<cover page>
Variable
Annuity
(the above is in white letters on a shaded background)
(three pictures of couples are positioned beside and below
the above wording)
(at the bottom third of the page:)
Union Central (logo)
1999 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.
Templeton Variable Products Series Fund
AIM Variable Insurance Funds, Inc.
Distributed by: Carillon Investments, Inc.,
P.O. Box 40409, Cincinnati, Ohio 45240
<PAGE>
SUPPLEMENT DATED MAY 1, 1999
TO THE PROSPECTUS DATED MAY 1, 1999
CARILLON ACCOUNT
Effective May 1, 1999, the prospectus for Carillon Account dated
May 1, 1999 is amended by including as a part thereof the
following information:
In March, 1999, we filed a request for an order of the
Securities and Exchange Commission ("SEC") permitting us to
substitute alternative subaccounts and their underlying mutual
fund portfolios ("substituted options") for existing subaccounts
and portfolios that we propose to cease operating as investment
options under your contract ("eliminated options"). If you have
values allocated to an eliminated option, you will receive prior
notification regarding the details of the substitution. The
eliminated and substituted options that we anticipate are:
<TABLE>
<CAPTION>
ELIMINATED OPTIONS: SUBSTITUTED OPTIONS:
<S> <C>
Capital Subaccount/ Balanced Index Subaccount/
Carillon Capital Portfolio Carillon Balanced Index Portfolio
Capital Appreciation Subaccount/ AIM Capital Appreciation Subaccount/
American Century VP Capital AIM V.I. Capital Appreciation
Appreciation Portfolio Portfolio
</TABLE>
We will allow transfers from eliminated options to any other
investment options available under the variable annuity
contracts for a period of 30 days prior to any substitution
without the imposition of any transfer fee. We also will permit
you to transfer amounts moved to a substituted option as part of
the substitution to any other investment options for a period of
30 days after the substitution. Such transfers would not count
in determining whether the six free transfers have been
exceeded.
The proposed substitution of the substituted options for the
eliminated options likewise would not impose a transfer fee nor
count in determining whether the six free transfers have been
exceeded. The proposed substitution will not affect your rights
or our obligations under the contract.
There can be no guarantee that the SEC will grant our request.
The terms, conditions and scope of any order granting, in whole
or part, the relief requested, may vary from our request.
stick2.ca
<PAGE>
Home Office:
1876 Waycross Road
P.O. Box 40888
Cincinnati, Ohio 45240
Telephone: 1-800-999-1840
PROSPECTUS
Flexible Premium Deferred Variable Annuity
CARILLON ACCOUNT
of
THE UNION CENTRAL LIFE INSURANCE COMPANY
This prospectus describes an annuity contract ("the Contract")
offered by The Union Central Life Insurance Company ("we" or
"us" or "Union Central"). The Contract is a flexible premium,
combination fixed and variable annuity contract. The Contract
is designed for use in connection with all types of retirement
plans.
Your Contract's premiums may be allocated in whole or in part:
- to our general account, and accumulate on a guaranteed,
fixed basis, or
- to the Carillon Account, one of our variable annuity
separate accounts where accumulation values are not
guaranteed and vary with the performance of one or more
underlying mutual funds.
Carillon Account is divided into sixteen "Subaccounts," each of
which invests in shares of a single investment portfolio
("Portfolio") of an underlying mutual fund ("Fund"). We will
provide you with a prospectus for each Portfolio with this
Prospectus. The available Portfolios consist of:
- six Portfolios of Carillon Fund, Inc. ("Carillon Fund"),
- three Portfolios of Scudder Variable Life Investment Fund
("Scudder Fund"),
- four Portfolios of MFS Variable Insurance Trust ("MFS
Fund"),
- one Portfolio of American Century Variable Portfolios, Inc.
("American Century Fund"),
- one Portfolio of Templeton Variable Products Series Fund
("Templeton Fund") and
- one Portfolio of AIM Variable Insurance Funds, Inc.
("AIM Fund").
Premiums that you allocate to Carillon Account will vary with
the investment performance of the Portfolio(s) you select.
Similarly, the amount of any variable annuity benefit payments
will vary with the investment performance of the Portfolio(s)
you select. This Prospectus generally describes only the
variable portion of the Contract.
Additional information about Carillon Account and the variable
portion of the Contracts has been filed with the Securities and
Exchange Commission ("SEC") in the form of a Statement of
Additional Information ("SAI"). The SAI is dated May 1, 1999,
and is incorporated herein by reference. You may obtain the SAI
without charge by writing us at the address given above or by
calling the listed telephone number.
THE SEC HAS NOT APPROVED OR DISAPPROVED THE CONTRACTS. NEITHER
THE SEC NOR ANY STATE HAS DETERMINED WHETHER THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. 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, 1999.
<PAGE>
TABLE OF CONTENTS
DEFINITIONS...............................................4
SUMMARY...................................................5
SUMMARY OF SEPARATE ACCOUNT EXPENSES......................8
THE UNION CENTRAL LIFE INSURANCE COMPANY
AND CARILLON ACCOUNT....................................11
Union Central Life Insurance Company..................11
Carillon Account......................................11
The Funds.............................................11
Additions, Deletions or Substitutions of Investments..13
THE CONTRACT............................................ 14
Purchasing a Contract.................................14
Premiums..............................................14
Crediting of Accumulation Units.......................15
Value of Accumulation Units...........................15
Transfers.............................................16
Special Transfers - Dollar Cost Averaging.............17
Portfolio Rebalancing Plan............................18
Interest Sweep........................................18
Surrenders............................................18
Personal Income Plan..................................19
CHARGES AND OTHER DEDUCTIONS.............................19
Administration Fees...................................19
Mortality and Expense Risk Charge.....................20
Surrender Charge (Contingent Deferred Sales Charge)...20
Premium Taxes.........................................22
Fund Expenses.........................................22
BENEFITS UNDER THE CONTRACT..............................23
Death Benefits........................................23
Annuity Benefit Payments..............................23
THE GUARANTEED ACCOUNT...................................25
General Description...................................25
Guaranteed Account Accumulations......................26
Fixed Annuity Benefit Payments........................26
Surrenders............................................26
Transfers.............................................27
GENERAL MATTERS..........................................27
Designation of Beneficiary............................27
20-Day Right to Examine Contract......................27
Contract Owner's Inquiry..............................27
FEDERAL TAX MATTERS......................................27
Introduction..........................................27
Tax Status of Contracts...............................28
Qualified Plans.......................................29
TEXAS OPTIONAL RETIREMENT PROGRAM RESTRICTIONS...........30
DISTRIBUTION OF THE CONTRACTS............................30
VOTING RIGHTS............................................30
PREPARING FOR YEAR 2000..................................31
PERFORMANCE DATA.........................................31
FINANCIAL STATEMENTS.....................................31
APPENDIX A - ACCUMULATION UNIT VALUES....................32
APPENDIX B - IRA DISCLOSURE STATEMENT....................34
<PAGE>
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-4
MISCELLANEOUS CONTRACT PROVISIONS........................B-6
CUSTODY OF CARILLON ACCOUNT'S ASSETS.....................B-7
EXPERTS..................................................B-7
FINANCIAL STATEMENTS OF CARILLON ACCOUNT AND OF UNION CENTRAL
This prospectus does not constitute an offering in any
jurisdiction in which such offering may not lawfully be made.
No dealer, salesman, or other person is authorized to give any
information or make any representations in connection with this
prospectus, and, if given or made, such other information or
representations must not be relied upon.
<PAGE>
DEFINITIONS
accumulation unit - A unit of measure used to calculate the
value of your Variable Account during the Pay-in Period.
accumulation value - The sum of the values of your Contract's
Guaranteed Account and Variable Account.
Annuitant - A person whose life determines the duration of
annuity benefit payments involving life contingencies.
annuity unit - A unit of measure used to calculate variable
annuity benefit payments (during the Pay-out Period).
Beneficiary - The person you designate to receive the Contract's
death benefit.
Carillon Account - One of our variable annuity separate
accounts. Carillon Account currently is divided into sixteen
Subaccounts, each of which invests exclusively in one Portfolio
of a Fund.
Contract Date - The date we issue your Contract.
Contract Owner ("You") - During the Annuitant's lifetime and
prior to the Maturity Date, the person designated as the owner
in the Contract or as subsequently changed. During the Pay-out
Period, 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 certified copy of a death certificate;
- A certified copy of a decree of a court of competent
jurisdiction as to the finding of death;
- A written statement by a medical doctor who attended the
deceased; or
- Any other proof satisfactory to us.
fixed annuity benefit payments - Annuity benefit payments that
are fixed in amount throughout the Pay-out Period.
The Funds - Mutual funds one or more investment portfolios of
which are purchased by Carillon Account. Currently the six
Funds are: Carillon Fund, Scudder Fund, MFS Fund, American
Century Fund, Templeton Fund and AIM Fund.
Guaranteed Account - The portion (if any) of your Contract's
accumulation value that is held in our general account and
accumulates at a guaranteed rate of at least 4%.
Investment Options - The Guaranteed Account and the sixteen
Subaccounts of Carillon Account.
Maturity Date - The date on which the Pay-out Period commences
(i.e., when you stop making premium payments to us and we start
making annuity benefit payments to you).
Nonqualified Contracts - Contracts that do not qualify for
special federal income tax treatment.
Pay-in Period - The period during which you may make payments to
us and accumulate Contract values on a fixed or variable basis
(referred to in the Contract as the "Accumulation Period"). The
Pay-in Period commences on the Contract Date and lasts until the
Maturity Date.
Pay-out Period - The period after the Maturity Date during which
we make annuity benefit payments to you (referred to in the
Contract as the "Annuity Period").
Portfolio - A separate investment portfolio of one of the Funds.
Qualified Contracts - Contracts issued in connection with plans
that qualify for special federal income tax treatment.
Subaccount - A part of Carillon Account. Each Subaccount invests
exclusively in shares of a different Portfolio.
Variable Account - The portion of your Contract's accumulation
value that is invested in one or more Subaccounts of Carillon
Account. Your Variable Account is divided into one or more
subdivisions, one for each Subaccount to which you have
allocated your accumulation value.
variable annuity benefit payments - Annuity benefit payments
that vary in amount in relation to the investment performance of
the Subaccount(s) you select during the Pay-Out Period.
SUMMARY
The Contract and the Investment Options
The Contract is designed and offered to aid in the accumulation
of funds on a tax-deferred basis for retirement in connection
with a broad range of retirement plans, including:
- plans established by persons entitled to the benefits of
the Self-Employed Individuals Tax Retirement Act of 1962,
as amended ("H.R. 10 plans");
- 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")
- qualified annuity plans described in Section 403(a) of
the Code;
- annuity purchase plans adopted by public school systems
and certain tax-exempt organizations under Section 403(b)
of the Code;
- Individual Retirement Annuities purchased by or on behalf
of individuals pursuant to Sections 408 (traditional and
Simple IRAs) and 408A (Roth IRA) of the Code;
- government deferred compensation plans pursuant to Section
457 of the Code;
- other qualified plans; and
- nonqualified plans.
Qualified plans provide special tax treatment to participating
employees and self-employed individuals and their beneficiaries.
You may allocate your Contract's accumulation value among the
Contract's 17 Investment Options, which consist of the
Guaranteed Account and the 16 Subaccounts of Carillon Account.
Each Subaccount of Carillon Account invests in one of the
following Portfolios:
- Carillon Fund Equity Portfolio
- Carillon Fund Bond Portfolio
- Carillon Fund Capital Portfolio
- Carillon Fund S&P 500 Index Portfolio*
- Carillon Fund S&P MidCap 400 Index Portfolio*
- Carillon Fund Balanced Index Portfolio
- Scudder Fund Capital Growth Portfolio Class A
- Scudder Fund International Portfolio Class A
- Scudder Fund Money Market Portfolio
- MFS Growth With Income Series
- MFS High Income Series
- MFS Emerging Growth Series
- MFS Total Return Series
- American Century VP Capital Appreciation Portfolio
- Templeton International Fund Class 2
- AIM V.I. Capital Appreciation Fund
- -----------
*"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard &
Poor's 500(R)", "500", "S&P MidCap 400 Index", and "Standard &
Poor's MidCap 400 Index" 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. See further discussion in the Carillon Fund
prospectus.
Your Contract's accumulation value will vary according to the
investment experience of the Portfolio(s) you select. Similarly,
the dollar amount of variable annuity benefit payments will vary
according to the investment experience of the Portfolio(s)
selected. You bear the entire investment risk for all amounts
you allocate to any of the 12 variable investment options.
Allocations to the Guaranteed Account accumulate at a guaranteed
rate of at least 4% on an annual basis.
Premiums
Each premium payment must be at least $25 for Qualified
Contracts and $50 for Nonqualified Contracts. You may pay
premiums at any time and in any amount, subject to the $25/$50
minimum and a maximum (which we may waive) of $10,000 per
Contract Year. However, if you pay no premiums for two
consecutive Contract Years (three in New York), then under
certain circumstances we may pay you your Contract's
accumulation value (minus the administration fee and surrender
charge, if applicable) and cancel your Contract.
Surrenders
You may totally or partially surrender your Contract and be paid
all or part of its accumulation value at any time during the
Pay-in Period (unless your Contract was issued in connection
with a plan adopted pursuant to Section 403(b) of the Code --
see page 29). Certain surrenders may be subject to a surrender
charge and a penalty tax may be imposed. In addition, you may
return your Contract for a refund within 20 days after receiving
it.
Transfers
During the Pay-in Period, you may transfer your accumulation
values among the subdivisions of your Variable Account or
between those subdivisions and your Guaranteed Account, as
frequently as desired. Transfers generally must be at least
$300. 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. During
the Pay-in Period, you may transfer up to the greater of 20% of
the value of your Guaranteed Account (as of the first day of the
Contract Year), or $1,000 to one or more subdivisions of your
Variable Account each Contract Year.
During the Pay-out Period, you may, once each year, change the
investment option upon which the amount of your variable annuity
benefit payments are calculated by requesting that we transfer
annuity reserves among the Portfolios.
Annuity Benefit Payments
You can choose among a variety of types of fixed and variable
annuity benefit payments to be made during the Pay-out Period.
If the Annuitant dies before the Maturity Date and the Annuitant
was the Contract Owner or the Contract Owner is still living,
then we will pay the beneficiary a death benefit equal to the
greater of:
- the Contract's accumulation value, or
- the sum of all premiums paid less any amounts deducted in
connection with partial surrenders.
Charges
No sales charge is deducted from your premiums. However, we
will deduct a surrender charge upon certain early surrenders or
withdrawals. This surrender charge depends on how long your
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 your Contract's 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 Contract 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.
We deduct an administration fee of $30 per year from your
Contract's accumulation value during the Pay-in Period. We will
waive the annual administration fee for any year in which the
accumulation value of your Contract is $25,000 or more on the
last day of that Contract Year. We also reserve the right to
waive this fee for Contracts sold to select classes of employer-
sponsored retirement plans. We also deduct a daily
administrative charge at the rate of 0.25% of net assets per
year during both the Pay-in and Pay-out Periods.
As compensation for our assumption of mortality and expense
risks, we deduct a charge from Carillon Account that is
currently 1.00% of net assets per year and will never exceed
1.70% per year. In accordance with state laws, premium taxes
will be deducted from some Contracts.
The Funds in which Carillon Account invests pay an investment
advisory fee and other expenses which are described in the Fund
prospectuses.
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
of surrender 1 2 3 4 5 6 7 8 Thereafter
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Applicable
Charge* 7% 7% 6% 5% 4% 3% 2% 1% Free
</TABLE>
Transfer Fee ..........................................$10**
Annual Administration Fee .............................$30***
<TABLE>
<CAPTION>
Separate Account Annual Expenses
(as a percentage of average account value)
<S> <C>
Mortality and Expense Risk Charge 1.00%
Administration Fee .25%
Total Separate Account Annual Expenses 1.25%
</TABLE>
* Partial surrenders totaling up to 10% of a Contract's
accumulation value may be made each Contract Year without the
surrender charge being assessed.
** During the Pay-in Period, up to six transfers may be made
each Contract Year without charge.
*** Waived for any year in which the Contract's accumulation
value is $25,000 or more on the last day of the Contract Year.
Fund Portfolio Expenses
<TABLE>
<CAPTION>
Other Other
Expenses Expenses
Management (After (After
Portfolio Fees Waivers) Waivers)
- --------- ---------- -------- --------
<S> <C> <C> <C>
Carillon Fund, Inc.<F1>
Equity Portfolio 0.56% 0.06% 0.62%
Bond Portfolio 0.47% 0.11% 0.58%
Capital Portfolio 0.69% 0.10% 0.79%
S&P 500 Index Portfolio 0.30% 0.13% 0.43%
S&P MidCap 400 Index Portfolio 0.30% 0.30% 0.60%
Balanced Index Portfolio 0.30% 0.30% 0.60%
Scudder Variable Life Investment Fund<F1>
Capital Growth Portfolio Class A 0.47% 0.03% 0.50%
International Portfolio Class A 0.87% 0.17% 1.04%
Money Market Portfolio 0.37% 0.07% 0.44%
MFS Variable Insurance Trust <F1><F2>
Growth With Income Series 0.75% 0.13% 0.88%
High Income Series 0.75% 0.28% 1.03
Emerging Growth Series 0.75% 0.10% 0.85%
Total Return Series 0.75% 0.16% 0.91%
American Century Variable Portfolios, Inc.<F1>
VP Capital Appreciation Portfolio 1.00% <F3> 1.00%
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
<CAPTION>
Other Other
Expenses Expenses
Management (After (After
Portfolio 12b-1 Fees Fees Waivers) Waivers)
- --------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Templeton Variable Products
Series Fund<F4>
Templeton International
Fund Class 2 0.25% 0.69% 0.17% 1.11%
<FN>
<F1> Figures are based on the actual expenses incurred by the Portfolio for
the year ended December 31, 1998. Actual Portfolio expenses may vary.
<F2> 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' expense). Any such fee reductions are not
reflected under "Other Expenses."
<F3> All expenses except brokerage, taxes, interest and fees and expenses of
non-interested person directors are paid by the investment adviser.
<F4> Class 2 of the Fund has a distribution plan or "Rule 12b-1 plan" which is
described in the Fund's prospectus.
</FN>
</TABLE>
Example* - If you surrender your Contract at the end of the
applicable time period, you would pay the following expenses on
a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Subaccount $92 $127 $153 $230
Bond Subaccount $92 $126 $151 $225
Capital Subaccount $94 $132 $161 $248
S&P 500 Index Subaccount $90 $122 $143 $209
S&P MidCap 400 Index Subaccount $90 $122 $143 $209
Balanced Index Subaccount $90 $122 $143 $209
Capital Growth Subaccount $93 $131 $159 $243
Scudder International Subaccount $96 $140 $173 $273
Money Market Subaccount $90 $122 $144 $210
Capital Appreciation Subaccount $96 $138 $171 $269
Growth With Income Subaccount $95 $137 $169 $264
High Income Subaccount $96 $139 $173 $272
Emerging Growth Subaccount $94 $134 $164 $254
Total Return Subaccount $94 $134 $164 $254
Templeton International Subaccount $97 $137 $166 $256
AIM V.I. Capital Appreciation Subaccount $94 $134 $164 $254
</TABLE>
If you annuitize at the end of the applicable time period or if
you do not surrender your Contract, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on
assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Subaccount $20 $62 $106 $230
Bond Subaccount $20 $61 $104 $225
Capital Subaccount $22 $67 $115 $248
S&P 500 Index Subaccount $18 $56 $96 $209
S&P MidCap 400 Index Subaccount $18 $56 $96 $209
Balanced Index Subaccount $18 $56 $96 $209
Capital Growth Subaccount $21 $66 $113 $243
Scudder International Subaccount $24 $75 $128 $273
Money Market Subaccount $18 $56 $97 $210
Capital Appreciation Subaccount $24 $74 $126 $269
Growth With Income Subaccount $23 $72 $123 $264
High Income Subaccount $24 $75 $128 $272
Emerging Growth Subaccount $22 $69 $118 $254
Total Return Subaccount $22 $69 $118 $254
Templeton International Subaccount $25 $72 $121 $256
AIM V.I. Capital Appreciation Subaccount $22 $69 $118 $254
</TABLE>
The purpose of this table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly. The table reflects expenses of Carillon Account as
well as those of the Funds. The table does not reflect any
deduction made for premium taxes that may be applicable (see
page 22).
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 1998 by the total average net assets
attributable to the Contracts. Net assets attributable to the
Contracts includes amounts allocated to both Carillon Account
and the Guaranteed Account except for such amounts as are held
as reserves for annuity benefit payments.
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY
AND CARILLON ACCOUNT
The Union Central Life Insurance Company
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: We are a mutual insurance company.]
We are a mutual insurance company, organized in 1867 under the
laws of Ohio. We are primarily engaged in the sale of life and
disability insurance and annuities and are currently licensed to
operate in all states and the District of Columbia. The Contract
is available in all states.
Carillon Account
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Carillon Account is one of our separate accounts.
Carillon Account is one of our separate accounts. It is
registered with the SEC as a unit investment trust under the
Investment Company Act of 1940. Such registration does not mean
that the SEC supervises the management or investment practices
or policies of Carillon Account. Our Board of Directors
established Carillon Account on February 6, 1984.
Although the assets of Carillon Account belong to us, those
assets are held separately from our other assets, and are not
chargeable with our liabilities incurred in any other business
operations (except to the extent that assets in Carillon Account
exceed our liabilities under the variable portion of the
Contracts). Accordingly, the income, capital gains, and capital
losses incurred on the assets of Carillon Account are credited
to or charged against the assets of Carillon Account, without
regard to the income, capital gains or capital losses arising
out of any other business we may conduct. Therefore, the
investment performance of Carillon Account is entirely
independent of both the investment performance of our general
assets and the performance of any other of our separate
accounts.
Carillon Account has been divided into sixteen Subaccounts, each
of which invests in a different Portfolio of the Funds. We may
add additional Subaccounts at our discretion.
The Funds
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Each Subaccount of Carillon Account invests in a
different Fund Portfolio.
The Funds are mutual funds registered with the SEC. Such
registration does not mean that the SEC supervises the
management or investment practices or policies of the Funds. The
Funds and their investment advisers are:
<TABLE>
<CAPTION>
Fund Investment Adviser
- ---- ------------------
<S> <C>
Carillon Fund.......... Carillon Advisers, Inc.
Scudder Fund........... Scudder Kemper Investments, Inc.
MFS Fund............... Massachusetts Financial Services Company
American Century Fund.. American Century Investment Management, Inc.
Templeton Fund......... Templeton Investment Counsel, Inc.
AIM Fund............... AIM Advisors, Inc.
</TABLE>
Carillon Account invests in the:
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Sixteen Portfolios currently are available.]
- - Equity, Bond, Capital, S&P 500 Index, S&P MidCap 400 Index and
Balanced Index Portfolios of Carillon Fund;
- - Capital Growth and International Portfolios (Class A), and
Money Market Portfolio, of Scudder Fund;
- - MFS Growth With Income, MFS High Income, MFS Emerging Growth
and MFS Total Return Series of MFS Fund; and
- - American Century VP Capital Appreciation Portfolio of American
Century Fund;
- - Templeton International Fund Class 2 Portfolio of Templeton
Fund.
- - AIM V.I. Capital Appreciation Fund of AIM Fund.
Each Fund has one or more 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 Carillon Fund S&P MidCap 400 Index Portfolio seeks
investment results that correspond to the total return
performance of U.S. common stocks, as represented by the S&P
MidCap 400 Index.
The Carillon Fund Balanced Index Portfolio seeks investment
results, with respect to 60% of its assets, that correspond to
the total return performance of U.S. common stocks, as
represented by the S&P 500 Index and, with respect to 40% of its
assets, that correspond to the total return performance of
investment grade bonds, as represented by the Lehman Brothers
Aggregate Bond Index.
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 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.
The MFS Emerging Growth Series seeks to provide long-term growth
of capital.
The MFS Total Return Series seeks primarily to provide above-
average income (compared to a portfolio invested entirely in
equity securities) consistent with the prudent employment of
capital, and secondarily to provide a reasonable opportunity for
growth of capital and income.
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 Templeton International Fund Class 2 seeks long-term capital
growth by investing in stocks of companies located outside the
United States, including emerging markets.
The AIM V.I. Capital Appreciation Fund seeks growth of capital
through investment in common stocks, with emphasis on medium-
and small-sized growth companies.
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Portfolio performance is NOT guaranteed.]
There is no assurance that any Portfolio will achieve its stated
objective. Additional information about the investment
objectives and policies of the Portfolios can be found in the
current Fund prospectuses which are attached to this prospectus.
You should read the Fund prospectuses carefully before making
any decision about the allocation of your premiums to a
particular Subaccount of Carillon Account.
Additions, Deletions or Substitutions of Investments
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: We may add, delete or modify the Portfolios available
under the Contract.]
We retain the right, subject to any applicable law, to make
additions to, deletions from, or substitutions for, the
Portfolio shares purchased by any Subaccount of Carillon
Account. We reserve the right to eliminate the shares of any of
the Portfolios and to substitute shares of another Portfolio, or
of another open-end, registered investment company, if the
shares of the Portfolio are no longer available for investment,
or if in our judgment investment in any Portfolio would become
inappropriate. To the extent required by applicable law,
substitutions of shares attributable to your interest in a
Subaccount will not be made until you have been notified of the
change, and until the SEC has approved the change. In the case
of such a 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 Carillon
Account from purchasing other securities for other series or
classes of contracts, or from effecting a conversion between
series or classes of contracts on the basis of requests made by
Contract Owners.
We may also establish additional Subaccounts of Carillon
Account. Each additional Subaccount would purchase shares in a
new Portfolio or in another Fund. New Subaccounts may be
established when, in our discretion, marketing needs or
investment conditions warrant, and any new Subaccounts will be
made available to existing Contract Owners, if at all, only on a
basis we determine. We may also eliminate one or more
Subaccounts if we believe that marketing, tax or investment
conditions so warrant.
In the event of any such substitution or change, we may, by
appropriate endorsement, make corresponding changes in the
Contracts. If we deem it to be in the best interests of persons
having voting rights under the Contracts, Carillon Account may
be operated as a management company under the Investment Company
Act of 1940 or it may be deregistered under that 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
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Minimum premium payments are $25 for Qualified Contracts
and $50 for Nonqualified Contracts.]
You can purchase a Contract by completing an application and
having it and a premium of at least $25 for Qualified Contracts
or $50 for Nonqualified Contracts sent to us by one of our
registered representatives. Acceptance of an application is
subject to our underwriting rules and we reserve the right to
reject any application. If we cannot credit an initial premium
to the Contract within five business days of our receipt of it,
then we will return the premium immediately unless the applicant
consents to our holding the premium for a longer period. We will
credit initial premiums accompanied by completed applications to
the Contract not later than two business days following receipt.
Premiums
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Subsequent premiums may be made at any time.]
After the first premium has been paid and accepted, you have
flexibility (within the limits of your retirement plan, if any)
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. We may waive the maximum but a waiver in one instance does
not constitute a waiver for any additional premiums.
If you pay no premiums for two consecutive Contract Years (three
if you live in New York), we may cancel your Contract and return
its accumulation value (minus the administration fee and
surrender charge, if applicable) but only if:
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: If you stop making premium payments and have a small
accumulation value, we may terminate your Contract. ]
- - the accumulation value is less than $2,000 at the end of the
two-year period (three in New York);
- - the total premium paid, less any partial surrenders, is less
than $2,000; and
- - we have given you at least 30 days notice to pay an additional
premium to prevent cancellation.
Your premiums will be allocated among the seventeen Investment
Options in accordance with the instructions specified in your
application for the Contract or as you may subsequently change
them. You may allocate any portion of your premiums (subject to
a $10 minimum) to any of the Investment Options. You may change
your payment allocation instructions at any time, without
charge, by providing us new instructions in a form acceptable to
us.
Crediting of Accumulation Units
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Accumulation units are used to measure the value of your
Variable Account subdivisions.]
We credit premiums that you allocate to your Variable Account to
your Contract in the form of Accumulation Units. The number of
Accumulation Units credited to your Contract is determined by
dividing the amount you allocate to each subdivision of the
Variable Account by the Accumulation Unit value for the
corresponding Subaccount of Carillon Account for the Valuation
Period during which your 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.
During the Pay-in Period, your Contract's accumulation value
equals the sum of the Variable Account and the Guaranteed
Account credited to your 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
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: The values of accumulation units vary with the performance
of corresponding Portfolios. The values of accumulation units
are computed at the close of business on each "valuation date."]
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
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:
- - when the New York Stock Exchange is closed (currently, New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day (observed), Labor Day,
Thanksgiving Day, and Christmas Eve); and
- - any day on which changes in the value of the portfolio
securities of a Portfolio will not materially affect the
current net asset value of the shares of that 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:
- the net asset value per Portfolio share held in the
Subaccount determined as of the end of the current
valuation period; plus
- 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
- a per share charge or credit for any taxes incurred by or
provided for in the Subaccount, which we determine to have
resulted from the maintenance of the Subaccount (we do not
believe that currently any taxes are incurred by Carillon
Account); and
(B) is:
- the net asset value per 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
- 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 we deduct from
Carillon Account 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
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: During the Pay-in Period, you may make 6 free transfers
per Contract Year from or among the Variable Account
subdivisions. Additional transfers cost $10 each. Transfers
from the Guaranteed Account are subject to restrictions.]
During the Pay-in Period, you may transfer amounts among
subdivisions of your Contract's Variable Account or between the
Guaranteed Account and subdivisions of the Variable Account.
You may transfer up to the greater of:
- 20% of the value of the Guaranteed Account (as of the
first day of the Contract Year), or
- $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.
During the Pay-in Period, you may make up to six free transfers
each Contract Year. However, we will impose a transaction
charge (currently $10 and guaranteed not to exceed $15) for each
transfer in excess of six. 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.
Your transfer requests must be made by 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 we receive the transfer request at
our Home Office (address and phone number on the first page of
this prospectus).
During the Pay-out Period, the Annuitant can change the reserve
basis (contract reserves for the specific variable annuity
contract involved) for the variable annuity benefit 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
benefit payments will result in subsequent annuity benefit
payments being based on the investment performance of the
Subaccount to which annuity reserves have been transferred.
Telephone Transfers: You are eligible to make transfers pursuant
to telephone instructions unless you tell us in writing that you
do not want to make transfers by telephone.
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: You may make transfers by telephone.]
Telephone transfer instructions may be made by calling 1-800-
456-9319 between 9:00 a.m. and 3:30 p.m. (Eastern Time) on days
when we are open for business. Each telephone exchange request
must include a precise identification of your Contract and your
"Personal Security Code" or other designated identifiers. We may
accept telephone exchange requests from any person who properly
identifies the correct Contract Number and Personal Security
Code or other designated identifiers. Thus, you risk possible
loss of interest, capital appreciation and principal in the
event of an unauthorized telephone exchange. Neither we nor the
Funds nor Carillon Investments, Inc. (the principal underwriter
of the Contracts) will be liable for complying with telephone
instructions we reasonably believe to be authentic, nor for any
loss, damage, cost or expense in acting on such telephone
instructions, and you will bear the risk of any such loss. We
will employ reasonable procedures to confirm that telephone
instructions are genuine. If we do not employ such procedures,
we 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. We may record all or part of any telephone conversation
relating to transfer instructions 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. You may change allocations of future premium
payments by providing us new instructions in a form acceptable
to us.
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 we
will process them pursuant to the terms and restrictions already
described in this section.
We reserve the right to modify, suspend or discontinue the
telephone transfer privilege at any time and without prior
notice.
Special Transfers - Dollar Cost Averaging
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: You may pre-arrange certain types of transfers, including
ones in connection with Dollar Cost Averaging, Portfolio
Rebalancing and Interest Sweep programs.]
We administer a dollar cost averaging ("DCA") program that
enables you to pre-authorize a periodic exercise of your right
to transfer amounts among subdivisions of the Variable Account.
Contract Owners entering into a DCA agreement instruct us to
transfer monthly (as of the first business day of the month) a
predetermined dollar amount from the Money Market subdivision to
other subdivisions of your Variable Account until the amount in
your Money Market subdivision is exhausted. The minimum amount
of a DCA trasfer is $100. You may terminate your DCA agreement
at any time by notifying us in writing at least five business
days prior to the next scheduled transfer date.
Transfers made pursuant to the DCA program are not subject to a
transfer charge and do not affect your Contract right during the
Pay-in Period to make up to six transfers each Contract Year
without charge.
By allocating specific amounts on a regularly scheduled basis,
as opposed to allocating the total amount at one particular
time, you 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.
If you are interested in the DCA program, you may elect to
participate in it by separate application.
Portfolio Rebalancing Plan
If you have at least $5,000 in your Variable Account, you may
elect to establish a Portfolio Rebalancing Plan. Under such a
plan, you may tell us (in your application or by separate
application) the percentage levels you would like to maintain
among the subdivisions of your Variable Account. On a
quarterly, semi-annual or annual basis (as you select), we will
automatically rebalance the subdivisions of your Variable
Account to maintain the indicated percentages by transfers among
the subdivisions. The entire value of the subdivisions of your
Variable Account must be included in your Portfolio Rebalancing
Plan. Other investment programs, such as the DCA program,
Interest Sweep Plan (see below), or other transfers or
withdrawals may not be appropriate in concert with the Portfolio
Rebalancing Plan. Transfers made pursuant to the Portfolio
Rebalancing Plan are not subject to a transfer charge and do not
affect your right to make up to six free transfers each Contract
Year during the Pay-in Period. You may terminate your Portfolio
Rebalancing Plan at any time by notifying us in writing at least
five business days prior to the date of the next rebalancing.
The Portfolio Rebalancing Plan is not available for amounts in
the Guaranteed Account. We reserve the right to alter the terms
or suspend or eliminate the availability of the Portfolio
Rebalancing Plan at any time.
Interest Sweep Plan
If you have at least $5,000 in the Guaranteed Account, you may
elect (in your application or by separate application) 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. You may terminate your Interest Sweep
Plan at any time by notifying us 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 your right to
make up to six free transfers each Contract Year during the Pay-
in Period. We reserve the right to alter the terms or suspend
or eliminate the availability of the Interest Sweep Plan at any
time.
Surrenders
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Full or partial surren-ders give you access to your
Contract's accumulation values. Surrender charges and penalty
taxes may apply to some surrenders.]
You may make cash withdrawals (surrenders) of all or part of
your Contract's accumulation value at any time during the Pay-in
Period prior to the death of the Annuitant (subject to any
restrictions imposed in connection with your retirement plan).
Surrender requests must be made in writing on forms that we
provide. 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 your
Contract's accumulation value at the end of the valuation period
during which we receive the proper written request, minus 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. For surrenders from the Guaranteed Account, see
page 25. For restrictions applicable to certain surrenders under
Contracts issued in connection with plans adopted pursuant to
Section 403(b) of the Code, see "Qualified Plans," page 29.
The minimum partial surrender is $100 or the entire amount in
the Investment Option, whichever is less. If the amount
remaining in the Investment Option would be less than $25 after
the surrender (and deduction of the surrender charge, if any),
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
Contract's 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
surrender charges described below (at page 20) and may be
subject to a 10% tax penalty.
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.
We will implement partial surrenders by canceling Accumulation
Units in an amount equal to the withdrawal and any applicable
surrender charge. You should designate the Investment Option
from which your surrender should be made. If you make no
designation, your requested amount will be withdrawn from each
of your Investment Options (in the proportion the Investment
Option bears to your 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 you assume the investment risk with respect to amounts
allocated to your Variable Account (and because there are
certain charges), the total amount paid upon total surrender of
your Contract (including any prior surrenders) may be more or
less than the total premiums that you paid.
Personal Income Plan
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Personal Income Plans allow you to pre-arrange
surrenders.]
We administer a Personal Income Plan ("PIP") that enables you to
pre-authorize periodic surrenders by entering into a PIP
agreement with us that instructs us to withdraw a level dollar
amount or percentage of your Contract's 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 your accumulation value (in the initial year, as of the date
we approve the PIP agreement; in subsequent years, as of the
first day of that Contract Year), a surrender charge may be
applicable. PIP surrenders may also be subject to the 10%
federal tax on early withdrawals.
CHARGES AND OTHER DEDUCTIONS
Administration Fees
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: You pay a $30 administration fee each Con-tract Year
during the Pay-in Period if your accumulation value is less than
$25,000.]
During the Pay-in Period, we will deduct an administration fee
of $30 from your Contract's accumulation value on the last day
of each Contract Year for our expenses related to administration
of your Contract and Variable Account. The annual administration
fee will be waived for any year in which the accumulation value
of your Contract is $25,000 or more on the last day of that
Contract Year. We reserve the right to waive this fee for
Contracts sold to select classes of employer-sponsored
retirement plans. We guarantee that the amount of this fee will
not increase over the life of the Contract. This annual
administration fee is not deducted during the Pay-out Period.
The fee will be deducted pro rata from all Investment Options in
the same proportion that your interest in each bears to your
Contract's 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.
We also deduct a daily administrative fee at an annual rate of
0.25% of the assets of your Variable Account to help defray our
expenses of administering Carillon Account and the Contract.
This deduction also is guaranteed not to increase over the life
of the Contract.
Mortality and Expense Risk Charge
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: We deduct daily asset-based charges of 0.25% for
administering the Contracts and Carillon Account and 1.00% for
assuming certain mortality and expense risks. We may increase
the mortality and expense risk charge to as much as 1.70%.]
A "mortality and expense risk" charge will be deducted daily at
a rate equal, on an annual basis, to 1.00% of each Contract's
Variable Account. THIS CHARGE MAY INCREASE BUT WE GUARANTEE THAT
IT WILL NEVER BE MORE THAN 1.70%.
The mortality risk arises from our guarantees to make annuity
benefit payments in accordance with the annuity tables in the
Contract, 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 our 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 during the Pay-in Period.
Our expense risk arises from the possibility that the amounts
realized from the administration fees and surrender charge
(which are guaranteed not to increase) will be insufficient to
cover our actual administrative and distribution expenses. If
these charges are insufficient to cover the expenses, the
deficiency will be met from our 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,
we will bear the loss. If the charge is more than sufficient, we
will retain the balance as profit. We currently expect a profit
from this charge.
Surrender Charge (Contingent Deferred Sales Charge)
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Surrender charges may be deducted upon surrenders. 10% of
your accumulation value may be withdrawn each Contract Year
without a surrender charge. Aggregate surrender charges will
never exceed 9% of aggregate premiums paid.]
If a surrender takes place in the first eight Contract Years,
then a surrender charge will be imposed on the amount withdrawn
as shown below:
<TABLE>
<CAPTION>
Contract Year
of Surrender 1 2 3 4 5 6 7 8 Thereafter
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Applicable
Surrender
Charge 7% 7% 6% 5% 4% 3% 2% 1% Free
</TABLE>
Notwithstanding the charges described above, partial surrenders
totaling not more than 10% of your Contract's 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. The cumulative total of all surrender
charges is guaranteed never to exceed 9% of premiums. Also, PIP
surrenders in a Contract Year totaling not more than 10% of the
accumulation value (in the initial year, as of the date we
approve the PIP agreement; in subsequent years, as of the first
day of that Contract Year) may be made without the imposition of
the surrender charge.
Surrender charges on partial surrenders will be deducted pro
rata from the value remaining in the Investment Option(s) 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 charge on a total surrender of a
Contract will be deducted from the amount paid.
The amounts we obtain from the surrender charge will be used to
offset the distribution fee we pay to Carillon Investments, Inc.
The surrender charge is not expected to recover all of the
distribution costs associated with the Contracts. We will pay
any shortfall out of our 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.
Terminal Illness/Confinement
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: If state law allows, we will waive surrender charges if
your surrender is because you have a terminal illness or are
confined to a "qualified" health care institution.]
Also, where permitted by state law, we will waive the surrender
charge 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 Contract Date or May 1, 1993, subject to the
following:
- The Contract Owner must be a natural person (not a trust,
corporation, or other legal entity).
- The Contract Owner must have been an owner of the Contract
continuously since the Contract Date.
- The Contract 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.
- We receive a written request for full or partial surrender
along with due proof of confinement within 12 months
following such confinement.
- A "qualified institution" means any licensed hospital or
licensed skilled or intermediate care nursing facility at
which:
- medical treatment is available on a daily basis; and
- daily medical records are kept for each patient.
(2) The Contract Owner contracts a terminal illness after the
later of the Contract Date or May 1, 1993, subject to the
following:
- The Contract Owner must be a natural person (not a Trust,
Corporation, or other legal entity).
- The Contract Owner must have been an owner of the Contract
continuously since the Contract Date.
- The Contract Owner has less than 12 months to live.
- We must receive a written request for full or partial
surrender together with a certificate from the Contract
Owner's attending physician stating the Contract Owner's
life expectancy and any other proof we may require.
- "Physician" means a medical doctor licensed in the United
States who:
- is operating within the scope of that license; and
- is not the Contract Owner and is not related to the
Contract Owner.
Other Waivers or Reductions of Surrender Charge
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: The surrender charge may be reduced in certain
circumstances, including in connection with sales to groups or
upon certain types of exchanges.]
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:
- another Contract owned by the employer or another person
for the benefit of the Contract Owner in connection with an
employee benefit plan,
- a certificate (account) under certain of our group
retirement annuity contracts, or
- certain of our 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.
Premium Taxes
We will deduct any premium taxes imposed by state or local law
when incurred, which could be:
- at the Maturity Date,
- when a total surrender occurs, or
- 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 Contract's 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 our status 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
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: The Funds pay investment advisory fees and other expenses.]
There are deductions from and expenses paid out of the assets of
the Funds that are fully described in the Fund prospectuses and
summarized in the table on page 9.
BENEFITS UNDER THE CONTRACT
Death Benefits
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: A death benefit at least equal to premiums paid (less
surrenders and related surrender charges) will be paid to the
Beneficiary upon the death of the Annuitant during the Pay-in
Period.]
If the Annuitant is the Contract Owner and dies during the Pay-
in Period, or if the Annuitant dies during the Pay-in Period
while the Contract Owner is living, then a death benefit will be
paid to the Beneficiary. The death benefit will be the greater
of:
- the sum of all premiums paid less any amounts deducted in
connection with partial surrenders, including any surrender
charge associated with those partial withdrawals; or
- the Contract's accumulation value on the date we receive
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 Carillon Account.
If a Contract Owner who is not the Annuitant dies during the
Pay-in Period and while the Annuitant is living, we normally
will pay the Contract's accumulation value (measured as of the
date we receive Due Proof of Death) to the Contract Owner's
estate or to a successor Contract Owner. However, if the
Contract Owner's spouse is the designated beneficiary under the
Contract, that spouse will become the Contract Owner and no
distribution will be required as a result of the death of the
original Contract Owner.
If the Annuitant dies during the Pay-out Period, we will provide
the death benefit, if any, contained in the particular annuity
benefit option elected. See page 24.
Annuity Benefit Payments
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: You select the Maturity Date (when you stop paying
premiums and start receiving annuity benefit payments) in your
Contract appli-cation and may change it subsequently by giving
us 30 days written notice.]
Maturity Date You specify in your application the day that
annuity benefit payments will commence under the Contract (the
"Maturity Date"). You may change your Maturity Date at any time,
provided we receive written notice of the change at least 30
days before the previously specified Maturity Date. The Maturity
Date must be:
- at least one month after the Contract Date;
- the first day of a calendar month; and
- 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 - You may specify any proportion of your
Contract's accumulation value (less premium taxes, if any) to be
applied to a variable annuity or a fixed annuity. Variable
annuity benefit payments will vary in accordance with the
investment experience of the Subaccount(s) you select.
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: You select a fixed or variable annuity benefit payment
option at least 30 days prior to the Maturity Date.]
At least 30 days before the Maturity Date, you must select how
your Contract's accumulation value will be used to provide the
monthly annuity benefit payments. If no selection is made, we
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 benefit payment will be
based on the allocation of the Variable Account among the
subdivisions.
If you select a variable annuity, the amount of the first
monthly annuity benefit payment will be obtained from the
appropriate Option Table in your 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 Benefit Payments - The amount of
variable annuity benefit payments will depend not only upon the
investment experience of the Subaccount you select, but also
upon the amount of any premium tax, the age (and possibly sex)
of the Annuitant, and the annuity benefit option chosen. We
guarantee that the annuity benefit payments:
- 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
- will not be affected by the actual amount of expenses we
incur in administering the Contract.
Because variable annuity benefit payments will vary with the
investment results of the Subaccounts, the amounts of those
payments cannot be predetermined.
If the total accumulation value to be applied to an annuity
benefit option is less than $5,000 ($2,000 in Massachusetts and
New York), we 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
benefit option selected is less than $50 ($20 in New York), we
may change the payment frequency of annuity benefit payments to
quarterly, semiannually or annually.
Annuity Benefit Payment Options You may elect a fixed annuity, a
variable annuity, or a combination fixed and variable annuity.
All of the annuity benefit options listed below (except the
alternate annuity option) are available as either fixed or
variable annuities.
Up to 30 days before the Maturity Date, you may change the
annuity benefit option. If an 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 benefit
payments begin. The annuity benefit options include:
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: A variety of annuity benefit payment options are
available, including ones in which you receive payments for life
or for the longer of life or a specified number of years and
ones based on a single life or on the joint lives of two or more
people.]
Option 1: Life Annuity -
- Nonrefund. We 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.
- 5-Years Certain. We 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.
- 10-Years Certain. We 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 you select a different option.)
- Installment Refund. We 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 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 -
- Joint and Survivor Nonrefund. We 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.
- Joint and Survivor with 10-Year Certain. We 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 benefit
options described above, you 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 we are issuing 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 benefit payments have been made for a guaranteed period,
if any, we will continue payments to the beneficiary until the
rest of the guaranteed payments have been made. If no
beneficiary is living, we 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
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Interests in the Guaranteed Account are not securities
and Union Central is not an investment company.]
Premiums allocated to the Guaranteed Account and transfers to
the Guaranteed Account become part of our general assets, which
support our 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 our general assets generally are subject to the
provisions of the 1933 or 1940 Acts and it is understood that
the SEC staff 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 our general assets, other than those allocated to separate
investment accounts such as Carillon Account. You may elect to
allocate all or part of your premiums to the Guaranteed Account,
and you may also transfer values from your Variable Account to
the Guaranteed Account. We bear the full investment risk for all
amounts allocated or transferred to the Guaranteed Account,
whereas you bear the investment risk for amounts allocated or
transferred to your Variable Account. We have sole discretion to
invest our general assets, including assets funding the
Guaranteed Account, subject to applicable law.
Guaranteed Account Accumulations
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: We guarantee that amounts you allocate to the Guaranteed
Account will accumulate at a rate of at least 4.00% per year.
We may credit more than 4.00% interest at our discretion.]
We guarantee that we 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 we 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
OUR SOLE DISCRETION.
We guarantee that, during the Pay-in Period, the Guaranteed
Account of the Contract will be at least equal to:
- the total of all net premiums allocated to the Guaranteed
Account; plus
- the total of all amounts transferred to the Guaranteed
Account from the Variable Account; minus
- the total of all amounts transferred from the Guaranteed
Account to the Variable Account (including the transfer
fee); minus
- the total of all administration fees attributable to the
Guaranteed Account; minus
- the total of all partial surrenders from the Guaranteed
Account (including any surrender charge); plus
- interest at the guaranteed annual effective interest rate
of 4.0%.
Fixed Annuity Benefit Payments
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Fixed annuity benefit payments are based on interest
credited at a guaranteed 4.00% rate.]
A fixed annuity is an annuity with benefit payments that have a
dollar amount that is fixed and guaranteed by the insurance
company issuing the contract. The amount of the annuity benefit
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 benefit
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.
We guarantee the amount of fixed annuity benefit payments. The
payment depends only on the annuity benefit option elected, the
age (and possibly sex) of the Annuitant, and the amount applied
to purchase the fixed annuity.
Surrenders
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: You may surrender all or part of your Guaran-teed Account
during the Pay-in Period, but we may delay paying your surrender
proceeds for up to 6 months.]
You may surrender all or part of your Guaranteed Account value
at any time during the Pay-in Period prior to the death of the
Annuitant. We intend to pay surrender requests upon receipt but
reserve 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 24.
Transfers
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Transfers from the Guaranteed Account to the Variable
Account may be made during the Pay-in Period. No more than the
greater of 20% of your Guaranteed Account (as of the first day
of the Contract Year) or $1,000 may be so transferred in a
Contract Year.]
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 during the
Pay-in Period. During the Pay-in Period, you may transfer up to
the greater of
20% of the value of your Guaranteed Account (as of the
first day of the Contract Year), or
$1,000
to one or more subdivisions of your Variable Account each
Contract Year. 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 benefit
payments.
GENERAL MATTERS
Designation of Beneficiary
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: You designate a Beneficiary to receive benefits upon the
death of the Annuitant.]
The Beneficiary is the person you designate as such in your
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, you may change the Beneficiary while the Annuitant
is living by providing us with written notice. Any change will
be effective at the time you signed it, whether or not the
Annuitant is living when we receive the change. We will not,
however, be liable as to any payment or settlement made prior to
receiving the written notice.
20-Day Right to Examine Contract
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: In the first 20 days after you receive your Contract, you
may return it and receive a refund from which surrender charges
are not deducted.]
If you are not satisfied with the Contract, you may void it by
returning it to us or our agent from which it was purchased
within 20 days of receipt. You will then receive a full refund
of any premium paid or in certain states the Contract's
accumulation value.
Contract Owner's Inquiry
You may make inquiries concerning your Contract by calling us 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 our understanding of the
present federal income tax laws as they are currently
interpreted by the Internal Revenue Service ("IRS"). We make no
representation about the likelihood of continuation of these
federal income tax laws or of the current interpretations by the
IRS. Moreover, we have made no attempt 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 Code. The ultimate effect of
federal income taxes on the Contract's accumulation value, on
annuity benefit 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
our tax status, and on other factors. Any person concerned about
these tax implications should consult a competent tax adviser.
Tax Status of Contracts
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: Gains inside an annuity contract are usually tax-deferred
(if the contract owner is a natural person) until there is a
surrender or receipt of annuity benefit payments or a death
benefit payment. When taxed, those gains are taxed as ordinary
income.]
The following discussion assumes that the Contracts will be
treated as annuities under Section 72 of the Code.
We believe that an annuity owner generally is not taxed on
increases in the value of an annuity 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), as annuity
benefit payments under the annuity option elected, or as a death
benefit payment. 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 benefit payment 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 benefit payment under the Contract
is generally taxed on the portion of that payment that exceeds
the investment in the Contract. For variable annuity benefit
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 benefit 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.
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: A 10% penalty tax may apply to gains distribu-ted in a
surrender prior to age 59-1/2.]
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
- made on or after age 59-1/2,
- made as a result of death or disability, or
- 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 an annuity 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. If you are contemplating any such transfer or
assignment of your Contract, you should contact a competent tax
adviser with respect to its potential tax effects.
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 us of
that election. Failure to provide your taxpayer identification
number will automatically subject any payments under the
Contract to withholding.
Qualified Plans
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: You should seek legal and tax advice prior to purchasing
the Contract for use in a qualified plan.]
The Contract may be used with several types of qualified plans.
The tax rules applicable to participants in 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.
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.
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.
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.
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 IRS, is adopted and implemented by the employer.
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.
TEXAS OPTIONAL RETIREMENT PROGRAM
RESTRICTIONS
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:
- termination of employment in the Texas public
institutions of higher education,
- retirement, or
- 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
[TO THE LEFT OF THE NEXT PARAGRAPH THE FOLLOWING IS ENCASED IN A
BOX: We pay brokers to sell the Contracts.]
Carillon Investments, Inc. ("Carillon Investments," a wholly-
owned subsidiary of Union Central whose principal business
address is 1876 Waycross Road, Cincinnati, Ohio 45240), is the
principal underwriter of the Contracts. Carillon Investments is
registered with the SEC as a broker-dealer and is a member of
the National Association of Securities Dealers, Inc. We will pay
Carillon Investments an amount no more than 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. When the surrender charges are
reduced, the amount paid to Carillon Investments will be less
than 5% of premiums.
VOTING RIGHTS
[to the left of the next paragraph the following is encased in a
box: YOU INSTRUCT US HOW TO VOTE FUND SHARES.]
To the extent required by law, we will vote the Portfolio shares
held by Carillon Account at shareholder meetings of the Funds in
accordance with instructions received from persons having voting
interests in the corresponding Subaccounts of Carillon Account.
However, if legal requirements should change, and as a result,
we determine that we are allowed to vote the Portfolio shares in
our own right, we may elect to do so.
The number of votes which a person has the right to instruct
will be calculated separately for each Subaccount. During the
Pay-in Period, the number of votes for which you have a right to
give instructions will be determined by dividing your Contract's
accumulation value attributable to a subdivision by the net
asset value per share of the corresponding Portfolio. During the
Pay-out Period, the Annuitant has the voting interest. The
number of votes during the Pay-out Period will be determined by
dividing the reserve for that Contract held in a Subaccount by
the net asset value per share of the corresponding Portfolio.
During the Pay-out Period, 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 a
Fund's shareholder meeting. We will vote Fund shares held in
Carillon Account as to which we receive no timely instructions
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.
PREPARING FOR YEAR 2000
Like all financial services providers, we utilize systems that
may be affected by Year 2000 transition issues and we rely on
service providers, including banks, custodians, and investment
managers that also may be affected. We and our 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. We and our affiliates are devoting
substantial resources to this effort. 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 us. 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. We currently anticipate that our systems will
be Year 2000 compliant on or about June 30, 1999, but there can
be no assurance that we will be successful. Our failure, or the
failure of one of our service providers, to achieve timely and
complete compliance could materially impair our ability to
conduct our business, including our ability to accurately and
timely value interests in the Contracts.
PERFORMANCE DATA
From time to time we may publish advertisements containing total
return performance data relating to the Subaccounts of Carillon
Account (including graphs, charts, tables and examples depicting
that data). 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.
FINANCIAL STATEMENTS
Financial statements of Carillon Account and Union Central are
included in the SAI which may be obtained without charge by
writing us at: P.O. Box 40409, Cincinnati, Ohio 45240-0409 or
telephoning us at: 1-800-999-1840.
<PAGE>
APPENDIX A
ACCUMULATION UNIT VALUES
(for a unit outstanding throughout the period)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EQUITY SUBACCOUNT
Accumulation unit
value at beginning
of period $49.527 $41.682 $33.969 $27.147 $26.628
Accumulation unit
value at end of
period $41.397 $49.527 $41.682 $33.969 $27.147
Number of
accumulation units
outstanding,
end of period 2,575,127 2,907,000 2,723,705 2,337,986 1,981,958
Payout unit value $41.397 $49.527 $41.682 $33.969 $27.147
Number of payout
units outstanding,
end of period 8,295 8,952 9,142 9,796 10,476
<CAPTION>
Year ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EQUITY SUBACCOUNT
Accumulation unit
value at beginning
of period $23.676 $21.491 $14.979 $17.977 $16.316
Accumulation unit
value at end of
period $26.628 $23.676 $21.491 $14.979 $17.977
Number of
accumulation units
outstanding,
end of period 1,723790 1,312,947 1,057,669 936,036 799,268
Payout unit value
Number of payout
units outstanding,
end of period
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BOND SUBACCOUNT
Accumulation unit
value at beginning
of period $27.584 $25.210 $23.865 $20.341 $20.977
Accumulation unit
value at end of
period $29.003 $27.584 $25.210 $23.865 $20.341
Number of accumulation
units outstanding,
end of period 1,011,680 766,722 672,511 574,421 508,398
<CAPTION>
Year ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BOND SUBACCOUNT
Accumulation unit
value at beginning
of period $19.014 $17.921 $15.424 $14.403 $13.199
Accumulation unit
value at end of
period $20.977 $19.014 $17.921 $15.424 $14.403
Number of accumulation
units outstanding,
end of period 513,613 348,420 283,493 285,370 250,631
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL SUBACCOUNT
Accumulation unit
value at beginning
of period $19.439 $18.367 $16.214 $14.394 $14.467
Accumulation unit
value at end of period $16.635 $19.439 $18.367 $16.214 $14.394
Number of accumulation
units outstanding,
end of period 1,879,419 2,590,389 2,632,591 2,521,521 2,271,375
<CAPTION>
Year ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL SUBACCOUNT
Accumulation unit
value at beginning
of period $13,022 $12.241 $ 9.850 $10.000<F1>
Accumulation unit
value at end of period $14,467 $13.022 $12.241 $ 9.850
Number of accumulation
units outstanding,
end of period 1,790,938 1,181,036 627,636 279,289
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
S&P 500 INDEX
SUBACCOUNT
Accumulation unit
value at beginning
of period $14.878 $11.375 $10.00<F2>
Accumulation unit
value at end of
period $18.876 $14.878 $11.375
Number of accumulation
units outstanding,
end of period 3,469,857 2,041,455 869,681
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL GROWTH
SUBACCOUNT
Accumulation unit
value at beginning
of period $22.803 $17.041 $14.394 $11.351 $12.749
Accumulation unit
value at end of
period $27.733 $22.803 $17.041 $14.394 $11.351
Number of accumulation
units outstanding,
end of period 2,278,985 1,896,320 1,593,634 1,162,999
<CAPTION>
Year ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL GROWTH
SUBACCOUNT
Accumulation unit
value at beginning
of period $10.700 $10.000<F3>
Accumulation unit
value at end of
period $12.749 $10.700
Number of accumulation
units outstanding,
end of period 439,914 70,218
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SCUDDER INTERNATIONAL
SUBACCOUNT
Accumulation unit
value at beginning
of period $17.256 $16.054 $14.192 $12.958 $13.259
Accumulation unit
value at end of period $20.180 $17.256 $16.054 $14.192 $12.958
Number of accumulation
units outstanding,
end of period 1,695,187 1,669,242 1,564,591 1,220,160 1,095,214
<CAPTION>
Year ended December 31,
---------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SCUDDER INTERNATIONAL
SUBACCOUNT
Accumulation unit
value at beginning
of period $9.760 $10.000<F3>
Accumulation unit
value at end of period $13.259 $9.760
Number of accumulation
units outstanding,
end of period 362,172 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>
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES
(for a unit outstanding throughout the period)
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MONEY MARKET
SUBACCOUNT
Accumulation unit
value at beginning
of period $16.627 $16.028 $15.468 $14.850 $14.526
Accumulation unit
value at end of period $17.280 $16.627 $16.028 $15.468 $14.850
Number of accumulation
units outstanding,
end of period 489,588 433,296 477,679 368,444 280,575
<CAPTION>
Year ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MONEY MARKET
SUBACCOUNT
Accumulation unit
value at beginning
of period $14.369 $14.122 $13.576 $12.709 $11.846
Accumulation unit
value at end of period $14.526 $14.369 $14.122 $13.576 $12.709
Number of accumulation
units outstanding,
end of period 119,598 120,547 83,623 103,405 75,006
<CAPTION>
Year ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION
SUBACCOUNT
Accumulation unit
value at beginning
of period $8.640 $9.062 $10.000<F2>
Accumulation unit
value at end of period $8.344 $8.640 $9.062
Number of accumulation
units outstanding,
end of period 594,190 640,421 424,022
<CAPTION>
Year ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GROWTH WITH INCOME
SUBACCOUNT
Accumulation unit
value at beginning
of period $14.521 $11.352 $10.000<F2>
Accumulation unit
value at end of period $17.531 $14.521 $11.352
Number of accumulation
units outstanding,
end of period 1,960,448 1,002,705 425,068
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HIGH INCOME SUBACCOUNT
Accumulation unit
value at beginning
of period $12.139 $10.841 $10.000<F2>
Accumulation unit
value at end of period $11.961 $12.139 $10.841
Number of accumulation
units outstanding,
end of period 442,315 269,398 108,723
<CAPTION>
Year ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EMERGING GROWTH
SUBACCOUNT
Accumulation unit
value at beginning
of period $12.409 $10.000<F3>
Accumulation unit
value at end of period $16.431 $12.409
Number of accumulation
units outstanding,
end of period 855,018 224,193
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TEMPLETON INTERNATIONAL
SUBACCOUNT
Accumulation unit value
at beginning of period $10.893 $10.000<F3>
Accumulation unit value
at end of period $11.727 $10.893
Number of accumulation
units outstanding,
end of period 466,880 266,657
<FN>
<F2> Commencement of operations was May 1, 1996.
<F3> Commencement of operations was May 1, 1997.
</FN>
</TABLE>
The S&P MidCap 400 Index Subaccount, Balanced Index Subaccount,
Total Return Subaccount and AIM V.I. Capital Appreciation
Subaccount did not exist on December 31, 1998.
<PAGE>
APPENDIX B
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
1-1-99, 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 IRS, or by
obtaining Publication 590 from IRS.
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 us 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. Our address and telephone number 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 pension 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. (This includes Keogh/H.R. 10
plans.) 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
- an Armed Forces Reservist, for less than 90 days of active
service; or
- 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 $31,000 for taxable
years beginning in 1999. The Threshold Level if you are married
and file a joint tax return is $51,000 for taxable years
beginning in 1999, 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 $31,000 for 1999. The Threshold
Level is established for future years as follows:
Joint Returns
<TABLE>
<CAPTION>
For taxable years The applicable
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
<CAPTION>
"Single" Returns
For taxable years The applicable
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 minus Excess AGI divided by $10,000 times Maximum
Allowable Deduction equals Deduction Limit
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 $10,000 (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 1999 ( as adjusted for
inflation.) Employer contributions to a SEP-IRA are excludable
from the employee's gross income rather than being 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:
withdrawn before the end of the following year, or
treated as a current contribution for the following year.
No contribution may be made to your traditional IRA or no
independent contribution by you to your 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 Internal Revenue
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), or
- 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, or
- surrenders for "qualified higher education expenses," or
- a withdrawal 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 divided by Year-end total
of traditional IRA account balances times Total Distributions
(for the year) equals Nontaxable Distribution (for the year)
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:
- a single sum payment;
- equal or substantially equal payments over your life;
- equal or substantially equal payments over the lives of
you and your designated beneficiary;
- equal or substantially equal payments over a specified
period that may not be longer than your life expectancy; or
- 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:
- - 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.
- - 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:
- by December 31st of the year containing the fifth
anniversary
of your death; or
- in equal or substantially equal payments over a period
no longer than 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 you otherwise elect 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 IRS reviewed the format of your IRA, and issued an opinion
letter to us on May 19, 1986, 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 IRS. 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 as a premature distribution
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 discussion of those requirements.
Prototype Status
The IRS reviewed the format of your SIMPLE IRA and issued an
opinion letter to us on September 26, 1997, stating that your
Contract 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 refund, 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. Roth
IRA contributions must be made 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.
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
distributions 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.
If, within the 5 year period starting with the year of a
Conversion Contribution, any part of a withdrawal from this Roth
IRA is from the taxable part of an amount converted, the 10% tax
on premature distributions applies, unless one of the exceptions
applies.
For purposes of determining the correct tax treatment of
withdrawals (other than the withdrawal of excess contributions
and the earnings on them), the following rule sets forth the
order of withdrawal:
1. regular contributions;
2. Conversion Contributions, on a first-in-first-out basis,
and then taken account of as the taxable portion first and then
the nontaxable portion;
3. earnings on contributions.
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
Your Roth IRA is deemed to meet the statutory requirement for a
Roth IRA pursuant to IRS guidelines.
Part IV. Recharacterizations
You may be able to treat a contribution made to one type of IRA
as having been made to a different type of IRA, for example,
going from a Roth IRA to a traditional IRA. This is called
recharacterizing the contribution.
To recharacterize a contribution, you generally must have the
contribution transferred from the first IRA (the one to which it
was made) to the second IRA in a trustee-to-trustee transfer.
If the transfer is made by the due date (including extensions)
for your tax return for the year during which the contribution
was made, you can elect to treat the contribution as having been
originally made to the second IRA instead of to the first IRA.
It will be treated as having been made to the second IRA on the
same date that it was actually made to the first IRA. The
contribution will not be treated as having been made to the
second IRA unless the transfer includes any net earnings
allocable to the contribution. After the transfer has taken
place, you cannot change your election to recharacterize.
<PAGE>
APPENDIX I FOR CROSS REFERENCING INFORMATION
Included here in the Prospectus booklet is a prospectus for the
CARILLON FUND, INC.
Cross reference the Prospectus as filed with the SEC via EDGAR:
Accession No. 0000743773-99-000012
APPENDIX II FOR CROSS REFERENCING INFORMATION
Included here in the Prospectus booklet is a prospectus for the
MFS EMERGING GROWTH SERIES, MFS GROWTH WITH INCOME SERIES, THE
MFS HIGH INCOME SERIES AND THE TOTAL RETURN SERIES which are
four series of the MFS Variable Insurance Trust.
Cross reference the Prospectus as filed with the SEC via EDGAR:
Accession No. 0001029869-99-000498
<PAGE>
APPENDIX III 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 as filed with the SEC via EDGAR:
Accession No. 0000088053-99-000488
<PAGE>
APPENDIX IV FOR CROSS REFERENCING INFORMATION
Included here in the Prospectus booklet is a prospectus for the
AMERICAN CENTURY VP CAPITAL APPRECIATION FUND, a portfolio of
American Century Variable Portfolios, Inc.
Cross reference the prospectus as filed with the SEC via EDGAR:
Accession No. 0000814680-99-000006
APPENDIX V 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 as filed with the SEC via EDGAR:
Accession No. 0000829959-99-000022
APPENDIX VI FOR CROSS REFERENCING INFORMATION
Included here in the Prospectus booklet is a prospectus for the
AIM V.I. CAPITAL APPRECIATION FUND, a portfolio of AIM Variable
Insurance Funds, Inc.
Cross reference the prospectus as filed with the SEC via EDGAR:
Accession No. 0000950129-99-002037
<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, 1999
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, 1999, 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-7
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>
1998 $3,313,196
1997 $3,447,836
1996 $2,723,411
</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.
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,
1998.
<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 -16.42% -9.23% 9.76% 11.03%
Bond 8/26/85 5.14% 6.69% 8.19% 8.30%
Capital 5/2/90 -14.37% 2.84% -- 6.05%
S&P 500 Index 5/1/96 26.87% -- -- 26.88%
Scudder International 5/1/92 16.94% 8.76% -- 11.10%
Capital Growth 5/1/92 21.62% 16.82% -- 16.52%
Money Market * 7/15/85 4.05% 3.55% 3.84% 4.11%
Capital Appreciation 5/1/96 -3.43% -- -- -6.56%
Growth with Income 5/1/96 20.73% -- -- 23.41%
High Income 5/1/96 -1.46% -- -- 6.94%
Emerging Growth 5/1/97 32.41% -- -- 34.66%
Templeton International 5/1/97 7.66% -- -- 10.02%
<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 -22.34% 8.23% 9.60% 10.76%
Bond 8/26/85 -2.30% 5.72% 8.04% 8.05%
Capital 5/2/90 -20.44% 1.90% -- 5.92%
S&P 500 Index 5/1/96 17.90% -- -- 23.87%
Scudder International 5/1/92 8.67% 7.77% -- 10.64%
Capital Growth 5/1/92 13.02% 15.75% -- 16.04%
Money Market * 7/15/85 -3.31% 2.60% 3.69% 3.86%
Capital Appreciation 5/1/96 -10.26% -- -- -8.79%
Growth with Income 5/1/96 12.19% -- -- 20.48%
High Income 5/1/96 -8.44% -- -- 4.40%
Emerging Growth 5/1/97 23.05% -- -- 28.83%
Templeton International 5/1/97 0.04% -- -- 5.25%
</TABLE>
* Although the Money Market Subaccount began investing in the
Scudder Variable Life Investment Fund Money Market Portfolio on
November 12, 1993, the performance data quoted reflects the
performance of the Scudder Fund Money Market Portfolio since the
inception of the Money Market Subaccount.
<PAGE>
Average annual total return is the average annual compounded
rate of return that equates a purchase payment on the first day
to the market value of that purchase payment on the last day of
the period for which total return is calculated. For purposes
of the calculation, it is assumed that an initial payment of
$1,000 is made on the first day of the period for which the
return is calculated. Expenses and charges incurred by the Fund
and charges measured as a percentage of Subaccount assets are
reflected in changes in unit values. The typical effect of the
annual administration fee is included in the total return
calculations, other than those measured by changes in
Accumulation Unit Value, by multiplying $30 by the total number
of contracts in CA and then dividing that total by the average
net assets of CA (including contract assets allocated to the
Guaranteed Account) for the year measured. The resulting
percentage is then multiplied by the average value of the $1,000
investment during the year measured. For less than one year
periods, 1/365 of the fee is assumed to be deducted for each day
of the period. Total return figures that include the impact of
surrender charges assume that the investment is withdrawn from
the Subaccount at the end of the period for which return is
calculated.
From time to time, advertisements for CA may include
comparisons of performance of the Subaccounts to that of various
market indices, including, but not limited to: the Salomon
Brothers Investment Grade Bond Index, the Salomon Brothers U.S.
Treasury Bill Index, the Shearson Lehman Government/Corporate
Bond Index, the S&P 500 Index, the Dow Jones Industrial Average,
the Donoghue Money Fund 30-Day Average Yield, and the Lipper
Variable Insurance Products Performance Analysis Service.
CA advertisements may also include performance rankings (or
information based on those rankings) compiled by various
independent organizations, including but not limited to: LIPPER
ANALYTICAL SERVICES MUTUAL FUNDS SURVEY, LIPPER VARIABLE
INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE, THE VARDS
REPORT, SYLVIA PORTER PERSONAL FINANCE, FINANCIAL SERVICES WEEK,
CONSUMER REPORTS, MONEY MAGAZINE, FORBES MAGAZINE, and FORTUNE
MAGAZINE.
FEDERAL TAX MATTERS
Taxation of Union Central
Union Central is taxed as a life insurance company under Part
I of Subchapter L of the Internal Revenue Code ("Code"). Since
CA is not an entity separate from Union Central, and its
operations form a part of Union Central, it will not be taxed
separately as a "regulated investment company" under Subchapter
M of the Code. Investment income and realized capital gains on
the assets of CA are reinvested and taken into account in
determining the Accumulation and Annuity Unit values. As a
result, such investment income and realized capital gains are
automatically applied to increase reserves under the Contract.
Under existing federal income tax law, separate account
investment income and capital gains are not taxed to the extent
they are applied to increase reserves under a Contract issued in
connection with CA. Accordingly, Union Central does not
anticipate that it will incur any federal income tax liability
attributable to CA, and therefore Union Central does not intend
to make provisions for any such taxes. However, if changes in
the federal tax laws or interpretations thereof result in Union
Central being taxed on income or gains attributable to CA or
certain types of Contracts, then Union Central may impose a
charge against CA (with respect to some or all Contracts) in
order to set aside provisions to pay such taxes.
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.
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, 1998 and the
statements of financial condition of Union Central at December
31, 1998 and 1997 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, 1998
<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 Capital Appreciation Subaccount and the
Templeton Variable Products Series Fund's International
Subaccount) as of December 31, 1998, 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, 1998, 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, 1998, the results of their operations
for the year then ended and changes in their net assets for each
of the two years in the period then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
March 5, 1999
<PAGE>
<TABLE>
<CAPTION>
CARILLON ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
Carillon Fund, Inc.
(affiliated issuers)
---------------------------------------------
S&P 500
Equity Capital Bond Index
Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C>
ASSETS
Investments in securities
of unaffiliated issuers,
at fair value (cost
$8,462,248; $44,973,271;
$28,965,842; $28,319,396;
$5,426,376; $11,764,717;
$5,302,782; $5,605,202) -- -- -- --
Investments in shares of
Carillon Fund, Inc.,
at fair value (cost
$118,678,232; $37,820,902;
$29,144,815; $50,694,386) $106,960,514 $31,286,488 $29,342,123 $65,496,962
Total Invested Assets $106,960,514 $31,286,488 $29,342,123 $65,496,962
OTHER ASSETS
& (LIABILITIES) (15,739) (2,765) (551) (495)
NET ASSETS
(Contract Owners' Equity) $106,944,775 $31,283,723 $29,341,572 $65,496,467
Accumulation units 2,575,126.63 1,879,419.27 1,011,679.98 3,469,857.07
Net asset value $41.39656 $16.64542 $29.00282 $18.87584
Payout units 8,295.16 --- --- ---
Net asset value $41.39656 --- --- ---
<CAPTION>
Scudder Variable Life
Investment Fund
(unaffiliated issuers)
---------------------------------------
Money Capital
Market Growth International
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
ASSETS
Investments in securities of
unaffiliated issuers, at fair
value (cost $8,462,248;
$44,973,271; $28,965,842;
$28,319,396; $5,426,376;
$11,764,717; $5,302,782;
$5,605,202) $8,462,248 $63,203,262 $34,208,269
Investments in shares of
Carillon Fund, Inc.,
at fair value (cost
$118,678,232; $37,820,902;
$29,144,815; $50,694,386) --- --- ---
Total Invested Assets $8,462,248 $63,203,262 $34,208,269
OTHER ASSETS & (LIABILITIES) (2,463) (42) 1,002
NET ASSETS
(Contract Owners' Equity) $8,459,785 $63,203,220 $34,209,271
Accumulation units 489,587.90 2,278,984.71 1,695,186.53
Net asset value $17.27940 $27.73306 $20.18024
Payout units --- --- ---
Net Asset Value --- --- ---
<CAPTION>
MFS Variable
Insurance Trust
(unaffiliated issuer)
----------------------------------
Growth High Emerging
with Income Income Growth
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
ASSETS
Investments in securities of
unaffiliated issuers, at fair
value (cost $8,462,248;
$44,973,271; $28,965,842;
$28,319,396; $5,426,376;
$11,764,717; $5,302,782;
$5,605,202) $34,368,648 $5,290,103 $14,048,243
Investments in shares of
Carillon Fund, Inc.,
at fair value (cost
$118,678,232; $37,820,902;
$29,144,815; $50,694,386) --- --- ---
Total Invested Assets $34,368,648 $5,290,103 $14,048,243
OTHER ASSETS & (LIABILITIES) 423 638 189
NET ASSETS
(Contract Owners' Equity) $34,369,071 $5,290,741 14,048,432
Accumulation units 1,960,448.36 442,315.26 855,017.91
Net asset value $17.53123 $11.96147 $16.43057
Payout units --- --- ---
Net Asset Value --- --- ---
<CAPTION>
American Century Templeton Variable
Variable Portfolios, Inc. Products Series Fund
(unaffiliated issuers) (unaffiliated issuer)
------------------------ --------------------
Capital
Appreciation International
Subaccount Subaccount
<S> <C> <C>
ASSETS
Investments in securities of
unaffiliated issuers, at fair
value (cost $8,462,248;
$44,973,271; $28,965,842;
$28,319,396; $5,426,376;
$11,764,717; $5,302,782; $4,958,287 $5,475,020
Investments in shares of
Carillon Fund, Inc.,
at fair value (cost
$118,678,232; $37,820,902;
$29,144,815; $50,694,386) --- ---
Total Invested Assets $4,958,287 $5,475,020
OTHER ASSETS & (LIABILITIES) (212) (8)
NET ASSETS
(Contract Owners' Equity) $4,958,075 $5,475,012
Accumulation units 594,189.90 466,879.96
Net asset value $8.34426 $11.72681
Payout units --- ---
Net Asset Value --- ---
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<TABLE>
<CAPTION>
CARILLON ACCOUNT
STATEMENT OF OPERATIONS
============================================================================
YEAR ENDED DECEMBER 31, 1998
Carillon Fund, Inc.
(affiliated issuers)
---------------------------------------------
S&P 500
Equity Capital Bond Index
Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income $20,602,152 $3,954,252 $1,952,248 $1,588,896
EXPENSES
Mortality and expense
risk charge 1,418,822 450,412 264,692 490,301
Administration fee 330,213 104,478 62,509 116,532
----------- ---------- ---------- -----------
Total expenses 1,749,035 554,890 327,201 606,833
----------- ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS) 18,853,117 3,399,362 1,625,047 982,063
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
on investments 4,726,040 (1,519,853) 10,407 460,154
Net unrealized appreciation
(depreciation)of investments (47,211,185) (8,463,137) (483,065) 9,709,828
------------ ---------- ---------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (42,485,145) (9,982,990) (472,658) 10,169,982
------------ ---------- ---------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS FROM
OPERATIONS ($23,632,028) ($6,583,628) $1,152,389 $11,152,045
============ ========== ========== ===========
<CAPTION>
The accompanying notes are an integral part of
the financial statements.
Scudder Variable Life
Investment Fund
(unaffiliated issuers)
---------------------------------------
Money Capital
Market Growth International
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income $372,117 $2,834,044 $3,973,941
EXPENSES
Mortality and expense
risk charge 76,478 555,444 341,401
Administration fee 17,999 130,942 80,246
-------- ---------- ----------
Total expenses 94,477 686,386 421,647
NET INVESTMENT INCOME (LOSS) 277,640 2,147,658 3,552,294
-------- ----------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments --- 1,101,198 793,314
Net unrealized appreciation
(depreciation)of investments --- 7,043,071 449,974
-------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS --- 8,144,269 1,243,288
-------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $277,640 $10,291,927 $4,795,582
======== =========== ==========
<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 --- $ 276,231 $47,060
EXPENSES
Mortality and expense
risk charge 246,712 48,087 77,724
Administration fee 58,795 11,390 18,764
---------- -------- ----------
Total expenses 305,507 59,477 96,488
---------- -------- ----------
NET INVESTMENT INCOME (LOSS) (305,507) 216,754 (49,428)
---------- -------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments 716,995 32,595 165,546
Net unrealized appreciation
(depreciation)of investments 3,957,672 (374,632) 2,275,596
---------- -------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 4,674,667 (342,037) 2,441,142
---------- -------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $4,369,160 ($125,283) $2,391,714
========== ======== ==========
<CAPTION>
American Century Templeton Variable
Variable Portfolios, Inc. Products Series Fund
(unaffiliated issuers) (unaffiliated issuer)
------------------------ --------------------
Capital
Appreciation International
Subaccount Subaccount
<S> <C> <C>
INVESTMENT INCOME
Dividend income $ 267,170 $215,802
EXPENSES
Mortality and expense
risk charge 53,966 47,162
Administration fee 12,580 11,214
--------- --------
Total expenses 66,546 58,376
--------- --------
NET INVESTMENT INCOME (LOSS) 200,624 157,426
--------- --------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments (328,073) 42,335
Net unrealized appreciation
(depreciation)of investments (90,825) (71,075)
--------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (418,898) (28,740)
--------- --------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ($218,274) $128,686
========= ========
</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,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income $ 18,853,117 $ 13,709,352
Net realized gain on investments 4,726,040 2,760,942
Net unrealized appreciation
(depreciation) of investments (47,211,185) 6,066,663
------------ ------------
Net increase (decrease) in
net assets resulting
from operations (23,632,028) 22,536,957
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 11,387,044 15,986,143
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 3,971,203 4,738,400
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (17,622,833) (4,719,121)
Surrenders (11,577,796) (8,033,026)
------------ ------------
Net proceeds (withdrawals)
from equity transactions (13,842,382) 7,972,396
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (37,474,410) 30,509,353
NET ASSETS (Beginning of year) 144,419,185 113,909,832
------------ ------------
NET ASSETS (End of year) $106,944,775 $144,419,185
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Capital Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income $3,399,362 $5,430,384
Net realized gain (loss)
on investments (1,519,853) 577,152
Net unrealized depreciation
of investments (8,463,137) (3,122,210)
------------ ------------
Net increase (decrease) in net
assets resulting from operations (6,583,628) 2,885,326
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 3,414,598 5,608,723
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 684,696 1,616,500
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (12,038,715) (4,360,920)
Surrenders (4,548,861) (3,745,584)
------------ ------------
Net withdrawals from
equity transactions (12,488,282) (881,281)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (19,071,910) 2,004,045
NET ASSETS (Beginning of year) 50,355,633 48,351,588
------------ ------------
NET ASSETS (End of year) $31,283,723 $50,355,633
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Bond Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income $1,625,047 $1,068,951
Net realized gain on investments 10,407 34,777
Net unrealized appreciation
(depreciation) of investments (483,065) 673,620
------------ ------------
Net increase in net assets
resulting from operations 1,152,389 1,777,348
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 5,639,429 3,714,158
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 6,011,719 1,466,270
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (2,463,116) (1,131,879)
Surrenders (2,148,270) (1,630,662)
------------ ------------
Net proceeds from equity transactions 7,039,762 2,417,887
------------ ------------
NET INCREASE IN NET ASSETS 8,192,151 4,195,235
NET ASSETS (Beginning of year) 21,149,421 16,954,186
------------ ------------
NET ASSETS (End of year) $ 29,341,572 $ 21,149,421
============ ============
The accompanying notes are an integral part of
the financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Carillon Fund, Inc.
S&P 500 Index Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income $982,063 $118,811
Net realized gain on investments 460,154 219,061
Net unrealized appreciation
of investments 9,709,828 4,348,348
------------ ------------
Net increase in net assets
resulting from operations 11,152,045 4,686,220
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 13,428,381 12,093,801
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 15,677,559 5,500,238
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (2,190,362) (1,006,314)
Surrenders (2,944,622) (793,045)
------------ ------------
Net proceeds from equity transactions 23,970,956 15,794,680
------------ ------------
NET INCREASE IN NET ASSETS 35,123,001 20,480,900
NET ASSETS (Beginning of year) 30,373,466 9,892,566
------------ ------------
NET ASSETS (End of year) $65,496,467 $30,373,466
============ ============
The accompanying notes are an integral part of
the financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
Money Market Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income $277,640 $298,358
------------ ------------
Net increase in net assets
resulting from operations 277,640 298,358
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 4,950,684 6,937,504
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 5,559,795 2,421,088
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (8,282,874) (9,231,596)
Surrenders (1,250,081) (876,835)
------------ ------------
Net proceeds (withdrawals)
from equity transactions 977,524 (749,839)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 1,255,164 (451,481)
NET ASSETS (Beginning of year) 7,204,621 7,656,102
------------ ------------
NET ASSETS (End of year) $8,459,785 $7,204,621
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
Capital Growth Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income $2,147,658 $1,938,165
Net realized gain on investments 1,101,198 546,856
Net unrealized appreciation
of investments 7,043,071 7,266,508
------------ ------------
Net increase in net assets
resulting from operations 10,291,927 9,751,529
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 8,868,534 6,704,341
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 7,573,481 3,049,342
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (3,011,159) (1,329,403)
Surrenders (3,761,668) (2,090,905)
------------ ------------
Net proceeds from equity transactions 9,669,188 6,333,375
------------ ------------
NET INCREASE IN NET ASSETS 19,961,115 16,084,904
NET ASSETS (Beginning of year) 43,242,105 27,157,201
------------ ------------
NET ASSETS (End of year) $63,203,220 $43,242,105
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund
International Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income $3,552,294 $207,206
Net realized gain on investments 793,314 641,941
Net unrealized appreciation
of investments 449,974 1,106,621
------------ ------------
Net increase in net assets
resulting from operations 4,795,582 1,955,768
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 3,659,238 4,154,168
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,956,986 1,336,600
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (2,847,715) (2,286,229)
Surrenders (2,159,945) (1,472,467)
------------ ------------
Net proceeds from equity transactions 608,564 1,732,072
------------ ------------
NET INCREASE IN NET ASSETS 5,404,146 3,687,840
NET ASSETS (Beginning of year) 28,805,125 25,117,285
------------ ------------
NET ASSETS (End of year) $34,209,271 $28,805,125
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust
Growth with Income Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income (loss) ($305,507) $206,411
Net realized gain on investments 716,995 80,328
Net unrealized appreciation
of investments 3,957,672 1,773,391
------------ ------------
Net increase in net assets
resulting from operations 4,369,160 2,060,130
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 8,332,646 5,560,205
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 9,394,838 2,638,400
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (1,225,425) (299,135)
Surrenders (1,062,222) (224,688)
------------ ------------
Net proceeds from equity transactions 15,439,837 7,674,782
------------ ------------
NET INCREASE IN NET ASSETS 19,808,997 9,734,912
NET ASSETS (Beginning of year) 14,560,074 4,825,162
------------ ------------
NET ASSETS (End of year) $34,369,071 $14,560,074
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust
High Income Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income (loss) $216,754 ($31,145)
Net realized gain on investments 32,595 20,126
Net unrealized appreciation
(depreciation) of investments (374,632) 247,666
------------ ------------
Net increase (decrease) in net
assets resulting from operations (125,283) 236,647
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 1,566,549 1,413,011
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,322,305 591,126
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (567,375) (77,101)
Surrenders (175,620) (72,141)
------------ ------------
Net proceeds from equity transactions 2,145,859 1,854,895
------------ ------------
NET INCREASE IN NET ASSETS 2,020,576 2,091,542
NET ASSETS (Beginning of year) 3,270,165 1,178,623
------------ ------------
NET ASSETS (End of year) $5,290,741 $3,270,165
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust
Emerging Growth Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment loss ($49,428) ($13,022)
Net realized gain on investments 165,546 34,777
Net unrealized appreciation
of investments 2,275,596 7,930
Net increase in net assets
resulting from operations 2,391,714 29,685
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 4,714,681 1,784,772
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 5,060,877 1,173,883
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (357,529) (185,498)
Surrenders (543,344) (20,809)
------------ ------------
Net proceeds from equity transactions 8,874,685 2,752,348
------------ ------------
NET INCREASE IN NET ASSETS 11,266,399 2,782,033
NET ASSETS (Beginning of year) 2,782,033 ---
------------ ------------
NET ASSETS (End of year) $14,048,432 $2,782,033
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
American Century Variable Portfolios, Inc.
Capital Appreciation Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income $200,624 $15,158
Net realized loss on investments (328,073) (98,024)
Net unrealized depreciation
on investments (90,825) (65,002)
------------ ------------
Net decrease in net assets
resulting from operations (218,274) (147,868)
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 1,030,535 1,843,602
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 465,083 959,074
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (1,497,877) (820,744)
Surrenders (354,787) (143,278)
------------ ------------
Net proceeds (withdrawals)
from equity transactions (357,046) 1,838,654
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (575,320) 1,690,786
NET ASSETS (Beginning of year) 5,533,395 3,842,609
------------ ------------
NET ASSETS (End of year) $4,958,075 $5,533,395
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Templeton Variable Products Series Fund
International Subaccount
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATIONS
Net investment income (loss) $157,426 ($15,682)
Net realized gain on investments 42,335 8,496
Net unrealized depreciation
on investments (71,075) (59,106)
------------ ------------
Net increase (decrease) in net
assets resulting from operations 128,686 (66,292)
------------ ------------
EQUITY TRANSACTIONS
Contract purchase payments 1,697,331 1,661,111
Transfers from other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company 1,403,473 1,368,511
Transfers to other subaccounts and
Guaranteed Account of The Union
Central Life Insurance Company (471,667) (49,883)
Surrenders (187,435) (8,823)
------------ ------------
Net proceeds from equity transactions 2,441,702 2,970,916
------------ ------------
NET INCREASE IN NET ASSETS 2,570,388 2,904,624
NET ASSETS (Beginning of year) 2,904,624 ---
------------ ------------
NET ASSETS (End of year) $5,475,012 $2,904,624
============ ============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
CARILLON ACCOUNT
NOTES TO FINANCIAL STATEMENTS
=======================================================
December 31, 1998
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 Templeton 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 and life insurance
contracts. Carillon Investments, Inc. (the Distributor), 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
Massachusetts Financial Services Company, 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 Funds' shares.
Investments in the Funds' shares are subsequently valued at the
net asset value of the Funds' 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
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from 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 the Funds'
shares are calculated on the first-in, first-out basis for
financial reporting and tax purposes. All dividends and
distributions from the Subaccount are reinvested in additional
shares of the respective Subaccount at the net asset value per
share.
Federal income taxes - The operations of the Account form a part
of and are taxed with the operations of Union Central. Union
Central is taxed as a life insurance company under Subchapter L
of the Internal Revenue Code. Under existing federal income tax
law, separate account investment income and capital gains are
not taxed to the extent they are applied to increase reserves
under a contract issued in connection with the Account.
Investment income and realized capital gains and losses on
assets of the Account are automatically applied to increase or
decrease reserves under the contract. Accordingly, no provision
for federal income taxes has been made in these financial
statements.
NOTE 2 - INVESTMENT IN AFFILIATED AND NON-AFFILIATED FUND
The subaccounts of the Account held the following investment in
the corresponding Portfolios of Carillon Fund, Inc., Scudder
Variable Life Investment Fund, MFS Variable Insurance Trust,
American Century Variable Portfolio, Inc., and Templeton
Variable Products Series Fund as of December 31, 1998:
<TABLE>
<CAPTION>
Carillon Fund, Inc.
Equity Capital Bond S&P 500
Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C>
Net asset value per share $ 14.89 $ 11.20 $ 11.13 $ 19.49
Number of shares 7,183,379 2,793,436 2,636,309 3,360,542
<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 $ 23.95 $ 14.56
Number of shares 8,462,248 2,638,967 2,349,469
<CAPTION>
MFS Variable Insurance Trust
Growth Emerging
with Income High Income Growth
Subaccount Subaccount Subaccount
<S> <C> <C> <C>
Net asset value per share $ 20.11 $ 11.53 $ 21.47
Number of shares 1,709,033 458,812 654,320
<CAPTION>
American Century Variable Portfolios, Inc.
Capital
Appreciation
Subaccount
<S> <C>
Net asset value per share $ 9.02
Number of shares 549,699
<CAPTION>
Templeton Variable Products Series Fund
International
Subaccount
<S> <C>
Net asset value per share $ 20.61
Numbers of shares 265,649
</TABLE>
NOTE 3 - ACCOUNT CHARGE
Mortality and expense risk charge - A mortality and expense risk
charge for Union Central at an annual rate of 1.0% (1.2% prior
to May 1, 1998) 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 - 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.
Computer software incorrectly recognizing a date would cause
Union Central's computing environment to not function as
expected. Among the results could be miscalculations causing
disruptions of operations.
Union Central is addressing the Year 2000 issue through four
steps: assessment, remediation, testing and implementation.
Union Central began addressing the Year 2000 issue in 1996 with
a complete inventory and assessment of its mainframe systems.
As a result of the assessment, Union Central divided its
mainframe systems into the following groups based on the steps
required to address the Year 2000 issue: systems needing
remediation, systems needing rewriting, systems needing to be
replaced, systems needing to be tested only, and systems needing
to be retired. Union Central has also performed an assessment
of its personal computer (PC)/LAN based systems and analyzed its
non-information technology systems such as heating, cooling,
lighting, elevators, building security, alarms and phones for
Year 2000 compliance.
Remediation of Union Central's mainframe systems is complete.
Work on those systems needing replacing are in progress and near
completion. The remediation of PC/LAN based systems is also in
progress and near completion. Remediation of systems support
software is in progress and is near completion. Completion will
occur as Year 2000 compliant releases are made available by
Union Central's vendors.
Regression testing of all remediated and rewritten mainframe
systems is complete. Future date testing of all critical
systems is underway and is expected to be completed by May 31,
1999. Testing with significant business partners is planned
with completion dates no later than June 30, 1999. Testing of
PC/LAN based systems is in progress with an expected completion
date of June 30, 1999.
Union Central's mainframe systems have been regression tested
and are in production mode. Full implementation of all systems
is scheduled to occur no later than June 30, 1999.
In addition to internal systems, Union Central has many
relationships with external vendors, suppliers and business
partners. Union Central has initiated formal communications,
including a definition of Year 2000 compliance, with all
significant vendors, suppliers and business partners to
determine their Year 2000 status. All have stated they are
compliant or in the process of becoming compliant. Union
Central is not aware of any external entity that based on their
Year 2000 status would materially impact our ability to provide
continuing service to our customers or impact us financially.
This is an ongoing process and we will continue to monitor the
progress of our important outside vendors and service providers.
Based on the remediation, upgrades, and testing that has been
completed so far, management believes that the primary risks are
possible individual program failures, not major outages or
inability to conduct business. Considerable progress has been
made toward total Year 2000 compliance and the major effort
remaining is to ensure this by thorough future-date testing. In
the unlikely event Union Central does not complete any further
work, we would expect no major disruption to our ability to
conduct business, but would anticipate sporadic errors and
system interruptions to occur. However, it is not possible to
anticipate all future outcomes, particularly where third parties
are involved, and as a result there could be circumstances in
which Union Central may experience unexpected difficulties
relating to the Year 2000.
The internal risk being managed is that there are date problems
in systems that have not been found and corrected. The overall
contingency plan is to have sufficient time to find and correct
any errors. The future date testing that is underway will allow
us six to nine months to correct errors found through the
testing. Additionally, specific contingent plans are being
written for major functions such as financial reporting.
Externally we are continuing to monitor the progress of our
critical third party vendors and service providers. Our
contingency plan is to replace any such relationships should
they not achieve and demonstrate Year 2000 compliance by
June 30, 1999.
NOTE 5 - RELATED PARTY TRANSACTIONS
Investment advisory fees - The Portfolios within Carillon Fund,
Inc. (the CFI Funds) pay 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 CFI Funds. The
CFI Funds pay 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 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 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 CFI Funds, 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 CFI Funds 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 CFI Funds. The Adviser has entered into an
Administration Agreement with the Distributor under which the
Distributor furnishes substantially all of such services for an
annual fee of .20% of the CFI Funds' average net assets for the
Equity, Capital, and Bond Portfolios, and .05% of the CFI Funds'
average net assets for the S&P 500 Index Portfolio. The fee is
borne by the Adviser, not the CFI Funds.
Carillon Advisers, Inc. is a wholly-owned subsidiary of Union
Central.
<PAGE>
NOTE 6 - SELECTED PER UNIT DATA
The following selected per unit data is computed on the basis of
an accumulation unit outstanding at December 31 except as noted
(ratio of expenses and total return are of the underlying
funds):
<TABLE>
<CAPTION>
CARILLON FUND, INC.
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
EQUITY
SUBACCOUNT
Accumulation
unit value $41.40 $49.53 $41.68 $33.97 $27.15
Number of
accumulation
units
outstanding,
end of period 2,575,126.63 2,907,000.69 2,723,705.33 2,337,986.47 1,981,958.18
Payout
unit value $41.40 $49.53 $41.68 $33.97 --
Number of
payout units
outstanding,
end of period 8,295.16 8,951.59 9,142.02 9,795.88 --
Ratio of
expenses to
average net
assets 0.62% 0.62% 0.64% 0.66% 0.69%
Total return -15.31% 20.56% 24.52% 26.96% 3.42%
CAPITAL
SUBACCOUNT
Accumulation
unit value $16.65 $19.44 $18.37 $16.21 $14.39
Number of
accumulation
units
outstanding,
end of period 1,879,419.27 2,590,388.93 2,632,591.00 2,521,521.39 2,271,374.95
Ratio of
expenses to
average net
assets 0.79% 0.77% 0.77% 0.77% 0.80%
Total return -13.25% 7.40% 14.94% 14.28% 0.94%
BOND
SUBACCOUNT
Accumulation
unit value $29.00 $27.58 $25.21 $23.87 $20.34
Number of
accumulation
units
outstanding,
end of period 1,011,679.98 766,722.29 672,511.33 574,420.86 508,398.32
Ratio of
expenses to
average net
assets 0.58% 0.60% 0.62% 0.65% 0.68%
Total return 6.52% 11.02% 7.19% 19.03% -1.63%
S&P 500 INDEX
SUBACCOUNT
Accumulation
unit value $18.88 $14.88 $11.37<F2>
Number of
accumulation
units
outstanding,
end of period 3,469,857.07 2,041,455.30 869,681.47
Ratio of
expenses to
average net
assets 0.43% 0.50% 0.59%
Total return 28.54% 32.72% 23.37%
<CAPTION>
SCUDDER VARIABLE LIFE INVESTMENT FUND
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
MONEY MARKET
SUBACCOUNT
<F1>
Accumulation
unit value $17.28 $16.63 $16.03 $15.47 $14.85
Number of
accumulation
units
outstanding,
end of period 489,587.90 433,295.76 477,679.12 368,443.98 280,575.27
Ratio of
expenses to
average net
assets 0.44% 0.46% 0.46% 0.50% 0.56%
Total return 5.29% 5.25% 5.09% 5.65% 3.72%
CAPITAL GROWTH
SUBACCOUNT
Accumulation
unit value $27.73 $22.80 $17.04 $14.39 $11.35
Number of
accumulation
units
outstanding,
end of period 2,278,984.71 1,896,319.89 1,593,634.26 1,162,998.78 906,428.22
Ratio of
expenses to
average net
assets 0.50% 0.51% 0.53% 0.57% 0.58%
Total return 23.23% 35.76% 20.13% 28.65% -9.67%
INTERNATIONAL
SUBACCOUNT
Accumulation
unit value $20.18 $17.26 $16.05 $14.19 $12.96
Number of
accumulation
units
outstanding,
end of period 1,695,186.53 1,669,242.06 1,564,590.89 1,220,160.02 1,095,214.21
Ratio of
expenses to
average net
assets 1.04% 1.00% 1.05% 1.08% 1.08%
Total return 18.49% 9.07% 14.78% 11.11% -0.85%
<CAPTION>
MFS VARIABLE INSURANCE TRUST
1998 1997 1996
<S> <C> <C> <C>
GROWTH WITH
INCOME SUBACCOUNT
Accumulation
unit value $17.53 $14.52 $11.35<F2>
Number of
accumulation
units
outstanding,
end of period 1,960,448.36 1,002,704.64 425,068.19
Ratio of
expenses to
average net
assets 0.95% 1.00% 1.01%
Total return 22.32% 29.78% 24.46%
HIGH INCOME
SUBACCOUNT
Accumulation
unit value $11.96 $12.14 $10.84<F2>
Number of
accumulation
units
outstanding,
end of period 442,315.26 269,397.73 108,772.82
Ratio of
expenses to
average net
assets 1.03% 1.01% 1.01%
Total return -0.18% 13.52% 11.80%
EMERGING GROWTH
SUBACCOUNT
Accumulation
unit value $16.43 $12.41<F3>
Number of
accumulation
units
outstanding,
end of period 855,017.91 224,192.63
Ratio of
expenses to
average net
assets 0.85% 0.90%
Total return 34.16% 21.90%
<CAPTION>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
1998 1997 1996
<S> <C> <C> <C>
CAPITAL APPRECIATION
SUBACCOUNT
Accumulation
unit value $8.34 $8.64 $9.06<F2>
Number of
accumulation
units
outstanding,
end of period 594,189.90 640,420.71 424,022.29
Ratio of
expenses to
average net
assets 1.00% 1.00% 1.00%
Total return -2.16% -3.26% -4.32%
<CAPTION>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
1998 1997
<S> <C> <C>
INTERNATIONAL
SUBACCOUNT
Accumulation
unit value $11.73 $10.89<F3>
Number of
accumulation
units
outstanding,
end of period 466,879.96 266,656.62
Ratio of
expenses to
average net
assets 1.11% 1.13%
Total return 9.08% 9.46%
<FN>
<F1> Assets of Carillon Money Market Subaccount were transferred to the
Scudder Money Market Subaccount on November 12, 1993.
<F2> Commencement of operations was May 1, 1996, with a beginning accumulation
unit value of $10.00.
<F3> Commencement of operations was May 1, 1997, with a beginning accumulation
unit value of $10.00.
</FN>
</TABLE>
<PAGE>
Consolidated Financial Statements
The Union Central Life
Insurance Company and Subsidiaries
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
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 of
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, 1998 and 1997, 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, 1998, and 1997, and the
consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted
accounting principles.
March 19, 1999
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale
at fair value (amortized cost: $2,674,832 $2,758,113
1998 - $2,637,815; and 1997 - $2,697,869)
Equity securities available-for-sale
at fair value (cost: 1998 - $100,429
and 1997 - $59,675) 82,269 63,138
Cash and short-term investments 57,376 4,872
Other invested assets 49,810 54,342
Mortgage loans 790,337 744,395
Real estate 43,205 50,409
Policy loans 201,958 203,481
---------- ----------
Total investments 3,899,787 3,878,750
Accrued investment income 46,857 48,846
Deferred policy acquisition costs 382,971 371,295
Property, plant and equipment,
at cost, less accumulated
depreciation (1998 - $60,201
and 1997 - $59,096) 25,272 24,205
Federal income tax recoverable 6,415 6,595
Other assets 101,735 91,758
Separate account assets 1,530,755 1,288,349
---------- ----------
Total assets $5,993,792 $5,709,798
========== ==========
LIABILITIES AND EQUITY
Policy liabilities:
Future policy benefits $2,003,308 $1,933,823
Deposit funds 1,539,075 1,549,965
Policy and contract claims 34,499 31,869
Policyholders' dividends 37,192 37,624
Total policy liabilities 3,614,074 3,553,281
Deferred revenue 101,823 110,130
Other liabilities 84,792 76,053
Deferred federal income taxes 15,744 33,341
Surplus notes payable 49,758 49,749
Separate account liabilities 1,524,810 1,288,349
---------- ----------
Total liabilities 5,391,001 5,110,903
MINORITY INTEREST IN SUBSIDIARY'S EQUITY 36,320 42,391
EQUITY
Policyholders' equity 571,895 532,404
Accumulated other comprehensive income (5,424) 24,100
---------- ----------
Total equity 566,471 556,504
Total liabilities and equity $5,993,792 $5,709,798
========== ==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
---------- ----------
<S> <C> <C>
REVENUE
Insurance revenue:
Traditional insurance premiums $ 138,358 $ 131,974
Universal life policy charges 84,662 88,645
Annuities 43,778 37,569
Net investment income 307,839 298,509
Net realized gains (losses) on investments (7,679) 20,617
Other 8,999 8,059
---------- ----------
Total revenue 575,957 585,373
BENEFITS AND EXPENSES
Benefits 188,217 181,587
Increase (decrease) in reserves
for future policy benefits 1,791 (7,912)
Interest expense:
Universal life 57,364 53,756
Investment products 89,150 91,239
Underwriting, acquisition
and insurance expense 165,676 168,504
Policyholders' dividends 20,626 20,304
---------- ----------
Total benefits and expenses 522,824 507,478
Income before federal income tax and
minority interest in subsidiary income 53,133 77,895
Federal income tax expense 16,687 27,175
---------- ----------
Income before minority interest in
subsidiary income 36,446 50,720
Minority interest in subsidiary (income) loss 3,045 (2,034)
---------- ----------
Net Income $ 39,491 $ 48,686
---------- ----------
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
UNION CENTRAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Policyholders'
Income Equity Total
------ ------ -----
<S> <C> <C> <C>
Balance at January 1, 1996 $13,002 $481,799 $494,801
Net income 48,686 48,686
Unrealized gains on securities,
net of tax and reclassification
adjustment 12,338 12,338
Minimum pension liability
adjustment (1,240) (1,240)
--------
Comprehensive income 59,784
Other 1,919 1,919
-------- --------
Balance at December 31, 1997 24,100 532,404 556,504
------- -------- --------
Net income 39,491 39,491
Unrealized losses on securities,
net of tax and reclassification
adjustment (23,393) (23,393)
Minimum pension liability
adjustment (6,131) (6,131)
------- --------
Comprehensive income 9,967
--------
Balance at December 31, 1998 $(5,424) $571,895 $566,471
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
THE UNION CENTRAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 39,491 $ 48,686
Adjustments to net income not affecting cash:
Interest credited to universal life policies 57,364 53,756
Interest credited to interest sensitive
products 89,150 91,239
Accrual of discounts on investments, net 628 (2,610)
Net realized (gains) and losses on investments 7,679 (20,617)
Depreciation 5,081 4,355
Amortization of deferred policy
acquisition costs 41,348 60,979
Amortization of deferred revenue (12,200) (17,633)
Deferred federal income tax benefit (71) (9,452)
Change in operating assets and liabilities:
Accrued investment income 1,989 (1,355)
Policy cost deferred (43,382) (41,608)
Revenue deferred 1,959 2,340
Policy liabilities (27,465) (53,705)
Federal income tax recoverable (payable) (100) 294
Change in other liabilities (21,515) (15,786)
Other items, net (3,212) 10,630
---------- ----------
Cash Provided by Operating Activities 136,744 109,513
---------- ----------
INVESTING ACTIVITIES
Costs of investments acquired (2,421,256) (3,295,204)
Proceeds from sale, maturity or repayment of
investments 2,399,096 3,264,331
Decrease in policy loans 1,523 3,408
Purchases of property and equipment, net (5,780) (5,627)
---------- ----------
Cash Used in Investing Activities (26,417) (33,092)
FINANCING ACTIVITIES
Receipts from universal life and
investment contracts 733,489 607,809
Withdrawals from universal life
and investment contracts (791,312) (673,586)
Purchase of stock from minority shareholders 0 (6,812)
---------- ----------
Cash Used by Financing Activities (57,823) (72,589)
---------- ----------
Increase in cash and short term investments 52,504 3,832
---------- ----------
Cash and short term investments
at beginning of year 4,872 1,040
---------- ----------
Cash and short term investments at end of year $ 57,376 $ 4,872
========== ==========
Supplemental disclosure
of cash flow information:
Cash paid during the year
for federal income taxes $ 24,277 $ 36,297
Cash paid during the year
for interest on surplus notes $ 4,100 $ 4,066
</TABLE>
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).
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.
Capitalized expenses amortized to "Underwriting, acquisition and
insurance expense" in the Statements of Income, was $185,000 for
the years ended December 31, 1998 and 1997.
In 1998, Manhattan Life was restructured so that the majority of
its operating activities were merged with Union Central's. To
facilitate the restructuring, Manhattan Life temporarily
suspended its sales of new business in early 1998. In
connection with the restructuring, substantially all of the
employees of Manhattan Life were terminated, resulting in the
recognition of $3.5 million in severance expense for the year
ended December 31, 1998. This expense is included in
"Underwriting, acquisition and insurance expense" in the
accompanying Statements of Income. Also, Manhattan Life has
maintained the lease of its home office space (see Note 6) as it
is required for its current business needs. In addition,
Manhattan Life partially terminated its pension and
postretirement benefit plans as a result of this restructuring.
(See Note 8 for a complete description of the effect of the
partial termination.)
<PAGE>
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 Company's carrying value of investments in limited
partnerships are adjusted to reflect the GAAP earnings of the
investments underlying the limited partnership portfolios.
During 1998, the company declared two of its hedge fund limited
partnerships permanently impaired and recorded a realized loss
of $15.8 million.
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, are recognized on a first-in, first-out basis.
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 1, 1999. 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 a particular point in time.
The value of the call options was $4,900,000 at December 31,
1998.
The call options were carried at their fair value of $4,900,000
at December 31, 1998, and were reflected in "Other invested
assets" in the Balance Sheets. The liabilities for the hedged
insurance contracts were adjusted based on the returns in
Standard & Poor's 500 Stock Index, 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 $41,348,000 and $60,979,000, net of the effect of
realized gains and (losses) on amortization of $(3,489,000) and
$13,309,000 for the years ended December 31, 1998 and 1997,
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 $11,474,000 and $17,627,000 at 1998 and 1997,
respectively.
In 1998 and 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 decreased
$(2,991,000) and increased $16,988,000 for the years ended 1998
and 1997, respectively.
Property, Plant and Equipment
Property, plant and equipment is valued at historical cost less
accumulated depreciation in the Balance Sheets. It consists
primarily of Union Central's home office, capital leases for
furniture and equipment, furniture and fixtures and electronic
data processing equipment.
Depreciation is computed with the straight-line method over the
estimated useful lives of the respective assets, not to exceed
10 years for office furniture and 5 years for electronic data
processing equipment. Depreciation is computed for leasehold
improvements with the straight-line method over the shorter of
the remaining lease term or useful life of the improvements.
Deposit Funds
The liability for deposit funds is generally established at the
policyholders' accumulated cash values plus amounts provided for
guaranteed interest.
Policy Claims
Policy claim reserves represent the estimated ultimate net cost
of all reported and unreported claims incurred. In addition, a
claim adjustment expense reserve is held to account for the
expenses associated with administering these claims. The
reserves for unpaid claims are estimated using individual case
basis valuations and statistical analyses. The claim adjustment
expense reserve is estimated using statistical analyses. These
estimates are subject to the effects of trends in claim severity
and frequency. Although some variability is inherent in such
estimates, management believes that the reserves for claims and
claim related expenses are adequate. The estimates are
continually reviewed and adjusted as necessary as experience
develops or new information becomes known and such adjustments
are included in current operations.
Dividends to Policyholders
Union Central's dividend liability is the amount estimated to
have accrued to policyholders' as of each year end. Manhattan
Life's dividend liability is based on the dividend scale in
effect at the time the policy was issued.
Separate Accounts
Separate account assets and liabilities reported in the
accompanying financial statements 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 5.00% for the years ended 1998 and 1997.
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 the premium paying lifetime of the
policies 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 5.65% to 8.82% and from 5.91% to 8.62% for the years ended
1998 and 1997, respectively. 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 4.50%
to 7.50% and from 4.50% to 7.60% for the years ended 1998 and
1997, respectively.
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 $12,200,000 and
$17,633,000, net of the effect of realized gains (losses) on
amortization of $(1,933,000) and $4,752,000 for the years ended
December 31, 1998 and 1997, 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 $545,000 and $5,999,000 for the years
ended 1998 and 1997, respectively.
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 8.29% to 8.80% for the years ended 1998 and 1997.
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% to 8% for the years ended
1998 and 1997, respectively.
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.
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 1997 have in some instances been
reclassified to conform to the 1998 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> <C> <C> <C> <C>
December 31, 1998:
U.S. treasury securities
and obligations of U.S.
government corporations
and agencies $ 19,737 $ 1,897 $ -- $ 21,634
Corporate securities and other 1,542,363 51,352 (21,912) 1,571,803
Mortgage-backed securities,
collateralized mortgage
obligations and other structured
securities 1,068,084 19,811 (14,566) 1,073,329
Debt securities issued by foreign
governments 7,631 436 (1) 8,066
---------- ------- -------- ----------
Subtotal 2,637,815 73,496 (36,479) 2,674,832
Equity securities 100,429 2,063 (20,223) 82,269
---------- ------- -------- ----------
Total $2,738,244 75,559 $(56,702) $2,757,101
========== ======= ======== ==========
<CAPTION>
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- ------ -----
(in thousands)
<S> <C> <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 2,697,869 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
========== ======= ======== ==========
</TABLE>
Fixed maturity available-for-sale securities,
at December 31, 1998, are summarized by stated
maturity as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
(in thousands)
<S> <C> <C>
Due in one year or less $ 19,860 $ 19,977
Due after one year through five years 389,207 400,687
Due after five years through ten years 578,395 570,720
Due after ten years 213,260 220,437
---------- ----------
Subtotal 1,200,722 1,211,821
Mortgage-backed securities 1,068,084 1,073,329
Other securities with multiple repayment dates 369,009 390,174
---------- ----------
Total $2,637,815 $2,674,832
========== ==========
</TABLE>
<PAGE>
Significant components of the unrealized gain on available-for-
sale securities included in "Accumulated other comprehensive
income" in the accompanying Balance Sheets are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Gross unrealized gain on available-
for-sale securities $ 18,857 $ 63,707
Amortization of deferred policy acquisition costs (11,474) (17,627)
Minority interests (2,853) (4,607)
Deferred taxes (2,583) (16,133)
-------- --------
Net unrealized gains on available-for-
sale securities $ 1,947 $ 25,340
======== ========
</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, 1998 and 1997, 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 $198,696,000 and
$198,255,000. Those holdings amounted to 7.4% and 7.2%,
respectively, of the Company's investments in fixed maturities
and 3.3% and 3.5%, respectively, of the Company's total assets.
The holdings of less-than-investment grade bonds are widely
diversified and of satisfactory quality based on the Company's
investment policies and credit standards.
At December 31, 1998 and 1997, the Company invested $62,588,000
and $45,031,000 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,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Proceeds $2,220,765 $3,148,909
Gross realized gains 33,774 52,460
Gross realized losses 26,564 28,173
</TABLE>
At December 31, 1998 and 1997, investments in fixed maturities
with an amortized cost of $6,437,000 and $6,450,000,
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,
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Balances at the beginning of the year $ 1,438 $ 2,224
Provisions for potential
mortgage loan loss 934 1,307
Losses charged against the mortgage
loan loss reserve 0 (2,093)
------- -------
Balance at the end of the year $ 2,372 $ 1,438
======= =======
</TABLE>
The provision for mortgage losses has fluctuated between
periods. The Company establishes the mortgage reserve based
upon its continuing review of the mortgage portfolio and
individual problem mortgages. The allowance for potential loan
losses is affected to a significant degree by general economic
conditions. While the Company believes it has provided adequate
mortgage reserves, subsequent economic and market conditions may
require establishing additional reserves.
The Company's mortgage portfolio is monitored closely through
the review of loan and property information such as debt service
coverage, annual operating statements and property inspection
reports. This information is evaluated in light of current
economic conditions and other factors such as geographic and
property-type loan concentrations. This evaluation is part of
the regular review to determine whether adjustments to the
allowance for potential loan losses are warranted. Management
believes the mortgage loss reserve is sufficient to provide for
potential loan losses. However, management cannot predict with
assurance where the economy is headed or how the mortgage and
real estate portfolios would be affected by various economic
circumstances.
A summary of the characteristics of the Company's mortgage
portfolio (before deducting valuation reserves of $2,372,000 and
$1,438,000 at December 31, 1998 and 1997, respectively) follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Principal Percent of
Balance Principal
------- ---------
(in thousands)
<S> <C> <C>
REGION
New England and Mid-Atlantic $ 61,616 7.8%
South Atlantic 130,361 16.4
North Central 188,870 23.8
South Central 90,802 11.5
Mountain 128,136 16.2
Pacific 192,924 24.3
-------- -----
Total $792,709 100.0%
PROPERTY TYPE
Apartment and residential $111,040 14.0%
Warehouses and industrial 143,910 18.2
Retail and shopping center 256,406 32.3
Offices 245,514 31.0
Other 35,839 4.5
-------- -----
Total $792,709 100.0%
======== =====
<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%
======== =====
</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
$17,521,000 and $17,481,000 at December 31, 1998 and 1997,
respectively, and accumulated depreciation totalled $4,960,000
and $4,586,000 at December 31, 1998 and 1997, respectively. The
book value of foreclosed real estate was $30,644,000 and
$37,514,000 at December 31, 1998 and 1997, respectively. The
decrease in foreclosed real estate is a result of the sale of
three properties and the writedown of two properties which
resulted in a net realized capital loss of $1,656,000.
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 are 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, 1998 and 1997. 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, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------
Direct Assumed Ceded Net
----------- -------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Life insurance in force $30,400,267 $502,058 $5,627,695 $25,274,630
=========== ======== ========== ===========
Premiums and
other considerations:
Traditional insurance premiums
and universal life $ 245,220 $ 10,056 $ 32,256 $ 223,020
Annuity 43,778 -- -- 43,778
----------- -------- ---------- -----------
Total $ 288,998 $ 10,056 $ 32,256 $ 266,798
=========== ======== ========== ===========
<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 $ 277,724 $ 10,154 $ 29,690 $ 258,188
=========== ======== ========== ===========
</TABLE>
Benefits paid or provided were reduced by $21,912,000 and
$14,779,000 at December 31, 1998 and 1997, 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,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $139,593 $137,637
Basis differences on bonds 26 1,382
Unrealized gains - SFAS 115 2,583 16,133
Partnership income differences 5,132 0
Other 3,145 3,835
-------- --------
Total deferred tax liabilities 150,479 158,987
-------- --------
Deferred tax assets:
Policyholders' dividends 11,295 11,393
Future policy benefits 74,506 74,225
Premium - based DAC adjustment 28,175 25,780
Investment valuation reserves 826 1,006
Retirement plan accruals 15,229 10,722
Investment income differences 1,343 499
Basis differences on bonds and mortgages 0 266
Other 3,361 1,755
-------- --------
Total deferred tax assets 134,735 125,646
-------- --------
Net deferred tax liabilities $ 15,744 $ 33,341
======== ========
</TABLE>
Significant components of the provision for income taxes
attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Current $ 16,759 $ 36,603
Deferred (72) (9,428)
-------- --------
Total $ 16,687 $ 27,175
======== ========
</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.
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, 1998 and 1997 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-eighth/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),
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 part of the reverse
stock split described in Note 1, no shareholders' dividend
payouts will be made from the GCR until it is restored to its
balance immediately preceding the reverse stock split of
$15,526,000. Therefore, based on the balance in the GCR at
December 31, 1998 and 1997, no shareholders' dividend payouts
were made in either year.
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 $14,383,000 and
$12,750,000 was included in "Policyholders' equity" in the
Consolidated Balance Sheets at December 31, 1998 and 1997,
respectively. Interest added to the GCR amounted to $988,000
and $919,000, for the years ended December 31, 1998 and 1997,
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 $3,498,000 and $3,972,000 in 1998 and 1997,
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 $116,000
and $154,000 in 1998 and 1997, respectively.
At December 31, 1998, the future minimum lease payments for all
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
(in thousands)
<C> <C>
1999 $ 3,193
2000 2,889
2001 2,627
2002 1,972
2003 479
After 2003 727
--------
Total $ 11,887
========
</TABLE>
The Company also has capital leases for office furniture. Lease
expense under these leases was $434,000 and $437,000 in 1998 and
1997, respectively.
At December 31, 1998 the future minimum lease payments for all
noncancelable capital leases are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
(in thousands)
<C> <C>
1999 $ 470
2000 470
2001 39
-------
Total $ 979
=======
</TABLE>
Other Commitments
At December 31, 1998, the Company had outstanding agreements to
fund mortgages totalling $32,199,000 in early 1999. In
addition, the Company has committed to invest $10,300,000 in
equity-type limited partnerships during the years 1999 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. For 1998 and 1997, the charge to operations
related to these assessments was not significant. The estimated
liability of $1,149,000 and $1,411,000 December 31, 1998 and
1997 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,
1998 1997
(in thousands)
<S> <C> <C>
Capital and surplus
Union Central $ 343,896 $ 317,952
========== ==========
Manhattan Life $ 22,823 $ 22,327
========== ==========
</TABLE>
In 1998, the National Association of Insurance Commissioners
adopted codified statutory accounting practices (Codification).
Codification must be adopted by the various states before it
becomes the prescribed statutory basis of accounting for
insurance companies domiciled in those states. For Codification
to be effective for Union Central, Ohio must adopt Codification
as the prescribed basis of accounting on which Ohio insurers
must report their statutory basis results. For Codification to
be effective for Manhattan Life, New York must adopt
Codification as the prescribed basis of accounting on which New
York insurers must report their statutory basis results. At
this time it is anticipated that Ohio will adopt Codification,
while it is unclear if New York will adopt Codification.
Codification will likely change prescribed accounting practices
and may result in changes to the accounting practices that Union
Central and Manhattan Life use to prepare their statutory basis
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 Company's funding
policy is determined according to regulations as specified by
ERISA and subsequent amendments. The contributions totalled
$3,994,000 and $3,492,000 in 1998 and 1997, respectively. The
Company's net periodic pension expense was calculated in
accordance with FAS 87 and was $3,869,000 and $4,328,000 for the
years ended December 31, 1998 and 1997, respectively. Benefits
paid in 1998 and 1997 were $3,811,000 and $3,549,000,
respectively. Plan assets are primarily composed of mutual
funds, unallocated insurance funds, and guaranteed interest
contracts. At December 31, 1998 and 1997, $42,468,000 and
$44,391,000, respectively, was invested in affiliated mutual
funds.
In accordance with the restructuring of Manhattan Life
operations as described in Note 1 which resulted in the
termination of the majority of the employees of Manhattan Life,
Manhattan Life's pension plans and postretirement benefit plans
(Note 9) were curtailed in 1998. The effect of the curtailment
resulted in no additional recognition of benefit cost and no
future fundings to the pension plans. The effect of curtailment
on Manhattan Life's postretirement plan was an increase to the
postretirement benefit obligation of $333,000.
A table setting forth the funded status and the pension
liability included in the Company's Balance Sheets follows:
<TABLE>
<CAPTION>
1998 1997
(000's Omitted)
<S> <C> <C>
Actuarial present value
of benefits obligations:
Accumulated benefit obligation,
including vested benefits of
$72,321 and $63,284 for 1998
and 1997, respectively $81,244 $72,935
======= =======
Projected benefit obligation $92,376 $84,764
Plan assets at fair value 63,066 65,653
------- -------
Projected benefit obligation
higher than plan assets $29,310 $19,111
======= =======
</TABLE>
Pension liability included in
"Other liabilities"
at end of year $18,178 $ 6,614
Also, $6,131,000 and $1,240,000 (net of tax) was charged
directly to policyholders' equity in 1998 and 1997,
respectively, 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 "Minimum pension liability
adjustment" in the Statements of Equity.
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>
1998 1997
<S> <C> <C>
Assumptions used to determine
the status of the plans were:
Discount rate 7.00% 7.25%
Rate of increase in future
compensation levels 4.00% 4.25%
Expected long-term rate of
return on assets 8.50% 8.50%
</TABLE>
The Company has contributory savings plans for employees meeting
certain service requirements which qualify under Section 401(k)
of the Internal Revenue Code. These plans allow 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 $1,472,000 and
$1,280,000 for 1998 and 1997, respectively. The value of the
Plans' assets were $59,649,000 and $52,519,000 at December 31,
1998 and 1997, respectively. The assets are held in the
Company's deposit fund or under the variable accounts of a group
annuity policy sponsored by the Company. At December 31, 1998
and 1997, $18,660,000 and $20,435,000, 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. Substantially all
of the Company's employees may become eligible for these
benefits if they reach normal retirement age while working for
the Company.
Information related to the postretirement benefits follows:
<TABLE>
<CAPTION>
1998 1997
(000's Omitted)
<S> <C> <C>
Postretirement costs $1,143 $1,079
Cash benefits paid 1,494 995
Employer contributions 1,231 844
Participant contributions 140 81
</TABLE>
A summary of the accrued postretirement liability included in
"Other liabilities" in the Consolidated Balance Sheet as
determined by the Plan's actuaries follows:
<TABLE>
<CAPTION>
1998 1997
(000's Omitted)
<S> <C> <C>
Postretirement benefit obligation $20,443 $19,607
Fair value of plan assets 5,866 6,836
------- -------
Unfunded status 14,577 12,771
Unrecognized net gain 1,949 3,996
Other (346) (336)
------- -------
Accrued postretirement liability $16,180 $16,431
======= =======
</TABLE>
A one percentage point increase in the health care cost trend
rate in each year would not materially impact the postretirement
benefit obligation, the interest cost and estimated eligibility
cost components of the net periodic postretirement benefit cost
as of and for the year ended December 31, 1998.
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. The fair values for limited
partnerships are based on the quoted market prices of the
investments underlying the limited partnership portfolios.
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, 1998 December 31, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Mortgage loans $792,709 $876,287 $745,833 $783,165
======== ======== ======== ========
</TABLE>
The carrying amounts and fair values of the Company's
liabilities for investment-type insurance contracts are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Group annuities $ 761,561 $ 758,344 $ 809,990 $ 807,137
Single premium
deferred annuities 348,094 345,122 354,318 351,494
Single premium
immediate annuities 20,401 23,480 25,864 27,576
Variable annuities 169,574 167,972 175,197 172,917
Supplementary contracts 58,983 55,561 56,472 58,157
Guaranteed interest contracts 17,277 17,293 17,199 17,077
Flexible annuities 76,553 71,718 32,891 31,592
Other 5,780 5,780 7,193 7,193
---------- ---------- ---------- ----------
Total $1,484,484 $1,472,622 $1,503,305 $1,497,608
========== ========== ========== ==========
</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,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Balance as of January 1 $130,687 $121,478
Incurred related to:
Current year 119,586 114,706
Prior years (3,931) (1,185)
-------- --------
Total incurred 115,655 113,521
-------- --------
Paid related to :
Current year 78,748 72,278
Prior years 35,265 32,034
-------- --------
Total paid 114,013 104,312
-------- --------
Balance as of December 31 $132,329 $130,687
======== ========
</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
decreased by $3,931,000 and $1,185,000 in 1998 and 1997,
respectively, due to higher than expected rates of claim
terminations. Included in the above balances are reinsurance
recoverables of $2,454,000 and $986,000 at 1998 and 1997,
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 was incurred in
1998 and 1997, 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. Issuance cost of $25,000 was
amortized in 1998 and 1997, and recorded 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.
Amortization relating to original issue discount of $9,000 was
recorded in 1998 and 1997, 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.
The Company is addressing the Year 2000 issue through four
steps: assessment, remediation, testing and implementation.
The Company began addressing the Year 2000 issue in 1996 with a
complete inventory and assessment of its mainframe systems. As
a result of the assessment, the Company divided its mainframe
systems into the following groups based on the steps required to
address the Year 2000 issue: systems needing remediation,
systems needing rewriting, systems needing to be replaced,
systems needing to be tested only, and systems needing to be
retired. The Company has also performed an assessment of its
personal computer (PC)/LAN based systems and analyzed its non-
information technology systems such as heating, cooling,
lighting, elevators, building security, alarms and phones for
Year 2000 compliance.
Remediation of the Company's mainframe systems is complete.
Work on those systems needing replacing are in progress and near
completion. The remediation of PC/LAN based systems is also in
progress and near completion. Remediation of systems support
software is in progress and is near completion. Completion will
occur as Year 2000 compliant releases are made available by the
Company's vendors.
Regression testing of all remediated and rewritten mainframe
systems is complete. Future date testing of all critical
systems is underway and is expected to be completed by May 31,
1999. Testing with significant business partners is planned
with completion dates no later than June 30, 1999. Testing of
PC/LAN based systems is in progress with an expected completion
date of June 30, 1999.
The Company's mainframe systems have been regression tested and
are in production mode. Full implementation of all systems is
scheduled to occur no later than June 30, 1999.
In addition to internal systems, the Company has many
relationships with external vendors, suppliers and business
partners. The Company has initiated formal communications,
including a definition of Year 2000 compliance, with all
significant vendors, suppliers and business partners to
determine their Year 2000 status. All have stated they are
compliant or in the process of becoming compliant. The Company
is not aware of any external entity that based on their Year
2000 status would materially impact our ability to provide
continuing service to our customers or impact us financially.
This is an ongoing process and we will continue to monitor the
progress of our important outside vendors and service providers.
Based on the remediation, upgrades, and testing that has been
completed so far, management believes that the primary risks are
possible individual program failures, not major outages or
inability to conduct business. Considerable progress has been
made toward total Year 2000 compliance and the major effort
remaining is to ensure this by thorough future-date testing. In
the unlikely event the Company does not complete any further
work, we would expect no major disruption to our ability to
conduct business, but would anticipate sporadic errors and
system interruptions to occur. However, it is not possible to
anticipate all future outcomes, particularly where third parties
are involved, and as a result there could be circumstances in
which the Company may experience unexpected difficulties
relating to the Year 2000.
The internal risk being managed is that there are date problems
in systems that have not been found and corrected. The overall
contingency plan is to have sufficient time to find and correct
any errors. The future date testing that is underway will allow
us six to nine months to correct errors found through the
testing. Additionally, specific contingent plans are being
written for major functions such as financial reporting.
Externally we are continuing to monitor the progress of our
critical third party vendors and service providers. Our
contingency plan is to replace any such relationships should
they not achieve and demonstrate Year 2000 compliance by
June 30, 1999.
NOTE 15 - COMPREHENSIVE INCOME
FAS 130 establishes the requirement for the reporting and
display of comprehensive income and its components in the
financial statements. Comprehensive income is defined by the
FASB as all changes in an enterprise's equity during a period
other than those resulting from investments by owners and
distributions to owners. Comprehensive income includes net
income and other comprehensive income, which includes all other
non-owner related changes to equity and includes unrealized
gains and losses on available-for-sale debt and equity
securities and minimum pension liability adjustments. FAS 130
also requires separate presentation of the accumulated balance
of other comprehensive income within the equity section of a
statement of financial position. The Company has presented the
required displays of total comprehensive income and its
components, along with the separate presentation of the
accumulated balance of other comprehensive income within the
Consolidated Statements of Equity.
Following are the FAS 130 disclosures of the related tax effects
allocated to each component of other comprehensive income and
the accumulated other comprehensive income balances required by
FAS 130.
The related federal income tax effects allocated to each
component of other comprehensive income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
Before-Tax Tax Net-of-Tax
Amount Benefit Amount
--------- --------- ---------
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized losses arising during 1998 $(30,429) $ 10,650 $(19,779)
Less: reclassification adjustments
for gains realized in net income (5,560) 1,946 (3,614)
--------- --------- ---------
Net unrealized losses (35,989) 12,596 (23,393)
--------- --------- ---------
Minimum pension liability adjustment (9,432) 3,301 (6,131)
--------- --------- ---------
Other comprehensive income $(45,421) $ 15,897 $(29,524)
========= ========= =========
<CAPTION>
Year Ended December 31, 1997
----------------------------
Before-Tax Tax(Expense) Net-of-Tax
Amount Benefit Amount
--------- --------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Net unrealized gains $ 18,982 $ (6,644) $ 12,338
--------- --------- ---------
Minimum pension liability adjustment (1,908) 668 (1,240)
--------- --------- ---------
Other comprehensive income $ 17,074 $ (5,976) $ 11,098
========= ========= =========
</TABLE>
<PAGE>
