1,800 60,750
Western Atlas Incorporated* 400 29,600
-----------
4,609,503
-----------
MANUFACTURING - 7.88%
Air Products & Chemicals, Incorporated 700 57,575
Alcan Aluminum Limited 1,900 52,488
Allegheny Teledyne, Incorporated 800 20,700
Allied Signal Incorporated 3,600 140,175
Aluminum Company of America 1,400 98,525
Applied Materials Incorporated* 2,600 78,325
Barrick Gold Corporation 2,200 40,975
Bemis Company 400 17,625
Bethlehem Steel Corporation* 800 6,900
Boeing Company 7,144 349,609
Centex Corporation 100 6,294
Champion International Corporation 800 36,250
Crown Cork & Seal Company, Incorporated 800 40,100
Dow Chemical Company 2,000 203,000
DuPont (E.I.) De Nemours & Company 8,000 480,500
Eastman Chemical Company 600 35,738
Englehard Corporation 800 13,900
Fluor Corporation 700 26,163
Fort James Corporation 1,600 61,200
Freeport-McMoRan Copper 800 12,600
General Dynamics Corporation 600 51,863
Georgia-Pacific Corp. 800 48,600
Grace, (W.R.) & Company 500 40,219
Great Lakes Chemical Corporation 600 26,925
Hercules, Incorporated 700 35,044
Honeywell, Incorporated 900 61,650
Inco, Limited 1,300 22,100
International Paper Company 1,800 77,625
Kimberly-Clark Corporation 3,900 192,319
Laidlaw Incorporated 1,900 25,888
Lockheed Martin Corporation 1,400 137,900
Louisiana-Pacific Corporation 900 17,100
Mead Corporation 800 22,400
Minnesota Mining & Manufacturing Company 3,000 246,188
Monsanto Company 4,200 176,400
Morton International, Incorporated 1,000 34,375
Nalco Chemical Company 600 23,738
Newmont Mining Corporation 2,100 61,688
Northrop Grumman Corporation 600 69,000
Nucor Corporation 700 33,819
Owens-Illinois, Incorporated* 1,200 45,525
Phelps Dodge Corporation 600 37,350
Pitney-Bowes Incorporated 1,000 89,938
Placer Dome, Incorporated 1,400 17,763
PPG Industries, Incorporated 1,200 68,550
Praxair Incorporated 1,000 45,000
Reynolds Metals Company 500 30,000
Rockwell International Corporation 1,300 67,925
Rohm & Haas Company 400 38,300
Solutia Incorporated 840 22,418
Temple-Inland Inc. 500 26,156
Textron Incorporated 1,200 75,000
The Stanley Works 800 37,750
Unilever (N.V.) ADR 4,400 274,725
Union Camp Corporation 700 37,581
Union Carbide Corporation 800 34,350
United Technologies Corporation 1,600 116,500
USX-U.S. Steel Group 600 18,750
Weyerhaeuser Company 1,400 68,688
Willamette Industries 1,000 32,188
Worthington Industries, Incorporated 700 11,550
-----------
4,379,490
-----------
SERVICE - .14%
Ikon Office Solution 800 22,500
Service Corporation International 1,500 55,406
-----------
77,906
-----------
TECHNOLOGY - 11.30%
3COM Corporation* 2,600 90,838
Advanced Micro Devices, Incorporated* 900 16,144
Andrew Corporation 600 14,400
Bay Networks Inc.* 1,700 43,456
Cabletron Systems, Incorporated* 900 13,500
Cisco Systems Incorporated 7,200 401,400
COMPAQ Computers Corporation 4,970 280,494
Computer Associates International 3,900 206,213
Computer Sciences Corporation* 500 41,750
Dell Computer Corporation* 2,400 201,600
Digital Equipment Corporation* 1,000 37,000
EMC Corporation Massachusetts* 4,200 115,238
First Data Corporation 2,700 78,975
Grainger (W.W.), Incorporated 500 48,594
Hewlett-Packard Company 7,500 468,750
Intel Corporation 11,700 821,925
International Business Machines Corporation 7,100 742,394
LSI Logic Corporation* 800 15,800
Lucent Technologies 4,585 366,227
Micron Technology Incorporated* 1,300 33,800
Microsoft Corporation* 8,500 1,098,625
Motorola Incorporated 4,200 239,663
National Semiconductor* 1,200 31,125
Northern Telecom, Limited 1,900 169,100
Novell, Incorporated* 2,000 15,000
Oracle Systems Corporation* 7,000 156,187
Parametric Tech Company* 1,100 52,113
Perkin-Elmer Corporation 300 21,319
Raytheon Company - Class B 1,500 75,750
Scientfic-Atlanta Incorporated 700 11,725
Seagate Technology, Incorporated* 1,500 28,875
Silicon Graphics Incorporated* 1,200 14,925
Sun Microsystems, Incorporated* 2,700 107,663
Tektronix, Incorporated 300 11,906
Tellabs, Incorporated* 1,100 58,163
Texas Instruments, Incorporated 3,000 135,000
Unisys Corporation* 1,200 16,650
-----------
6,282,287
-----------
TRANSPORTATION - 1.17%
AMR Corporation* 600 77,100
Burlington Northern Santa Fe Corporation 1,100 102,231
Caliber System, Incorporated 400 19,475
CSX Corporation 1,600 86,400
Delta Air Lines 500 59,500
Federal Express Corp.* 700 42,744
Norfolk Southern Corp. 3,000 92,438
Ryder System Inc. 700 22,925
Southwest Airlines Company 1,500 36,938
Union Pacific Corporation 1,800 112,388
-----------
652,139
-----------
UTILITY - 9.03%
AirTouch Communications, Incorporated 3,600 149,625
ALLTELL Corporation 1,300 53,381
American Electric Power Company, Incorporated 1,600 82,600
Ameritech Corporation 3,800 305,900
AT&T Corporation 11,500 704,375
Baltimore Gas & Electric Company 1,100 37,469
Bell Atlantic Corporation 5,496 500,136
BellSouth Corporation 7,000 394,188
Carolina Power & Light Company 1,200 50,925
Central & Southwest Corporation 1,900 51,419
CINergy Corporation 1,000 38,313
Coastal Corporation 600 37,163
Consolidated Edison Co. of N.Y., Incorporated 1,400 57,400
Consolidated Natural Gas Company 600 36,300
Dominion Resources 1,400 59,588
Duke Power Company 2,339 129,522
DTE Energy Company 1,100 38,156
Edison International 2,500 67,969
Entergy Corporation 1,300 38,919
FPL Group Incorporated 2,200 130,213
General Public Utilities Corporation 900 37,913
GTE Corporation 6,100 318,725
Houston Industries, Incorporated 1,400 37,363
MCI Communications Corporation 3,200 137,000
Niagara Mohawk Power Corporation* 800 8,400
Pacific Gas & Electric Company 2,600 79,138
PacifiCorp 2,200 60,088
PECO Energy Company 1,200 29,100
Public Service Enterprises Group,
Incorporated 1,300 41,194
SBC Communications 6,455 472,829
Sonat, Incorporated 600 27,450
Southern Company 5,100 131,963
Sprint Corporation* 2,000 117,250
Texas Utilities Company 1,700 70,656
Unicom Corporation 1,400 43,050
Union Electric Company 900 38,925
U.S. West Communications Group 3,400 153,425
Williams Cos. 2,100 59,588
WorldCom, Incorporated 6,400 193,600
-----------
5,021,218
-----------
Total Common Stocks (cost $38,920,329) 50,811,478
-----------
UNIT INVESTMENT TRUST - 4.90%
S & P 500 Depository Receipts 28,100 2,727,138
-----------
Total Unit Investment Trust
(cost $2,635,730) 2,727,138
-----------
<CAPTION>
SHORT-TERM INVESTMENTS - 3.87%
PRINCIPAL VALUE
--------- -----
<S> <C> <C>
U.S. Treasury Bill (5.010% due 03/19/98) $1,780,000 1,760,507
Portico U.S. Federal Money Market Fund 388,596 388,596
-----------
Total Short-Term Investments
(cost $2,149,103) 2,149,103
-----------
TOTAL INVESTMENTS - 100.17%
(cost $43,705,162)<FN1> 55,687,719
OTHER ASSETS AND LIABILITIES - (.17%) (93,050)
-----------
TOTAL NET ASSETS - 100% $55,594,669
===========
*Non-income producing
(ADR) American Depository Receipt
<FN>
<FN1> Represents cost for Rederal income tax purposes. Gross unrealized
appreciation and depreciation of securities at December 31, 1997, was
$13,078,212 and $1,095,605 respectively.
<FN2> Securities with an aggregate market value of $1,713,425 have been
segregated with the custodian to cover margin requirements for the following
open futures contracts at December 31, 1997:
</FN>
<CAPTION>
Unrealized
Unrealized Appreciation/
Type Contracts (Depreciation)
<S> <C> <C>
Standard & Poor's 500 Index (03/98) 4 $31,100
Standard & Poor's 500 Index (03/98) 1 5,650
Standard & Poor's 500 Index (03/98) 1 3,900
Standard & Poor's 500 Index (03/98) 1 6,800
$47,450
=======
</TABLE>
The accompanying notes are an integral part of
the financial statement.
<PAGE>
CARILLON FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 five different
series - Equity Portfolio, Capital Portfolio, Bond Portfolio,
S&P 500 Index Portfolio and Micro-Cap 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 financial statements of
the Micro-Cap Portfolio are presented separately.
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 short-term fixed income securities 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. Short-term fixed income securities with
a remaining maturity of 60 days or less held in each Portfolio
are valued at amortized cost which approximates market. Non-U.S.
dollar securities are translated into U.S. dollars using the
spot exchange rate provided at the close of the London 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.
Foreign Currency - The Funds' accounting records are maintained
in U.S. dollars. All Portfolios may purchase foreign securities
within certain limitations set forth in the Prospectus. Amounts
dominated in or expected to settle in foreign currencies are
translated into U.S. dollars at the spot rate at the close of
the London Market. The fund does not isolate that portions of
the results of operations resulting from changes in foreign
exchange rates on investments from the underlying fluctuation in
the securities resulting from market prices. All are included in
net realized and unrealized gain or loss for investments.
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.
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 AND FOREIGN CURRENCY 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.
All portfolios may enter into forward foreign currency exchange
contacts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering
these contracts from the potential inability of counter-parties
to meet the terms of their contracts and from unanticipated
movements in their value of a foreign currency relative to the
U.S. dollar. The funds typically utilize the contracts as a
hedge against fluctuation in currency values between the trade
and settlement dates of security transactions.
NOTE 4 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities for the year ended
December 31, 1997 excluding short-term obligations, follow:
<TABLE>
<CAPTION>
S&P 500
Equity Capital Bond Index
Portfolio Portfolio Portfolio Portfolio
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Total Cost
of Purchases of:
Common Stocks $162,918,331 $42,264,597 $ 0 $18,676,744
U.S. Government Securities ---- 18,655,608 7,189,738 ----
Corporate Bonds ---- 12,634,953 95,814,662 ----
------------ ----------- ------------ -----------
$165,918,331 $73,555,158 $103,004,400 $18,676,744
============ =========== ============ ===========
Total Proceeds
from Sales of:
Common Stocks $178,560,062 $48,660,638 $ 515,027 $ 3,555,261
U.S. Government Securities ---- 20,622,525 9,513,172 ----
Corporate Bonds ---- 4,910,848 85,986,934 ----
------------ ----------- ------------ -----------
$178,560,062 $74,194,011 $ 96,015,133 $ 3,555,261
============ =========== ============ ===========
</TABLE>
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
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $ 19.45 $ 16.54 $ 14.30 $ 14.58 $ 13.74
-------- -------- -------- -------- --------
Investment Activities:
Net investment income .23 .29 .24 .20 .16
Net realized and unrealized 3.23 3.61 3.36 .31 1.69
gains/(losses) -------- -------- -------- -------- --------
Total from
Investment Operations 3.46 3.90 3.60 .51 1.85
-------- -------- -------- -------- --------
Distributions:
Net investment income (.27) (.27) (.23) (.19) (.16)
Net realized gains (2.29) (.72) (1.13) (.60) (.85)
-------- -------- -------- -------- --------
Total Distributions (2.56) (.99) (1.36) (.79) (1.01)
-------- -------- -------- -------- --------
Net Asset Value,
End of year $20.35 $19.45 $16.54 $14.30 $14.58
======== ======== ======== ======== ========
Total Return 20.56% 24.52% 26.96% 3.42% 14.11%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets .62% .64% .66% .69% .70%
Ratio of Net Investment
Income to Average Net Assets 1.23% 1.66% 1.73% 1.45% 1.18%
Portfolio Turnover Rate 57.03% 52.53% 34.33% 40.33% 37.93%
Average Commission
Rate Paid <FN1> $.0600 $.0628
Net Assets,
End of Year (000's) $335,627 $288,124 $219,563 $157,696 $138,239
<FN>
<FN1> 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>
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,
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of year $ 14.95 $ 13.72 $ 13.19 $ 13.81 $ 12.99
-------- -------- -------- -------- --------
Investment Activities:
Net investment income .62 .63 .64 .52 .43
Net realized and unrealized .37 1.36 1.15 (.39) 1.17
gains/(losses) -------- -------- -------- -------- --------
Total from
Investment Activities .99 1.99 1.79 .13 1.60
-------- -------- -------- -------- --------
Distributions:
Net investment income (.66) (.57) (.64) (.52) (.42)
Net realized gains (1.18) (.19) (.62) (.23) (.36)
-------- -------- -------- -------- --------
Total Distributions (1.84) (.76) (1.26) (.75) (.78)
-------- -------- -------- -------- --------
Net Asset Value,
End of year $14.10 $14.95 $13.72 $13.19 $13.81
======== ======== ======== ======== ========
Total Return 7.40% 14.94% 14.28% .94% 12.72%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets .77% .77% .77% .80% .82%
Ratio of Net Investment
Income to Average Net Assets 4.22% 4.42% 4.99% 4.25% 3.31%
Portfolio Turnover Rate 60.84% 53.11% 43.83% 41.89% 32.42%
Average Commission
Rate Paid <FN1> $.0531 $.0615
Net Assets,
End of Year (000's) $148,833 $159,294 $145,623 $119,263 $100,016
<FN>
<FN1> 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 period.
<TABLE>
<CAPTION>
Bond Portfolio
Year Ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $ 10.91 $ 11.07 $ 10.04 $ 11.30 $ 10.91
-------- -------- -------- -------- --------
Investment Activities:
Net investment income .78 .79 .88 .77 .73
Net realized and unrealized .38 (.04) .98 (.95) .54
gains/(losses) -------- -------- -------- -------- --------
Total from
Investment Operations 1.16 .75 1.86 (.18) 1.27
-------- -------- -------- -------- --------
Distributions:
Net investment income (.72) (.87) (.83) (.78) (.73)
In excess of
net investment income ---- (.04) ---- ---- ----
Net realized gains (.06) ---- ---- (.30) (.15)
-------- -------- -------- -------- --------
Total Distributions (.78) (.91) (.83) (1.08) (.88)
-------- -------- -------- -------- --------
Net Asset Value,
End of period $ 11.29 $ 10.91 $ 11.07 $ 10.04 $ 11.30
-------- -------- -------- -------- --------
Total Return 11.02% 7.19% 19.03% (1.63%) 11.94%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets .60% .62% .65% .68% .66%
Ratio of Net Investment
Income to Average Net Assets 7.15% 7.24% 7.43% 7.21% 6.65%
Portfolio Turnover Rate 113.41% 202.44% 111.01% 70.27% 137.46%
Net Assets,
End of Year (000's) $ 99,892 $ 85,634 $ 73,568 $ 55,929$ 54,128
</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,
1997 1996<FN1>
------- -------
<S> <C> <C>
Net Asset Value,
Beginning of year $ 12.13 $ 10.00
------- -------
Investment Activities:
Net investment income .20 .20
Net realized and unrealized 3.72 2.12
gains/(losses) ------- -------
Total from Investment Activities 3.92 2.32
------- -------
Distributions:
Net investment income (.21) (.19)
Net realized gains (.10) ---
------- -------
Total Distributions (.31) (.19)
Net Asset Value,
End of year $ 15.74 $ 12.13
======= =======
Total Return 32.72% 23.37%
Ratios/Supplemental Data:
Ratio of Net Expenses to
Average Net Assets .50% .59%<FN2>
Ratio of Net Investment
Income to Average Net Assets 1.48% 2.14%<FN2>
Portfolio Turnover Rate 9.06% 1.09%
Average Commission Rate Paid <FN3> $ .0453 $ .0601
Net Assets, End of Year (000's) $55,595 $29,205
<FN>
<FN1> 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.
<FN2> 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 six months ended December 31, 1996, had the Adviser not waived a
portion of its fee.
<FN3> 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>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Micro-Cap Portfolio
We have audited the accompanying statement of assets and
liabilities of the Micro-Cap Portfolio of Carillon Fund, Inc.
(the "Fund"), as of December 31, 1997, the related statement of
operations, and the statement of changes in net assets for the
period from November 24, 1997 (date of inception) to December
31, 1997. These financial statements are the responsibility of
the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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, 1997, by correspondence with the Fund's 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 audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Micro-Cap
Portfolio, as of December 31, 1997, and the results of its
operations, the changes in its net assets, and the financial
highlights for the period presented, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Dayton, Ohio
February 12, 1998
<PAGE>
CARILLON FUND, INC.
MICRO-CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1997
<S> <C>
ASSETS
Investment in securities, at value -
(Amortized cost $3,038,504) $ 3,022,648
Receivables:
Interest & dividends 1,022
Expense reimbursement
from Carillon Advisers, Inc. 6,489
-----------
3,030,159
-----------
LIABILITIES
Payables:
Investment Securities purchased 36,750
Accrued expenses and other 13,019
-----------
49,769
-----------
NET ASSETS
Paid-in capital 2,996,246
Net unrealized depreciation on investments (15,856)
-----------
$ 2,980,390
===========
Shares authorized ($.10 par value) 20,000,000
Shares outstanding 300,000
Net asset value, offering
and redemption price per share $ 9.93
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON FUND, INC.
MIRCO-CAP PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
From November 24, 1997
to December 31, 1997
----------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 2,417
Dividends 304
--------
2,721
--------
EXPENSES:
Investment advisory fee 3,237
Professional fees 8,216
Portfolio accounting fees 2,505
Director's fees 540
Custodial fees and expenses 573
Other 1,130
--------
16,201
Less expenses reimbursed by the advisor (9,726)
--------
6,475
--------
NET INVESTMENT LOSS (3,754)
--------
NET CHANGE IN UNREALIZED
DEPRECIATION ON INVESTMENTS (15,856)
--------
NET DECREASE IN NET ASSETS FROM OPERATIONS $(19,610)
========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON FUND, INC.
MICRO-CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
From November 24, 1997
to December 31, 1997
<S> <C>
OPERATIONS:
Net investment loss $ (3,754)
Net change in unrealized depreciation
on investments (15,856)
----------
(19,610)
----------
FUND SHARE TRANSACTIONS-
Proceeds from shares sold 3,000,000
----------
NET INCREASE IN NET ASSETS 2,980,390
----------
NET ASSETS:
Beginning of period ----
----------
End of period $2,980,390
==========
FUND SHARE TRANSACTIONS-
Sold 300,000
==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON FUND, INC.
MICRO-CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS - 97.78%
SHARES VALUE
------ -----
<S> <C> <C>
BANKING & FINANCIAL SERVICE - 14.81%
Duff & Phelps Credit Rating Company 2,300 $ 93,437
Fahnestock Viner Holdings Class-A 4,300 74,981
Jefferies Group, Incorporated 2,200 90,062
Mid-Iowa Financial* 7,700 88,550
Warren Bancorp, Incorporated* 4,100 94,300
----------
441,330
----------
CAPITAL GOODS - 8.11%
Franklin Electric Company Incorporated* 1,400 89,950
Mitcham Industries ,Incorporated* 6,000 73,000
Petroleum Helicopters (non-voting)* 3,500 78,750
----------
241,700
----------
CONSUMER CYCLICAL - 20.67%
CPAC, Incorporated 7,600 77,900
Maxwell Shoe Company Incorporated - A* 6,000 64,500
NCI Building Systems, Incorporated* 2,100 74,550
Quaker Fabric Corporation* 4,000 78,500
Strattec Security Corporation* 3,200 81,600
Supreme International Corporation* 6,900 86,250
Winsloew Furniture, Incorporated* 5,400 78,300
World of Science, Incorporated* 17,000 74,375
----------
615,975
----------
CONSUMER NON-DURABLE - 17.94%
Complete Management Incorporated* 4,800 67,200
Mesa Laboratories, Incorporated* 11,000 74,250
Nam Tai Electronics, Incorporated* 4,700 70,206
Norland Medical Systems, Incorporated* 10,500 78,750
Orthofix International N.V. 6,300 74,025
Schlotzsky's, Incorporated* 4,500 65,813
Young Innovations, Incorporated* 5,800 104,400
----------
534,644
----------
ENERGY - 8.14%
Callon Petroleum Company* 4,300 70,009
Domain Energy Corporation* 4,600 72,450
OYO Geospace Corporation* 5,300 100,038
----------
242,497
----------
MANUFACTURING - 16.23%
Cannondale Corporation* 3,800 $ 82,650
Fibermark, Incorporated* 4,100 88,150
Northwest Pipe Company* 3,600 86,400
NS Group, Incorporated* 3,400 58,225
Omniquip International, Incorporated 4,400 87,725
York Group, Incorporated 3,300 80,438
----------
483,588
----------
TECHNOLOGY - 9.34%
DRS Technologies, Incorporated* 6,700 98,825
Vertex Communications Corporation* 3,300 79,613
Vtech Holdings Limited Sponsored ADR 3,400 100,267
----------
278,705
----------
TRANSPORTATION - 2.54%
MTL Incorporated* 3,000 75,750
----------
Total Common Stocks (cost $ 2,930,045) 2,914,189
----------
SHORT-TERM INVESTMENTS - 3.64%
<CAPTION>
PRINCIPAL VALUE
--------- ----------
<S> <C> <C>
VARIABLE RATE DEMAND NOTES <F1>- 3.64%
Johnson Controls (5.327% due 01/01/98) $ 37,511 $ 37,511
Pitney Bowes (5.327% due 01/01/98) 26,926 26,926
Sara Lee (5.322% due 01/01/98) 30,000 30,000
Warner Lambert (5.489 due 01/01/98) 14,022 14,022
----------
Total Short-Term Investments
(cost $108,459) 108,459
----------
TOTAL INVESTMENTS - 101.42%
(cost $3,038,504) <F2> 3,022,648
OTHER ASSETS AND LIABILITIES - (1.42%) (42,258)
----------
TOTAL NET ASSETS - 100% $2,980,390
==========
_________
*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, 1997.
<F2> Represents cost for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at December 31, 1997 was
$134,760 and $(150,616), respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON FUND, INC.
MICRO-CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The Micro-Cap Portfolio (Micro-Cap) of 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 five different series - Equity Portfolio, Capital
Portfolio, Bond Portfolio, S&P 500 Index Portfolio and Micro-Cap
Portfolio. Micro-Cap seeks long-term appreciation by investing
primarily in the common stocks of domestic companies with
smaller market capitalization. The financial statements of the
Equity, Bond, Capital and S&P 500 Index Portfolios are presented
separately.
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 except for short-term fixed
income securities 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. Short-term
fixed income securities with a remaining maturity of 60 days or
less held in each Portfolio are valued at amortized cost which
approximates market. Non-U.S. dollar securities are translated
into U.S. dollars using the spot exchange rate at the close of
the London 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 Micro-Cap's intent 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 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 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.
Foreign Currency - The Fund's accounting records are maintained
in U.S. dollars. All Portfolios may purchase foreign securities
within certain limitations set forth in the Prospectus. Amounts
dominated in or expected to settle in foreign currencies are
translated into U.S. dollars at the spot rate reported at the
close of the London market. The Fund does not isolate that
portion of the results of operations resulting from changes in
foreign exchange rates on investments from the underlying
fluctuation in the securities resulting from market prices. All
are included in net realized and unrealized gain or loss for
investments.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
Investment advisory fees - Micro-Cap 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 on a daily basis,
at an annual rate of 1.0% of net assets.
The Adviser has agreed to limit expenses of the Fund to 2% of
the average annual net assets.
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 .10% of the Fund's
average net assets. 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 - FORWARD CURRENCY CONTRACTS
All portfolios may enter into forward foreign currency exchange
contacts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering
these contracts from the potential inability of counter-parties
to meet the terms of their contracts and from unanticipated
movements in their value of a foreign currency relative to the
U.S. dollar. The funds typically utilize the contracts as a
hedge against fluctuation in currency values between the trade
and settlement dates of security transactions.
NOTE 4 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
Micro-Cap has purchased $2,930,045 and had no sales of
securities for the period ended December 31, 1997, excluding
short-term obligations.
<PAGE>
CARILLON FUND, INC.
MICRO-CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
Note 5 - FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period.
<TABLE>
<CAPTION>
For the Period
From November 24, 1997
to December 31, 1997
----------------------
1997
----
<S> <C>
Net Asset Value,
Beginning of Year $ 10.00
Investment Activities:
Net investment income (loss) (.01)
Net realized and unrealized (.06)
gains / (losses) ---------
Total from Investment Operations (.07)
---------
Distributions:
Net investment income ----
Net realized gains ----
Total Distributions ----
----------
Net Asset Value,
End of Year $ 9.93
----------
Total Return (0.7%)
Ratios/Supplemental Data:
Ratio of Net Expenses to
Average Net Assets 2.00% <F1>
Ratio of Net Investment loss
to Average Net Assets (1.16%) <F1>
Portfolio Turnover Rate ----
Average Commission Rate Paid <F2> $ .0600
Net Assets, End of Year (000's)
$ 2,980
<FN>
<F1> The ratios of net expenses to average net assets would have increased
and net investment income to average net assets would have decreased by 3.00%
for the period ended December 31, 1997, had the Adviser not reimbursed
expenses. These ratios are annualized.
<F2> 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>
(back cover)
(at bottom half of page)
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.
UC 1665 5/98
(c)1998 - The Union Central Life Insurance Company
1876 Waycross Road, Cincinnati, Ohio 45240
(end of back cover)
